To be a successful restaurant entrepreneur you need to accurately project sales. Sales projections are a critical part of your business plan. They help you prepare for the future, attract investors and get you loans.
This guide will help you:
- Understand what sales projections are
- What factors are used to project sales
- How to perform research for sales projections
What Are Restaurant Sales Projections?
Restaurant sales projections are the result of diligent research about your business. To make sales projections you must understand the myriad of factors that drive your restaurant’s sales. When you understand your business dynamics well and you’ve observed your sales over a period of time you can use that information to forecast future sales.
Why Are Restaurant Sales Projections Important?
Sales projections help you understand if your restaurant concept is profitable — even before you open the doors. That’s why they are such an important part of your business plan.
When you compare your sales projections to your startup costs you can determine your restaurant’s ROI (return on investment). That’s how long it will take you to break even and start to make back the money you invested in your startup.
What Factors Affect Sales Projections?
Sales Projections are Always Being Refined
First of all, understand that restaurant sales projections are always at best a guess. But through careful refinement you can update your sales projections to be more accurate as time goes on.
That’s why it’s important to pay close attention to all the factors that have an effect on sales, and to update your projections accordingly.
Take a Good Honest Look
To improve the accuracy of your sales projections you have to admit two things:
- You can be wrong
- There’s a lot you don’t know
Running a restaurant, like life, is a challenging learning process.
It’s important not to make overly optimistic projections or go ahead without enough research. You may spend more money than you can afford and hurt your restaurant’s financial future.
For example, if your initial projections didn’t expect sales to be affected more than 3% by seasonal weather, yet after interviewing nearby restaurant owners they report a 10% drop, you certainly need to update your projections.
Read More: Choosing a Restaurant Business Structure
Three Primary Factors Used To Project Sales
While there are many dynamics that affect restaurant sales, we can break them into three broad categories.
Logistics — Given an ideal situation, how many guests you can physically provide adequate service to. These are the limitations of physics.
- Space — The size of your kitchen, dining room and maximum capacity ordinances
- Time — The length of service is fixed. An hour is always an hour long
- Access to resources — There is only so much prep space, storage, etc. to hold the amount of product you can sell
Any of these areas can create a bottleneck on service and you need to know going in what your bandwidth is.
Population — Given an ideal situation, where you could actually serve every potential guest at a given moment in time, how many of them are there?
- Awareness — How many people are aware of your restaurant and service?
- Market Segment — What portion of the total population needs your restaurant’s service? What segment of the market do you serve?
- Access — Most restaurant guests live within 10 miles. How do your guests get to you? Does your location have sufficient foot traffic?
Competition — Given an ideal situation, how many of the available guests that you could serve are going to choose your restaurant?
- Demand — Is there sufficient demand in the market that is unfulfilled?
- Differentiation — Do you provide a service that is sufficiently different from other restaurants nearby?
- Marketing — Is your marketing sufficiently enticing to guests to pick your restaurant over the competition?
How To Perform Research For Sales Projections
If you have an established restaurant, you have a long history of sales data to look at. If you’ve been doing the same thing for many years and sales have remained consistent, it’s relatively safe to expect them to stay the same. That is, if the contributing factors remain unchanged as well.
But what if you’re a startup restaurant or want to grow sales? How do you estimate what effect the three primary dynamics will have on future sales?
How many customers can your restaurant actually serve?
Dining Room Space
Estimated average table turn times by service type for a party of two:
Quick Service - 20 min
Fast Casual - 30 min
Full Service - 90 min
Estimated dining space required per guest by service type:
Tight Seating - 11 Sq. Feet
Casual Seating - 12 Sq. Feet
Spacious Seating - 15 Sq. Feet
Kitchen / Production Area Size
The answer to this question depends on the type of food your restaurant serves. Remember, your projections get better when you have more details. Visiting an existing restaurant with a similar service type can provide great insight.
The square feet of space available in the location you’ve chosen for your restaurant will determine what types of service you can give and how many guests you can serve. The first step to a rough sales projection is knowing the maximum number of people that could even be served in your restaurant, period.
To calculate the maximum possible number of guests your restaurant could serve:
For this it’s best to use an example. Let’s say dinner service is 4 hours long, from 5PM to 9PM. If the average turn time is about 40 minutes, and you have 100 seats, that means that the maximum number of guests you can serve during dinner is 600.
4 Hour service (240 minutes) / 40 minutes = 6 possible seatings X 100 seats = 600 guests served.
The formula for calculating the maximum number of guests you can serve is:
- Number of hours in service
- Divided by table turn time
- Multiplied by number of seats
Keep in mind that this is the maximum number of guests you could possibly serve under ideal conditions. It takes time to clear tables, it takes marketing to bring in guests, it takes a kitchen that can produce food at an efficient rate. But knowing this maximum starts to bring your projections into the realm of reality.
Read More: Choosing a Restaurant Business Structure
What is the number of people in your area who are eligible or likely customers?
Get to know the population of the immediate area. Just how many people are there? What percent of that population do you need to capture to turn a profit?
Estimating Foot Traffic
For a startup restaurant making sales projections you need to estimate foot traffic. Here are some techniques for estimating foot traffic.
Stand outside the restaurant location with a tally counter.
- A tally counter is a hand operated clicker. Every time a person walks buy click the tally counter.
- Compare foot traffic in front of the restaurant location at different times of day.
Gathering Places Nearby
Are there any large facilities nearby like an office building, a college, a factory or military base? How about a stadium, casino or shopping mall?
If you can get population statistics for these gathering areas you can estimate what percentage of the people at the facility would be potential customers.
Assessing Market Segment
What’s the income bracket of the population around your restaurant? Determine if they can afford to eat from your menu at the frequency required to keep you in business.
If they don’t have the time or don’t live, work or play anywhere near your restaurant, these material restrictions mean someone is not a possible customer.
You’re trying to estimate the absolute maximum number of people you could serve given an ideal situation. You’re trying to determine if there are enough people who can sustain your business.
Here you discover your guests’ preferences and awareness of your restaurant.
Another way to project your restaurant’s sales is to model the competition. What are the sales like for restaurants similar to yours in the area, or in areas with similar demographics?
Find Differentiators Between Your Restaurant and the Competition
Visit local restaurants. Keep your eyes peeled and your ears open. Take in as much as you can.
- What are people ordering?
- How long are they waiting?
- How long are they staying?
- Do you hear any negative comments?
- Any positive comments about service?
Think about what your restaurant can provide that others in the area are lacking.
Evaluate Your Marketing Effectiveness
How many people are you actively marketing to? Can you estimate how many of the people who have received your marketing message have been affected by it?
- Use feedback surveys and comment cards asking “how you heard about us”
- Train staff to ask customers how they heard about the restaurant
- How many reviews from diners do you have online?
Use this data to estimate market awareness of your restaurant. How many potential customers do you have given the scope of your marketing message?
Other Sources of Sales Projection Data
Join business organizations with other local restaurateurs. Get to know them and they’ll tell you about things like how seasonality affects sales in the area and what concepts they’ve seen fail in the past.
Additionally, reports are made available by groups like the National Restaurant Association that contain sales data for restaurants based on religion and service type. These reports can be invaluable when you’re trying to get a handle on sales projections before opening a restaurant.
Read More: Choosing a Restaurant Business Structure
Sales projections are always an estimate, but to successfully plan ahead you need to have some idea of what the future holds. Don’t treat your sales projections as facts, always spend less money than your sales projections would indicate.
Constantly refine your sales projections with more data when you get it. Don’t be afraid to correct your sales projections when new insight becomes available. In time your restaurant sales projections will become more accurate.
This guide to making restaurant sales projections is part of the free resource library from Rezku. Rezku is a leading restaurant management technology company. We provide solutions for front of house reservations and table management, restaurant waitlists, point of sale with tableside ordering, gift cards, loyalty, online ordering and delivery, and more.
Learn more about Rezku on our home page. Receive a free restaurant management technology one-on-one consultation today.