How Long Does It Take For A Restaurant To Be Successful?
Planning is an important aspect of any business. It is a vital part of any successful business and is no exception in the food industry. A frequent question in the planning phase of the restaurant is How long does it take for a restaurant to be successful?
Answer to this question is complex and differs according to the type and nature of the restaurant, location, manager, concept, cuisine, etc.
Anyone claiming restaurants take a certain number of years/months to become successful is either lying or does not have any idea about the restaurant industry.
So, a better question to ask is what does a successful restauranteur do when they start a new business. How will their business look like, the revenue, costs, prices, etc?
In this article, we will see how the business model of successful restauranteur will look like. This gives you an idea of what it how long does it take for a restaurant to be successful.
Defining Success as Restauranteur
First of all, a restauranteur must decide on what his success is. Is it getting back the initial investment amount? Is it making your restaurant self reliant and not lose money? Is it getting a lot of customers and getting a high turnover?
For example, some restaurants see huge turnover but make only bare minimum profits. They may take up to 10 years to get back their initial investment. They are in for the long run.
Some restaurants get fewer customers but make profits early on. This is usually for a niche restaurant and very difficult to expand.
What do Successful Restaurants do
A key feature in most successful restaurants is that they breakeven within the first 6 months. After that, they try to recover their initial investments in the next 2-3 years.
Usually successful restaurants lose money in the first 6 months as they tend to try different strategies in marketing, working hours, etc. This helps them understand more about their potential customers. This knowledge enables them to make informed decisions on the menu, prices, marketing, etc.
Successful businesses are not scared of losing money in the first year. They know the importance of losing money trying to understand what works.
Try different ideas in the first 6 months and analyze the outcome. With the experience, make educated guesses on what works and what doesn’t.
Breakeven in your Restaurant
It is the number of sales required to make revenue equal to total fixed cost plus total variable cost for a given period of time. You breakeven when sales cover the cost of doing business. Any sales after breakeven is net income.
Successful restaurants breakeven within 6-8 months, so should you. Or else you will choke. Low revenue decreases the quality of service you offer, thus you will lose customers.
To know more about calculating breakeven sales for your restaurant, read How to calculate breakeven point for a restaurant?
Understand that newness is a liability in a restaurant business.
Contribution Margin on your Products
The contribution margin is the price of the product minus what it costed you to make it. We need that on every product.
Successful restauranteur knows the contribution margin on all products. This gives them valuable information about the importance of each product.
It enables the owner to focus on a few products and make the most profit out of them. Understand that 80% of customers orders from only 20% of the menu.
Operational Costs of Restaurants
Most successful restaurants recover operational costs from day one. This is due to the robust plan they made before starting the restaurant. And they recover fixed costs in 3-5 years.
Don’t be discouraged if you fail to recover operational costs initially. Try to find out why this is happening. Tweak your products and work on marketing.
As you started with capital for 8 months, it is OK to lose money initially. The important thing is to understand why you lost money and gain experience.
Red Flags to look out for in Restaurant business
Reading signs of trouble early on will help you avoid failure in any business. Below we have listed a few red flags to keep an eye out for.
- Unable to meet operational costs even after a couple of months
- Not breaking even after 4-5 months.
- After breakeven, unable to earn 25% of investment in 4-5 months ( for a medium style restaurant).
- Having food and labor cost more than 68% of the price of the product
- Being understaffed or overstaffed all the time
- Lot of customers but no profits
- More than 60% contribution margin in the initial stage
If you see any of these, you are making a mistake and going towards failure and bankruptcy. Understand the cause and rectify it.
To learn more, read 29 common mistakes new restaurant owners make.
For a comprehensive analysis, read the research paper Why most restaurants fail.
In the Restaurant business, failure is confirmed after 18months and success in 3-4 months. If you are doing good initially, you probably will succeed. If you are not doing well initially, you have 18 months to rectify and get back into the business.
Adaptability is key for a successful business is no exception for Restaurants.