The restaurant industry is notoriously difficult for putting pressure on new eating establishments to turn a profit in the first few years, which is why it's so important to understand initial start-up costs and expected operations costs. Check out the infographic below to learn more about the costs associated with starting and operating a restaurant.
According to 2016 research, there were 620,807 registered restaurants in the United States—a slight decline from previous years because while there is always demand, other factors can play a significant role in the success or failure of a restaurant. Quick service restaurants, such as McDonald’s, Subway, KFC, etc., are among the most successful restaurant types, but also among the most expensive franchises to operate, with an estimated cost of $1.5-3.5 million (depending on the franchise).
In order to attract customers who are looking for a fine or casual dining experience, which typically yields higher food bills, a restauranteur best serves him or herself by carefully considering all of the initial start-up costs. For example:
- Buying vs leasing dining space: Owning restaurant space allows for more control over décor and the future of the establishment, however the cost for upkeep, permits, land ownership, etc., are an average $735,000 or $178 per square foot, whereas the average leasing option is closer to $495,000, ($159 per square foot). If a restauranteur can safeguard such a large investment with a proven business model and successful operation, then buying a space might make sense. However, the restaurant industry is infamously fickle. What is popular one day may not be the next.
- Staff: The difference between a great restaurant and a terrible one relies on the happiness of the customer. And often, the customer’s experience relies on the interactions with the restaurant staff. Top talent and highly qualified personnel can make a significant difference in the food, the ambience, the service, the perception of the restaurant. A savvy owner knows that attracting, training, and keeping quality staff is a good investment but also one of the highest expenses in starting a restaurant.
- Marketing and Advertising: In today’s market, it is a mistake to not have a polished, informative, and engaging online presence. Things like web design, marketing, advertisement, event hosting, and other promotional activities are necessary to simply get people through the door and eating the food. Even the best restaurants in the country understand that no customers equals no business, so spending money on image matters.
Speaking of customers, how does the average diner factor into restaurant decisions? According to a survey by the National Restaurant Association, 70% of customers surveyed are most interested in healthy menu options, with locally sourced and environmentally friendly foods as top requests (at 66% and 60%, respectively). In addition to the kind of food, restaurant goers highlight the online component as top needs. 60% want an online menu, and 57% want online reviews available. Location matters only in that many customers like when the restaurant is within walking distance (53%) but a delivery option is also desirable for 56%.
With hundreds of restaurants opening and closing each year, it appears the industry is as picky as some eaters. But with accurate expectations, sound budgeting, and attention to the customer, a great restaurant can see years of successful and satisfied service.
We researched restaurant startup costs from a variety of sources, including data from the National Restaurant Association. Along with typical building, renovation and staffing expenses, we also took a deeper dive at costs such as P.R., marketing, technology, and garbage and grease disposal. In order to rank the top 10 restaurant sales per capita by state, we used statistics from the National Restaurant Association and divided each state’s yearly sales by the number of eating and drinking establishments located within each state.
National Restaurant Association
Forbes – “Bootstrap Startup: Inside A $13K Restaurant Opening”
Toast – “Restaurant Industry Statistics for Restaurant Owners in 2018”
Entrepreneur – “What You Need to Know About Music Licensing for Your Business”
Entrepreneur – “The Staff You Need to Hire to Run a Restaurant”
Restaurant Business – “Top 100 Independent Restaurants”
RestaurantOwner.com – “Industry Survey: How Much Does it Cost to Open a Restaurant?”
National Grid – “Managing Energy Costs in Restaurants”