How Much Restaurant Space Do You Really Need?

 

Entrepreneurs who are new to the restaurant industry often look to build large, beautiful buildings. The truth is, those large restaurant spaces will only be filled during peak events or times, leaving them as wasted space the majority of the time. The challenge is assessing the overall size to effectiveness ratio. When working with our clients, we use the below information to help determine the best plan of action. For this piece and most evaluations, we use an industry standard of 12 square feet per customer for seating.

How big of a seating capacity do you need vs. want?

Even if you are located next to a venue that will help drive sales (a sports arena, concert venue, etc.) there are only a finite number of days/times that will drive those sales. Looking at the factors involved in driving your sales during peak times will help you decide your seating requirements. For instance, how many home games are there during the year, and how often does the venue fill the space with other live events that will drive sales?

restaurant seating chart seats space building rentIf the space you are looking at has a seating capacity of 200 people or 2,400 square feet plus kitchen/serving areas, you are probably looking at a building north of 4,000 square feet (not including parking). At an average of $30 per square foot, you’re looking at a rent of $10,000 a month or $120,000 a year. It’s important to use this math, versus the amount of days you can bank on being busy. If your max capacity days can cover your costs, you’ll set yourself up to succeed.

Let’s say your average customer will spend $12 (taking into account your “deal” customers who are only interested in specials, happy hour, etc). If we use this math to build a template for utilizing the max days, we can schedule it versus the cost of rent. When looking at rent/building costs, you want to keep the overall costs below 10% of your overall sales. This is important because of all the other costs involved in running your business (food, labor, insurance, etc).

How do you evaluate the cost-to-sales ratio of a restaurant space?

restaurant seating revenue chart customers venue salesFor this exercise we will use a venue near a basketball arena that will utilize the NBA schedule (41 home games) as well as off-weekends for concerts. Using the 100 games/concerts that the arena can deliver for our math, we can see the projected revenue of the space versus that of the cost of the building. You want to look at three different factors: best case, worst case, and average of your sales projection. Though your restaurant may be located near a great venue that provides a strong customer base, your operations will depict the future sales.

If you have a capacity of 200 people and a prime location next to a venue that holds 30,000 people, you would think that you can turn over 1% of the people going to the venue to be potential customers. The math that is important comes into play when you are open seven days a week, regardless of the venue being open or not. Balancing the weight of your sales during peak to cover non-peak is paramount when deciding the size and location of your restaurant.

What do you do when you’re not near a venue that can drive sales?

When looking at a location that isn’t venue driven, you have to see what will pull eyes to your location throughout the week and at various times of day. Is there a popular business or a service building like a DMV (department of motor vehicles) close by that will consistently bring new traffic and fresh eyes to your area? If you’re a restaurant focusing on lunch and dinner, is there a coffee shop nearby that’s popular in the morning, giving visibility to your location for those customers’ lunch or dinner?

When you are dealing with a location that does not have a guaranteed pull of customers (and even if it does) often times its better to err on the side of caution with seating and overall size. People are driven to go to a small venue that is always packed for the exclusivity of it, versus a large location that is rarely full. The empty feeling of a restaurant/bar can kill your sales just as much as any other factor. The perception is that you aren’t a place that people want to be. For example, if you have a restaurant that can only seat 100 and is always full, versus a 400-capacity location serving 150 people, the perception is that the smaller venue is doing more business because they are always packed.

Remember: When looking to build, take over, or design a restaurant/bar, make sure you don’t build more than you need. It’s better to grow a following that requires a second location in another part of town than to have one large building you can’t fill.