The Average Cost of Opening a Restaurant, Explained

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The Average Cost of Opening a Restaurant, Explained

Last Updated on August 11, 2022 by

The reality is that opening a restaurant is a daunting task, especially when sixty percent fail within the first year. The good news is that you can avoid being part of an unfortunate statistic by planning in advance.

Knowing the average cost of opening a restaurant can help you prepare properly, minimizing the chances of any errors. This guide will help you understand average restaurant opening costs so you can begin to budget accordingly. 

Ready to learn more? Let’s get started. 

Food Costs

Not surprisingly, the cost of food will be a huge weight on your operating expenses. Around 28 to 35 percent of a restaurant’s ongoing expenses are the cost of food. The type of menu items you offer will determine where that percentage lands. 

The cost of food can be complicated, you’ll need to determine how much profit each menu item will generate. Certain menu items may cost you more but might still generate more profit than an item that is a lower food cost. 

Food costs are also volatile. Different events can quickly throw food costs into flux. Many times, you’re at the mercy of trends.

Labor Costs

Another factor that makes up a large percentage of operating costs is labor. This includes vacation pay, sick days, employee benefits, payroll tax, and hourly wages of course. You want to keep your labor costs around 30 percent. 

Shifting market conditions and emerging regulations will also play into the cost of labor. There might be new minimum wage laws that drive up the cost or labor shortages to consider. Many restaurants struggle with filling positions due to labor shortages. 

Operation Costs

Operation costs are all the items you need to keep things running like a well-oiled machine. This includes kitchen equipment, dishes, linens, and glasses. Many restaurants lease equipment, find used options or purchase wholesale to lower costs.

Operation costs may also include things like laundry services for napkins and tablecloths. 

Luckily, you can keep track of restaurant operations easier than you’d expect. 

Building and Rent Fees

You’ll need a place for your restaurant to call home and the cost of that space varies depending on your goals. If you are looking to open up a large restaurant with plenty of dining space, that will be more expensive than a little take-out business. You want the rent to only take up around five to 10 percent of the monthly costs.

Cost of Opening a Restaurant

As you can see, opening a restaurant isn’t as simple as some might expect—there are more factors we haven’t listed! With that said, enough preparation and dedication almost certainly guarantee success. You’ll need to make a lot of decisions but the most important one is your business model. 

There’s a variety of factors involved when determining the cost of opening a restaurant, it can range from $95,000 to $2 million. Breaking down all of the factors will help you know how much you’ll need. 

Looking for more articles like this? Be sure to check out the Business section of our blog.

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