How to write a restaurant business plan: forecasting sales
If you are thinking about opening a hospitality venue, you're in the right place. This is the seventh guide in the series on writing a business plan for your restaurant (there are 10 in all). Make sure to go back and read the introduction and previous guides if you have missed them (they're awesome and well worth your time!)
Now, forecasting sales is a tricky one.
It is an area that is almost always overestimated when people are planning on opening a venue.
Maybe it is because when you are in the throes of opening your store you can't imagine the world not loving what you have created.
You love it, right?
You'll turn those tables 5 times a day, no problem. Going to have to think about how you are going to manage that queue.....
We're going to look at how we can forecast in a way which is sensible (said like a true accountant)
It's not going to be right Even with a great, well thought out forecast, the numbers you come up with will be different to what actually happens. That's OK. Getting it 100% correct is not what matters, being close is what matters here.
What are we covering in this guide
In this guide we are going to spend some time looking at
sales across different day parts
sales across different days
looking for the sales ceiling
As with everything, your concept is really going to drive the kind of splits and spends we are talking about here. The following examples are using a full service restaurant in a town centre location, offering breakfast, lunch and dinner (no delivery, no events or private dining).
Spend per head (SPH), or Average spend, is a figure which gets looked at a lot in the restaurant sector. It has a huge impact on your profitability and if you can get it higher without losing out on covers, you're on to a winner. SPH will be impacted by
your menu prices
day of the week
time of day
quality of experience
We'll pick up the menu prices is the next guide. Let's first take a look at day of the week.
In general, you can expect your average spend to increase as you get toward the weekend (again, depends on concept, remember we are now talking about our fictional town centre restaurant).
Average spend increasing at the weekend shouldn't surprise anyone - more parties, more food, more booze, less work in the morning. Therefore more cash for you.
Now I love a graph. And I assume everyone else does too, so here is what average spend looks like on a graph throughout the week.
And not too shockingly, more people go out to eat on the weekend than they do at the start of the week. And couple this with increasing average spend, you'll probably do over 50% of your sales over 3 days.
Time of day
Average spend also differs by time of day. No mystery here. People generally spend more on dinner than they do on breakfast. Now this stuff isn't ground breaking, but we're building up to something so bear with me.
Customer flow also varies given the time of day. If you are a greasy spoon cafe, you're going to see most of your business in the morning. But in our example of a full service restaurant we'll see the majority of trade in the evening.
If you look at sales by hour for our example site (from lunch time until close), this is what you get.
If you want to know what your hourly demand curve will look like, head over to google.
Now google a restaurant which is very similar to your concept.
On the right hand side, an info box for the restaurant will pop up, scroll down to popular times and there you have it; a demand graph based on covers.
Here you see the demand for a Friday at one of my favourite restaurants.
You also see 'people typically spend....'
Now this is important. Working out how long people are going to spend in your restaurant will determine how many times you can possibly turn your tables and maximise revenue. Let me explain...
Everyone wants to eat at the same time
For restaurants, this is really bloody inconvenient.
You have the building for 168 hours a week. You may be open for 84 of those hours. If your concept is evening focussed, most people want to eat between 7 and 9, and not so much on a Monday, Tuesday or Wednesday. So you have 8 hours where you can expect to be very very busy. Out of 168.
So if it takes two and a half hours to have an evening meal, you are not going to get many table turns, as come 9.30 (when a big swathe of your punters are finishing up) not many people want to be sitting down to start their evening meal. So how long it takes people to eat at your venue is something you need to work out.
What's the point of all this incessant graphing?
Mainly because I love it.
Also - the above points are the building blocks of creating a sensible sales forecast. To summarise;
customer spend varies during the week and during the day
customer flow varies during the week and during the day
the amount of time people need to dine limits available space in your restaurant
everyone wants to eat at the same time
When you put this carefully into the context of your concept, you'll be able to have a good bash at forecasting sales. What you'll come up with is a sort of heat map of sales.
Complex operations If your operation is going to be complicated (if you have hotel rooms, or are planning to do events in a separate space for instance) split these component parts up and approach them individually, to begin with. Once you have the components forecasted, review them as a whole and see if they stack up when you are thinking about the interlocking areas of your business.
Calculating your sales
In the next guide we will be introducing a spreadsheet (completely free to download, no email address etc needed) which you can populate which will help you forecast your sales. And we'll also take a look at seasonality and how to take that into account.
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