Question:
When doing a business plan for a restaurant, how do you estimate gross revenue of the competition if they won’t tell you?
– Greg Goodman, Student, San Pablo, CA
Answer:
A good financial consultant or restaurant accountant can look at a restaurant and give you a ballpark of annual sales, but this is by no means an exact science. For publically traded restaurants you can infer some of these numbers from annual reports. For privately held restaurants, it’s largely an educated guessing game.
Here are some options:
- Look at comparable restaurants that have sold in the area. Those restaurants often disclose financials (usually somewhat optimistic) in hopes of getting the best price. A good commercial real estate broker will know these numbers well.
- Look at comparable real estate prices and divide that by the benchmark. For example, assume rent should be 5-8% of gross revenue. If you know the typical price per square foot in your area and approximate square footage of a competitor, you can infer revenue by dividing the total rent by the benchmark.
- Depending on how deep you want to go, you can commission a foot traffic study to give you a sense of guest counts throughout the week and extrapolate that by the likely check average, which you take from the menu prices.
- Get to know people via your local restaurant association, networking group, and other organizations. While no one will disclose the answer to all your questions, people can be surprisingly forthcoming, especially if you are a young entrepreneur and not a direct competitor.
Ultimately, it’s more important that you have a sound concept and realistic projections than exhaustive insight into competitors. More on restaurant business planning here.