Question:
Good news: I have a barbecue place that consistently sells out. Bad news: I sell out too early and it disappoints or, based on my social media reviews, angers some guests. How do I determine whether it’s worth scaling up to a larger smoker?
– Restaurateur
Answer:
A smoker is a major expense, and you would need to be sure that demand will follow the investment to increase capacity. Further, you are presumably still paying for (and depreciating) the smoker you have because you are still using it successfully.
My advice is to think of this challenge in two phases:
1. Can you maximize capacity with the unit you have?
2. Can you calculate and justify the return on investment (ROI) on a unit with increased capacity?
The first consideration is, “If it ain’t broke, don’t fix it.” You have a good system down that obviously produces barbecue delicious enough to sell out. Is there a way to increase production without expanding physical capacity? For example: running the smoker for an additional shift if it doesn’t compromise quality or safety; changing the menu mix to incorporate more quickly cooking items if it doesn’t sacrifice guest satisfaction; or changing your overall menu mix to highlight competitive, less equipment-intensive food. My advice is to first be sure you are thoroughly exploring your options there before pursuing an equipment investment.
Once you have maxed out your first set of possibilities, consider the ROI of a larger smoker. While we don’t like to think of it this way, cooking is manufacturing. But, because of perishability, food safety and food quality, it is more complicated than making widgets.
Drawing from the manufacturing industry, there is a standard way to calculate this:
First, calculate the true total cost of the new equipment. This would be the unit itself plus any costs associated with installation, training, maintenance, removal of old equipment, financing and so on, less any resale or salvage value from the old equipment.
Next, you can compare the ROI from the new equipment to your existing setup by dividing the projected net revenue from each smoker by the total cost of your investment. You can also look at this annually over the reasonable useful life of the equipment to see where you would stand over time and what the payback period on the investment would be.
By putting some real numbers on this scenario, you will find your decision easier. Keep in mind, however, that there are a lot of assumptions going into these scenarios. Things may look smart on paper, but a new competitor, food safety scare, rising meat or fuel prices, or change in labor law might eat into your margins and result in a mismatch with reality.
As always, check with your accountant before embarking on such a big purchase decision.
More on calculating equipment ROI here.