Question:
I met with an investor who wants to help me expand, but wants to see me hit $1 million in annual revenue first. I’m not there yet, but it’s a bit of a chicken-or-egg—with his money, I can do some marketing and equipment upgrades. Does this seem reasonable?
– Fast-casual operator
Answer:
One million dollars is a nice round number that can be an easy-to-mention benchmark for a small operation. Of course, revenue as a number by itself does not mean much—for a tiny operation it may be a hurdle, and for a larger one it may not be a particularly good sign of your performance. Are your costs in line, and is the operation profitable? Revenue as a number only makes sense when viewed in context of the entire P&L.
That said, revenue can be a good proxy for one thing—appeal and demand, which is, it seems to me, what your investor is trying to gauge. I find it helpful to break it down into small components. Over the year, $1 million represents $2,700-plus in revenue per day, assuming you are open seven days per week. As a fast casual, let’s assume you have five solid hours of lunch and dinner rush, meaning you’d need to pull in around $500 per hour during peak periods to make that number. Of course, adjust if some days and times are busier than others. Let’s then assume you have a $10 check average. Can you reasonably serve about 50 covers per hour in those peak hours? Are your operations, staffing and flow sufficient for that volume? Do you have enough appeal and demand to make that work? How close are you from that benchmark already and what can you do to meet it?
While it’s easy to bat around numbers, breaking it down by hour, or even smaller increments, can help you set some realistic goals. I suspect your investor is figuring that he can help with operating efficiencies down the road if the demand and positive reception for your concept is there.
More on P&L benchmarks here.