In August of 2019, the Northeast Portland brunch cafe Beeswing closed its doors. The restaurant had been open for two and a half years and was owned and operated by industry veterans. The reason? It wasn’t profitable enough. And Beeswing isn’t alone: Portland has a long history of shuttered restaurants and bars that served amazing food and drink but were still eventually closed because they didn’t make sense financially.
Does that mean running a thriving establishment in Portland is an impossible task? Clearly not - in a city for foodies, there are plenty of examples of businesses that make it work.
However, it does underscore that to run a restaurant or bar that enables you to live a good life your numbers have to be rock solid.
Your Key Constraint as a Ratio
Food service businesses are evaluated according to their key constraint: space. The question you need to answer is, “How much money can I make per square foot of space available to me?”
The figures below reflect annual sales divided by square feet for two types of restaurants and bars: full service and limited service.
Full service restaurants operate for 2-3 meals per day. The figures below assume this is a restaurant with a typical staff load (chef, cooks, front-of-house manager, bartenders, servers, etc.)
Limited service restaurants are bars and restaurants with limited open hours. The implication of limited hours is that you have to earn more within that time period. Many restaurants do the limited service model because the cost of labor is too high to justify a meal period with lower ticket averages. Alcohol is a large component, where lunch patrons generally don't drink, and dinner patrons do.
SBDC Restaurant Business Builder contributor and Clyde Common owner, Nate Tilden, says, “...something to consider is that labor is typically the largest cost. If a new restaurant can deliver the goods and services they want without a large labor cost, their revenue needed to generate per square foot will be lower.”
A Final Note on Sales per Square Foot.
These figures are much higher than many cities in the country and if you’re planning on establishing your restaurant outside Portland, they’ll be lower.
However, the cost of doing business as a restaurant is generally rising. Why? There is a general trend of increasing minimum wage and food and alcohol costs.
How Much Your Restaurant or Bar Needs to Earn to Survive
- Full Service Restaurants - At least $300 - 450/foot
- Limited Service Restaurants & Bars - At least $350 - 500/foot
How Much Your Restaurant or Bar Needs to Earn a Profit
- Full Service Restaurants - At least $500 - 600/foot
- Limited Service Restaurants & Bars - At least $550 - 650/foot
Earning at this level enables the owner to generate a net profit in the 5-10 percent range.
How Much Your Restaurant or Bar Needs to Earn to *Thrive*
- Full Service Restaurants - At least $700+/foot
- Limited Service Restaurants & Bars - At least $750/foot
Earning at this level enables the owner to generate a net profit in excess of 10 percent.
What These Ratios Can Tell You
You can get a lot from these ratios in figuring out what you need to do with a space in order to come out ahead.
If you’re evaluating a 1,200 square foot space for a lunch and dinner Lebanese grill, you’ll need to make at least $600,000 to turn a modest profit (1,200x $500). That comes out to $2,084 per day for a 6-day restaurant. If your average meal is $15, you’ll need to serve 138 people each day you’re open.
Maybe that will work for the location, but if not, you know that you’ll need to find a smaller space, alter the layout to provide more seating, figure out a way to charge more, or design a faster way to serve more people.
What These Ratios Can’t Tell You
These ratios are a quick way to get an idea of the implications of a space and what it will take to make you a profit on all that work you’re going to put into it.
However, they are heuristics, just “rules of thumb.” Your situation is going to be unique to you.
If you sign an expensive lease in a trendy area, take on a high interest hard money loan, overpay an employee, or have extremely high food costs then even though you’re making $500/foot at your Lebanese grill, you may still be struggling to survive and wishing you were managing someone else’s kitchen.
There’s more to building that amazing restaurant or bar you’re dreaming of than just the sales you need to generate.
Fortunately, PCC SBDC offers several courses that teach not only how to manage costs, but also all the other things needed as a restaurant or bar owner in order to be successful.
Get Started With the Help of Portland’s Elite Restaurateurs
Portland has not only world class cuisine but also some world class restaurateurs. The Portland SBDC has harnessed a handful of these stars to teach chefs, bartenders, and bakers how to bring your business vision to life in their Restaurant Builder course.
The owners of Olympia Provisions, Night Light Lounge, DesiPDX, and Mother’s Bistro & Bar contribute their experiences and help you figure out the path you need to take to go from manager or chef to successful owner in the 10-week course.
- How to get the money you need to start your business.
- How to find a location and negotiate a fair lease.
- All the tools, tactics, and techniques you need to build a profitable business that supports you and lets you step away from the back of the house hustle.
Learn more at the Restaurant Business Builders webpage.