When Goods went sour...
Regardless of how many times have you heard the story about profit margins in restaurants, it's always low. Full service restaurants average between 1.8 and 3.5 percent profit margins. Limited service restaurants rank a little higher averaging 8% profit. For example, if you have a full service restaurant generating 5 million dollars ($13,000+ in sales per day), you're looking at taking in a maximum of $175,000 in profit.
This is not to say you shouldn't open a restaurant, only that the margin for error in your forecasts is impossibly narrow!
I can speak to the errors of my now shuttered restaurant goods. We were a quick service burger joint built inside of a 1946 Spartan trailer on a lot in prime Williamsburg, Brooklyn. We jumped on a lease, and we started building the trailer out. We did projections on sales and used estimates based on restaurant averages to plan our expenditures for staff, utilities and food costs. It seemed like a no brainer. We would be successful. When we opened we were showered with press. NY1 showed up with live video to film the opening, The NYTimes
wrote about us, and much more. The truck and space design were amazing. The staff was excited and motivated (even though they weren't yet dressed in tilit
!)The lines were long and people loved the food.
through 3 months in to the business we were feeling great, but not making money. In fact we were hemhorraging money. Every meeting with my partners was overshadowed by who was going to put more money in to keep us going until we became "profitable".
What we failed to do was to look at our actual expenses before and during operation. What we read about averages was not even close to our actual numbers. We had a unique setup in that we were running a mobile truck on a stationary lot. The truck needed to be refueled and pumped with water from a neighbor. Then waste water needed to be hauled out every week. Our actual costs of utilities were more than triple our limited research and planning had forecasted. We opened Goods in June of 2010 and we closed Goods in December of 2010. Heartbroken still.
The takeaway from our failure is your success. It will and can happen with planning. Just so long as you do your diligence every step of the way. If it's not your forte, then hire or partner with someone who does. Your creativity and your customers will thank you for years to come.