Determining how much rent your restaurant can afford is critical to your success.
The general rule of thumb is your total occupancy cost (rent and additional fees for property taxes, insurances, etc.) should not exceed 6-10% of your gross sales.
The numbers that are right for your business may be lower or higher depending on other factors.
How much rent should your restaurant pay?
You can benchmark your numbers by looking at the sales and occupancy cost for your
If they are publicly traded companies, the information is usually provided within the Form 10K which can be found on their website under investor information.
The chart below from Chipotle Mexican Grill’s Form 10 K, shows occupancy costs equal
to 6.3% of revenue.
If your competitors are not public companies you will need to dig a little deeper. Ask your competitors neighbors how much they pay in rent and you should get a good idea for rents on a per square foot basis.
Based on your research, the occupancy costs for your primary competitors range between 6% and 10%.
If you’re projecting sales equal to $1,000,000 per year, The annual rent you can afford ranges between:
$1,000,000 @ 10% = $100,000
$1,000,000 @ 6%= $60,000
Assuming you need 2,000 square feet to run your restaurant, you can pay between $5,000 and $8,300 per month including NNN charges.
Rent will Determine Where you Open
If your budget is $6,000 per month for a 2,000 square foot space ($3.00 per square foot per month), it does not make sense looking for space in a neighborhood where rents average $10.00 per square foot.
Now that you have determined your maximum rent, you have a starting point to
determine which neighborhoods fall within your budget.
P.S. Get here from a friend or Twitter? Sign-up to receive our Newsletter with more tips and tricks to open a successful restaurant.