Data provided here comes from our team of experts who have been working on business plan for a fast food restaurant. Furthermore, an industry specialist has reviewed and approved the final article.
Are fast food restaurants profitable, and what is the income range for fast food franchisees and owners?Let's check together.
Revenue metrics of a fast food restaurant
How does a fast food restaurant makes money?
A fast food restaurant makes money by selling food and drinks to customers.
What are the common products sold in fast food restaurants?
Fast food restaurants typically offer a variety of popular and convenient food items that are prepared quickly for on-the-go consumption.
These products often include items like burgers, which are made from cooked ground meat placed between slices of bread called buns, along with various toppings like lettuce, cheese, tomatoes, and sauces. Additionally, fries, which are thin slices of potatoes that are deep-fried until crispy, are a common side dish.
Other common offerings are chicken nuggets or tenders, which are bite-sized pieces of breaded and fried chicken, and sandwiches like subs or wraps made with different fillings such as deli meats, vegetables, and condiments.
Many fast food places also serve pizzas, which feature a round flatbread topped with cheese, sauce, and various toppings that is baked until the cheese melts. Fast food menus often include milkshakes, soft drinks, and sometimes coffee as beverages.
These products are designed for quick service, often through drive-thru windows or counter service, making them convenient options for people looking for a quick meal.
What about the prices?
Burgers and sandwiches usually range from $2 to $6, with premium options potentially reaching $8 to $10.
French fries and side items generally cost between $1 and $4, while drinks like soda and iced tea are often priced at around $1 to $3. Combo meals, which include a burger or sandwich, fries, and a drink, tend to fall within the $5 to $8 range.
Chicken items, such as nuggets or sandwiches, can be found for $3 to $7. Salads often cost between $4 and $8.
Breakfast items, like muffins, burritos, and breakfast sandwiches, range from $2 to $5. Desserts like ice cream cones, sundaes, and pies typically fall within the $1 to $4 range.
| Item Category | Price Range ($) |
|---|---|
| Burgers/Sandwiches | $2 - $10 |
| Fries/Sides | $1 - $4 |
| Drinks | $1 - $3 |
| Combo Meals | $5 - $8 |
| Chicken Items | $3 - $7 |
| Salads | $4 - $8 |
| Breakfast Items | $2 - $5 |
| Desserts | $1 - $4 |
Who are the customers of a fast food restaurant?
Fast food restaurants serve a variety of customers, ranging from individuals to large groups.
Which segments?
We've prepared a lot of business plans for this type of project. Here are the common customer segments.
| Customer Segment | Description | Preferences | How to Find Them |
|---|---|---|---|
| Busy Professionals | Working individuals with limited time for meals. | Quick, convenient options; online/mobile ordering. | Advertise during lunch hours; promote delivery services. |
| Families | Parents with children seeking family-friendly dining. | Kid's menus, spacious seating, affordable family deals. | Collaborate with local schools; offer play areas. |
| Health Enthusiasts | Customers focused on healthier food choices. | Salads, low-calorie options, nutritional information. | Highlight nutritional info; partner with fitness centers. |
| Students | High school and college students on a budget. | Value meals, student discounts, customizable options. | Advertise near educational institutions; offer Wi-Fi. |
| Tourists | Visitors exploring the area. | Local specialties, diverse menu options. | Partner with local hotels; provide tourist guides. |
How much they spend?
Exploring the financial dynamics of a fast-food restaurant, it's observed that customers generally spend between $5 to $20 per visit. This expenditure includes individual meals, combo deals, or family packages that customers may purchase.
Frequency of visits per customer to a fast-food restaurant can significantly vary, but on average, a regular might dine from 4 to 15 times a month. This depends on their dining habits, preference for fast food, and the restaurant's proximity to their daily commute or residential area.
Considering these factors, the estimated monthly spending of a regular customer would range from $20 (4x5) to $300 (15x20). If we speculate that an average customer retains their regular fast-food consumption over a period of 6 to 12 months, the lifetime value of the customer would be from $120 (6x20) to $3,600 (12x300).
Given the variability in customer spending and retention, it's reasonable to infer that, on average, a regular customer could generate around $1,500 in revenue for a fast-food restaurant over a one-year period.
(Disclaimer: the numbers presented above are indicative averages and may not precisely reflect your specific business circumstances.)
Which type(s) of customer(s) to target?
It's something to have in mind when you're writing the business plan for your fast food restaurant.
The most profitable customers for a fast food restaurant typically fall into two primary profiles: frequent loyalists and high-spenders.
Frequent loyalists are valuable because they visit often, providing a consistent stream of revenue, and they're likely to recommend the restaurant to others, increasing customer acquisition. High-spenders, on the other hand, boost profitability through larger orders and add-ons.
To target and attract them, fast food restaurants should implement loyalty programs with rewards for frequent visits and personalized promotions for high-spenders. Digital marketing and social media can help reach these audiences effectively.
To retain them, maintaining food quality, efficient service, and a clean environment is crucial. Offering exclusive deals, limited-time menu items, and engaging with customers through social media can foster loyalty. Consistently meeting customer expectations is key to ensuring they keep coming back and continue to spend more.
What is the average revenue of a fast food restaurant?
The average monthly revenue for a fast food restaurant can range significantly from $7,000 to over $100,000, depending on various factors including location, customer volume, and service offerings. Below, we delve into specifics by examining three hypothetical cases.
You can also estimate your own revenue by considering these profiles and using different assumptions with a financial plan tailored for a fast food restaurant.
Case 1: A basic fast food stand in a small town
Average monthly revenue: $7,000
This type of establishment is quite simple, offering a limited menu, typically of staple items like burgers, fries, and beverages, with very little seating capacity, if any. It's likely a go-to spot for quick, affordable meals for locals.
Given its scale and location, the customer flow would be relatively low. Without additional services or products, like combo meals, premium options, or a diverse menu, the earning capacity remains limited.
Assuming an average spending of $7 per customer and around 30 customers a day, the monthly revenue for this small fast food stand would be approximately $7,000.
Case 2: A popular fast food spot in a city's business district
Average monthly revenue: $50,000
Located in a bustling urban area, this fast food restaurant caters to city dwellers, business people, and tourists. It offers a more extensive menu and a comfortable seating area, encouraging customers to dine in.
Thanks to its prime location, the restaurant enjoys a high foot traffic. It likely offers combo meals, promotional items, and perhaps a line of premium menu options, which increase the average spending per customer.
Additional revenue might also come from offering online ordering, delivery services, and catering for local events and businesses.
With an estimated average spending of $10 per customer and around 170 customers per day, this fast food spot can generate an average monthly revenue of $50,000.
Case 3: A flagship fast food restaurant of a well-known chain
Average monthly revenue: $150,000
This fast food restaurant represents the pinnacle of quick-service success. It's a flagship store of a famous brand, located in a high-traffic area in a major city, possibly a tourist attraction. The establishment boasts a modern, spacious dining area and possibly a drive-thru service.
Customers here enjoy a rich menu, including exclusive items, seasonal specials, and possibly an array of merchandise. The restaurant uses advanced technology for order placements, such as self-service kiosks, a mobile app for pre-ordering, and a loyalty program.
Furthermore, it might offer international cuisine options to cater to tourists and locals alike, along with special event hosting, thereby attracting a larger customer base.
Given the high customer turnover and additional spending avenues, with an average spending of $15 per customer and about 330 customers daily, this flagship restaurant can achieve a robust monthly revenue of $150,000.
The profitability metrics of a fast food restaurant
What are the expenses of a fast food restaurant?
Expenses for a fast food restaurant include food ingredients, kitchen equipment, rent or lease payments for the restaurant, staff wages, and marketing.
| Category | Examples of Expenses | Average Monthly Cost (Range in $) | Tips to Reduce Expenses |
|---|---|---|---|
| Location and Rent | Monthly rent, utilities, property taxes | $3,000 - $15,000 | Choose a high-traffic, cost-effective location, negotiate lease terms |
| Staffing | Chefs, kitchen staff, cashiers, cleaners | $4,000 - $12,000 | Optimize staffing levels, use part-time or seasonal employees |
| Ingredients and Inventory | Food supplies, packaging, condiments | $3,000 - $8,000 | Minimize food waste, negotiate bulk purchase discounts |
| Equipment | Cooking appliances, fryers, grills, refrigerators | $2,000 - $8,000 | Regular maintenance, buy energy-efficient equipment |
| Marketing and Advertising | Local ads, online promotion, menu design | $500 - $3,000 | Focus on target audience, utilize social media for cost-effective marketing |
| Insurance | Liability insurance, workers' compensation | $300 - $800 | Shop around for insurance providers, bundle policies |
| Licenses and Permits | Business licenses, health permits | $200 - $600 | Ensure compliance to avoid fines and penalties |
| Utilities | Electricity, water, gas | $500 - $1,500 | Invest in energy-efficient appliances, monitor usage |
| Maintenance and Repairs | Facility repairs, equipment servicing | $300 - $1,000 | Implement preventive maintenance, DIY minor repairs |
| Taxes | Income tax, sales tax | $1,000 - $5,000 | Hire a tax professional, take advantage of deductions |
| Waste Disposal | Trash removal, recycling | $100 - $300 | Recycle and reduce waste to lower disposal costs |
| Training and Development | Employee training, skill development | $200 - $500 | Invest in efficient training methods, cross-train employees |
When is a a fast food restaurant profitable?
The breakevenpoint
A fast food restaurant becomes profitable when its total revenue exceeds its total fixed and variable costs.
In simpler terms, it starts making a profit when the money it earns from selling meals, beverages, and possibly catering services becomes greater than the expenses it incurs for rent, kitchen equipment, ingredients, salaries, and other operating costs.
This means that the restaurant has reached a point where it covers all its expenses and starts generating income; we call this the breakeven point.
Consider an example of a fast food restaurant where the monthly fixed costs typically amount to approximately $15,000.
A rough estimate for the breakeven point of a fast food restaurant would then be around $15,000 (since it's the total fixed cost to cover), which could be achieved by selling between 1500 to 3000 meals a month, assuming the price per meal ranges from $5 to $10.
It's crucial to understand that this indicator can vary widely depending on factors such as location, size, menu prices, operational costs, and competition. A large restaurant located in a prime area would obviously have a higher breakeven point than a small one in a more affordable location, as the revenue required to cover expenses would differ substantially.
Curious about the profitability of your fast food restaurant? Try out our user-friendly financial plan crafted for fast food restaurants. Simply input your own assumptions, and it will help you calculate the amount you need to earn in order to run a profitable business.
Biggest threats to profitability
The biggest threats to profitability for a fast food restaurant can include rising food costs, as the prices of ingredients like meat, potatoes, and vegetables can fluctuate and impact profit margins significantly.
Another threat is increased competition, as new fast food or quick-service restaurants may open nearby, diverting customers and forcing price wars.
Health and dietary trends pose a threat too, as consumers may shift towards healthier eating options, potentially reducing sales of traditional fast food items.
Labor costs can also be a challenge, especially if the minimum wage increases, as it can raise payroll expenses.
Additionally, health and safety concerns, like foodborne illnesses or accidents in the restaurant, can lead to legal costs and damage the restaurant's reputation.
These threats are often included in the SWOT analysis for a fast food restaurant.
What are the margins of a fast food restaurant?
Gross margins and net margins are financial metrics used to assess the profitability of a fast food restaurant business.
The gross margin reflects the difference between the revenue from sales of food and beverages and the direct costs associated with producing those items, such as ingredients, disposable packaging, and direct labor used in food preparation and service.
In essence, it's the profit remaining after subtracting the costs directly tied to the creation and selling of the fast food items, including staff wages, raw materials, and any immediate operational costs.
Net margin, conversely, encompasses all the expenses the restaurant faces, including indirect costs like administrative expenses, marketing, rent, franchise fees (if applicable), and taxes.
Net margin offers a more comprehensive insight into the restaurant's profitability, factoring in both the direct and indirect costs.
Gross margins
Fast food restaurants usually have an average gross margin ranging from 60% to 70%.
For instance, if your fast food outlet is earning $20,000 per month, your gross profit will be approximately 65% x $20,000 = $13,000.
Let's illustrate this with an example.
Consider a fast food restaurant selling 1,000 burgers in a month, with each burger priced at $10, thus generating total revenue of $10,000.
The costs incurred for producing the burgers, including ingredients, packaging, and direct labor, amount to $3,500. Therefore, the restaurant's gross profit equates to $10,000 - $3,500 = $6,500.
Here, the gross margin for the restaurant would be $6,500 / $10,000 = 65%.
Net margins
Fast food restaurants commonly have an average net margin between 10% and 25%.
In simpler terms, if your restaurant generates $20,000 per month, your net profit might be roughly $2,000, equating to 10% of the total revenue.
We'll continue with the same example for consistency.
Our fast food restaurant, having sold 1,000 burgers, makes $10,000. The direct costs were $3,500.
On top of this, the restaurant bears additional indirect costs: marketing, rent, administrative costs, franchise fees, and taxes. Assuming these total $4,000, the net profit becomes $10,000 - $3,500 - $4,000 = $2,500.
Thus, the net margin for the restaurant would be $2,500 divided by $10,000, resulting in 25%.
As an entrepreneur, it's crucial to comprehend that the net margin (in comparison to the gross margin) presents a more accurate depiction of how much money your fast food restaurant is genuinely earning, as it accounts for every cost and expense incurred.
At the end, how much can you make as a fast-food restaurant owner?
Understanding that the net margin is key to discerning the profitability of your fast-food restaurant is essential. It essentially indicates what portion of your earnings remains after covering all expenses.
Your potential earnings heavily rely on your execution, management skills, and strategic planning.
Struggling fast-food restaurant owner
Makes $800 per month
If you initiate your fast-food venture with minimal planning, compromising on quality, underestimating the importance of a good location, poor marketing, and ignoring customer service, your total revenue might not exceed $4,000 a month.
With haphazard financial management, high waste, and ineffective cost control, your net margin could be less than 20%.
Practically, this equates to meager monthly earnings, roughly around $800 (20% of $4,000). This represents a financial red flag and sustainability issue for your restaurant.
Median fast-food restaurant owner
Makes $6,000 per month
Now, if you're running a standard fast-food restaurant where you serve quality food, maintain hygiene, engage in local community events for marketing, and maybe even offer catering services, your total revenue could climb to $25,000 a month.
With sound management, reducing unnecessary expenses, and optimizing operations, your net margin might be around 30%.
Under these conditions, your monthly take-home amount would be about $6,000 (30% of $20,000). This scenario depicts a stable yet moderately successful business.
Exceptional fast-food restaurant owner
Makes $50,000 per month
As a high-achiever, you refuse to settle. You prioritize customer experience, invest in high-quality ingredients, innovate your menu, perfect the ambiance, strategically choose your restaurant location, and perhaps establish a franchise model.
Your dedication pays off, significantly increasing your total revenue to a staggering $200,000 a month. With your acute business acumen, you manage to sustain an impressive net margin of around 25% despite the larger scale of operations.
This means your monthly earnings could be a whopping $50,000 (25% of $200,000), placing you at the pinnacle of the fast-food business pyramid.
Your ambition and strategic execution could make this dream a reality! It all starts with a comprehensive, well-thought-out business plan for your fast-food restaurant.