Is It Worth Opening a Restaurant?

This article was written by our expert who is surveying the industry and constantly updating the business plan for a restaurant.

Who wrote this content?

The Dojo Business Team

A team of financial experts, consultants, and writers

We're a team of finance experts, consultants, market analysts, and specialized writers dedicated to helping new entrepreneurs launch their businesses. We help you avoid costly mistakes by providing detailed business plans, accurate market studies, and reliable financial forecasts to maximize your chances of success from day one—especially in the restaurant market.

What are the total startup costs for opening a restaurant, including equipment, permits, renovations, and initial inventory?

Opening a restaurant requires a total startup investment between $116,000 and $626,500, depending on the restaurant concept, size, location, and renovation requirements.

You'll find detailed market insights in our restaurant business plan, updated every quarter.

What is the expected monthly break-even point in sales revenue, and how many covers per day are needed to reach it?

The monthly break-even point for a mid-sized restaurant typically ranges from $25,000 to $45,000 in sales revenue, translating to approximately 2,000 to 2,500 covers per month.

Break-even analysis calculates the sales volume required to cover all fixed costs (rent, insurance, salaries) and variable costs (food, beverages, disposables). The formula is: Break-even Point = Fixed Costs / [(Sales – Variable Costs) / Sales]. For a restaurant with $15,000 in monthly fixed costs and a 65% contribution margin, the break-even sales target would be approximately $23,077.

If your average check per customer is $25, you need 40 to 60 covers per day to reach break-even, depending on your cost structure. Restaurants with higher average checks require fewer daily covers, while fast-casual concepts with lower check averages need higher customer volumes. Operating days per month (typically 25-30) and table turnover rates also influence the number of daily covers required.

Fixed costs include rent, utilities, management salaries, insurance, and loan payments. Variable costs encompass food ingredients (typically 28-35% of sales), hourly labor (15-20% of sales), and disposables. Tracking these metrics monthly allows you to adjust pricing, menu offerings, and labor scheduling to improve margins.

What are the average profit margins in the restaurant segment, and how long does it typically take to achieve profitability?

Full-service restaurants typically operate on net profit margins of 3% to 5%, while fast-casual and quick-service concepts achieve margins of 6% to 9%.

These margins reflect the high operational costs inherent in the restaurant industry, including food costs (28-35% of revenue), labor expenses (25-35% of revenue), rent (6-10% of revenue), and other overhead. Fine dining establishments may operate on even narrower margins due to premium ingredients and higher staffing requirements, while counter-service models benefit from lower labor costs and faster table turnover.

Most new restaurants reach consistent profitability within 12 to 18 months if managed efficiently. The initial months focus on building customer awareness, refining operations, training staff, and stabilizing food costs. Seasonal fluctuations, local events, and competition affect the speed of reaching profitability. Restaurants that fail to achieve break-even within 18 months often face challenges with location, concept execution, or undercapitalization.

Gross profit margins (revenue minus cost of goods sold) typically range from 60% to 70%, but operating expenses consume most of this margin. Controlling food waste, optimizing menu pricing, managing labor schedules, and negotiating supplier contracts directly impact your ability to convert gross profit into net profit.

This is one of the strategies explained in our restaurant business plan.

What is the current and projected demand for this type of cuisine or dining experience in the target area?

Demand for specific cuisine types and dining experiences varies significantly by location, demographics, tourism patterns, and local competition.

You must validate demand through market research that includes analyzing online reservation trends (via platforms like OpenTable or Resy), reviewing local tourism statistics, examining demographic growth, and assessing disposable income levels in your target area. High foot traffic areas, proximity to offices or residential neighborhoods, and cultural preferences all influence demand. For example, urban areas with younger populations may favor fast-casual concepts, while suburban locations with families may support casual dining.

Projected demand considers population growth forecasts, economic indicators, and shifts in consumer behavior. Post-pandemic trends show increased demand for outdoor dining, delivery options, and health-conscious menus. Ethnic cuisines, plant-based options, and farm-to-table concepts continue to grow in popularity across most markets. Analyzing competitor wait times, online reviews, and social media engagement provides insight into unmet demand.

Conducting surveys, hosting tasting events, and monitoring local food trends through review platforms like Yelp or Google Maps helps gauge interest before committing to a concept. Seasonal variations also affect demand—coastal areas peak in summer, while ski towns thrive in winter. Understanding these patterns allows you to plan staffing, inventory, and marketing campaigns accordingly.

Who are the direct and indirect competitors nearby, and what are their price points, customer volumes, and differentiating factors?

Direct competitors are restaurants offering similar cuisine, service style, and price points within your geographic area, while indirect competitors include cafes, fast-food outlets, food trucks, and meal delivery services.

Analyzing competitors involves visiting their locations, reviewing online ratings, examining their menus and pricing, observing customer flow during peak hours, and reading customer feedback. Differentiation strategies include menu innovation, superior service quality, unique ambiance, loyalty programs, community engagement, or specialized dietary offerings (vegan, gluten-free, organic).

What are the key risks related to location, staffing, or supply chain, and how can they be mitigated in the business plan?

Location, staffing, and supply chain risks represent the most common operational challenges that can undermine restaurant profitability and sustainability.

Location risks include poor visibility, limited parking, low foot traffic, inadequate accessibility, or proximity to too many competitors. Mitigation strategies involve conducting thorough site analysis before signing a lease, including traffic counts, demographic studies, parking assessments, and zoning verification. Negotiating flexible lease terms (shorter initial periods with renewal options) reduces long-term commitment if the location underperforms. Investing in signage, local partnerships, and digital marketing can offset visibility challenges.

Staffing risks encompass high turnover rates (industry average is 70-80% annually), difficulty recruiting skilled workers, training costs, wage inflation, and scheduling challenges. Mitigation involves offering competitive wages, creating a positive work culture, providing advancement opportunities, implementing efficient training programs, and maintaining backup staff contacts. Cross-training employees across multiple roles increases operational flexibility and reduces vulnerability to sudden departures.

Supply chain risks include food cost volatility, unreliable suppliers, quality inconsistencies, delivery delays, and ingredient shortages. Mitigation strategies include diversifying suppliers (maintaining at least two vendors for critical ingredients), negotiating volume-based contracts to lock in pricing, building relationships with local producers for backup supply, maintaining appropriate inventory buffers, and designing menus with ingredient flexibility to adapt to availability changes.

Additional risks include regulatory changes, equipment failures, food safety incidents, negative reviews, and economic downturns. Building contingency plans for each scenario—such as maintaining equipment maintenance schedules, implementing rigorous food safety protocols, and reserving working capital—strengthens operational resilience.

We cover this exact topic in the restaurant business plan.

What are the licensing, health, and safety regulations that must be met, and how long do they take to secure?

Restaurant licensing and regulatory compliance involves multiple permits, inspections, and certifications that typically require 4 to 12 weeks to secure, depending on location and business model.

• Business Registration: Register your business entity (LLC, corporation, sole proprietorship) with state and local authorities. Processing time: 1-2 weeks. Required before applying for other permits.
• Food Service Permit: Issued by the local health department after facility inspection. Covers food handling, storage, preparation, and sanitation standards. Initial inspection scheduled 2-4 weeks after application. Renewal required annually.
• Liquor License: Required if serving alcohol. Application involves background checks, community notifications, and public hearings. Processing time: 6-12 weeks (or longer in some jurisdictions). Costs range from $3,000 to $15,000 depending on license type (beer/wine vs. full liquor).
• Health and Sanitation Permits: Local health department conducts inspections to verify compliance with food safety codes, including proper refrigeration temperatures, handwashing stations, pest control, and waste disposal. Failed inspections require corrections and re-inspection before opening.
• Fire Safety and Building Permits: Fire marshal inspects kitchen equipment, ventilation systems, fire suppression systems, emergency exits, and occupancy limits. Building permits required for renovations or structural changes. Processing time: 2-6 weeks.
• Signage Permits: Municipal approval required for exterior signs, awnings, and displays. Zoning regulations dictate size, lighting, and placement. Processing time: 2-4 weeks.
• Music Licensing: If playing background music, licenses from ASCAP, BMI, or SESAC are required to avoid copyright infringement. Cost: $300-$2,000 annually depending on restaurant size.
• Employee-Related Permits: Workers' compensation insurance, unemployment insurance registration, and compliance with wage and hour laws. Food handler certifications required for all staff involved in food preparation.

Start the permitting process 3-6 months before your planned opening date to account for processing delays, inspection scheduling, and potential corrections. Working with a local attorney or business consultant familiar with restaurant regulations accelerates the process and ensures compliance.

What level of working capital is needed to sustain operations for the first 6 to 12 months, including payroll and rent?

Most new restaurants require working capital reserves of $100,000 to $350,000 to sustain operations for the first 6 to 12 months, covering payroll, rent, inventory replenishment, and essential overhead.

Working capital ensures the restaurant can operate during the ramp-up phase when revenue is building but expenses remain constant. The specific amount depends on monthly fixed costs (rent, insurance, utilities, management salaries), variable costs (food, hourly labor, supplies), and the time needed to reach break-even. Restaurants in high-rent urban areas or those with larger staff require more substantial reserves.

Monthly payroll for a mid-sized restaurant with 1 manager, 2-3 front-of-house staff, and 2-3 kitchen staff ranges from $10,000 to $30,000, depending on local wage rates and hours worked. Rent varies widely by location, from $3,000 per month in suburban areas to $15,000+ in prime urban locations. Adding utilities ($500-$2,000), insurance ($250-$1,000), inventory replenishment ($5,000-$15,000), and miscellaneous expenses creates a monthly burn rate of $20,000 to $60,000.

A 6-month reserve provides cushion for slow periods, unexpected equipment repairs, or delayed revenue growth. A 12-month reserve offers greater security but requires more upfront capital. Undercapitalization is a leading cause of restaurant failure, as owners run out of funds before achieving profitability. Securing adequate working capital—through personal savings, investors, or loans—is non-negotiable for operational sustainability.

What are the realistic customer acquisition and retention strategies that can be implemented with the current marketing budget?

With an initial marketing budget of $10,000 to $20,000, restaurants can implement cost-effective customer acquisition and retention strategies focused on digital marketing, local partnerships, and community engagement.

Customer Acquisition Strategies: Social media advertising on platforms like Instagram and Facebook allows targeted campaigns based on location, demographics, and interests. Paid ads cost $500-$2,000 per month and can reach thousands of local users. Google My Business optimization ensures your restaurant appears in local search results and Google Maps. Partnering with food delivery platforms (Uber Eats, DoorDoor, Grubhub) expands reach to delivery-first customers, though platform fees (15-30% per order) affect margins. Launch events, influencer partnerships, and local media coverage generate initial buzz without significant costs.

Customer Retention Strategies: Loyalty programs (digital punch cards, points-based rewards) encourage repeat visits. Email marketing captures customer data and enables promotions, event announcements, and birthday offers at minimal cost. Consistent food quality, attentive service, and a welcoming atmosphere drive organic word-of-mouth referrals. Responding to online reviews (both positive and negative) demonstrates customer care and builds reputation. Hosting community events, partnering with local organizations, and participating in neighborhood initiatives strengthen local ties.

Tracking customer acquisition cost (CAC) and customer lifetime value (CLV) helps allocate marketing spending efficiently. Digital channels provide measurable results, allowing you to optimize campaigns based on performance data. Reserving 5-10% of monthly revenue for ongoing marketing ensures sustained visibility and customer engagement beyond the launch phase.

It's a key part of what we outline in the restaurant business plan.

What are the expected labor costs, and what staffing structure is optimal for efficiency and service quality?

Labor costs for restaurants typically range from 25% to 35% of total revenue, translating to $10,000 to $30,000 per month for a mid-sized restaurant, depending on wage rates, hours of operation, and service model.

The optimal staffing structure balances service quality with labor efficiency. Front-of-house staff (servers, hosts) should be scheduled based on expected customer volume, with additional staff during peak hours and weekends. Kitchen staff must handle food preparation efficiently without compromising quality or safety. Cross-training employees to perform multiple roles (servers who can host, line cooks who can prep) increases flexibility and reduces labor costs during slow periods.

Labor scheduling software helps optimize shifts based on historical traffic patterns, minimizing overstaffing during slow periods and understaffing during rushes. Monitoring labor cost percentage weekly allows you to adjust schedules proactively. Offering competitive wages reduces turnover, which lowers recruitment and training costs. Benefits like meal discounts, flexible scheduling, and advancement opportunities improve retention.

What financial and operational KPIs should be tracked monthly to evaluate whether the restaurant is performing successfully?

Tracking key performance indicators (KPIs) monthly provides early warning signals of operational issues and opportunities for improvement, allowing data-driven decision-making.

Using restaurant management software or POS systems with built-in reporting simplifies KPI tracking. Weekly reviews of critical metrics (sales, labor, food cost) allow quick adjustments, while monthly analysis identifies trends and informs strategic decisions. Benchmarking your KPIs against industry standards highlights areas for improvement and validates operational performance.

What is the potential exit strategy or resale value of the business if the concept does not meet financial expectations within two years?

If a restaurant fails to meet financial expectations within two years, exit strategies include selling the business as a going concern, selling assets separately, or negotiating lease termination.

Sale as a Going Concern: If the restaurant has established customers, a recognizable brand, and operational systems, it may be sold to another operator. Resale value typically ranges from 1 to 2 times annual net profit for viable businesses, though unprofitable ventures sell at significant discounts or based on asset value alone. Buyers consider revenue trends, lease terms, equipment condition, and location desirability when valuing the business.

Asset Sale: Selling kitchen equipment, furnishings, POS systems, and inventory separately recovers partial investment. Depreciated equipment typically sells for 30-50% of original purchase price. This option is common when the restaurant concept fails but equipment remains functional and marketable.

Lease Termination or Assignment: Negotiating an early lease exit or assigning the lease to another tenant reduces ongoing liabilities. Some landlords allow lease buyouts, while others require finding a replacement tenant. Lease terms significantly impact exit flexibility—shorter leases or termination clauses provide more options.

Preventing the need for an exit strategy involves thorough market research before opening, maintaining adequate working capital reserves, monitoring KPIs closely, and pivoting the concept if early performance indicators suggest the original model is not viable. Many successful restaurants evolved significantly from their original concepts based on customer feedback and financial performance.

Conclusion

This article is for informational purposes only and should not be considered financial advice. Readers are encouraged to consult with a qualified professional before making any investment decisions. We accept no liability for any actions taken based on the information provided.