How much do restaurants spend on furniture?

Opening a restaurant is a big challenge that requires a huge investment of time and money. But the challenges don’t stop there—once open you have to focus on improving processes, managing labor schedules, and controlling restaurant costs.

Indeed, controlling restaurant costs is one of your biggest challenges. Not only do you have to manage many costs including, labor, equipment, and food—but you have to do it while dealing with inevitable price increases. Whether it’s food cost increases due to inflation or a labor cost rise due to rising minimum wage, cost increases, like taxes, are pretty much a guarantee in the restaurant industry.

So, how do you remain ahead of the curve? What costs do you focus on? How do you control these costs to stay profitable? This guide answers these questions and more. You’ll learn almost everything you need to know about restaurant costs so that you can remain profitable.

Ready? Let’s get started.

The Costs of Opening and Running a Restaurant

The total cost of opening a restaurant differs between restaurateurs due to factors like size, location, and concept. The upcoming section details these costs across two categories: restaurant startup costs and operating costs.

When reading this section keep the following in mind:

• Certain costs may not apply to you. For example, you may choose to lease and not incur construction costs
• The cost ranges are only guidelines and your cost will differ
• The suggested expense to sales percentages are only recommendations
• Some costs will be both startup and operating costs. For example, though food costs are running costs, you should budget for beginning inventory when opening your restaurant
• Many of your startup costs will be one-off costs, though some are subject to annual renewals

Restaurant Expenses Vs. Restaurant Costs

One often confused (and misused) sets of terms are restaurant costs and restaurant expenses. The difference between a cost and an expense can get very technical depending on the context. In this guide we won't worry too much about the differences, but in general:

• A restaurant cost is a one-time expenditure on a material resource like food, liquor, dishes or kitchen equipment.
• A restaurant expense is a recurring payment that generates revenue like utilities, rent, payroll, or marketing.

One often confused (and misused) sets of terms are restaurant costs and restaurant expenses. The difference between a cost and an expense can get very technical depending on the context. In this guide we won't worry too much about the differences, but in general:

Restaurant Startup Costs Breakdown

Your total restaurant startup cost will vary depending on whether you're renting or owning the space, which equipment you will need, how much you plan to renovate, and more. However, the types of restaurant startup costs you will encounter are fairly static. Here's a breakdown of what you can expect:

• Security deposit of $2,000 to $12,000 if you’re renting (varies by location)
• Loan down payment of 10% if you’re buying a building.
• Construction and renovation costs differ by location and contractor.
• Licensing costs:
• Business registration fees of $100–$1,200 plus renewals (vary by state)
• Liquor license costs of $50 to $300,0000 depending on license type and state
• Music license (ASCAP License, BMI License, and SESAC License) will cost you $200 to $2,000/year
• Building permit, health permits, food handler’s permit, zoning permit, and alcohol tax permit
• Professional services like bookkeeping, accounting and consulting (varies by location and the skill level of the expert)
• Restaurant equipment will cost $100,000 to $300,000 depending on equipment type, whether it’s new or used or if you choose to lease or buy
• POS costs starting at $600 for hardware (differs by vendor, solution, and number of terminals)
• Marketing costs before launch like signage and advertising
• Beginning food inventory
• First month’s rent, wages, and salaries

Restaurant Operating Costs Breakdown

You can count on the following monthly operating costs for your restaurant.

• Rent and utilities (electricity, water, internet, cable, and phone): 5% – 10% of revenue
• Food cost: 25% – 40% of food sales. This is only a guideline. Your restaurant is different so ensure you find your ideal food cost (discussed later)
• Labor cost: Roughly 30% of revenue including management salaries of 10%
• Insurance varies by provider and type. Property insurance, for example, will cost you $1,000 to $2,500
• Monthly marketing costs
• Miscellaneous expenses like breakage costs

The Difference Between Fixed and Variable Restaurant Costs

Each cost of running a restaurant falls into one of two categories: fixed and variable costs.

• Fixed costs include rent, mortgage, salaries, loan payments, license fees, and insurance premiums. These costs are easier to budget for when opening a restaurant because they don’t fluctuate much each month.
• Variable costs include food, hourly wages, and utilities. These costs are harder to predict when opening a restaurant because they vary according to output. After several months, you’ll know what to expect each month.

Understand and Calculate Your Prime Costs

Prime cost is the sum of direct labor costs and the cost of goods sold (CoGS). Cost of goods sold is the raw material cost of your beverages and food, and labor cost includes actual labor, employee benefits, payroll taxes, healthcare, and bonuses.

Prime cost does not include equipment and supplies, utilities, menu design, signage, decor or any other costs unrelated to the production of your product.

Prime cost is your most important key performance indicator. But why?

Prime costs:

• Consist of your largest restaurant expenses and ensures you stay profitable
• Change constantly unlike fixed expenses that require monitoring and tracking
• Can be controlled by implementing labor and F&B cost control measures
• Affect almost every aspect of your restaurant

Simply put: Prime cost help you understand how profitable your business is

But How Do You Calculate Prime Cost?

Use this formula:

Breaking it down:

Step 1: Calculate CoGS for a specific period using this formula:

Beginning Inventory of F&B + Purchases - Ending Inventory

For example, if your beginning inventory for February is $11,000, you purchased $4,000, and your ending inventory is $8,000, then your CoGS is $7,000 ($11,000+$4,000-$8000).

Step 2: Calculate labor costs for the same period

Tally February’s total salaries and add total wages of hourly workers. You can calculate wages by multiplying the hourly rate by the number of hours worked. For example, if your monthly salaries are $15,000 and wages, $ 10,000, the total labor cost is $25,000.

Step 3: Calculate prime cost

Your prime cost will now be $32,000 ($7,000 plus $25,000). On its own, this number doesn’t mean much. But, calculated as a percentage of sales, it becomes far more useful:

Prime Cost Percentage = Prime Cost ÷ Total Sales

For example, if February sales are $65,000, then your prime cost is 0.49 or 49% ($32,000 ÷ $65,000 x 100). This means that 49% of your revenue is used to cover prime cost.

Understand and Control The 5 Major Restaurant Costs

There are five major restaurant costs you can expect:

1. Labor
2. Food
3. Utilities
4. Equipment and supplies
5. POS systems

Restaurant Labor Costs

The following is an overview of the absolute basics of understanding and calculating your labor costs, for a deeper dive check out Restaurant Labor Costs: How to Manage Your Restaurant Labor Cost Percentage.

Labor is crucial to the success of any restaurant, but it is also a substantial investment. And, if you’re not careful, labor costs can spiral out of control and negatively impact your profits. The good news is you can better manage labor cost with the right cost control tactics. But before you can implement these tactics you need a proper understanding of what labor cost is and how to calculate it.

What is Labor Cost?

Labor cost is more than hourly wages and salaries—it also includes:

• Overtime and bonuses
• Payroll taxes
• Health care
• Vacation and sick days
• Bonuses
• Any other labor-related costs

Calculating Labor Cost

Calculating total labor cost, then is easy—simply tally the total from each of the above categories (if applicable). Consider the below example:

• Salaried and hourly employee wages: $150,000+
• Overtime and bonuses: $30,000+
• Payroll taxes: $30,000+
• Health care: $30,000+
• Vacation and sick days: $10,000+
• Bonuses: $10,000+
• Total labor cost = $260,000

But again, on its own, this figure isn’t very useful. Enter the labor cost percentage.

Calculating the Labor Cost Percentage

Labor cost percentage assesses how efficient labor is in generating profits.

Calculate it using the following formula:

Breaking it down:

Step 1: Gather sales data for a specific period

You can get this information from your annual income statement or sales reports. Let’s assume your sales are $950,000/year.

Step 2: Calculate labor costs for the same period

Calculate labor costs by adding wages, salaries, and other applicable categories. For this example, let’s use the total labor costs of $260,000.

Step 3: Divide labor costs by sales

This gives us a labor ratio of 0.274 ($260,000 ÷ $950,000)

Step 4: Multiply your labor ratio by 100

0.274 x 100 = 27.4%

It’s as simple as that. You can repeat the above four steps for any period—just ensure you calculate your labor costs and sales for the same period.

You’ll want to continually track your labor cost percentage to assess its movement. A constant upward trend should be a warning signal to get it under control. You may also choose to compare your labor percentage against industry averages. While averages are precisely that—averages, they do let you know how you’re performing compared to restaurants in your industry.

Labor Cost Percentage Averages

Below is a breakdown of average labor cost percentages in Q4 of 2017:

• Quick service: 29.4%
• Fast casual: 28.9%
• Casual: 33.2%
• Upscale casual: 30.4%
• Pizza: 31.3%

The total average was 30.5%, which is a 0.7% increase from 2016.

4 Ways to Control Restaurant Labor Cost

If your labor cost percentages continue to rise, your first reaction may be to schedule less staff or reduce wages. However, this can harm customer service and profits. Here are four ways you can control labor cost without sacrificing service:

1. Train Staff

Proper training improves efficiency, which means you can have a leaner workforce without sacrificing customer service. So, train new hires properly by showing them how to use your POS, clearly articulate your customer service standards, and let them shadow other employees. Also, ensure all employees have access to your employee handbook to prevent any human error from costing you money.

2. Improve Employee Retention

The high-turnover rates are well-documented in the restaurant industry, with these rates exceeding 70% in 2016. What’s also well documented is that replacing existing employees costs more in the long run than retaining them. After all, training new hires is an investment of time, resources, and money.

Preventing these turnover rates, then, is a no-brainer. Here are a few ways to do that:

• Reward employees: Track sales reports to see who’s selling the most and recognize them publicly, offer time-off, or give a bonus
• Provide growth opportunities, so employees don’t leave because they feel like they’re stagnating

3. Audit and Improve Processes

Analyze all processes such as inventory management and time clocking to see if you can make improvements to boost efficiency. If, for example, you still rely on manually clocking out, consider a solution that digitizes the process and allows you to generate business data without having to wade through endless numbers.

And, don’t forget about streamlining your employee scheduling...

4. Optimize Employee Scheduling

Smart scheduling can save you time, improve workforce efficiency, and reduce labor costs. A employee scheduling software like 7shifts can help. Unfortunately many restaurateurs:

• Waste time manually creating and flipping between schedules in spreadsheets
• Struggle to track repeated modifications to overtime and general schedules
• Use spreadsheets to compare actual vs. scheduled labor which leads to mistakes
• Jeopardize customer service by over- or under-staffing on manual schedules

The right tools solve these problems and simplify the scheduling process by letting you:

• Create schedules fast—in less than 30 min
• Crowd-source staff availability requests, reducing manager input to one-touch approvals
• Create optimized schedules, so you’re never over or understaffed
• Analyze labor reports and sales ratios to help you track and reduce labor costs

7shifts and TouchBistro are two such tools and the results speak for themselves: One restaurant owner saved a whopping 4% in labor costs after using these tools.

The bottom line: The right tools simplify scheduling and save you time while helping you achieve an optimum cost ratio compared to sales—all of which reduce operating expenses and boost profits.

Pro tip: Use this labor cost savings calculator to see how much you can save on labor costs using a scheduling app like 7shifts.

Recommended Reading: Shift Schedules: The Ultimate How-To Guide

Restaurant Food Costs

This section gives you what you need to know to tackle food costs today. For the complete story, including 6 tips for reducing your food cost percentage check out

This section gives you what you need to know to tackle food costs today. For the complete story, including 6 tips for reducing your food cost percentage check out Restaurant Food Cost: Master Operational Risk Today

There are two types of food cost restaurants need to manage:

• Plate cost: The cost of a single dish
• Period cost: The cost of food over a specific period, calculated by using the CoGS formula.

Why is Food Cost Important?

Food costs are one of the most important costs to track. It helps you accurately price your menu items, has a direct impact on your prime cost and helps you run a profitable restaurant.

How to Calculate Food Cost

You can calculate the food cost percentage for both plate and period cost by using the following formulas:

Calculating Plate Cost

Follow these steps:

Step 1: Calculate the dollar cost of a single dish

This is tricky but doable:

1. List the ingredient for a single dish: For example, if you want to determine the cost of a bacon and eggs breakfast, list bacon, eggs, toast, butter, and salt.
2. Determine the cost of all ingredients: For example to calculate the cost of butter you could portion out 500g of butter. Let’s say you get 40 portions. Then divide the total cost of the butter by 40 to get the cost of that portion. If the total cost of the butter is $4.50, then the portion cost is $0.11 ($4.50/40).
3. Add all ingredients costs to the total plate cost. For this example, let’s assume it’s $1.50.

Step 2: Divide the dish cost by the dish sales price and multiply by 100

Let’s assume the sales price is $5.00, then your food cost percentage will be 0.3 or 30% ($1,50/$5.00*100).

Calculating Period Cost

Step 1: Calculate total food cost for a specific period

This is a little different and requires that we revisit the CoGS formula:

Food cost = Beginning Inventory + Purchases - Ending inventory

You can use this formula to calculate the period cost for any category in your restaurant, whether food, wine or beer. But for this example, we’re calculating the cost of food for February:

• February’s beginning food inventory = $4,000
• February’s food purchases = $20,000
• February’s food ending inventory = $3,000
• Total food costs = $21,000 ($4,000 + $20,000-$3,000)

Step 2: Calculate total food sales for the same period

Calculate food sales (not total sales) for February. You can get this data from your POS system. Let’s assume it’s $60,000

Step 3: Divide food cost by food sales and multiply by 100

February’s food cost percentage is 35% ($21,000 ÷ $60,000*100).

You’re likely wondering: “But is 35% a suitable number? And, how do I know I’m on track?”

Your Maximum Allowable Food Cost Percentage

And follow these four steps:

1. Tally labor costs and overhead expenses (exclude food costs)
2. Convert labor costs, overhead expenses, and profit goals to a percentage of total sales
3. Subtract these percentages from 100
4. The final number is your (Maximum Food Cost) MFC percentage

For example if:

• Labor costs = $15,000
• Monthly expenses= $10,000
• Profit goal = $7,000
• Total sales = $45,000

Then, the MFC percentage is:

• 100 - (($15,000 + $10,000 + $7,000) ÷ $45000))
• 100 - (0.71 × 100) = 29%

Cost Controls for Food Costs

Calculating your food cost percentage and tracking it is the first step in controlling costs. Once you know how it changes over time, you can implement strategies to improve it. Here are several:

1. Monitor the price of seasonal ingredients which often fluctuate in price and ensure your menu prices include these fluctuations.
2. Build relationships with multiple suppliers to find the best market price for ingredients.
3. Implement inventory management controls. For example, your chef should inspect the food when suppliers deliver so that it matches the actual order in terms of quality, quantity, and weight.
4. Minimize food spoilage by finding creative ways to use ingredients close to expiry e.g., create a special of the day.
5. Define reasonable portion sizes. For example, if servers regularly bring unfinished plates of food into the kitchen, it may be time for smaller portions.
6. Embrace zero-waste cooking by using every part of an ingredient.
7. Train staff to be mindful of controlling food costs.

Restaurant Utility Costs

Restaurant utility costs (technically, an expense) include water, electricity, natural gas, internet, cable, and cell phone costs. Estimates and research suggest that many restaurants budget less 5% of their total costs to utilities and that the following averages and costs apply in the U.S:

• Commercial electricity usage is 10.56¢/kWh
• The monthly cost of electricity is $700
• The electricity cost per square foot per year is $290
• The natural gas cost per square foot per year is $0.85

Of course, these are guidelines—your restaurant utility cost will differ based on:

• Location: Different cities and states will charge different rates per kWh.< New York, for example, charges $18.17, while North Dakota, $9.89.
• Size: Larger restaurants require more power to operate
• Climate: Weather determines how much you spend on heating and cooling
• Infrastructure: Who your internet, cable, and cell phone provider is

Control Restaurant Utility Costs

While you cannot always control utility costs, you can implement cost controls to reduce your utility bill:

1. Negotiate package deals for your internet, cable and cell phone upfront.
2. Negotiate rates throughout your relationship with these providers. Yes, this does work! In the 4-minute video below, Ramit Sethi provides a script you can use to help you negotiate these and other rates. This script has saved many people thousands of dollars in monthly bills:

• After calling the company, remind them you’re a loyal customer
• Mention you wouldn’t want to switch because of another company’s lower rates
• Ask them what they can do for you (i.e., give you a lower price)

Cut certain monthly bills if you’re not using the service.

Manage your consumption by:

• Installing occupancy sensors in walk-in coolers and storage areas that power down equipment automatically.
• Using energy saving appliances and light bulbs

Recommended Reading: How To Keep Restaurant Kitchen Costs Under Control

Restaurant Kitchen Equipment Costs

Kitchen equipment costs include everything from small wares and furniture to big-ticket kitchen items like ovens and fryers. The restaurant business budget, concept, and restaurant size will inform your equipment needs.

Although everyone's equipment needs will be different, expect to pay between $100,000 to $300,000.

Below is a breakdown of kitchen equipment costs:

• Smallwares like tableware, utensils, glasses, takeout containers and bar equipment: $80,000
• Kitchen Equipment such as ovens, refrigerators, freezers, and fryers: up to $100,000
• Furniture including tables, chairs, and shelving: $5,000 to $40,000

Once open, you’ll also need to budget to breakages like broken glasses. Budgeting for this may be hard at first, but you’ll quickly find a monthly cost baseline within a few months of being open.

Dive deeper in our follow up post on restaurant kitchen equipment costs and save time with specific tactics to help you find the right balance between renting, leasing, and buying.

Cost Controls for Equipment and Supplies

There are several ways you can minimize your equipment and supply costs.

1. Lease equipment: Leasing usually involves monthly payments with some giving you a buyout option at the end of the period. The biggest advantage is that you immediately get the equipment you need without a large capital outlay. A big downside is that you don’t build any equity.
2. Buy used restaurant equipment to save money. You can purchase from resales stores, auction houses, private sellers, and online suppliers. But ensure you do your due diligence—otherwise you may need to pay for repairs that cost more than buying the item new.
3. Regular maintenance. View major equipment in the same way you would your car: Service it regularly to prevent a sizeable one-off repair that could cost you thousands of dollars.
4. Minimize breakages. Broken glasses are part and parcel of running a restaurant. However, you can minimize damages by training staff on proper glassware handling and ensuring glass racks are the right fit and don’t put unwanted pressure on the glasses.

Restaurant POS System Costs

Today POS systems are cheaper thanks to cloud computing and the software as a service (SaaS) distribution model. But calculating your POS budget can be tricky.

Not only are there many vendors offering different prices, but these same vendors also have different packages—think "premium" or "basic." The key, then, to determining your total POS system cost is to:

• Understand all the cost components when buying a POS (it’s not just the hardware)
• Know your business needs (some POS systems offer advanced functionality you don’t need)
• Find a cost-effective solution that meets your requirements to help control cost

Understanding the POS System Cost

POS system costs typically include:

• One-time hardware fees for cash drawers, POS display terminals, credit card readers, receipt and order printers, wifi routers, and workstations. This costs anywhere from $600 for a handheld table to $3,000 for an advanced system. The final cost will depend on the vendor, the number of POS display terminals and if you purchase extras like networking cables, receipt printers, and additional tablets
• Monthly software subscription fees of $70 to $400/month depending on the vendor, chosen package, and the number of terminals
• Support and maintainaince—usually charged monthly or per call-out
• Installation costs differ depending on scope, vendor, and the number of terminals
• Training costs are between $360 to $600
• Payment processing fees that vary depending on the payment processor

Payment processing fees are very much a part of the total POS systems cost. But understanding these fees and all the costs involved is tricky, especially as many payment processes are not transparent about these costs. In the following sections, we deconstruct these fees, so you understand what you’re paying for.

Payment Processing Fees Explained

There are many players involved in a single transaction:

• You, the merchant who accepts payment
• Payment processor that provides payment terminals, clears the transactions, and sends it to your bank.
• Card brand network: Credit and debit card companies like Mastercard and Visa
• Issuing bank that provides credit cards to customers.

And, a lot is happening in the background. Without going into too much detail, the payment processor manages the entire payment process, incurring several fees along the way:

• An interchange fee the card network charges the merchant which varies between 0.3% (debit card) and 1.8% (credit card)
• A small Card brand fee for every transaction regardless of card type

The payment processor charges these fees back to you with a markup on the cost (either a percentage or flat fee). While what you pay depends on the method they use to calculate the price - cost plus method, fixed fee, interchange differential or tiered fee— expect to pay between 2.2 and 4.5% for every transaction.

Reducing POS systems cost

You can reduce your POS systems cost by researching and comparing the prices of various vendors. While we understand that you want to run a tight ship, ensure you do the research and that the company you choose is reputable (check reviews online) and has a solution that's right for your restaurant. A solution that provides only the features you need with the option to upgrade as you scale. In the end, that’s far more important than cutting corners to reduce your costs.

Pro Tip: Find software that can, at minimum, offer these features:

• Inventory management
• CRM
• Sales and labor reports
• Employee scheduling
• Staff management and communication
• Basic marketing

Recommended Reading: Opening and Owning a Bar: Everything You Need to Know

Conclusion

Opening and running a restaurant is undeniably challenging. You have to find capital, manage 24/7 employee schedules, optimize processes and control costs. Controlling costs is one of the most challenging tasks, but it’s also the most important. Costs impact your profitability. And if you don’t control them, you risk closing your doors.

This ultimate guide provided you with everything you need to know to better understand and manage restaurant costs. You now understand the five major costs of opening and running a restaurant and know exactly how to calculate three essential costs: Prime, labor and food cost. More importantly, you know what strategies to implement to keep these costs under control so that you remain profitable. And that’s all you really want, right?

When it comes to controlling labor costs, look to team management software. A platform like 7shifts offers scheduling, team communication, tip management, payroll, and more. These easy-to-use tools help you make sure your employees are scheduled efficiently and paid correctly, increasing staff satisfaction and retention.

Reinventing the way restaurant teams work

Simple to set up, easy to use. Give your restaurant the team management tools they need to be successful. Start your free trial today.

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Nick Darlington

Nick Darlington (www.nickdarlington.com) is a B2B writer who conceives, writes and produces engaging website copy, blog posts and lead magnets for technology companies.

Estimating costs for a new restaurant is a lot like looking at housing prices—the price you can expect to pay depends on location, the size of the restaurant, and the quality of your equipment and design.

One survey of restaurant owners across the country showed that the median cost to open a new restaurant was $375,000, or $113 per square foot. However, the lower quartile of respondents reported their restaurants cost an average of $175,500 ($59 per square foot) to start while the upper quartile reported average opening costs of $750,500 ($177 per square foot).

How much does it cost to start a restaurant? Well, these reported costs indicate just how variability there is. That said, as you create your business plan and start to explore funding options, considering the following restaurant startup costs can help you get an estimate of what you may pay.**

Estimated Restaurant Startup Costs**

Leased restaurant space: $3,000–$8,750 per month

Permitting, licensing, and legal fees: a few hundred to a thousands of dollars, varies depends on permits required as well as local costs

Remodeling and renovations: $24–$143/sq ft or $70,000–$472,500

Restaurant equipment and cooking tools: $40,000—$196,000

Restaurant furniture and supplies: varies depending on the size of the restaurant and quality of furnishings—chairs alone can range from $26–$300+

Pre-opening food, beverage, and labor costs: varied

Marketing costs: approximately 3-6% of monthly sales

Buying Versus Leasing Your Restaurant Space

Your upfront costs will likely be much higher if you buy a restaurant space versus if you rent one. And of course, the cost of that space may vary dramatically based on the square footage and market. Here are some cost details for both leasing and buying.

Leasing Your Restaurant Space

Rents for commercial spaces are often calculated on a dollar-per-square-foot basis. Therefore, the size of the restaurant can have a big impact on the cost of the lease, as can the area where the restaurant is located. When you take these two factors into account, you’ll find that restaurant leases can widely vary in cost.

A recent survey of restaurant owners found that most leases cost between $3,000–$8,750 per month. For your first payment, you’ll typically be responsible for at least the first month’s rent and a refundable security deposit (often equivalent to the first month’s rent) upon signing.

Buying Your Restaurant Space

If you plan to buy your restaurant space, expect to pay much more up front!

The cost to buy a restaurant can vary wildly by size and market, but the median cost to buy a restaurant in 2020 was $200,000 while the average sale price was $410,000. To get a better sense of what restaurants cost in your area, you can connect with a local real estate agent. The down payment can vary depending on the financing you use for the purchase. Many commercial loans and Small Business Administration (SBA) loans require a down payment of 10% to 35% of the overall loan amount.

Permitting, Licensing, and Legal Fees

To cover your legal bases, you’ll need to comply with certain permitting and licensing rules. And some of these come with a cost.

To start, you may need a business license. The fees for these vary by state and can range from $50 to several hundred dollars. Check with your Secretary of State to learn about your local business license requirements.

You may need a Certificate of Occupancy from your local building inspector when any construction is complete. The costs vary depending on location, but you can expect to pay around $250. You’ll also need some licensing in order to serve food, usually from your local health department. And if you plan to serve beer, wine, or spirits, you’ll need some kind of liquor license. Food manager permits can cost a few hundred dollars, and liquor licenses range from $100 (in Idaho) to nearly $14,000 (in California).

You may also need to pay for fees and permits to hang signs. These costs vary depending on location as well as the size of the sign. In Chicago, the fees to install an on-premise sign can range between $250–$1200 depending on the size of the sign, and in Austin sign review fees and annual license cost between $124 and $187 depending on the type of sign. Check with your city to determine what you can expect to pay for sign fees and permits.

You may also have to pay entertainment fees if you plan to play music or sports broadcasts, or install gaming equipment like pool tables or gambling machines.

And finally, hiring a lawyer to help you navigate all of these legalities is a good way to avoid missteps. Business lawyers charge $150–$325 per hour, but they can save you major headaches down the line.

Remodeling and Renovations

Once you’ve secured your space, you’ll probably want to do some renovations to make it your own.

These costs will vary widely based on the market, the size of the property, and the standard of your renovations. For example, a fast-casual restaurant will probably use less expensive finishes than a fine dining restaurant.

One estimate says that the national average cost for “mid-level” finishes is about $160/sq ft for a 2,000 sq ft property. You can use this construction estimate calculator to get an idea of the cost for your market and finish standard.

Kitchen Equipment and Cooking Tools

Kitchen Equipment

This has the potential to be the largest line item in your cost planning. Reliable kitchen equipment is vital to anyone who plans to serve food, and spending money on new or high-quality equipment now can limit costs down the line! Depending on the type of restaurant, you may need ovens, flat tops, and fryers for cooking, a hood vent for ventilation, a commercial dishwasher, refrigerators and freezers, and more.

The Webstaurant Store, which is in the business of outfitting restaurants with equipment, estimates costs of $75,000 to $115,000 for the average restaurant to get their equipment. You may be able to save by buying second-hand equipment or leasing some larger items, like your commercial dishwasher or walk-in cooler.

Cooking Utensils

In addition to your equipment, you’ll need to supply your kitchen with smallwares and utensils. Pots and pans, spatulas and spoons, sheet pans, mixing bowls, knives, scales, and more must be purchased in advance, so your cooks have the right tools.

Point of Sale (POS) System

Your POS system is how the servers and bartenders communicate with the kitchen. It also ensures that customers get checks with the right totals, and it may also help you run financial reports at the end of the day, week, and month.

This cost will depend on how many terminals and how much sophistication you need. A small counter deli may just need one basic terminal, while a larger restaurant may have half a dozen terminals, plus handheld ordering tablets for the servers. Expect to pay $500 to $10,000 for your POS hardware plus additional monthly fees.

Restaurant Furniture and Supplies

This is another area where your restaurant style and size will likely have a major impact on your costs. You’ll need to outfit your dining room with tables and chairs, barstools, server stations, and a host stand. You’ll also need plates, silverware, glassware, and possibly linens. A chic fine-dining restaurant will want to spend big on these customer-facing items to create the right ambiance. But a casual soup-and-sandwich lunch spot can have much more simple and affordable furniture and supplies.

If you want to get an idea of the range of costs, just consider plates! You can get plates for just a few dollars each, or you can get them for more than $35 each if you want to splurge.

As for size, a small lunch cafe could only seat 30, so it may not need a high volume of supplies. A huge pizza restaurant, on the other hand, can seat hundreds and will need a much larger volume of tables, chairs, and smallwares.

Pre-Opening Expenses

Costs like food, beverages, and labor will be recurring monthly expenses. But you’ll also have to invest in these costs before you open your doors.

Food must be purchased before you open, so you’ll have something to serve. But you may need to buy ingredients even further in advance if your chef has to work on recipe development, and so they can train the rest of the kitchen team.

You’ll also need to stock your bar—whether you serve alcohol or not. Even if you only serve water and soda, you may need to contract with a soda provider to get a soda machine, CO2 dispenser, and syrups.

And you’ll have labor costs, too. As you hire your new staff, you’ll have payroll costs while they complete their training in preparation for the grand opening.

Marketing Expenses

It’s easy to let marketing costs spiral out of control if you’re not careful. But this is also where you can DIY some of the work as you get on your feet.

At a minimum, you may need a website and social media presence, to help spread the word about your new restaurant. You can use a website builder like WordPress or Squarespace to design your own site without paying for a web designer. And for social media, you can take photos yourself and post inexpensive ads on Facebook or Instagram that target people in your area.

You can also reach out to media like the local news, food influencers and bloggers, and food magazines to let them know that you’ll be opening soon. They may be willing to feature you at no cost.

While you can handle marketing internally, you might find it worthwhile to hire experts for these tasks. You can also start with a DIY approach and then hire pros as your sales start to grow. A good benchmark is to spend between 3% and 6% of monthly sales on continued marketing.

Finding Funding for Your Restaurant

These resources can help you to fund your restaurant.

• Loans: Local banks, credit unions, and the Small Business Administration provide loans to new businesses.
• Grants: Local or national organizations may offer grants to new restaurants.
• Investors: Investors provide funding to new businesses in exchange for a percentage of the profits.
• Savings or Retirement Funds: You can self-fund if you have savings or a retirement account that you can draw from.
• Crowdfunding: Request donations from friends, family, and the public to get your restaurant off the ground. Offer an incentive, like a free meal or VIP treatment for certain levels of contribution.

“Escoffier is really helping me actually run a restaurant, run a café, or run a business. And that’s what I want. I want my own restaurant.”*
Tiffany Moore, Culinary Arts Graduate

Know What to Expect by Getting Educated

As you plan out your new restaurant, it’s important to know all of these cost categories and what’s reasonable in each, so you can ensure that your restaurant can bring in enough income to cover them all and still make a profit.

It takes most restaurants three to five years to be profitable, so make sure to look long-term as you’re assessing your concept’s viability.

And to get a better grasp on business concepts like profit and loss, entrepreneurship, and profitability, consider a degree or diploma in Culinary Arts, Food Entrepreneurship,or Hospitality and Restaurant Operations Management from Auguste Escoffier School of Culinary Arts!

To read more about food entrepreneurship, try these resources next:

This article was originally published on July 22, 2021, and has since been updated.

*Information may not reflect every student’s experience. Results and outcomes may be based on several factors, such as geographical region or previous experience.

**Figures included in this article are for informational purposes only and are estimates based on industry trends or a range of costs/expenses. Please research costs for your geographic location and individual situation.