How To Estimate Revenue for Your Burger Franchise Business
February 18, 2020
Foreword : Best Burgers in Canggu and Seminyak, Bali
Just a quick foreword. Everybody is talking about Dod’s Burger – where our fresh and delicious burgers are famous in Bali ! If you happen to visit the beautiful island or if you are already here, please do pop down to one of our outlets and try our famous gourmet burgers. We are located in Seminyak and Canggu. We also do catering for your events. Thank you !
Estimating Income on Your Burger Franchise Business
Developing a pro forma P&L is an opportunity to estimate your potential profitability and to create a very useful planning tool. Remember the saying, “Those who fail to plan, plan to fail.”
The information you use to prepare your pro forma P&L should come from your market research and analysis, and it should be as comprehensive, objective, and realistic as possible. Obviously, the better your market research, the greater the likelihood of achieving useful results. Combine your research and analysis with a good dose of common sense. All too often new restaurateurs get carried away with romantic notions of the business and end up preparing pie-in-the-sky financial projections, only to end up with pie-in-the-face results.
Some people don’t bother to prepare projections; they simply make grandiose assumptions. They start out with a dream only to end up with a nightmare. I personally have seen a number of financial feasibility studies over the years that had little or nothing to do with reality. Avoid this mistake by estimating your sales conservatively and your expenses realistically and objectively. It is much better to underestimate sales and overstate expenses than the other way around!
How to Forecast Sales Volume
The first step in preparing your financial plan is to forecast sales volume. Use the information you gathered when researching your target market: your competitors’ prices, market saturation of concepts similar to yours, the spending habits of your target customers, and your seating capacity. Once you have a reasonable estimate of potential sales factors, complete your forecast of potential sales volume by establishing the following:
- The days of the week that you will open for business
- Your hours of operation and the meals you wil serve: breakfast only; breakfast and lunch; lunch only; lunch and dinner; dinner only; or breakfast, lunch, and dinner
- Your estimated average food and beverage bill size per customer per meal period
- Your restaurant’s seating capacity or number of seats
- Your estimated number of customers, or seat turns, per meal period
- Measurement periods: daily, weekly, monthly, and yearly.
You should also determine your hours of operation based on your concept, your location, and the demographics of your market and your competition. A good way to gauge your initial hours of business is to look at the operating hours of your immediate competition, combined with your market research, to determine whether there is a need for a late-night bar, early morning breakfast, and so on.
Gauge your average bill size per customer by estimating what prices your target customers are willing to pay for similar food and beverages in a similar type of setting. You should also estimate the average amount each customer will spend for food and beverages respectively at each meal period and at the bar. Your starting point should be other concepts in the area—especially those that will be your immediate competitors—that have similar design, décor, and service elements as well as similar food, menus, and prices.
Remember: the goal is not to simply copy your competition’s prices, but to assess the competitive pricing environment in your market, that is, to find out what the market will bear. The best way to get estimates of per-person food and beverage bill averages is to ask owners, managers, waiters, and bartenders at similar local concepts. When I first started Dod’s Burger in Kuta, Bali, I went to door to door to my potential competitors and discreetly asked staff working there to give me information about sales volume etc (the keyword here is discreet and you may have to give a bit of cash to fish out the information).
For most restaurant concepts, when estimating your restaurant’s average bill size, it is important to differentiate average bills for each meal period because prices, portion sizes, and customers’ eating habits often differ according to the meal period. From my experience at Dod’s Burger, it’s really amazing the difference the sale of a few additional desserts and drinks can make in an average bill and your bottom line.
One way to estimate customer counts is seat turnover. Seat turns are the number of times each seat in your restaurant will be occupied during each meal period. For example, if you served one hundred customers during dinner, and your restaurant had fifty seats, your seat turnover would be one hundred divided by fifty, that is, two. When estimating customer counts or seat turns, do not assume that your business will experience the same level of business every day, week, and month of the year. When forecasting revenues, it is important to consider seasonal fluctuations and the daily business patterns in your market area.
In holiday resorts like Bali, many restaurants experience a decline in business from mid-January to mid-April, when travelers return to their own countries. During your market research, talk to restaurateurs in your area about seasonal fluctuations in their business.
To determine the average lunch, dinner, or bar bill for any given day, divide the total sales by the number of customers. For example, the average bill check on Monday could be 3,5 million Rupiah divided by 35 customers, which equals 100,000 per bill. While these average numbers don’t seem to be very useful now, they will become important later on to track your business and spending trends. For example, if your average check sizes decrease, you should investigate the reasons for changes in your customers’ spending habits. Possible reasons could be poor service or customer dissatisfaction with food and beverage quality or portion sizes. You can also periodically compare your average check sizes with those of your nearest competitors to see how competitive your overall prices are.
Once you are up and running, you may want to do daily, weekly, monthly, and yearly forecasting and budgeting, but for your initial pro forma, the most meaningful measurement periods are weekly, monthly, and annually. For my business, monthly numbers are important because they factor in our major expenses—such as payroll, rent and occupancy costs, and utilities—which are determined and paid (or accrued for) monthly.
Author’s note :
Hello I am Jun and co-owner of Dod’s Burger outlets in Canggu and Seminyak, Bali. I was previously an investment banker and have been in the burger business for almost three years. I teach people who wish to start a burger business from all over the world. I also give advice to those who want to start a business in Bali. Please reach out if you would like me to help you at firstname.lastname@example.org.
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