How do you find a balance between impactful design and containing costs?
When developing a new restaurant, it’s important to keep in mind both sides of your return on investment or return on capital equation. Your target ROI should be equal to your budget divided by profit. In other words: Budget = ROI x EBIDTA (earnings before interest, depreciation, taxes and amortization). Since your target ROI can’t change, let’s focus on the relationship between budget and earnings.
It’s never a good approach to just keep lowering the budget. With increased competition and rising costs, you must focus on what truly impacts sales. These areas are where you should invest your money. If a design feature costs more but increases profit, then it makes sense to raise your budget accordingly. When done correctly, a small increase in budget can have a large impact on sales.
To do this, you need to determine what will increase frequency, drive guest spending, or create add-on sales. Cutting costs is a critical component, but it’s not the whole equation. Instead you should be intentional about spending money on things that will motivate guests.
Certain rules drive baseline costs, including health department regulations, codes and operational and food safety issues. In low to medium price-point establishments, these are going to dictate about 90 percent of your costs. As the regulations become more restrictive, adhering to them becomes more expensive. And these are things you simply can’t get around.
With that being said, approximately 10 percent of your budget is all you have to play with when it comes to making design decisions on things your guests will touch and feel, like furniture and finishes. Going from what’s absolutely necessary to operate effectively to a fully fleshed out design, you’re looking at a small percentage of your overall costs. So, what you’re really spending money on is durability, lower maintenance and lifecycle rather than design-related decisions. Therefore, the design decisions you can make that will affect the guest experience become more important and require more thought and expertise. However, in order to make a significant impact in your overall costs, you need to look everywhere. This includes kitchen equipment, IT choices, etc. You can’t limit your value engineering to simply furniture, finishes and design appearances, or you won’t be able to truly impact the cost side of the equation more than a few percentage points.
It’s important to understand durability and how it affects the numbers. If you or your design professionals aren’t familiar with these things, it would be wise to meet with a contractor early and set targets for every area of your space. This way, you can reconcile your budget at the beginning so you’re designing within your means to meet your overall objectives.
It’s important to know your numbers and work with a design professional that understands what things cost. Break down your budget in as much detail as possible at the beginning. For example, if your objective is to create a store with a lifecycle of 10 years with limited maintenance, know that you’ll need durable kitchen flooring like quarry tile with an industrial epoxy grout and an anti-coupling membrane, which runs about $11-14 a square foot. You would not be able to go with a painted-on epoxy floor at $6 a square foot because it likely won’t last more than 3 years. If you go with the cheaper option upfront, 3 years down the road the restaurant would need to close for 2 to 3 days to redo the floor at the original $12 a square foot cost.
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