Restaurant business

3 best practices for creating a restaurant business model

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Can your great restaurant idea stand the test of time? Learn how to develop a scalable restaurant business model that will drive profitability.

Many restaurant business models don’t have much room for scalability. Either you go all-in with a big investment or you don’t. However, the pandemic has led many business owners to consider other ways to scale their restaurant to be sustainable for the future.

Explore ways to incorporate best practices when selecting a business model for your restaurant.

Overview: What is a Restaurant Business Model?

A restaurant business model defines your service style, menu offerings, and value proposition. When planning your business, you will further define your restaurant’s financial model by discovering all possible expenses and defining your pricing.

The main types of restaurant models include:

  • Fast food: The fast food business model, also known as quick service restaurants (QSRs), offers convenient menu items and lower prices without table service.
  • Fast-casual: With a fast or casual business model, restaurateurs are shifting to higher quality food ingredients while providing faster service than traditional models.
  • Family style: Also called casual dining, family-style restaurants offer table service and affordable dining options.
  • Gastronomy: Gastronomic concepts offer high quality cuisine, first class table service and an ambient dining experience.
  • Appear: The pop-up restaurant model uses temporary spaces to cook and serve food, such as another restaurant, the chef’s houses, or even a park.
  • Ghost kitchen: With a virtual kitchen, business owners only offer delivery and non-meal delivery options on site.
  • Café or bistro: Small restaurants may focus on drinks or short snacks in a smaller building.
  • Buffet: A restaurant in the form of a buffet allows the customer to help himself to various food choices, with prices set at will or by weight.

What should be included in your restaurant business model?

Ideal models start with the most profitable restaurant concepts. But figuring out which idea to select can be tricky. Your planning should look for models that offer high profit margins, low staff costs, and high cash flow margins.

It may sound like a unicorn to those in the restaurant industry. However, with proper planning, it is possible to avoid some of the reasons restaurants fail. Ensure profitability by including these elements in your restaurant template.

Value proposition

Your business model should define how your business stands out from the competition. A value proposition describes what makes your restaurant different.

It can be a unique restaurant concept, such as one that offers ready-to-heat meals or that offers an unforgettable experience. Think about your idea by:

  • Explore the benefits of eating at your restaurant
  • Define why these benefits are valuable to your customers
  • Establish your guest’s primary dining issue
  • Explain how your value solves customer problems
  • Describe what differentiates you from your competitors

An illustration of how your offer, your competitors' offer, and customer needs connect in a value proposition.

Create your value proposition by finding the sweet spot where your offer, your competitors’ offer, and customer needs intersect. Image source: author

Sources of income

Gone are the days of only supporting your business for restaurant customers. This may be temporary or we may be experiencing a shift towards more deliveries and takeout orders.

Since financial problems are the number one reason restaurants fail, your restaurant business proposal should explore all possible sources of revenue. Discover catering products and services such as:

  • Meals on site
  • Delivery
  • Carry out
  • Ready-to-heat meal kits
  • Do-it-yourself meal options
  • Subscription Meal Delivery Kits
  • Grocery items
  • Catering for professional and personal events
  • House drinks
  • Grouped cocktails or mocktails to go
  • Gift cards
  • Swag, like shirts, hats and koozies
  • Cookbooks
  • Events, such as chef demos

Target market

Knowing your target market is key to ensuring that your restaurant’s marketing and concept achieves its goals. After all, not everyone in town is your restaurant’s ideal customer. Think about the exact customers you want to attract.

Refine your audience by looking at:

  • Psychography: Find out what drives your ideal guest, such as their lifestyle, values, and priorities in life.
  • Demography: Find out what type of people will visit your business by looking at their income and education levels, age, gender identity, and location.
  • Behavior: Consider your guests’ buying and spending habits, like what they do for fun online and offline.

Expenses

Your financial projections should show all expenses. It is imperative to go through each revenue stream and list the costs. For example, you won’t spend a lot on labor when selling cookbooks or gift cards, but you’ll need financial resources to print, purchase, and track sales of cookbooks or gift cards. gifts.

Review each of your expenses and various situations to determine variable and fixed costs. Ordinary catering costs include:

  • Restaurant payroll
  • Rent or mortgage bills
  • Property, sales and social taxes
  • Utilities
  • Food and beverage costs
  • Purchase and maintenance of equipment
  • Marketing and public relations
  • Franchise fees
  • Third-party costs, such as delivery services

service-style

Your restaurant’s customer service is essential to your business model. Even businesses with a contactless concept, like a ghost kitchen, have to decide how they’re going to approach customer service. Methods vary depending on your concept, restaurant layout, target market, and location.

Popular serving styles include:

  • Table service: Commonly used in full-service restaurants where food is served to guests at the table.
  • Family-type service: Popular at family vacation spots, family-style service includes trays of food for guests to serve themselves.
  • French service: Used in fine dining establishments, specific rules apply, such as serving drinks from the right side of the customer.
  • Self service: These options include buffet-style meals and take-out concepts with limited restaurant customer service.
  • One-stop service: Fast food vending machines and business models feature a single point where customers interact with your service or products.

3 best practices for creating a restaurant business model

During your research, you should uncover the potential challenges of the catering business. This helps you explore the gaps in your business model and find the best ways to reach your target audience.

1. Focus on sustainability and scalability

Restaurants are going through tough times. Although some business owners have experienced downturns before during recessions or local emergencies, the current events are different from what most entrepreneurs have experienced.

At every stage of planning your small restaurant business, you should aim to build both scalability and sustainability into your model. Do this by:

  • Weigh the costs and benefits for each revenue stream
  • Predict if you can stay in business if you lose an area of ​​revenue
  • Identify your break-even point after startup
  • Creating a contingency plan in case of an emergency

2. Plan your technology investments wisely

Depending on your restaurant’s business model, there are several types of restaurant software that can benefit your business. However, you may not need to buy if you can’t afford to buy all of your systems up front.

First, determine what you consider to be must-have tools. For example, you’ll need to create a restaurant website and manage sales through your point-of-sale (POS) system. You can also benefit from accounting, payroll and staff scheduling software.

But, if money is tight, start with the basics and plan for the future. To do this, invest in a restaurant management system that works well with other technologies, which means you can add software later and be confident that it works with your point-of-sale system, reducing administrative work.

A graphic showing the different ways a POS system integrates with restaurant software and devices.

Your POS system integrates with various devices and control systems to keep operations running smoothly. Image source: author

3. Prepare for all possibilities

Entering a business is risky, especially in a volatile economy. Do your due diligence by examining the feasibility of your model using a restaurant feasibility study. Once you’ve determined that your concept will work, start working on a business plan that details your:

  • Organizational structure
  • External services
  • Financial projections
  • Marketing strategy
  • Employment needs
  • Menu
  • Competitors
  • Target market
  • Restaurant location and design

Create a restaurant business model that works

Although starting a new business is risky, you can discover a scalable restaurant business model through careful planning. Create a core strategy that explains what you will sell and how you will sell it while defining what makes your business unique.