The most important elements of a restaurant business model include the restaurant’s unique value proposition, menu choices, target customer base, an assessment of competing restaurants, a marketing strategy and financial projections.
A business model is the plan for the creation of a profitable business. The business model lays out what the company plans to offer in the marketplace, its marketing plan and financial projections that ultimately show ongoing profitability. The business model for a restaurant needs to contain some basic elements specific to the restaurant business, such as menu choices.
Unique Value Proposition
The first element for creating a restaurant business model is determining the restaurant’s unique value proposition. The value proposition for a restaurant is a statement of what the restaurant offers diners that is not available at other dining establishments in the area. While a unique value proposition is essential for any business, this is especially true for a restaurant that must compete daily to attract customers over other restaurants. This fact can readily be seen in the constant barrage of advertisements by fast food restaurants, many of which end with, “Only available at …”. There are many potential options for a value proposition for a restaurant, such as menu choices, affordability, service and atmosphere. A good restaurant business model contains a clear statement of the restaurant’s unique value proposition.
A basic part of any restaurant business model is the proposed menu. Menu choices may be the focus of a restaurant’s value proposition, for example, if the restaurant intends to offer an ethnic cuisine that is not available at any other restaurants in the area. In any event, a restaurant’s menu has a significant impact on its ability to attract customers. The selection and pricing of menu items is an essential element in a restaurant’s financial projections regarding anticipated costs, revenues and profitability.
Startup Costs and Projections
Any business model must include both an estimation of necessary startup costs and projections for future revenues and expenses. Again, this may be a particularly important element in a restaurant business model. While some restaurants open with great fanfare and have regular customers from day one, others take some time to attract a regular clientele. There are a host of expenses associated with operating a restaurant. They include the cost of food as well as supplies such as napkins and silverware, furnishings, employee payroll, and advertising. Startup costs vary widely depending on the type of restaurant. Amounts and sources of necessary initial outside financing should be clearly laid out in the business model for a restaurant. Beyond this, there should be a clear analysis of expected ongoing costs, revenues and profit margin that shows how the restaurant expects to sustain profitability.
A restaurant business model must include a well-considered assessment of the population in the area where the restaurant is located, the restaurant’s target market of customers and competing dining establishments. A good business model for a restaurant includes projections about population growth and potential future expansion of the restaurant’s customer base.
A restaurant’s business model lays out a marketing strategy, how the restaurant intends to publicize and advertise itself. Part of restaurant marketing may include revenue generating activities, for example, offering additional services such as catering.