Rent %

A few weeks ago there was thread running about rent %…I was unclear as to what the figures that were being tossed about were based on or what they actually represented…I tried looking for the thread but no luck in finding it. My question is this… the numbers If I remember correctly seemed to be 8-12%…Would that mean as a example that a reasonable and in-line formula for rent cost would be something like $50,000.00 in monthly sales with $5000.00 for rent = 10% would be in-line or am I missing something.

You are correct - the next part is that people are going to want to know what you are considering rent. I believe the 8-12 is for occupancy costs, which includes triple net portions of a lease - maintenance, property taxes, insurance, + rent costs.

I started that thread, as I was trying to justify the current sq/ft lease expense…

I believe/understand that rent s/b no more than 9% of net sales (I reckon you’d include CAM fees etc.)

I sep out other expenses like utilities etc.

My landlord has dropped the rent quite a bit, considering the state of the economy, for the next yr.

@ the new rate, I’ll be profitable and cash flow positive

OK…see this is where I am confused 9%…Net sales?..Not Gross…I am wondering to make this as simple and straightforward as it can be is this…if you are paying $5000.00 in monthly rent, do you need to produce 50 grand in gross sales to be in line to be a profitable shop…I know of course this is just one piece of the puzzle but would this be in line…

I think Net or Gross are one and the same in these examples…

lol…I think they would have to be…What numbers do you think you should be at…Based on the other thread most shops seem to keep to 8-12% rule…I have found a location that is more than what I wanted to spend but it a bit larger and has just about all I need in place already with the exception of a mixer, oven and refrigerator prep table…walk in refer unit storage, sinks, prep stations, floors walls, lighting, counter, hood are all there and like new…This location lends its self to a larger menu and also a lunch business that was not going to be part of my original plan…but this space is nice and offers these extra benefits…

I think you have to keep in mind that these are rules of thumb. There are exceptions. But, in every business there seems to be a key to unlock prosperity. Most people in our industry have found that this 8-12% fits that unlock code. Some have done it with 4%, some with 15%, but in general it is a good idea to shoot for 8-12%.

In our situation, our was around 15% for the first two years. That didn’t mean I didn’t do the deal and open the restaurant, it meant that I marketed like crazy and built the business so that we are now in the 10% range.

You may be where you want when you first open, but you need to make sure of two things - the location has the potential to do what you need it to do, and you have the cash flow to cover the losses if you’re not doing those sales off the bat. If the location doesn’t have potential, you’re getting involved in a profitless location.

Thank you…I understand there will always be the exception…And of course this is only one area to having a successful shop…

Gross and Net are not the same…in any example. IMHO.

For example…gross profit is different then net profit…net being less (what i left over).

You could be working your daily and have a gross profit…then have other expenses that impact that profit in a downward fashion…ending in a net profit.

I would be advantageous for rent to be 8% of gross sales (revenue in the door) Not sure what net sales would be…never worked on that one. I guess net sales would be gross sales minus canceled orders, coupons, refunds etc…“not real” dollars excised from your gross sales figure.

Your mileage may vary…


I believe the original thread was Gross Sales &/or Net Sales - not profit(s)

You can twist any figures you wish, just twist them the same each time

Semper Fi!
U.S.M.C., Auditor
Inspector General Branch