As a restaurant owner or operator, you may already know that sales forecasting can help you better manage your business. But just what is forecasting for restaurants, and how does it work?
When it comes to buying ingredients, managing your staff, or ordering new equipment, accurate sales forecasting can help you make more informed decisions for your restaurant. By predicting your future sales revenue, you can also anticipate what resources you’ll need and what purchases, additions, or changes you’ll be able to afford as you take your business to the next stage.
What is restaurant forecasting?
Restaurant forecasting is the process of estimating future sales based on data points like past revenue and spending, economic trends, and an analysis of the current market.
When you have a clear picture of the future, you’ll have a better idea of whether you should hire more employees, add new suppliers, and make changes to your menu pricing. Forecasting can also be useful for planning major upgrades, such as renovations and expansions. In fact, having an accurate sales forecast can help you approach just about every business decision with more confidence. You’ll then want to continue forecasting on a regular basis, whether that’s monthly, quarterly, or annually.
Forecasting for new restaurants
Before opening a restaurant, you’ll want to conduct a sales forecast in order to attract investors. Truth be told, few investors will give your pitch the time of day if you don’t have a well-researched forecast for your restaurant’s first three years.
While it may seem like a challenge to estimate your restaurant’s first three years of sales before you've even opened your doors, you can use the same formula we’ll discuss later and simply estimate the numbers that you don’t know by trying these tactics:
Using data from a previous restaurant you’ve operated
Drawing on your experience working in a restaurant
Asking someone who currently owns a restaurant
Researching your soon-to-be competitors
If creating a sales forecast for your restaurant sounds complicated, don’t worry — it’s actually much easier than you might expect. We’ll walk you through the process, step by step.
Using your POS system for restaurant sales forecasting
When creating a sales forecast, you can either do manual calculations or use your restaurant’s POS (point of sale) system.
Conveniently, your POS system is likely full of restaurant data that can be used to create an accurate sales forecast — all you need to do is integrate your POS system with your accounting software and any operations or management software.
Using an integrated POS system, you can easily get data on revenue, costs, and number of guests. When you compare this data to that of a previous time period, you should notice trends and patterns that will allow you to predict future sales.
Your POS can also provide a wider range of data, calculating things like how much revenue each server brings in, which menu items are most profitable, and how many sales take place during peak hours. DoorDash partners also have access to the Merchant Portal, which provides valuable analytics on most popular menu items, average DoorDash order size, number of new and repeat customers, and more.
Of course, bear in mind that you may need to account for time-sensitive factors like changing competition, economic swings, and seasonal variables like weather or the holidays.
How to create an accurate restaurant sales forecast
You may want to hire an accountant or consult with your business partner when creating a sales forecast, but this is also something you can potentially do on your own. Here’s how:
1. Gather data. If you’re not using a POS system, you’ll need to start by gathering some basic data on your restaurant. This includes:
Capacity (total # of seats for diners)
Menu prices
Hours of operation
2. Calculate restaurant daily capacity. Before you can predict sales for an entire year, you’ll need to start with a much smaller measurement: one-day sales. Daily capacity indicates how much revenue you can potentially make on an average day. You can calculate this by using the following formula:
# of Tables x # of Seats per Table x Average Ticket Size x Average Table Turnover Rate per Night
For example, if your restaurant has 10 tables with four seats each, that’s 40 main courses. If your average main course is $20, that works out to $800. Of course, most restaurants seat more than one party per table throughout the course of a shift, so say you seat three parties per day. That means your sales forecast for a typical day would be $800 x 3, or $2400.
10 Tables x 4 Seats x $20 per Main Course x 3 Turnovers per Day = $2400
3. Calculate daily capacity for a slow day. Your restaurant probably won’t be at 100% capacity every day — so to make your forecast more realistic, you’ll also want to factor in slow business days. Perform the same calculation but cut your number of tables in half, or reduce the turnover rate. Now you have an accurate picture of sales for both slow and busy times.
4. Forecast sales for a longer time period. Now that you have a daily sales figure, you can multiply that number to create a reliable forecast for the next week, month, year, or even three years.
How to apply your restaurant sales forecast
With an accurate forecast, you can make data-driven business decisions. Here are a few ways to use a sales forecast to better manage your restaurant.
Predict revenue and profits
One of the most important things to know about your restaurant is how much money you can expect to make in a given period, and at what profit margin. Forecasting helps you figure out when your slow and busy seasons are so you can plan for them. For example, if you know you’re entering a busier season, it might be time to hire more staff or prepare for that expansion you’ve been planning. On the other hand, if you know you’re about to enter a slower period where you won’t be making as many sales as usual, you may want to hold off on renovating or hiring a new assistant manager.
Control expenses
Labor costs are probably the biggest overhead expense for your restaurant, so you want to make sure you’re spending wisely. Forecasting and reviewing your historical sales data will help you strategically manage overhead costs like wages and salaries.
Likewise, forecasting can help you better manage inventory. Once you have an idea of how many meals will be sold on any given day, you can reduce food waste without falling short of a key ingredient. Of course, it’s impossible to get it exactly right every time, but a forecast can help give you a more accurate estimate, and that goes a long way toward minimizing waste and keeping costs down.
Prepare for busy or slow seasons
Forecasting will also allow you to predict how weather, traffic, special events, and other factors affect your revenue. Besides allowing you to staff up for busy seasons, this knowledge enables you to plan for slow seasons so your business isn’t caught short.
Revisit and revise your restaurant forecasting
Once you have an accurate forecast, your work is far from over. Restaurant businesses are constantly changing, which is why it’s important to keep updating your forecast. Revisit it regularly and incorporate any new data points so you can maintain an accurate picture of future sales and profits.
While you can’t always predict the future, a well-researched sales forecast can help you prepare for whatever the upcoming months and years have in store. By reviewing the past and planning ahead, you can minimize staffing costs, effectively manage inventory, and grow your business in the smartest way possible.
Need help tracking your restaurant’s budget? Download our free profit and loss statement template to analyze your restaurant’s financial health.
