Here's what nobody tells you about expanding to a second location: most restaurant owners dive in without properly analyzing their current numbers first. They get excited about growth but skip the crucial step of calculating whether their existing KPIs actually support expansion. The math doesn't lie, and it'll save you from a costly mistake.
Start by dissecting your current performance
You can't predict future success without understanding your present reality. These metrics tell the real story:
- EBITDA per month: Profit before interest, tax, depreciation and amortization
- Revenue per square meter: How efficiently you use your space
- Average food cost percentage: How much of your revenue goes to ingredients
- Labor cost percentage: Staff costs as a percentage of revenue
- Fixed costs per month: Rent, energy, insurance, etc.
💡 Example current location:
Restaurant 'The First' (150m²):
- Monthly revenue: €45,000
- EBITDA: €9,000 (20%)
- Food cost: €13,500 (30%)
- Labor costs: €18,000 (40%)
- Fixed costs: €4,500 (10%)
Revenue per m²: €300/month
Add up every penny for location two
Second locations eat cash faster than you'd expect. Here's where your money goes:
- Fit-out costs: Kitchen equipment, furniture, decoration
- Rent deposit: Usually 3-6 months rent upfront
- Permits and licenses: Food service operating permit, etc.
- Marketing and opening: Promotion, opening event
- Working capital: Inventory, first month operational costs
💡 Example investment costs:
Restaurant 'The Second' (120m²):
- Fit-out: €80,000
- Rent deposit (6 months at €3,500): €21,000
- Permits: €5,000
- Opening marketing: €8,000
- Working capital: €15,000
Total investment: €129,000
Project your ongoing expenses
Your current ratios provide a baseline, but don't copy them blindly. From tracking this across dozens of restaurants, I've seen food costs jump 3-5% initially due to smaller supplier orders. Factor in these realities:
- Rent costs: Depends on location and size
- Labor costs: At minimum a manager/chef, possibly more staff
- Food cost percentage: May be higher due to lower volume with suppliers
- Energy costs: New equipment may be more efficient
- Other fixed costs: Insurance, administration, marketing
⚠️ Watch out:
Many entrepreneurs underestimate management costs. You need a reliable manager or you'll spend countless hours at location two, which has real opportunity costs.
Find your break-even number
Now you can calculate exactly what revenue you need to stay afloat:
Break-even revenue = Total fixed costs / (1 - Variable costs percentage)
💡 Break-even calculation:
Estimated costs location 2:
- Rent: €3,500/month
- Staff (fixed): €12,000/month
- Other fixed costs: €2,500/month
- Total fixed costs: €18,000/month
- Variable costs (food + variable staff): 65%
Break-even: €18,000 / 0.35 = €51,429/month
Reality-check the market potential
Your break-even number means nothing if customers won't show up. Dig into these factors:
- Competitive analysis: What similar businesses in the area earn
- Location factors: Foot traffic, parking, visibility
- Target audience: Fits your concept and price level
- Revenue per m²: Is €300-400/m² achievable at this location
Calculate your payback timeline
Assuming you can turn a profit, how long until you recover that initial investment?
Payback period = Total investment / Expected monthly EBITDA
💡 Payback period example:
At expected performance:
- Monthly revenue location 2: €55,000
- EBITDA (15%): €8,250/month
- Investment: €129,000
Payback period: €129,000 / €8,250 = 15.6 months
Build in your safety net
Optimistic projections kill restaurants. Add buffers for these inevitable challenges:
- Startup period: First 6 months often have lower revenue
- Seasonal fluctuations: Both locations can have a slump at the same time
- Extra management time: Your time costs money too
- Financing costs: Interest on loan for investment
⚠️ Watch out:
Plan for at least 6 months extra working capital. Many second locations fail not because of poor concept execution, but due to cash flow problems in those crucial first months.
How do you calculate feasibility? (step by step)
Thoroughly analyze current KPIs
Gather at least 12 months of data from your current location: EBITDA, food cost %, labor costs %, revenue per m². These figures form the basis for your projections.
Calculate total investment costs
Add up all one-time costs: fit-out, rent deposit, permits, marketing and working capital. Add a 20% buffer for unforeseen costs.
Project operational costs for new location
Estimate fixed costs (rent, fixed staff) and variable costs (food, variable staff). Use ratios from your current location as a starting point.
Calculate break-even revenue
Divide total fixed costs by (1 minus variable costs percentage). This is the minimum monthly revenue location 2 needs to break even.
Test market potential and payback period
Compare break-even revenue with the market potential of the location. Calculate payback period by dividing investment by expected monthly profit.
✨ Pro tip
Run three financial scenarios using tools like KitchenNmbrs: pessimistic (60% of target revenue), realistic (100%), and optimistic (120%). If you can't survive the pessimistic scenario for 8 months, don't expand yet.
Calculate this yourself?
In the KitchenNmbrs app you can do this in just a few clicks. 7 days free, no credit card.
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Frequently asked questions
What EBITDA margin is minimally needed for a second location?
Your first location should consistently run at least 15-20% EBITDA. With lower margins, you don't have enough buffer for the extra risks and investments that come with expansion. And that margin needs to be stable for at least 12 months.
Can I expect the same food cost percentages?
Probably not initially. Due to lower purchasing volume and startup inefficiencies, the food cost of a second location often runs 2-5 percentage points higher in the first year. You'll need to negotiate new supplier relationships and optimize portion control all over again.
How much extra working capital should I plan for?
Plan for at least 3-6 months of operational costs beyond your initial projections. This covers lower revenue during the startup period and unexpected expenses that always pop up.
How do I factor in the cost of my own time managing two locations?
Calculate what you'd pay a general manager (typically €4,000-6,000 monthly) and add that to your costs even if you're doing it yourself. Your time has value, and splitting attention between locations reduces efficiency at both.
📚 Sources consulted
- EU Verordening 852/2004 — Levensmiddelenhygiëne (2004) — Official source
- EU Verordening 853/2004 — Hygiënevoorschriften voor levensmiddelen van dierlijke oorsprong (2004) — Official source
- EU Verordening 1169/2011 — Voedselinformatie aan consumenten (2011) — Official source
- NVWA — Hygiënecode voor de horeca (2024) — Official source
- NVWA — Allergenen in voedsel (2024) — Official source
- Codex Alimentarius — International Food Standards (2024) — Official source
- FSA — Safer food, better business (HACCP) (2024) — Official source
- BVL — Lebensmittelhygiene (HACCP) (2024) — Official source
- Warenwetbesluit Bereiding en behandeling van levensmiddelen (2024) — Official source
- WHO — Foodborne diseases estimates (2024) — Official source
Food Standards Agency (FSA) — https://www.food.gov.uk
The HACCP standards shown in this application are for informational purposes only. KitchenNmbrs does not guarantee that displayed values are current or complete. Always consult the FSA or your local authority for the latest regulations.
Written by
Jeffrey Smit
Founder & CEO of KitchenNmbrs
Jeffrey Smit built KitchenNmbrs from 8 years of hands-on experience as kitchen manager at 1NUL8 Group in Rotterdam. His mission: give every restaurant owner control over food cost.
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