A terrace permit can be worth thousands of euros in a hospitality takeover, but many buyers forget to include this value in their calculation. The value depends on the revenue the terrace generates and whether the permit is transferable. In this article, you'll learn step by step how to calculate the real value of a terrace permit.
Why a terrace permit is valuable
A terrace permit is more than just a piece of paper. It gives you the exclusive right to generate revenue on public land. In summer, a terrace can generate 30-50% of your total revenue.
💡 Example:
A restaurant with 20 terrace seats in Amsterdam city center:
- Extra revenue summer: €8,000/month
- Season: 6 months
- Annual terrace revenue: €48,000
At 10% net margin = €4,800 extra profit per year
Factors that determine the value
Not every terrace permit is worth the same. These factors determine the value:
- Location: City center vs. suburbs makes a huge difference
- Number of seats: More seats = more revenue
- Season: How many months per year is it usable?
- Transferability: Does the permit automatically transfer?
- Costs: What do you pay annually to the municipality?
⚠️ Important:
Not all terrace permits are transferable. Always check this with the municipality before making an offer.
Calculate the annual terrace revenue
Start by calculating how much extra revenue the terrace generates per year. Ask the seller for figures and verify them.
💡 Terrace revenue calculation:
Example café with 16 terrace seats:
- Average bill terrace: €12.50
- Occupancy per day (summer): 2.5 rounds
- Revenue per day: 16 × 2.5 × €12.50 = €500
- Summer days (May-Sept): 120 days
Annual terrace revenue: €60,000
From revenue to profit
Revenue is not the same as profit. The terrace also has costs: extra staff, permit costs, furniture maintenance.
- Food cost terrace: Usually 28-32% (drinks have lower food cost)
- Extra staff: Terrace service costs extra hours
- Permit costs: €500-€5,000 per year depending on municipality
- Furniture: Depreciation of tables, chairs, parasols
💡 Profit calculation:
From €60,000 terrace revenue to profit:
- Revenue: €60,000
- Food cost (30%): -€18,000
- Extra staff: -€15,000
- Permit + maintenance: -€3,000
Net terrace profit: €24,000 per year
Valuation methods for terrace permits
There are different ways to go from annual profit to total value:
Method 1: Capitalization factor
Multiply the annual profit by a factor between 3 and 7, depending on the certainty of the permit.
- Factor 3-4: Uncertain permit, short term
- Factor 5-6: Stable permit, long history
- Factor 6-7: Very valuable location, transferable
Method 2: Comparison with rental prices
What would you pay for the same square meters as commercial rent? Convert this to capital value.
⚠️ Important:
A terrace permit always carries risk. The municipality can decide not to renew the permit or change the conditions.
Practical valuation step by step
Here's how you arrive at a realistic valuation of the terrace permit:
- Calculate the annual extra revenue from the terrace
- Deduct all extra costs (food, staff, permit)
- Account for risk factors (transferability, term)
- Multiply by a capitalization factor of 3-7
- Compare with other valuation methods as a check
💡 Complete valuation:
Terrace with €24,000 annual profit:
- At factor 4 (average risk): €96,000
- At factor 6 (low risk): €144,000
Average valuation: €120,000
Negotiating with the valuation
Use your calculation as a negotiating tool. Many sellers overestimate the value of their terrace permit.
- Ask for proof of terrace revenue (till records)
- Check with the municipality if transfer is possible
- Inquire about future plans (street renovation?)
- Calculate multiple scenarios (optimistic and pessimistic)
How do you calculate the value of a terrace permit?
Calculate the extra annual revenue
Multiply number of terrace seats × average occupancy per day × average bill × number of days terrace is open. Ask the seller for till records as proof.
Deduct all extra costs
Calculate food cost (28-32%), extra staff costs, annual permit costs and furniture maintenance and deduct from extra revenue. This gives you the net terrace profit per year.
Determine the capitalization factor
Use factor 3-4 for uncertain permits, 5-6 for stable situations, and 6-7 for very valuable locations. Multiply the annual profit by this factor for the total value.
✨ Pro tip
Negotiate the terrace value separately from the rest of the takeover. Many sellers calculate too optimistically and forget the extra costs that come with a terrace.
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
Are all terrace permits transferable in a takeover?
No, not automatically. Some permits are tied to the entrepreneur, others to the property. Always check this in advance with the municipality to avoid surprises.
What if the terrace permit turns out not to be transferable?
Then the permit has no value for you and you'll have to apply for a new one yourself. This can take months and is not guaranteed, so don't factor in any value for this in your offer.
How do I verify if the terrace revenue is correct?
Ask for till records from the past 2-3 years, specifically filtered for terrace tables. Compare with the number of seats and average bills to check if it's realistic.
What are typical permit costs per year?
This varies greatly by municipality: from €500 in small villages to €5,000+ in large cities. Ask the current costs from the seller and verify with the municipality.
Which capitalization factor should I use?
Use 3-4 for risky situations (short permit, uncertain transfer), 5-6 for normal situations, and 6-7 only for very stable, valuable locations with a long history.
📚 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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