Can a sandwich shop be profitable?
Yes! Many factors go into how much a sandwich shop makes in a year. The best estimate is that a small, but popular and profitable sandwich shop business will make anywhere from $10,000 - 30,000 per month or $120,000 - $350,000 per year in revenue.
When lunchtime rolls around, you can’t go wrong with a nice sandwich. There’s a reason why fast food restaurants specialize in sandwiches, and why they’re so abundant in the US. There are more than 194,000 fast food restaurants in the US as of 2019 because our busy lifestyles demand that we make lunchtime quick.
Of course, sandwich shops aren’t just fast food. They’re coffee shops, cafes, delis, and so much more. Sandwich shops offer extraordinary variety, so it can be hard to make a blanket estimate of how much sandwich shops make.
In this article, you will learn how much sandwich shops make on average, and what you can do to turn a higher profit.
How much does a sandwich shop make?
Many factors go into how much a sandwich shop makes in a year. The best estimate is that a small, but popular and profitable business will make anywhere from $10,000-30,000 per month or $120,000 - $350,000 per year in revenue.
When you consider that the average annual revenue for a new restaurant is $111,860.70, sandwich shop revenues are competitive in the restaurant industry. However, business owners should understand just how variable sandwich shop revenues may be. While sandwich shop franchises like Subway and Arby’s tend to return a high annual profit, they also have significant upfront costs that may limit your profit margin. On the other hand, a small independent sandwich shop’s profits depend on the cost of ingredients and labor, your business model, and your marketing strategy to keep bringing in customers.
First-year sales and financing
If you’re going the independent route, it’s important to have financing in place. The average deli costs $10,000 - $50,000 to open, and the average sit-down restaurant may cost between $95,000 and $2 million to open. As we noted in the previous section, the average new restaurant makes just a little over $100,000 in its first year. A sandwich shop that operates on slimmer profit margins and may not generate quite the same excitement as a fancy new restaurant will probably make less.
As such, opening a sandwich shop requires money, patience, and ingenuity. Make sure you have a great sandwich shop business plan that states how your sandwich shop will fill a need in the community, manage startup and operating costs, and turn a profit. Your first year of operating is crucial to making a mark in the area, so you’ll need to find a great balance of engaging marketing, compelling prices, and high-quality food.
Cost to start a sandwich shop
There’s a potentially very big difference between the cost to open a deli and the cost to open a sit-down restaurant, and a sandwich shop probably falls somewhere in the middle. It all depends on what your sandwich shop looks like.
You’ll have to pay rent on a restaurant space, which can range from $3,000 - $8,750. You’ll have utility costs of $1,000 - $1,200, design costs, and kitchen equipment costs that could run up to $25,000 or more. Marketing costs before opening could cost several thousand dollars, as could your initial stocking of inventory like napkins, bags, and sandwich wrappings. Food costs, of course, will range depending on your menu items, and labor depends on what kind of staff you need to serve up your delicious sandwiches as efficiently as possible.
If you’re operating as a takeaway shop, your startup costs will likely be lower. Having a dining room requires furniture purchases and probably more staffing to actively clean and attend to the dining room.
Ultimately, the cost to open a sandwich shop depends on what kind of sandwiches you’re selling and how big of an operation it is. But you can certainly expect to spend more than $25,000 in startup costs before incurring the regular operating costs of rent, utilities, food, labor, and more.
Estimating first-year sales and revenue
Like any business, aspiring sandwich shop owners should do sales forecasting to estimate their first year of sales. To conduct a proper restaurant sales forecast, follow these steps:
Calculate your restaurant's daily capacity
Use sales data to conduct sales forecasts
Conduct inventory projections based on sales forecasts
Factor in seasonal success throughout the year
Staff your restaurant according to sales projections
Finalize your revenue and cost model for profit expectations
The average restaurant profit margin is 3 - 5% but can range from 0 - 15%. For a new sandwich shop’s purposes, you should probably air on the conservative side, focusing your forecasting on how much inventory you initially invested in. This is difficult to do blind, and it’s important not to overreact to your grand opening sales, but after your first month, you’ll have an idea of how many customers you get per day, your operating costs, your profit margin, and be able to forecast your potential performance.
Sandwich shop monthly operating expenses
While the average sandwich shop may make somewhere between $10,000 - $30,000 per month, that final number is very dependent on your business’s monthly operating expenses.
To forecast your revenue, you’ll need to calculate overhead, labor costs, food costs, marketing costs, and what you’re paying to third-party vendors. 52% of restaurant professionals name food and labor costs as a major challenge.
Overhead includes major expenses like rent and utilities. Labor and food costs may range based on seasonality and will likely rise as your gross sales rise because you need a way to meet demand. Similarly, your marketing costs will vary based on how much liquidity you have, any planned promotions, and the busy season.
Sandwich shop profit per month
Profit is simply revenue minus costs. As we’ve said, there are many factors impacting your monthly or annual sandwich shop revenue. However, if you want to earn more of a profit, you can always cut costs to increase your profit margin.
Let’s say your restaurant operates with a 3% profit margin. That number represents 3% of your total revenue. If your monthly revenue is $30,000, a 3% profit margin would mean $900 profit per month. For a whole year, that’s a $10,800 profit.
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Sandwich shop owner’s salary
It’s important to note that your salary as a business owner is included in your business’s costs. Don’t worry, you won’t just take home that $10,800 profit in the previous example as an annual salary.
It’s better to include a salary for yourself in your financial calculations. For one, it gives you some more financial stability. For two, the IRS expects you to have some income, and paying yourself a salary will help you stay compliant without jumping through financial hoops.
What the business earns in profit, however, you could either pay to yourself or re-invest in the business.
For instance, if you like to shore up accounts every month, you may want to set aside a third of that $900 profit as an emergency fund or to re-invest in the business, and pay yourself or other stakeholders a monthly distribution. If you wait until the end of the year, you may have a $10,800 surplus to work with. That’s a large sum you can invest in new equipment, restaurant maintenance, marketing, or give yourself a nice annual bonus.
Traditional models recommend that business owners allocate 50% of profits to paying themselves, 30% to taxes, and 20% to reinvesting in the business. What you decide to do depends on how you manage your books, the financial health of your business, and your personal risk profile.
When can a sandwich shop expect to break even?
Let’s use the revenue ranges and startup costs we’ve established to calculate a break-even point — something every business owner should do before launching their venture.
For startup costs, let’s assume the low end of the costs of opening a sit-down restaurant. That gives us a range of $10,000 - $95,000 as startup costs for a sandwich shop.
Using a profit margin of 3-5%, and an expected monthly revenue of $10,000 - $30,000, we can calculate that the restaurant will profit $300 - $900 per month. Knowing that, we can calculate a break-even point.
Low startup costs, high profit: $10,000 / $900 per month = 11.11 months to break even
High startup costs, high profit: $95,000 / $900 per month = 105.56 months to break even, or 8 years and 10 months
Low startup costs, low profit: $10,000 / $300 per month = 33.33 months to break even, or 2 years and 9 months
High startup costs, low profit: $95,000 / $300 per month = 316.67 months to break even, or 26 years and 5 months
The bottom line here is that sandwich shops are usually not high-profit drivers, so it’s important to keep startup costs low if you want to break even within a reasonable timeframe.
How can you improve a sandwich shop’s total sales and revenue?
While cutting costs may be the most effective way to increase your sandwich shop profit margins, you always want to increase sales, too. Every business owner wants to know how to increase restaurant sales, especially in a $731 billion restaurant industry. Americans love to eat, but they have many options. So, how do you increase sales and revenue while maintaining the same cost structure?
As we’ve said, cutting costs is always an effective measure. Most sandwich shops can operate with a fairly lean staff unless they’re extremely popular. Operating with two or three staff members on a shift rather than four or five is a simple way to increase your revenue. Likewise, you can opt for less expensive ingredients, explore less expensive suppliers, or renegotiate agreements to order items in greater bulk for a lower per-unit price.
Marketing strategies are another vital way to increase sales. It’s easy and free to be active on social media promoting new menu items, classic menu items, and news about events and engagement in your local community. By positioning your sandwich shop as a staple in the community, you’ll attract new customers who are eager to support local businesses.
Another smart thing business owners can do is leverage inventory management, menu engineering, and a point-of-sale system to better manage costs and reduce food waste that can impact your bottom line. Technology is a crucial element in helping you increase sales and reduce costs.
Set your sandwich shop up for success
Opening a sandwich shop, like any restaurant, is risky and expensive. They operate on slim profit margins, and how much a sandwich shop makes depends significantly on startup and operating costs. That said, there are marketing strategies and management ideas that can help you increase sandwich shop sales, reduce waste, and reach your break-even point sooner.
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DISCLAIMER: This content is provided for informational purposes only and is not intended as legal, accounting, tax, HR, or other professional advice. You are responsible for your own compliance with laws and regulations. You should contact your attorney or other relevant advisor for advice specific to your circumstances.