Restaurant Rent: Learn the 10% Test Before You Sign

Ryan’s starting planning target is rent around 10% of sales. Use it to ask a clear question: what sales does this space require? It is a benchmark, not a law or proof that a location is affordable.

First learn the percentage

With $5,000 monthly rent and $50,000 monthly net sales, calculate 5,000 ÷50,000 ×100 =10%. Of every $100 sold, $10 goes to base rent. Use the same month for both numbers, excluding sales tax and pass-through tips from sales.

If sales fall to $40,000, rent becomes 12.5%. The rent did not change; fewer sales are carrying it. If you forecast $80,000 simply to make the ratio attractive, you have hidden a demand assumption rather than solved a rent problem.

Base rent is not the whole occupancy cost

Ask what the lease adds: CAM or common-area charges, property-tax and insurance pass-throughs, maintenance obligations and other recurring charges. Suppose these add $1,000. Total monthly occupancy becomes $6,000, or 12% of $50,000 sales.

Keep utilities, repairs and insurance definitions consistent with the rest of your budget. A cost counted in occupancy should not appear again elsewhere. Deposits and construction use cash but should not be mixed indiscriminately into a normal-month rent ratio.

Work backward from the target

Convert 10% to 0.10, then divide: $6,000 ÷0.10 =$60,000. At a $20 average order over 26 open days, that is about 116 orders per open day, rounded up. Now investigate whether the location and kitchen can support that volume.

Do not add those 116 orders to the break-even tool’s orders. These are two tests of the same sales plan, not separate streams of customers. Food, labor, debt and owner pay may require still more sales.

Compare the lease over time

A free-rent period may exclude additional charges. Annual increases and reimbursement timing can matter more than the advertised first-month rent. With 3% annual base-rent increases, $5,000 becomes $5,150 in year 2 and $5,304.50 in year 3.

The location comparison separates occupancy, fit-out, deposits and delay costs. Use written terms and professional review for the actual agreement; a spreadsheet cannot confirm permitted use or release you from a guarantee.

Make the decision with all three checks

Check credible sales, the whole restaurant’s economics, and opening cash. A 10% rent ratio can still coexist with excessive food or labor costs. A higher ratio needs a defensible operating case, not a blanket declaration that every such restaurant must fail.

Use the rent calculator, then put the result into the opening workbook. If division and decimals are unfamiliar, the math lessons show the steps and let you practice.