How much does it cost to open a pho restaurant?
Updated 04-23-23. It's a question aspiring pho restaurateurs in North America often ask me.
This is just like asking: "How much does it cost to custom build a car?" without specifying what you want in the new car, what it looks like, what you want to use it for, and how you will use it. Without sufficient detail, all you'll get is a generic ballpark number that's not very useful. Oftentimes a quick answer with no context is a meaningless answer.
For those with just a casual curiosity, I can tell you right now and you can save time and skip the rest of this post: It will cost in the neighborhood of $50K (maybe, and if you're extremely lucky) to more than $400K or higher (depends on what you want in your concept).
For those more serious entrepreneurs, please read on for the good stuff.
What's The Cost? Simple Question With Not So Simple Answer
The question is simple. Fact is, the answer is not. But there are ways to get to the cost.
If someone gives you a number as soon as you finish your question (which is essentially what you're looking for by asking just this question), then you should take it with a big grain of salt. Because 100% of the time, that person is giving you a number that is not applicable to your situation.
At a minimum, the cost to open a pho restaurant depends on a number of factors:
- The location of your market (the neighborhood, demographics, age of the building, what's already built in the space versus what you need to install, etc.)
- The concept of your restaurant (how you brand yourself, how you serve your customers: fast food style, full table service/fine dining style, or somewhere in between, etc.)
- How much you will depend on modern kitchen equipment to improve customer service and compensate for (or even eliminate) kitchen labor costs (using time-saving full-featured modern equipment and tools, automated dishwashing machines, prep tools and cooking equipment for large volume production, cooling equipment and tools, etc.)
- How much you focus on providing memorable and unique experience for your customers (bare-bone dining room vs. full ambiance, character, sights and sounds)
- Your menu (how many items, whether the items have common ingredients and similar prep procedures, level of difficulty to prepare them, etc.)
- Your process, training and procedure (do you have the facility for properly storing, moving your foods, and training, preparing, serving, etc.)
Think About What You Want To do: Some Important Considerations
In order to get a better and more accurate cost-to-open figure, you will want to think a little more about what you want to do. Here are some important considerations to help you develop a better estimate for your new pho restaurant.
- A new pho restaurant can be built in two ways. One, you find an existing restaurant, acquire it, modify/improve on it, then open for business. Two, you build from scratch, putting in everything needed to open for business. There are pros and cons whether you choose one or the other.
- At the lower end of the spectrum, it can be less than $100K if you can find an existing space that has been previously used as a restaurant, preferably Asian and sometime more specifically, Chinese or Vietnamese or even Thai restaurant. This means the space should already have some kind of ventilation hood system and grease traps in place, plus possibly usable equipment already installed. The good thing about this option is lower initial cash outlay, but you'll be limited by what's already there, and you may run into the exact problem why the previous business failed in the same spot. More often than not, stuff that are already there do not meet your own requirements and it's time to spend more money to remodel to what you really need.
- At the other end of the spectrum, the sky is really the limit, but a typical range of $250K to more than $400K is the norm depending on concept and location. In this scenario, most everything will be newly installed during the buildout to get the restaurant to a functional state, even with used instead of shiny new equipment. This option is obviously more expensive and require more work and time, but you get the exact pho restaurant needed to achieve your process, procedures and most importantly, your financial goals.
So what's the answer? Well, nobody says restaurant business is easy. An aspiring pho restaurateur should spend the proper time developing as clearly as possible what her concept should be, then learn how to integrate everything to make it happen. Cost estimate, recipe development, cooking procedures and operational concept are all important first steps as you ask the question "How much does it cost to open MY pho restaurant?"
The Two Key Factors: Planning and Execution
Accurate cost estimate to open a pho restaurant rests on the following factors:
- Planning: Create a business plan and pro forma and update them as you go. At the very least, a pro forma should be developed and updated regularly throughout the development of your design and buildout cycle. If you're not willing to spend the time to do a pro forma for your business, I'm not sure you're really cut out for this business later on, because it will get harder and you'll need numbers to help you make good decisions. A pro forma is the exact tool to help you with numbers, among other things that it can do for you. A pro forma will tell you how much your pho restaurant will cost to open, and how much it will cost to operate after opening.
- Execution: Minimize the cost of making mistakes as you build and run the pho restaurant. Many pho restaurant owners, and of restaurants in general, fail because they fly by the seat of their pants as they make amateurish mistakes. A few get lucky, but many don't. The vast majority of pho restaurant operators are "self-taught" and make costly mistakes as they learn to do things. The cost of making mistakes should be included in answering the question "how much does it cost". By my own estimate, this number can range from 10% to 30% of your pro forma estimate, sometime higher.
There are only two types of restaurateurs who don't need to worry about both items 1. and 2. above.
The first are those who are experienced at what they do or know what they don't know, and spend the time to search for answers to guide their decision and action. Whether they teach themselves or receive guidance from a knowledgeable friend or family member, or a pho restaurant consultant, the net result is they learn to work and know the numbers like the back of their hands, and they learn how to avoid making costly mistakes. And if they do make mistakes, they know how and are willing to find help to fix the mistakes. The problem is, to the untrained eyes, these people are "lucky" and if they can do it, anyone can too.
And that's a dangerous assumption, which leads to the second type of restaurateurs, those who count on pure luck to succeed. They skip one or both of 1. and 2. And when they don't succeed, they chalk it up as another "bad luck" or "market not right" or other excuse. They may as well play roulette with their money in Vegas where they will do much less work and have much more fun losing their money.
Getting to the Real Cost to Build and Open a Pho Restaurant
In all seriousness, in order to determine the cost of open your pho restaurant, you should do both 1. and 2. above. It's like this:
- Planning = Defining and developing your concept, and creating and maintaining an accurate pro forma to guide you.
- Execution = Follow your plan and be nimble to adjust and improve in order to minimize costly mistakes throughout the construction and operation phases.
By working out your costs systematically using a pro forma as a tool, and updating it regularly, and then minimizing mistakes as you go, you can keep your cost as close as possible to your pro forma numbers. This is exactly what you want to do.
If you don't do this, then the cost to build and open your pho restaurant will be whatever plus whatever, add to that some more whatever you didn't know you need, then finally add the cost of the mistakes that you didn't know you will make.
Original posted date 08-23-14.
Updated 02-18-19.
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