The formula
Annual ROI % = (Monthly profit per location x 12) / Investment per location x 100
Payback (months) = Investment per location / Monthly profit, extended for ramp-up months counted at half profit
Total investment = Investment per location x Number of locations
Why ROI and payback must travel together: ROI tells you the rate, payback tells you the wait. A site can show a fine annual return and still strand your cash for seven years getting there, and the first lease break and first remodel arrive inside that window. The ramp adjustment matters for the same reason: new locations almost never open at run rate, with staff learning and the local market not knowing you yet. Counting the first months at half profit does not change the ROI, but it moves the payback date to where it will actually land.
How to use it, with an example
- Cost one location honestly: build-out, equipment, deposits, opening stock, hiring and training, plus the losses of the first weeks.
- Set monthly profit from your existing locations’ real results, adjusted for the new site’s rent and market, never from a franchisor’s brochure or your best site’s best quarter.
- Enter how many locations the plan covers and the ramp-up months you expect.
- Read the payback in years last, and ask whether the group can fund the gap until that date.
Worked example: A group opens three locations at $420,000 each, $1,260,000 total, expecting $9,500 a month profit per site at run rate, with six months of ramp at half profit. Annual profit at run rate is $9,500 x 3 x 12 = $342,000, an ROI of 27.1%. Payback per location is 47.2 months, about 3.9 years, once the slower first six months are counted. The calculator above is prefilled with these same numbers, so you can see a finished result before you enter your own.
Modelling an expansion this way, and then tracking each new site against the model month by month, is much easier when all locations report in one place. Odoo for Restaurants gives an expanding group one view of sales and costs per site, and the Odoo Accounting and Finance module lets you hold each new location as its own analytic unit against its opening budget.
Common mistakes
- Using the flagship’s profit for every new site. Your best location is the survivor of every good decision and a little luck. New sites should be modelled on your average unit, or the one most like the new market, the same caution that applies when you calculate ERP ROI from average rather than best-case gains.
- Forgetting cannibalisation. A new site near an existing one takes some of its sales. If 15% of the new site’s revenue is moved, not created, the group return is lower than the site return. Model the group, not just the unit.
- Leaving working capital out of the investment. The site needs cash to survive its own ramp: wages and rent are due before the till is full. Investment that stops at build-out understates payback by months.
- Ignoring the cost of your existing team. Managers spread across more sites, more reporting, more travel: expansion consumes head-office time that never appears in the site budget. It is the expansion version of asking whether an ERP investment is worth it once the hidden running costs are in.
- Comparing ROI without the time dimension. 27% earned by year four is a different proposition from 27% at a site that took eight years to stabilise. Always quote ROI with its payback, and check both against your lease term, a habit that also saves groups from working in disconnected files long after they should have switched from spreadsheets to one system.
FAQs
What is a good ROI for a new restaurant location?
Experienced operators generally look for a cash-on-cash return of 10 to 20% a year or better from a food concept, with payback inside roughly four to seven years depending on format. Above 20% is strong. Below 10%, the opening cost takes so long to recover that the concept or the site deal usually needs rethinking.
How long should a new location take to pay back?
Four to seven years is the common planning range for restaurant expansions, faster for lean quick-service formats and slower for large full-service builds. The test that matters is not the industry range, it is your own runway: payback must land comfortably inside the lease term and inside the cash the group can lock away.
Why does ramp-up change the payback so much?
Because payback is counted in real months, not run-rate months. Six months at half profit adds roughly three extra months to the payback date on its own. Plans that assume full profit from opening day are the single most common reason expansion cash forecasts fail in year one.
Should I model the new site on my best location’s numbers?
No. Model it on the average of your comparable locations, then stress it: what does the return look like at 80% of that profit? If the expansion only works at your best site’s numbers, it does not work, it is just hoped.
Does this calculator include financing costs?
No. It works on cash invested and operating profit, so loans, interest and tax sit outside it. If the expansion is debt-funded, model the interest separately in your own cash plan.
