What is a good rent-to-sales ratio for a restaurant?

6 to 10 percent is the healthy range for a full-service independent restaurant. Above 10 percent is tight; above 15 percent most independents do not survive the first lease term.

How do you calculate rent-to-sales ratio?

Divide your total annual occupancy cost — base rent plus NNN, common-area maintenance, taxes and insurance — by your projected annual sales, then multiply by 100. Use a realistic sales forecast, not the landlord's.

Is rent or revenue ratio the same thing?

Yes. Rent-to-sales and rent-to-revenue ratio are the same figure — total occupancy cost divided by projected sales, expressed as a percentage.

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Rent-to-sales ratio: the number that decides it

Restaurants and cafes rarely fail because nobody came. They fail because rent was 15% of revenue while food, labour and overhead were another 90%. The rent-to-sales ratio — also called rent-to-revenue ratio — is the single most useful arithmetic you can do before signing a lease, and it takes ten minutes.

The formula

total annual occupancy cost ÷ projected annual sales × 100

"Occupancy cost" is not just the headline rent. It includes NNN / triple-net charges, common-area maintenance, property tax and insurance — the extras that quietly turn a "$3,000/month" lease into $4,400. Add them all, annualise, and only then divide.

What the number should be

6–10%

Healthy. Rent is a manageable line item, not a bet.

10–15%

Tight. You are betting everything on hitting forecast.

15%+

Most independents don't survive the first term here.

For a cafe, aim for the bottom of the range — 6–8% — because tickets are small and margin per drink is thin. A full-service restaurant with alcohol can carry a little more.

The trap: whose sales forecast are you using?

The ratio is only as honest as the "projected sales" number. The landlord's pitch deck optimistically assumes you'll be in the top decile of your category. Do the arithmetic with three scenarios instead:

Base case — what a realistic operator in your category and price point does in that neighbourhood.
Downside — a mediocre first year, because most first years are.
Break-even — the sales level at which the ratio crosses into the danger zone. Write that number down: it is the line you must clear or renegotiate.

If the lease only works in the upside scenario, it doesn't work.

A worked example

A landlord quotes $3,200/month "base" on a 900-square-foot unit, plus $1,150/month in NNN and common-area costs. Total occupancy is $4,350/month, or $52,200 a year.

At the 6% target, you'd need $870,000 in annual sales — $2,380 a day, every day.
At 10%, the floor is $522,000 — $1,430 a day.
If your realistic forecast is closer to $400,000, that lease is 13% occupancy cost — already in the danger zone before you've paid for one plate.

The $800/month that "sounded fine" in the pitch is the difference between a lease that works at 6% and one that only works if you're the best restaurant on the block. This is the arithmetic that decides whether a location is actually an opportunity.

How location data feeds the forecast

Projected sales are not a guess — they are built from the same signals that predict survival: foot traffic past the door, the competitive set, residents per venue, and churn. A corner with strong measured foot traffic and healthy peer density can justify a higher sales forecast — and therefore a higher rent — than an isolated block. This is why rent decisions are really location decisions, and why a foot-traffic read should precede any lease negotiation.

Get the numbers for your exact address. A Hoodly report gives the foot-traffic, competition and demand signals for a specific corner so the sales side of this ratio stops being a guess. From $5 CAD, 14 Canadian cities — drop a pin.

Next: the full decision framework in how to choose a restaurant location, or the cafe-specific guide.