I am opening a pizzeria in a town with a population of 9500 and growing. I need to write a business plan (which I have never done before) and need to estimate what my sales will be for the first and second year in business. We have 1 small chain store and 2 private pizzerias but the pizza is terrible in all of these and 1 of the private pizzeria owners may be retiring and closing. I have tried estimating what my sales will be by using statistics like: people eat an average of 46 slices of pizza a year. Is this going to give me a good projection? Plus what about calzones, wings, subs and such? My landlord, whose son has a pizzeria in another town, says I should make 400K in sales the first year. He seems to know what he is talking about and seems sincere but of course he wants me to lease the place so I can’t really go by his estimation. If anyone knows how to do this or has any other business plan writing ideas please reply.[/b]
Ellemeno,
It’s kind of a sticky situation. On one hand, you’ve got a small town (I love small town markets) with approximately 3,500 addresses which, in normal circumstances, should give you anywhere in the range of $1.00-$2.00 per address. Of course, the $1.00-2.00 per address estimate is ONLY an estimate but is also the norm when it comes to the pizza business. So, this number will translate to weekly sales of $3,500-$7,000 on average. Don’t get suckered into thinking your pizza is so much better and you’ll do better than average and all that nonsense, because at first, as far as the public is concerned, you’re just another pizza place. So, be reasonable and accurate with your projections.
Now, the sticky part: You’ve already got 3 competitors in your market. That’s a little messy. I don’t care if all 3 competitors serve up cheese and sauce on cardboard, they WILL have some marketshare in that town, thus dropping your estimates down to the range of 50 cents - $1.50 per address. Do NOT over-estimate and think you’ll go in there and light the place up. That kind of attitude is a good one to have, but realistically, it will bite you in the ass in the long run.
I’ve got a similar town I’m looking at over here. You can look it up on Wikipedia .org. It’s named Wamego, KS. It’s got about 1,700 households in the city limits, but there’s a lot of building going on outside the city limits, therefore adding approx. 1,200 rural route addresses within a 5 mile radius. There are 3 pizzerias in that town… I’m staying away from it. I love the town and love the new builds going on, but 3 pizza places? They’ve got more pizza places than hamburger places for God’s sakes.
Sometimes you’ve got to step back and look at a situation realistically. Opening a business is a FANTASTIC idea and I, along with everyone in this forum, will highly recommend it and help push you towards that goal. BUT don’t be jaded by the fact that you’ve got an uphill battle in front of you if you decide to open up in your town. Yes, you might do 400k. I doubt it, but you might. Every bit of knowledge I’ve got says you’re probably looking closer at 200k-300k, so PLEASE make sure you’ve got your break-even down to the $3k/week range just to protect yourself.
Now, after I’ve scared the living bejeezuz out of you, a fair industry standard would be increases of 7% per year in net sales. Don’t forget to take into account anything going on in your town (like big carnivals or festivals) and fluctuations during the different seasons. Good luck. Hope this helps. -J_r0kk
jr0kk,
Thanks for the insight. My estimations came out around 250-300k. There are a few factories and businesses like doctors offices and such in this town. Should I take businesses into acount when estimating? Also, the projected population for next year is over 11,000. One of the three pizzerias is being knocked down in May to make way for an senior housing complex. Hopefully that will result in less competition and new customers moving to the town. Then there are camp sites for RV’s during the summer and just a whole bunch of variables. I prefer to low-ball the estimation and anything over that will be a pleasant suprise. Thanks again for your reply.
Ellemeno Pizza
I would only take businesses into account if you’re pulling in people from other areas. As far as factories, you might target them to improve dayshift sales if you’re opening for lunch and are offering a buffet-type special. Treat the camp sites like hotels and make sure you target them on a daily/weekly basis, because those will be new people in your area everytime someone new checks in. As far as the senior housing complex is concerned, don’t count on them to be regular pizza eaters. Seniors just don’t order pizza at the same frequency as your typical 30-something mom and dad with 1.8 kids.
Population growth is also a key factor in estimating sales. The more new people your city attracts, the more potential buyers you get into your area. Just remember your key indicator of $0.50-$2.00 per address when you figure out your sales projections in the future. Hope this helps. -J_r0kk
jrokk,
should I be estimating using the population of the entire town or a certain radius? there is an ajoining town that has no pizzerias and a population of 4,500, the town begins about 7 miles from my location. should i take them into account too? they need pizza! people around here are used to having to drive quite a distance to get what they want.
thanks again, this helps me tremendously.
Are you planning on delivery or Dine in/takeout?
That has to be some of the best advice I’ve ever read on this forum…
I think a lot of pizzerias fail because people say “XYZ Pizza does $600,000 per year, so I should at that pace within my first year.” Then they do their projections based on that and have little to no working capital. It doesn’t matter if your product is WAY better than XYZ. XYZ has established market share, and they’re obviously doing business or their doors would be closed. Nobody’s even heard of the new shop.
I opened in 2004. We were busy all the time. Our pizza got rave reviews from every food critic in the area and we had newspaper write-ups and stories all over the place. People were flocking to us based on word-of-mouth alone. We now have the reputation of being hands down the best pizza in our area.
And you know what? We bled cash for the first 2 years. No matter how great your product and service is, it takes a long time to get your name out to everyone. We still have about 20 new people come in each week that say “My friend told me about this place… I live right down the street and didn’t even know you were here.” And it’s not for lack of advertising… every address in town has received something from us at least 7 times now; and that doesn’t include ValPaks, Money Mailers, Newspaper ads, etc. Additionally, we have a very aggressive database marketing program.
That’s a long way to say: Project the worst case scenario, and make sure you have the working capital to carry you through. To be honest, $400,000 the first year seems very optimistic. If you have an average ticket of $20.00, you need 1,666 orders every month for your entire first year. I really think that would be a feat in a town of 9,500 people who have never heard of you.
Your business plan should use three scenarios: Worst Case, Average, and Best Case. Do projections at maybe 200k, 300k and 400k. Make sure that you either 1) Break-even at 200k or 2) Have enough working capital to carry you through if you only do 200k.
If you’re using this business plan for a loan, it doesn’t hurt to be a little optimistic. But for yourself, your business plan must include the downright dirty worst case scenarios. Actually, I had two full business plans; one for the banks and one for me.
jr0kk,
dine in,take out and delivery
Okay, dine in, take out, & delivery…
Delivery is a pretty important aspect. Not only is it my comfort zone but it also adds tremendous additional sales to your business. BTW, read what Piper had to say. He’s a pretty knowledgeable cat.
Anyway, when I set up a delivery area for a store, my absolute stopping point is 8 miles from the store. Yes, if you’ve got a little subdivision with about 200 houses a couple blocks past that 8 miles, then do it. If you’ve got a town 7 miles from your store (in your case), understand that the town should end within the 8 mile limit from your store. Your drivers won’t like it, though. They’ll always be complaining about going to the edge of their delivery area all the time to deliver pizzas out there. But don’t, and I repeat… DON’T go further. It would be operational suicide to attempt this. Why? Well here’s why:
Your driver should be able to average 3.0 deliveries per hour at a minimum to be efficient. When you look at your labor percentages in the store and where you’re spending your money, a typical store will look like this:
Net Sales = $6,000/wk
Labor % = 26%
Manager = 8.33%
Cust. Svc = 2%
Kitchen hlp = 2.75%
Drivers = 12.92%
Total L% = 26%
Now, getting back to that 3 deliveries per hour philosophy: 3 deliveries x $15 ticket avg = $45.00. To pay one driver one hour to deliver these 3 pizzas you’re looking at this to figure out labor %. Labor$ divided by Net Sales as a percent. So take $5.50 divided by $45.00 = 12.22%. As you can see, delivering on 2 deliveries per hour you’re looking at this: $5.50 divided by $30(2 orders/hour)= 18.33%. So, developing your delivery area so that your furthest run is 15 or less minutes away is imperitive. If your go further, you’ll find that your drivers will stay on runs longer and that they won’t be able to hit your 3 delivery/hour minimums.
Now, if all these tangibles match up… there’s no reason you shouldn’t include this other town as part of your “delivery area” and should be included into your business plan. Just make sure you have a marketing plan in effect to let these people know you will deliver out there. Hope this helps. -J_r0kk