Price/Profit/Size

Hey y’all! Longtime lurker, maybe first time poster here…

I’m working on pricing for my new pizza shop and I think that I’m learning that you make less and less the larger more heavily topped the pizza gets. FYI, We’re definitely a quality over quantity kind of pizza shop…

OK, so an 8" cheese pizza costs me $0.75 in food to make. I can sell it for let’s say $6.00. So that’s a %700 markup right? Great! I’m gonna get rich quick!!! So a 16" cheese pizza costs me $3 to make, the same markup gets me a $24 large cheese pizza and gets me a not a lot of customers at that price. A 16" “supreme” pizza costs me $8 to make so I sell it for the same markup at a 8" cheese and i get a $64 pizza and no one ever walks in the door again.

So how do I go about pricing my pies? Any wisdom here? Is it true for y’all that the bigger and heftier yer pies get, the less you can mark it up? Do we make the most on the smaller sizes?

The pizza trade magazine that shall go unnamed says…“Ultimately, the best method for determining the final price of your 16-inch pizza would be to figure your food costs, then find an acceptable markup from there. You likely won’t make as much per pie as you do on your 14-inch pizzas, but your customers won’t feel overcharged and alienated, either.”

Has this been y’alls experience?

Thanks! Hope to meet some of y’all in Vegas soon!

The method most pizza shops used to set prices is to calculate the ideal food cost for any given pizza and work out the price based on food cost percentages. Once you have the cost you need to determine what an acceptable food cost percentage would be. You say you can get $6 for your 8 inch cheese pizza to calculate the food cost percentage for this pizza you divide the $0.75 food cost by the $6 price and multiply by 100. $0.75 /$6 x 100 = 12.5% food cost. If you can accomplish 12.5% food cost more power to you. Most places would be happy to be selling at 20 to 30% food costs.

To determine the price based on food cost and percentage you would take the $0.75 and divided it by the food cost percentage. Using your food cost for the 8" and 16" cheese pizzas you can see how the pricing can be quite different depending on what you find acceptable for your food cost percentage.

$0.75/12.5%=$6 — $3/12.5%=$24
$0.75/20%=$3.75 — $3/20%=$15
$0.75/30%=$2.50 — $3/30%=$10

I set pricing for the different sizes to make it the larger the pizza the better the deal for the customer. For example I might set the food cost for 8" at 24%, 10" at 24.5%, 12" at 25%, 14" at 25.5%, 16" at 26% and so on. Using this method the price per square inch is progressively less as the size gets larger. I think this is what the quote from the magazine is alluding to.

I’m wondering what you top your Supreme pizza with that costs you $5 more than the cheese pizza?

While markup/food cost is important, so is contribution margin. Would you rater sell an 8" pizza for $6 at a 12.5% food cost or a 16" pizza for $12 at a 25% food cost? $5.25 contribution margin vs $9 contribution margin. Which would you rater have 100 transactions of?

Yeah, Paul nailed it. I am much more concerned with my contribution margin than I am with my food cost percentage. My 10" cheese pizza has a 12.17% cost of goods today. But if all of my existing orders went to 10" cheese pizzas I would be out of business in a jiffy.

I don’t subscribe to the method of backing into your price by using a multiple of cost. In this business, and any other business under capitalism, you charge the maximum price that the market will bear. Setting your prices appropriately takes market research, and they should be set to maximize your profit - not minimize your food cost percentage or maximize your volume.

Thanks guys! Very helpful. I thought that I might need some flexibility on the food cost %.

While markup/food cost is important, so is contribution margin. Would you rater sell an 8" pizza for $6 at a 12.5% food cost or a 16" pizza for $12 at a 25% food cost? $5.25 contribution margin vs $9 contribution margin. Which would you rater have 100 transactions of?

I believe you are telling me that the answer is the latter.

I’m wondering what you top your Supreme pizza with that costs you $5 more than the cheese pizza?

We make our own Italian Sausage from local pork, and cure and smoke our own Canadian Bacon from the same pork. We generally use local ground beef for our meatballs. We give our mushrooms special treatment roasting them, and finishing them in white wine and garlic and butter. And we use Kalamata olives instead of the canned black ones. And we get Ezzo pepperoni. It all adds up, even sparsley topped. I’m currently trying to figure out where to cut corners on quality. I don’t really want to anywhere, but I think I have to. My main competitor sells that pie with far cheaper ingredients for $31.50! But they’re a cultural institution and have been around for 40 years!