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How to project sales of a startup?

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ssg263

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Hello everyone. Just a little background: I am new to all this, but it has been a lifelong dream to own my own pizzeria (just pizzas, a house salad, and a dessert nutella pizza, no other food). I have lived in the NYC area my entire life, but I have a unique opportunity to live rent-free for a couple of years in a new city (my wife’s family owns a house there.) I would like to use this opportunity to finally pursue this dream (that is, IF I feel the economics can work.) I feel I’m at the point in my life where I’m ready to go off on my own, my background in finance/small business/arbitrage has prepared me to run a business, and pizza is what I know best and love the most, so that’s what I want to do.
I plan to run a small shop in a populated area with high visibility and low labor overhead. I feel this is the way to go if I want to maximize my chances of survival in the first year. My mission is to make high-quality, gas-deck oven, NY style pizza using only the finest ingredients. My profit margins won’t be the best, which is why I need a high visibility location to keep volume up, and need to keep overhead down (thinking just me and 1 other employee, carryout and 6-10 tables but no delivery in the beginning).
The main reason I’m willing to take on this risk is because my wife is a skilled professional who can bring in some money too, and we have a chance to live rent-free for the next couple of years. This will afford me some time to get the business off the ground. I am not trying to get rich, but just make a living and do what I love while being able to be my own boss, which is why I’m considering not being open Mondays and not being open for both lunch and dinner some days where sales may be lower. That is, unless if the business actually grows and then I can start to hire other people who can ease the burden on me. If I keep overhead low, market the business correctly, and focus on producing the best pizza, the money should work itself out.

Anyhow, with the background out of the way, I was wondering if there were any guidelines out there as to how to go about projecting sales? I am trying to back into targets for how many pies/slices per day I can expect on average on various days of the week (obviously Tue-Thu will be different from Fri-Sat and population of the town matters too), but I have no reference points, which makes things a bit tricky. An initial level of sales and growth rates of sales in the first few months are also very hard to conceive without reference points. Anyone have advice or general guidelines for this newbie as to how to project sales given the population of your area?
 
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Welcome to the forum. Spend some time searching the forum and you will find much written about the things you are asking.
 
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I did see something quoted a while back in my planning stages that may help your projections

I read;
That 18%-20% of the population goes out for pizza 2 times per month, now divide that by the number of other pizza places in your area and there is an optimistic baseline to use.
When I wrote my biz plan, I used 3 different figures with 20% being very optimistic, and 8% being very low end.
After my first year, I found close to 14%-17% being near accurate.
 
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That is too small an operation to be profitable. 8 tables X 1.5 turns X 310 days a year X $40 average ticket = 150K per year in sales. You will be sucking wind from day one. (But at least a deck oven set up can handle the volume) It is very unrealistic to forecast more than 1.5 turns as a yearly average unless you can point to other examples in the area to support your assumptions.

If you want to earn a living at this and justify the investment IN ADDITION to getting paid to work there, you need to be looking at roughly 3X that sales number or higher. Work backwards into your average ticket, turn rate and table count to get a sense of what size operation you need in your area to accomplish that.

If you have a significant population base within 5 miles and decent income demographics, I would not worry too much about how many other restaurants there are. Good product/service combined with effective marketing will bring people in the door, but in the end, you need to be able to serve them when THEY want to eat. The ones you turn away when your 8 tables are full are mostly going to go someplace else rather than wait.
  1. Figure out what size you need to be to earn a living.
  2. Then figure out how to fill that space with customers.
 
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I agree with the above assessment that you should be trying to achieve 450K+ in sales but I disagree with the number of tables being too few to get you there. It is my experience that most pizza places serve more pizza to go than they do for dine in. There’s obviously exceptions to this but outside of Italian restaurants that serve pizza and pizza buffets, I think the overwhelming majority serve more to be eaten outside the restaurant than in. The two problems I think you are likely to run across is that people in “populated” areas are now used to delivery and that those that still pick up pizza weekly despite delivery being prevalent in their area are extremely loyal to “their” pizza shop. What are you going to offer to get those used to delivery to get in their car and pick up from you, and how are you going to get the loyal customers from the neighboring shops to try you?
 
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we are about 50% dine in and 50% take out , 1800 sq ft , i have seen many smaller operations like you describe not make it in my area
 
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I’m trying to hold my tongue here. You look to be either a hobbyist or lazy. If having a pizza business has been " … a lifelong dream", then being willing to work hard at it should be part of the equation. Don’t qualify your dream by restricting how many hours and days per week you are willing to commit to being successful, at least until you can justify fewer hours or days by looking at the profit and loss statement. Maybe you should investigate the prospects of becoming a “pop up” a few days a week somewhere where the prime business (not a restaurant) is responsible for “the nut” (rent, insurance, utilities, etc. etc.) and you would become the equivalent of his “food court”. I don’t mean to be disrespectful, but what you’ve described (significantly limited hours and menu) isn’t what I consider a traditional business. I hope you will take these comments in the spirit they are given … that being to save you the heartbreak of spoiling your dream.
 
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Good point Paul about the carryout… In our business, we run about 30% carryout and 70% delivery. However, even with 50% carryout vs delivery as in John’s comment, that only gets him to 300K… survivable, but probably not worth doing.

I think a place with 8 tables can make it if they do delivery too… but just sit down = failure. Sit-down plus carryout might fly but is not likely to be lucrative in a world where delivery dominates the “to-go” market.

Maximizing the chances of “chances of survival in the first year” in the first year is more about having enough $$ to execute a viable plan than it is about having minimal costs. Not to trivialize cost control, but I see more start-up failures due to inadequate resources than I see failures due to high costs… two sides of the same coin to some extent perhaps?

Writing a plan that is likely to fail in order to have low costs is a bad way to go. Better to create a plan which can succeed, figure out what costs are realistic and only pull the trigger if you have the resources (Including reserves!) which are required.

With all that said, I would not mind adding 8-10 tables to my delco. I think it would be mostly incremental sales!
 
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GotRocks said:
I did see something quoted a while back in my planning stages that may help your projections

I read;
That 18%-20% of the population goes out for pizza 2 times per month, now divide that by the number of other pizza places in your area and there is an optimistic baseline to use.
When I wrote my biz plan, I used 3 different figures with 20% being very optimistic, and 8% being very low end.
After my first year, I found close to 14%-17% being near accurate.
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Thanks! that is useful info.
 
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bodegahwy said:
That is too small an operation to be profitable. 8 tables X 1.5 turns X 310 days a year X $40 average ticket = 150K per year in sales. You will be sucking wind from day one. (But at least a deck oven set up can handle the volume) It is very unrealistic to forecast more than 1.5 turns as a yearly average unless you can point to other examples in the area to support your assumptions.

If you want to earn a living at this and justify the investment IN ADDITION to getting paid to work there, you need to be looking at roughly 3X that sales number or higher. Work backwards into your average ticket, turn rate and table count to get a sense of what size operation you need in your area to accomplish that.

If you have a significant population base within 5 miles and decent income demographics, I would not worry too much about how many other restaurants there are. Good product/service combined with effective marketing will bring people in the door, but in the end, you need to be able to serve them when THEY want to eat. The ones you turn away when your 8 tables are full are mostly going to go someplace else rather than wait.
  1. Figure out what size you need to be to earn a living.
  2. Then figure out how to fill that space with customers.
Click to expand...
appreciate the feedback, thanks. I’ll give it some thought. I am very flexible on the number of tables. I will look to “turn” tables quickly (no waiter service though) during lunchtime, catering to those looking for a quick slice or two and a drink.
 
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Piedad said:
I’m trying to hold my tongue here. You look to be either a hobbyist or lazy. If having a pizza business has been " … a lifelong dream", then being willing to work hard at it should be part of the equation. Don’t qualify your dream by restricting how many hours and days per week you are willing to commit to being successful, at least until you can justify fewer hours or days by looking at the profit and loss statement. Maybe you should investigate the prospects of becoming a “pop up” a few days a week somewhere where the prime business (not a restaurant) is responsible for “the nut” (rent, insurance, utilities, etc. etc.) and you would become the equivalent of his “food court”. I don’t mean to be disrespectful, but what you’ve described (significantly limited hours and menu) isn’t what I consider a traditional business. I hope you will take these comments in the spirit they are given … that being to save you the heartbreak of spoiling your dream.
Click to expand...
appreciate the constructive criticism. thanks. I never meant to insinuate “significantly limited hours,” many family owned-operated businesses are closed 1 day per week and survive, that’s really all I’m considering. I am certainly willing to put in the hours, could easily go 7 days a week to see how it goes and take it from there, either I hire some help or decide Mondays aren’t worth the sales they bring in. It’s not a dealbreaker by any means and I will consider your advice. I plan to do this in a major metropolitan area that historically has embraced the “hole in the wall” style business if the food is legit, so at least I have that going for me. The “big 3” chains are present but don’t dominate here.

Running the potential economics of the business is my challenge right now, to see if this business can break even on operating cash flow in the first year. If I don’t think it can, I won’t move forward.
 
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paul7979 said:
I agree with the above assessment that you should be trying to achieve 450K+ in sales but I disagree with the number of tables being too few to get you there. It is my experience that most pizza places serve more pizza to go than they do for dine in. There’s obviously exceptions to this but outside of Italian restaurants that serve pizza and pizza buffets, I think the overwhelming majority serve more to be eaten outside the restaurant than in. The two problems I think you are likely to run across is that people in “populated” areas are now used to delivery and that those that still pick up pizza weekly despite delivery being prevalent in their area are extremely loyal to “their” pizza shop. What are you going to offer to get those used to delivery to get in their car and pick up from you, and how are you going to get the loyal customers from the neighboring shops to try you?
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I see your point on the delivery. It’s something I should think long and hard about. I definitely want online ordering made easy if’ I’m gonna do it. You cannot believe how much business Seamless Web brings in here in NYC. I need to run the econs of hiring a delivery guy, car, insurance, fuel cost, minimum order total, etc but again I continue to try to hone in on a reference point for my delivery sales estimates. Thanks for the feedback.
The 450k in sales is a helpful starting point, but ambitious if no delivery like you said.
I do have a marketing plan I’m putting together for getting people in the door, perhaps I’ll get into that eventually.
 
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In a major metro area you should be able to get solid information about sales per square foot for similar businesses. By similar I mean similar price point and business model… not necessarily pizza. Check on the average ticket for other quick serve lunches. You will need to be in the ball park of what people are willing to spend. Regarding turns at lunch, it all comes down to how long the lunch rush is. If it is pretty compressed quick turns don’t do much because the demand is gone before the table is free.

450K is not an ambitious number if the facilities are adequate and the traffic is there. For a sit-down place with a decent ticket average open 360 days a year that comes to $1250 per day. A relatively small place with 20 tables can do that pretty easily if they have traffic. It will still be the kind of place you are married to but at least you can earn a living. For my part, if I was planning a sit-down operation from scratch I would not go under 30 tables (roughly 100 seats with a mix of table sizes) and I would be shooting for 1.5 turns with at least a $50 ticket average (including bar) and a potential of 750K or better. At that level you can also have a real manager and be able to take days off etc.
 
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I was told this was a good place to get advice about a startup Pizza business. I’m at a point in my life when after being employed for 30 years and being laid off, to working as a contractor, and I feel passionate about having my own Pizza place. I was thinking quality Pizza, Calzones and Zeppoli of all kinds. Of course salads and I was thinking of a weekly special. I live in a rural area with one franchise and one family run pizza place. The franchise is strictly take out and delivery, and the family run place is take out and eat in with picnic tables. It is a popular place when school is in session, but it is really the only choice for pizza in the area to eat in, and the pizza is okay. There is one other pizza place in the mountains about 10 miles up, the place has two tables and is a very busy takeout shop. The people in the mountain don’t have another choice unless they come down the mountain, which many surprisingly do to go shopping.

I am in the process of writing a business plan and trying to figure how much I will need to finance a startup.
There is a shop available for $1400. a month on the main street that runs through town and ends into another major road, so lots of traffic. There are three schools within a 1 mile radius, elementary, junior high and high school. And down the road about 5 miles a couple other middle schools. For a small town there are at least 5 churches of different denominations. Equipment will cost me $500.00 month. I was hoping someone could help with giving me a ballpark monthly figure for the operation, and I thought I could multiply that out 3 months. I am confident with marketing as I know other business owners in the area, families and school connections. I was also thinking of having Wifi as it may be important for the folks coming from the schools.

I read the posts here and would appreciate if someone could throw out a figure to help me wrap my head around an idea of where I need to go for financing; bank or private investors.

Thanks again. I appreciate the wisdom and the comments.

Giselle
 
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I read the posts here and would appreciate if someone could throw out a figure to help me wrap my head around an idea of where I need to go for financing; bank or private investors.
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With the limited information you have provided I would guess that you would need to have sales in the $20K per month ranges just to keep the doors open. To make money your going to need to be doing $25-30k.
 
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bodegahwy said:
That part is easy: Private investors. Banks do not finance startup pizza restaurants.
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Thank you - I did find that out - I was looking in a Business Credit Card to get started, just looking at my options. Now looking for private investors. Going to take a look at the links you provided, thinking that’s what those are.
 
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where 'bouts in CA are you? Do you have any savings, for some ‘skin in da game?’ Any home line of credit available? Private investors are not easy to find…you’ll need your ducks all in a row…is the place closed currently? How’s your petsonal credit? You can prolly get 2/3 months free rent with a security deposit & two months rent…

I lived in SoCal many yrs ago…
 
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