How to Control costs in a pizzeria
Controlling the fixed costs in a pizzeria is very important to the final net profit of any pizzeria you own. The fixed costs include rental expense, utility expense, managerial labor cost, any equipment leasing expense, Advertising expense, and insurance and accounting expense. The total of these expenses should be no more than 25 percent of the final gross sales of the pizzeria.
The problem is that most of these expenses are set when you first open the pizzeria and not considered much after that. Therefore you need to have a fairly accurate idea of what your gross sales will be before you choose the location for your pizzeria. The rental cost should be five percent of your future gross sales. Therefore if your best estimates say your pizzeria should do $6,000.00 in gross sales that means you can spend $300.00 a week or $1200.00 a month on rental cost. That means you shouldn't even consider a store that costs much more than that. That is the reason for keeping a couple of zip codes in mind, just in case you can't find a suitable store at the right rent in the first zip code. Throughout the rest of this article we will consider the fixed costs and the proper percentage for each one. The first to consider is the rental cost.
Controlling the rental cost in a pizzeria
The rental cost is the most important to consider when you first look for a place to open your pizzeria. The rental cost for a 1000 sq ft store to use for a carryout and delivery pizzeria should be about $1250.00 dollars a month. That means the zip code the store is in should be able to do at least $6,000.00 a week in gross sales. If your projections show gross sales less than that don't consider the location. You will be consigning yourself to constant turmoil trying to make enough money to meet the expenses, much less make a decent net profit. The reason for opening the pizzeria is to make a decent net profit, without putting in an unreasonable amount of hours. Why consign yourself to years of hard work and misery by choosing the wrong location. Next we will consider the utility costs.
Controlling the utility costs in a pizzeria
The second thing to consider are the utility costs for the pizzeria after you are open. Like the rental cost the utility cost is another five percent of your projected gross sales. This can only be achieved if you are very careful in your selection of equipment. For the average pizzeria the electrical equipment should consist of a walk in cooler, a pizza make table, a dough roller, and a dough mixer. The gas equipment would be the pizza oven, and any other cooking equipment for the pizzeria. Besides this you have the phone cost and the water cost for the pizzeria. Your electrical cost should be about five hundred a month, your gas cost about four hundred a month, the cost for two phone lines about one hundred twenty five dollars a month, and a water cost of about seventy five dollars a month. This allows you one hundred and twenty five dollars a month for overages on utility bills. Buying the correct equipment to save on utility bills should be a major concern when you are getting ready to open. Forget about doing anything other than a line ad for the yellow pages which adds to the cost of your phone bill. You need to have a website for your pizzeria with online ordering because that is what the younger generation is used to. Also it cuts back on the phone cost and the labor cost for answering phones. Using online ordering and mobile ordering helps to cut back on other costs. That is why it is a good thing. The next thing to consider is the managerial labor cost.
Controlling the managerial labor costs
The managerial labor cost should be about eight percent of gross sales. This allows you an escape valve when you first open and for the first couple years after. You are the manager so this money goes to you. When you are first open you pay yourself less than eight percent to help with keeping costs down. Also as the owner manager you also do a lot of the work done by hourly labor and considered a variable labor cost. This keeps your total costs lower while you are building sales, and keeps you from losing more money. Next we will consider the other fixed costs.
Controlling the other fixed costs
The other fixed costs include such items as advertising, insurance, and accounting. We have seven percent of gross sales or about $1600.00 a month left to spend on these fixed expenses. The business insurance on the pizza place should be about $200.00 a month, and we can allow another $150.00 for accounting. This leaves around $1200.00 a month or $300.00 a week for advertising. When we subtract $125.00 a month for a website and online ordering that still leaves over $250.00 a week for other forms of advertising. If handled right that should be plenty. In another article we will consider how to advertise for a pizzeria.
When we consider the fixed costs for a pizzeria we can see that if you have done your homework, there is plenty of cash flow to handle these expenses. The main thing is to prove that there is enough gross sales to handle the level of fixed expenses. In another article we will handle the idea of variable expenses which include hourly labor expenses and food costs. Together with fixed expenses they are supposed to amount to eighty percent of gross sales. This leaves 20 percent of gross sales for the net profit. In a world where the net profit amounts to about 2 to 8 percent of gross sales ending up with a net profit of 20 percent is unusual. With gross sales of $6,000.00 dollars a week, that leaves a net profit of $1200.00 a week for the owners. A nice income for the average working person.