Years ago I had a sign in my customer area that said, “We have no quarrel with those who sell for less, they should know what their product is worth.”
You see, I’ve always sourced only top-quality ingredients for my pizzeria, and this was at a time when it was commonplace to see “2 for 1,” “3 for 1” and even “4 for 1” pizza prices. We did not participate in any of that nonsense – well, not for long – and, as you might imagine, sometimes we’d get someone who didn’t understand why we were more expensive than the place down the street. Pizza is pizza, and all pizza is just cheap food, was the argument.
We became pretty good at explaining the difference in costs for a premium pepperoni versus a budget pizza pepperoni, and how olive oil was far more expensive than the widely used canola oil or lard. And so on. But, every week there would be one person who just seemed to want to argue, and, well, life is too short to spend hours debating with someone who really has no intention to ever become your customer. So we had the sign made.
Many independent pizzeria owner-operators I consult with ask me, “How much should a large pepperoni pizza cost?” When polled about the current selling price of their large pepperoni pizza, the range of answers is as vast as the landscape of our beautiful country. Almost all are grossly underpriced.
First of all, let me tell you that most of you need to throw out the baby with the bathwater. This may sound harsh, but we need to start from scratch. In order to approach this subject fairly, we need to dump all of our preconceived notions about pizza prices, because they are, in fact, badly tainted.
The follow-up question I ask is, “How did you come to decide on the price you set?” This stumps many and the answers I get range from “The guy or the chain pizza place down the street has his $1 higher” to “Well, I thought that 10 bucks was a good price.”
My next question is what is your food cost for that large pepperoni pizza? I ask this question to get a feel for the quality of the ingredients that you are sourcing. Some of you don’t know the answer, and for those, I give you homework in order for you to have a starting point.
Yes, I know how boring and tedious figuring out the food cost can be, but it is a necessary evil in our business. If we don’t have an idea, how do we know if we are running a profitable business or a non-recognized charity?
I have been in this business for over 27 years and I’ve not only poured tens of thousands of dollars down the drain from naiveté and inexperience, but in the last 15 years I’ve consulted for many operators and seen them repeat my mistakes. It’s a lot more common than you may think – people pouring retirement money into their business, moms or dads stroking cheques for thousands of dollars every couple of months to keep their son’s pizza business afloat.
Unfortunately, unless you know your math, and fix the bad math, you will repeat the same mistakes and lose all that money too.
Where’s the profit? Where’s the payoff? In the words of Jerry Maguire: “Show me the money!”
Let’s break down that large pizza and show you the money.
35 per cent food cost is way too high to make any money in this business.
To figure out your food cost you must know how much of each ingredient you use per pizza. If you make the dough in your store, then you need to know how many large dough balls you can make per batch of dough. For instance, in my pizzeria a 20-kilogram batch will yield 54 large 21-ounce dough balls. This means that the total yield of a batch of dough is 1,134 ounces.
Add up the total cost of the batch of dough. For example the flour, yeast, oil, salt, and sugar equal $36. Next divide the total number of ounces from a full batch of dough into the cost of the batch (i.e., $36/1,134 = .03 cents per ounce of dough ball).
Finally, multiply the cost per ounce by the dough ball weight, for example in my pizzeria a large dough ball is 21 ounces; so 21 x .03 cents per ounce makes my cost .63 cents per large dough ball.
For those of you who buy “ready-to-use” dough and shells this is a much simpler math exercise: just take the cost from your supplier invoice to figure out how much each ball costs.
Next you do the same for your sauce. As an average, most large pizzas have five to six ounces of sauce. Repeat the process with cheese, then the pepperoni.
Are you asleep yet? Don’t fade out now; we’re almost done.
Add up all the numbers from above and you now have your food cost for your large pepperoni pizza. Take your food cost and divide the menu price of your large pepperoni pizza into that (i.e., $3.50/ $9.99 = .350). Now multiply that by 100 for your food cost percentage, which equals 35 per cent.
Okay, those of you who are you still with me are probably saying, great, so what does this tell me? I’ll tell you what it tells you: 35 per cent food cost is way too high to make any money in this business. And if you have a special where you discount that large pizza to $6.99 on certain days or with a coupon, then you need to plug that number in to the equation.
The fact is that some of you may be running 50 per cent or higher food cost.
When you factor in your labour costs (and you shouldn’t be working for free, nor should your spouse’s income be supporting the business – but that’s another column), your rent, your utilities and everything else, your food and labour costs combined should be no more than 50-55 per cent.
That means that your food cost needs to be below 30 per cent – ideally in the 20-25 per cent range – so that you can offer a couple of coupons (not 2 for 1) and still cover all your costs and even bring home the bacon.
Before you go poking your eyes out with the pizza fork, realize that now that you have your figure, you can plug your retail price back into that equation to see what your large pepperoni pizza should cost.
Diana Cline is an award-winning pizza chef, a partner with Diana’s Cucina & Lounge in Winnipeg. In addition to creating award-winning recipes, Diana is a consultant to other pizzeria owner/operators in menu development, creating operational systems and marketing to help operators grow their business strategically. Contact her at firstname.lastname@example.org.
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