Expected Financial Results for a Pizza Business
Running a pizzeria is a potentially lucrative enterprise given the popularity of pizza in the United States and other parts of the world. According to the trade magazine Pizza Today, the pizza industry grossed between $40 and $44 billion worldwide in 2013, and sales continue to grow. The expected financial returns a pizzeria can generate depend on the size and location of the restaurant.
For a pizzeria selling entrees at a mid-level price point in a large city, owners can expect to make over $600,000 in gross sales their first year. Of course, the location of the business within the city is critical to meeting or exceeding this figure. For instance, if a pizzeria is located in an affluent community in the suburbs of Los Angeles, then sales might be higher. Pizzerias with a lower price point in small, semi-rural areas may gross far less.
Earnings before interest, taxes, depreciation and amortization are an indicator of the operational stability and financial health of a pizzeria. EBITDA varies depending on the capital structure of a business and the amount of debt it maintains to run operations. According to the Restaurant Franchise Monitor, franchisee restaurants often sell with a multiple of five times EBITDA, which bodes well for franchise pizzeria operators looking to cash in on their hard work.
The profit margin pizzerias generate is heavily influenced by the quality of the pizza they sell. In 2012, YCharts reported that Domino’s Pizza had a profit margin of approximately 7.47 percent while Papa John’s margin was 4.64 percent. Papa John’s uses more expensive ingredients compared to Domino's and touts that is sells higher quality pizza. Despite the high quality, Papa Johns does not have as favorable a margin as lower quality establishments. The margin for small pizzerias will vary given the costs of their ingredients and their marketing strategy.
Annual revenue growth of five to 10 percent is a common goal for new pizza restaurants. Growth projections are a function of the age of a restaurant and the dynamics of the community in which they operate. If there is a new franchise spreading across the U.S. and there is significant hype preceding a grand opening, revenue growth may be much higher. There will come a point when revenue growth has reached its capacity and owners will have to open up a new location to deal with the increase in consumer demand.