Now that you've read the first blog entry of this series; 'How to open a pizzeria on a shoestring: 1. Deciding to go ahead', which discussed the vital things to consider before taking the plunge, it's now time to really see whether your project is viable.
Firstly, you need to decide on your preferred area. This could be a specific town or post code, it could be an X mile radius from your house or even a county, if you are willing to travel. It is important to remember however, that a restaurant is very demanding, so may require you to drop everything and head down there in an emergency.
Here are a few questions you need to ask yourself when considering a location:
1. Are there other commercial properties in your area?
2. Is the rent affordable?
3. Do you have to pay for “goodwill” (if the business is thriving, the current owner/lessee will demand a premium to pass the lease on to you)?
Are there any other businesses that sell pizzas in your area?
If yes, do they sell the same style? (for example, I do not consider Domino's to be a direct competitor, as their pizza is very different to mine and they attract a very different kind of clientele). If there is something similar to your style, will you be able to differentiate, be unique?
For example, using a different kind of dough or proposing a slightly different style of pizza. Although, you may perceive your pizza to better quality, remember that you have to see this from the customer’s point of view, and they may not be able to detect or appreciate this difference.
Smallest viable audience
What’s the smallest number of customers you will need to keep the business afloat?
In my opinion, there's only room for one pizza place for every 10,000 inhabitants. If competition is fierce this will result in lower margins, and we want to avoid this.
For us at Pecoro in Sandy, Bedfordshire, the nearest pizzeria is 3.4 miles away in the next town!
Let’s say your average pizza will sell for £10 including VAT (£8.33 excluding VAT) at 20% (never forget the VAT, more on this later), and costs £2.00 to make.
Your gross profit is £6.33.
Let’s assume sales of 400 pizzas per week, or 1720 a month. Your monthly gross profit will be £10,887 (1720 pizzas x £6.33 per pizza).
Does this sound reasonable? Can we pay rent, fixed costs, salaries and have little contingency for unexpected repairs and maintenance? If the answer is yes, we can then move on to a more comprehensive business plan.
Check out previous articles from the same author: