I Make a 20 Percent Profit Margin, and So Can You

POS, system, cash register, transactionBy: Michael Shepherd

I recently learned that a profit margin of 7 percent is the average for the pizzeria industry. So, for every dollar in sales, only seven cents is left over to take home as profit. This means for every $10 pizza I sell, I should only get to keep 70 cents.

My first thought was: This must be wrong. Who gets out of bed early in the morning, goes in and makes dough, makes pizza all day long, deals with customer complaints, employee issues, equipment breakdowns, taxes and regulations, all while working until close with the ever-looming fear of a random lawsuit, just to take home a mere 7 percent profit?

I just could not come to terms with this figure. If this statistic holds true, it means that a typical pizzeria that is doing $10,000 in sales per week for $520,000 in annual sales will only generate $36,400 in profit. Wow, my mid-level managers make more than that!

I had a pretty good grasp of my profit margin already, as I do the majority of my bookkeeping myself.

But I wanted to be sure. So I sat down and recalculated my profit margin, then double-checked triple-checked. Obviously, I am making a mistake in my math somewhere, I thought to myself. My numbers can’t be right. 

But after verifying all of my math and numbers, my original estimate of my profit margin was verified: 20 percent. That’s correct, my pizzerias generate an average of 20 percent in profit.

My small-town carryout-only pizzeria with sales of $286,000 makes more than 20 percent in profit. My small-town dine-in, delivery and carryout pizzeria with sales of more than $700,000 makes a profit in the high teens. And my newest location, which is primarily a full-service pizzeria with sales topping a million per year, makes well over 20 percent in profits.

Keep in mind that, even though my pizzerias are generating over 20 percent in profit, I am not taking home 20 percent in income. Taxes, debt service and business reinvestment eat up a portion of those profits. But I am certainly keeping a bigger piece of the “pie” than most operators. So, what am I doing differently? And can every operator knock down 20% profit?

One of the first things that I did was to reach out to my colleagues in the pizza industry to see what they are achieving profit-wise. What I found was that the 20 percent profit margin was not unique to me. Many other operators are successfully operating near or above that mark. Operators I asked from Ohio, California, Washington and Alabama were having similar success. At the same time, however, I found that many operators I would have expected to be largely profitable were barely making a profit at all, or were just breaking even. After a good solid comparison and contrast review, I was able to identify these common denominators of high-profit margin operations.

Build Your Business Backwards
Much as solving a maze puzzle by starting at the end is easier than starting at the beginning, I prefer to start at the end of a business rather than the beginning. I always start with the amount of money that I want to make, and then move back to fixed costs, variable costs and sales numbers. By knowing the amount of profit I want, I can determine the amount of sales that I need. I am then able to tailor my menu to the food cost percentage that I need, not the other way around. I know how much I can spend in labor dollars before I even open my doors.

Location, Location, Location
The old cliché rings very true when trying to engineer profit. Having enough potential customers available, having a need and want for your concept in the community, and having low fixed costs are all part of the recipe for profit. A small Midwestern town of 20,000 people can have a higher profit potential that trying to shoehorn another pizzeria into New York or San Francisco, even though there are millions of potential customers.

Each one of my pizzerias is built to run 100 percent without me in the picture. I could disappear off the planet and my staff would probably not notice, except on payday. I built my systems so that every single task has a procedure, checklist, recipe or some other guide in place to explain how, why and when to do it. When your staff know how and why to do something, you can usually count on them to produce.

Outside the Box
Just about everything that I do is outside the box. My marketing budget is zero, so anything that I spend on marketing is over-budget. Most, if not all, of my marketing is completely nontraditional. I spend virtually no money on radio, newspaper or direct mail. My objective is to make people talk about me. Word of mouth is the most powerful marketing tool and you don’t get word of mouth by running coupons in the newspaper. My marketing strategy can be summed up by paraphrasing a popular saying: “ I don’t care what people think, as long as they think about me.” However, I hope they usually think good things.

I Don’t Care
I do things the way that I want and I don’t care what anyone thinks. I do it my way. I choose to lead rather than follow. Everyone is usually certain that I will soon be going out of business because of the way that I do things. They have been telling me this for the 17 years that I have been in business for myself. I still get the random email, phone call or letter from another local business owner expressing concern for the way that I operate my business and giving me some advice on how to keep my doors open. I don’t care what they think. I do it my way and it works.

Michael Shepherd, world pizza championMichael Shepherd is a four-time World Pizza Champion who owns and operates three unique brick oven-style pizzerias in Northwest Ohio. Over the past 17 years he has grown his small-town locations into a multi-million-dollar company.

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7 thoughts on “I Make a 20 Percent Profit Margin, and So Can You

  1. Hi Michael,
    I really liked your post and would like to say thanks for explaining your experience and expertise. I am planning to open up (or buy) a pizza store to start up my business expedition. I am an IT person work full time, and I have a long term plan for having at least 3 business on my name in order for me to retire from my day job early. I am planning to start with Pizza or Laundromat. Please let me know if I can talk to you sometime and get some more insights of how you became so successful and if you have any tips for me. It will be really appreciated.

    Thank you for your time.

    Titu Datta

  2. I too have liked your post, and, to my surprise, the way you do the backwards thing is exactly how I go about things myself.

    Of all places I’m outside of the USA and I thinking of doing pizza. Like datta said, I dito it.

  3. Hello, I am a very frustrated pizza owner, I have been in this business my whole life. My parents were very successful in the 80’s, my dad was in and out of it and when he wasn’t in the pizza business he was in real estate. When my dad sold the last place he had in 97′ my husband and I branched out on our own, we did well the first few years and then the economy went through what it went through. Now my dad opened up a place and my husband and I are running it and we do a good volume in sales but I feel like we are spending more than we are making, actually I know we are and I don’t know what to do. I mean we do spend it for inventory and the taxes and payroll etc etc etc all for the business. I just want to know what we are doing wrong. I went and talked to my bookkeeper and she gave me some advice and one of them was to read pizza todat 😉 which I get in the mail. We do have a great reputation for our food. Since this place that he opened is like 6 miles away from the one he had sold. The one he sold also has a party store. Our intentions was to put a sit down in the place we are in now will be 2 years that we opened up) but the health dpt won’t allow it because we don’t have a big enough septic. I’m sorry for making this long but I am desperate and need help. I love what I do but I just can’t afford to be in it. Help please 🙁 and thank you in advance.

  4. if my pizzeria doing Gross $5000/+- per week and gross $250K Gross with 4 Employees. how much my profit would be. please count for me.

  5. This information is deceiving because the 20% margin is not NET profit margin. It is operating margin which the writer acknowledges does not subtract taxes or interest on loans called earnings before interest and taxes (EBIT). I am quite sure 7% is the net profit margin.

  6. I’m a Pizzeria in Ontario Canada, we make 60% – 70% profits. If you’re food cost is more then 20% you’re doing something extreme wrong.

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