At Fresh Brothers, a five-year-old chain with eight stores in the Los Angeles area and another two opening this summer, co-owner Adam Goldberg does not mince words about the importance of sales projections to his expanding pizzeria enterprise.
“The ultimate goal is to run a more profitable operation and that’s something sales projections help a restaurant owner do,” Goldberg says.While sales projections are used as a validation tool for start-up operations, the financial forecasts serve a different,yet equally critical role for exisiting pizzerias, namely helping drive operators’ scheduling, purchasing and marketing decisions.
“Labor, ordering, and marketing spend are three areas we can control,” Goldberg says. “With sales projections in hand, we can make the necessary changes in those three areas against our projections.”
Laura Dreesen, associate professor in business management at the Culinary Institute of Maerica’s New Yourk campus, calls sales projections the basis upon which restaurant owners plan their business.
“If you’re not making sales projections, then you could very easily find yourself overspending on product, running out of product and having more staff in the restaurant than necessary,” Dreesen says, adding that too many operators make the mistake of ignoring sales projections.
Sales projection ignorance is surely Goldberg avoids “shooting blind.”“There’s no way to accurately and effectively manage your money if you’re not making credible sales projections,” he says.
Many existing pizzerias utilize annual sales projections to create a broad forecast for the year ahead. From that, business leaders might staff, alter the marketing spend, or even raise prices. However, Kevin Ellis, executive vice president of small business lending at Jacksonville, Florida-based Atlantic Coast Bank, reminds that projections are fluid.
“The projected numbers should be tested against actual results on a regular basis so that appropriate changes can be made,” Ellis says. At Fresh Brothers, Goldberg budgets the upcoming year in September of the current year. He projects sales on a monthly basis, a decision made to respect the sales-influencing factors of particular months, such as March Madness, Halloween, or end of the school year parties in June. For example, he made his January 2013 projection based on January 2012 sales. In addition to the annual sales projections, many operators will also create weekly or even daily sales projections. With these figures, the operator can make more tactical decisions, such as bringing in an extra prep worker on Friday evenings when the local prep football team plays home games or ordering more of a specific product for the coming week.
While Ellis acknowledges there is no foolproof way to calculate the future, there does exist a reasonable best-guess method to forecast how things may turn out. Projections, he says, are largely based on an owner’s ability to predict what will be occurring in the company’s industry, customer demand, and expenses. “These factors drive assumptions – the backbone and detail behind the projected numbers,” Ellis says. For current pizzerias, the most important ally in making well-informed sales projections remains an accurate profit and loss statement. Having past numbers in hand, an operator can base projections in real numbers rather than gut instincts. “The projections are only as good as the quality of the information used,” Ellis confirms. Dreesen suggests operators review their own restaurant’s trends from year to year or even month to month. If sales in previous years have consistently jumped 10 percent, an operator would factor that into his sales projection for the upcoming year. Goldberg, for example, projects a 5 percent sales increase at Fresh Brothers’ stores open more than one year and 10 percent sales jumps at stores yet to reach their first birthday. “These are the standard growth rates we see from one year to the next,” Goldberg says. With historical information in hand, operators can then walk forward. To make proper sales projections, National Restaurant Consultants president David Kincheloe says operators must understand the factors that might impact their current check averages or product mix. For instance, will the pizzeria be offering new specials, shifting its menu prices, or battling new competitors?
Furthermore, Kincheloe urges operators to consider additional elements that might influence sales, such as a shuttered local factory, a cancelled special event, or more aggressive promotions. Thereafter, operators can lean on external sources to round out their projections. Dreesen points to the National Restaurant Association’s (NRA) annual forecast as a credible tool that hypothesizes restaurant sales growth for the year by state and service segment. The NRA also produces the monthly Restaurant Performance Index (RPI). Released on the last business day of each month, this composite index tracks the restaurant industry’s health and outlook.
Other helpful sources include: the reports of publicly traded pizza companies (Papa John’s, Domino’s, Pizza Inn, and others), all of whom produce accessible information on projected growth and sales-influencing factors; and reports from market research firms such as Chicago-based Technomic, which monitors the performance of players throughout the restaurant space, including pizzerias.
“If you can regularly benchmark your business, you’ll have a good sense of what’s going to happen and be able to create a more informed sales projection,” Dreesen says. “That’s far better for business than shooting in the dark.”
How the tools of the modern POS can drive sales projections and decision-making
Nearly all modern point-of-sale (POS) systems provide historical data, many offering insights on everything from the sales numbers on specific days to the store’s past results on rainy days or special events. “This data becomes an important aspect of projecting forward,” Kincheloe says, adding that operators should be able to better gauge purchasing or staffing needs based on those past insights. Using the data a modern POS provides, operators can also review the product mix within their sales, spot trends, and pivot accordingly – all decisions that can influence sales projections. For instance, are guests ordering more gluten-free options; are certain appetizers generating more sales; or do lunch orders spike on Fridays in May? “The POS can be an invaluable tool to help you hone in on your product mix, promotions, and purchasing,” Kincheloe confirms.
Chicago-based writer Daniel P. Smith has covered business issues and best practices for a variety of trade publications, newspapers, and magazines.