By George Taylor, Author, A Pizza My Life
In my last article, I discussed how the No. 1 reason that restaurants fail is financial mismanagement. Financial mismanagement can show up in many ways, but the fastest way to lose control of your business is by not knowing your numbers.
What Are Your Numbers?
Your numbers include everything from revenue to costs and expenses—such as food costs, payroll, rent, insurance and anything else that affects your bottom line. If you’ve ever watched Shark Tank, you know they never invest in someone who doesn’t know their numbers.
Let’s start with revenue.
If you’re new to the pizza business and your restaurant is about to open—or has recently opened— you’ll need to estimate your revenue. Use demographic data, such as population and number of households, and multiply it by the average amount of pizza consumed per person. Divide that figure by the number of pizza-selling establishments in your area. This calculation provides a rough idea of your potential revenue.
While this won’t be exact, it’s a starting point. Factors such as advertising, special events and competitors temporarily closing for vacations will influence your actual revenue.
If you’ve been open for more than a year, your past sales data will help guide future projections. For example, if you earned $50,000 in sales last March and your recent sales trend shows a 10% increase year-over-year, you can reasonably project $55,000 in sales for this March.
Your projected revenue serves as the foundation for your profit and loss (P&L) statement and helps you plan your expenses accordingly.
The Cost Breakdown
Next, let’s talk about costs. You need to know the cost of making every item on your menu. Create a spreadsheet that lists all your inventory items along with their current costs. Then, create a recipe card for each menu item. Each recipe card should include every ingredient and its corresponding cost, with the total food cost calculated at the bottom.
Update this spreadsheet regularly to ensure accuracy. Food costs fluctuate, so constant updates and analysis are essential. Ideally, your food costs should remain below 25%.
Labor Costs
Labor is likely your highest expense on the P&L. Plan your monthly revenue projections and aim to keep your total payroll, including management, under 30%.
I use a P&L projection sheet that prefills ideal costs for food and labor. Food costs remain relatively stable as a percentage of sales, so if my projections show a loss, labor is the area where I can make adjustments. By reducing labor costs to achieve profitability, I calculate the total hours I can afford by dividing the adjusted labor budget by the average hourly wage. This tells me how many hours to schedule, allowing me to create an efficient staffing plan.
Your food and labor costs combined are called your prime cost, which should ideally stay below 60%.
Other Expenses
While prime cost is critical, other expenses like rent and advertising also need attention. For example, if your rent is lower than average, you might have some flexibility with your prime cost.
Advertising is another key area. To stay relevant, allocate a portion of your revenue to marketing. Social media alone isn’t enough. While it’s a powerful tool, a diversified approach—including radio, television, or direct mail—is often more effective.
Set a budget for advertising as part of your overall strategy. Avoid overspending out of impulse. Instead, plan targeted campaigns that are affordable and measurable. Advertising should be an intentional, well-thought-out part of your business model.
Planning Ahead
I plan three months ahead for my P&L. By analyzing current cost data and past spending habits, I project monthly revenue and expenses to create a realistic outlook. Subtracting costs and expenses from projected revenue shows whether you expect a profit or loss.
If the numbers show a loss, adjust your expenses—labor being the most flexible area. Overstaffing can quickly drain your profits, and no business can afford to operate in the red for long. Schedule only what you can afford while ensuring you have enough staff to meet customer demand.
The Bottom Line
There are many ways to lose control of your business, but failing to track your numbers is the fastest and most common. Know your sales, costs and expenses. Plan at least three months ahead and adjust as needed to stay profitable.
As I said in my last article: If there’s no profit, there’s no business. If you don’t know your numbers, start now. If you need help, reach out to a trusted accountant to set up a P&L and projection sheet for you. Follow it religiously.
Know your food costs, negotiate with vendors for the best pricing, and schedule labor efficiently to avoid overstaffing.
The moral of the story is simple: Know your damn numbers.
George Taylor is a veteran pizzeria owner/operator and co-owns Taylors’ Pizza House in Endwell, New York, with his wife, Patti. The Taylors founded Taylors’ Pizza House initially as a takeout-only pizzeria in 2017 before moving to a larger space in 2022 and transitioning to a full-service operation. George is a member of the U.S. Pizza Team and author of A Pizza My Life, available here on Amazon.com
