Sources of Financing:
Equity:
The owners will contribute $93,372 of their own money at the outset.
Loan:
The owners are requesting a $100,000 loan to help fund inventory, expenses and start-up costs.
Notes and explanations for breakeven analysis
Breakeven points and calculations are show in Table 1. The following are detailed breakeven explanations and assumptions deemed significant.
Pricing
Consumers will have a choice of two rectangular sizes of pizza from which to choose, Regular and Large. In general, a Regular slice is 5” x 6” and will cost approximately $2.50; and a Large slice is 5” x 12” and will cost approximately $4.50. The exact price of each pizza will vary depending upon the kind.
The dollars per sale for a Regular slice is expected to be $4.00 ($2.50 for 1 slice and $1.50 for beverage); the dollars per sale for a Large slice is expected to be $6.00 ($4.50 for 1 slice and $1.50 for beverage). Therefore, the average sale in general is expected to be $5.00.
Each pizza is baked in a 20” x 36” tray. Each tray makes 24 Regular slices of pizza. The total sales from one tray is $60.00 (i.e., $2.50 x 24). The average expected product cost per tray of pizza is $12.00 (20%), leaving an 80% margin of contribution, or $48.00.
Pizzeria Fresco will also be offering delivery service. Specially prepared sheets of pizzas will be made for delivery orders and will be rectangular 10” x 18” sheets (approximately 6 servings). These will be priced at an average of $8.00 per sheet, again with exact pricing based upon the kind of pizza ordered. ). The average expected product cost per tray of pizza is $1.60 (20%), leaving an 80% margin of contribution, or $6.40.
The following is an average breakdown in product cost per 20” x 36” tray of pizza and per 18” x 20” delivery-size pizza:
The average mix of sales is expected to be:
Full size 20” x 36” (serving 24 Regular sized slices) 90%
Delivery-size 18” x 20” (approximately 6 servings) 10%
Mark-up and profit margin
In general, most food establishments must have food costs of 30% or less. In some locations, due to higher cost of real estate and other expenses, food costs must be under 20% of food sales, according to Vincent Mischitelli, restaurateur and author of “Your New Restaurant”. Pizzeria Fresco categorizes itself as the latter, with expected higher operating costs compared to similar establishments in less trafficked locations.
Pizzeria Fresco anticipates a 20% product cost because of the ingredients called for in most of its recipes, mostly bulk products with moderate prices (i.e., flour, yeast, salt, pepper, assorted vegetables, etc.)
Variable costs are dependent upon these raw ingredients costs, and usage. An average breakdown of the product cost is as follows:
Full size 20” x 36” (serving 24 Regular sized slices) |
|
Sale price (at $2.50 per slice/24 slices) |
$60.00 |
Variable costs: |
|
Dough and mixture: |
$3.00 |
Herbs & spices: |
$1.50 |
Average cost of toppings (varies depending on type of pizza): |
$7.50 |
Total: |
$12.00 |
Gross Margin: $48.00/$60.00 = |
80% |
For each of the 24 slices / per tray, an additional $1.50 is expected from beverage sales. Again this is also estimated at 20% product cost. Therefore:
Beverage Sale (at $1.50 per slice/24 slices) |
$36.00 |
Variable costs: |
|
Wholesale cost |
$7.20 |
The total sale price per unit is (slice & beverage): |
$96.00 |
Gross Margin: $76.80/$96.00 = |
80% |
Delivery size 10” x 18” (approximately 6 servings) |
|
Sale price |
$8.00 |
Variable costs: |
|
Dough and mixture: |
$0.55 |
Herbs & spices: |
$0.25 |
Average cost of toppings (varies depending on type of pizza): |
$0.80 |
Total: |
$1.60 |
Gross Margin: $6.40/$8.00 = |
80% |
As shown on the previous page, for both types of sales (individual and delivery), the expected product cost is 20%, and gross margin percent is 80%.
The total variable costs are therefore $96.20 for trays and $1.60 for deliveries. The margin of contribution per unit results in $76.80 for Tray sales and $6.40 for deliveries.
Fixed costs are estimated on a monthly basis as follows:
Salaries
Monthly Wage Details: |
|
|
|
|
|
|
|
|
|
|
Hourly Wage |
Individual Monthly Wage |
Totals |
|
Servers (6) |
$ 6 |
$ 900 |
$ 5,400 |
|
Cashiers (3) |
$ 6 |
$ 900 |
$ 2,700 |
|
Pizza Preparers (3) |
$ 12 |
$ 1,800 |
$ 5,400 |
|
Operations Assistants (3) |
$ 9 |
$ 1,350 |
$ 4,050 |
|
Delivery (1) |
$ 3* |
$ 768 |
$ 768 |
|
|
TOTAL: |
$ 5,718 |
$ 18,318 |
|
|
|
|
|
|
*Every worker has a 37.5-hour workweek except for delivery, which has 32. Delivery also receives tips. |
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Payroll taxes: Based on estimate of 13% |
$2,381.00 |
Rent: Based on avg. $8 s/f for 650 s/f retail space |
$5,200.00 |
Utilities: Includes electric, gas and phone |
$1,000.00 |
Insurance: Based on full retail food establishment coverage at $4,000 annually |
$4,000.00 |
Supplies: Includes items such as napkins, straws, delivery boxes, condiments, etc. |
$375.00 |
Advertising: Based on extensive local ads, internet marketing and public relations approaches |
$300.00 |
Maintenance: Includes interior cleaning, garbage pick-up and removal |
$500.00 |
Professional fees: Based on per diem with accountant and lawyer, as needed |
|
Payment to bank: Based on $100,000 loan with 7.5% interest |
$2,004.00 |
Estimate Miscellaneous: |
$500.00 |
APPROX. ESTIMATED MONTHLY FIXED EXPENSES: |
$16,260 |
Therefore, breakeven volume is estimated as:
$34,578 / .8 = $43,222 |
The results are: $34,578 / $69.76, or a total of 496 units sold, or:
-
446 Units (Trays) and 50 Deliveries / Month to breakeven
446 X 24 Units (slices/trays) = 10,704 in-store sales / month to breakeven
10,704 / 30 = 357 in-store sales / day to breakeven
The breakeven volume requires selling 357 slices per day. As mentioned in the Market section, the measured foot traffic on University Place is estimated at an average of 9,408 pedestrians per day. Therefore, 357 sales equals 3.8% of the estimated daily foot traffic passing by Pizzeria Fresco’s proposed location, a figure that is eminently reasonable for a high foot traffic location.
Break Even Point Calculations
