One of America’s favorite fast foods is the pizza. With 76,723 pizza restaurants in 2017, 41 percent of Americans consume, on average, one pizza per week, up from 26 percent in 2015. All told, $44 billion worth of pizza was sold in 2017, according to the trade publication PMQ Pizza Magazine. If you are planning to open a pizza shop, how you calculate profitability depends on unit costs, overhead and sales volume.

Cheese and Meat Pizzas

Consider the ingredients – flour, yeast, water, sauce, cheese and toppings. None of these are expensive, particularly when purchased wholesale. To build a small cheese pizza the cheese is the most expensive ingredient at $0.60, with the dough adding about $0.24 and the sauce $0.05. That adds up to $0.89 for a basic cheese pizza that could be sold for many times that amount.

There are, of course, other expenses to be factored into the cost. Rent, labor, utilities and franchise fees must be prorated to each pizza, and that will depend on how many are sold. One estimate of the cost of a meat pizza with pepperoni and sausage is $1.90 for food costs and an average retail cost of $14.00, which translates to a 636 percent markup.

Your Business Model

If you are considering going into the pizza shop business there are other factors to think about while calculating profitability, each of which will add to your overhead. Your first decision is whether to be independent or buy a franchise. Independence offers you lower startup costs, freedom from franchise fees and restrictions and the opportunity to be creative with your product. While costing more, franchises offer brand recognition and marketing, which could help to jumpstart your business.

Making a Profit

While it is easy to demonstrate the markup on an individual pizza, assessing the aggregate profit margin for a store or restaurant is more challenging. The choice that you make in establishing your business will be major determinant of your profit margin. In addition to your business model decisions, location and traffic patterns will also be significant considerations. Per pizza markups will not matter if you business does not generate the volume necessary to cover operating expenses.

Take-Out Options

There are several ways to increase your profit margins. If you own a convenience store or can negotiate a deal with someone who does, you might consider pizza sales there. The building is already being rented and there is already a customer base. Conveyor ovens range from $5,000 to $30,000, depending on capacity, condition and brand, while commercial freezers/refrigerators start at around $3,000.