The idea of opening your own pizza business is exciting but seeing the cost of pizza franchise opportunities can be disheartening. The truth is that many pizza concepts require half a million dollars before you can open your doors for the first time. However, not all pizza businesses are the same, and if you’re considering franchising your pizza business there are some affordable options to consider.
This guide covers everything from realistic pizza franchise opportunities to an overview of the pizza business and whether or not it’s a good fit for you.
Why Pizza Franchising is an Attractive Business Venture
Pizza has been a staple of the American diet for decades and will continue to be one for the foreseeable future. Unlike other food trends that come and go every few years, pizza is something that will continue to be popular. People order it for birthdays, holidays, sporting events, and even business meetings.
Pizza franchising is an attractive business opportunity because it takes the guesswork out of starting a food business. You’re not starting from scratch, someone else has already done the work for you and you’re able to capitalize on their success. You may not be able to develop your own unique brand, but you do get the benefit of working with a brand that people already know and trust.
However, keep in mind that franchising is not a passive income stream. It’s a business, and like any other business it will require a significant amount of your time and effort to make it successful.
Pizza Franchise Costs: What To Expect
Most affordable pizza franchise opportunities will have a total investment cost of around $150K-$300K. Here’s a breakdown of what that initial investment covers
Franchise Fee: This is what you pay the franchisor for the right to operate their pizza franchise, and it’s usually around $25K-$50K
Build out and equipment: This will be your largest expense, and it’s completely dependent on your location and the size of your pizza restaurant. A basic 2,000 square foot pizza place will cost anywhere between $60K-$150K
First-year working capital: You’ll need some money set aside for things like inventory, staffing, and marketing. This should be around $30K-$75K
Real estate deposit and improvements: The amount you pay for this will vary depending on your location, but it should be somewhere in the ballpark of $10K-$40K
Some pizza franchises advertise their starting costs as low as $100K-$150K, but keep in mind that this is usually for a grab-and-go pizza or ghost kitchen
Affordable Pizza Franchise Concepts
Pizza By The Slice / Counter Service
Pizza by the slice or counter service pizza concepts are some of the most affordable pizza franchise opportunities available. They allow you to minimize your overhead by doing away with the need for seating and reduce the amount of staff you’ll need to hire. You can keep your inventory low by making pizza to order and only selling slices.
Pizza by the slice franchises such as Slice Holders or local pizza concepts can cost as little as $120K-$250K
Ghost Kitchen / Delivery Only
Ghost kitchens are the newest entrants to the pizza franchising space and they’re quickly gaining in popularity. They allow you to do away with the need for a storefront and only focus on delivery and pickup orders. Your overhead costs are significantly reduced, and you’re able to serve a hungry market segment that’s willing to pay a premium for their food.
Delivery only pizza franchises usually cost between $80K-$180K
Express Pizza
Express pizza concepts are similar to delivery only pizza concepts, but they offer a middle ground between full-service pizza restaurants and delivery only pizza places. There’s usually minimal seating and a reduced menu that’s optimized for takeout only
Some franchisors specialize in express pizza concepts and their initial franchise fees start at $140K-$280K
How To Spot A Good Franchise Opportunity
Unit economics
Ask the franchisor for Item 19, which is a disclosure of the financial performance of existing franchisees. If they don’t give it to you or try to hide it, walk away. You should know what their existing franchisees are making before you invest in the franchise
Talk to existing franchisees and ask them about their experiences. Ask them if the costs were as estimated, if they’re happy with the supply chain, and what their profit margins are like
Realistic timelines
Anyone who tells you that you’ll be profitable within six months is lying to you. It takes at least 18 months to turn a profit in most cases, and in some cases, it can take up to 36 months
Flexibility
Make sure that the franchisor offers some flexibility in the system, because pizza is a very regionalized product. A franchisor that makes you offer the same menu items everywhere is not considering the unique needs of your market
Ongoing support
What do they offer in terms of ongoing support? Are you getting value for the ongoing fees you pay them
Your location is one of the most important factors in determining the success or failure of your pizza franchise. It’s often the difference between a profitable pizza business and one that’s constantly losing money
What Makes A Good Location For A Pizza Restaurant?
Foot traffic
Pizza restaurants are usually located in high-traffic areas, near colleges, or in residential neighborhoods. Avoid opening your pizza restaurant in a desolate area with little foot traffic.
Residential density
Pizza is usually bought by residents, which means that you should focus on areas with a high residential density. College towns, young professional neighborhoods, and family-friendly areas are all great options
Competition
Avoid areas with very few pizza restaurants, because that’s an indication of a market that isn’t interested in pizza. At the same time, avoid areas with an oversupply of pizza restaurants.
If you’re a delivery only pizza restaurant, make sure that the area you’re considering is accessible to your delivery drivers
A pizza franchisee I know opened her pizza restaurant in a developing area just outside the city. While it was a long way from the city proper, it had affordable rent and a decent amount of foot traffic. She focused on delivery only and eventually became the go-to pizza place in the area
The Money Part: Profits, Expenses, And Earnings
Let’s talk about money, because no one opens a pizza restaurant just for the love of pizza. An overview of an affordable pizza franchise’s expenses could look something like this. Average ticket: $12-$20 depending on the concept.
Labor: 25-35%
Food: 25-30%
Rent/lease: 8-12%
Other expenses: 15-20%
This leaves you with between 10 and 15% for profit and unforeseen expenses. Using $25K-$0_40K as a rough estimate for profit, you can see that an affordable pizza franchise isn’t something that will make you rich, but it can be a steady source of income
In your first year, your profits will be lower as you build up your customer base, but they should increase in the second year and stabilize in the third year.These numbers are based on an efficient pizza kitchen, so make sure that you’re not overestimating your margins if you’re new to the pizza business
Common Mistakes To Avoid
Underestimating labor
You should assume that you’ll be working at least 60 hours a week for the first two or three years. If you’re paying yourself minimum wage, you’re not budgeting your expenses correctly
Overestimating the value of a big name brand
A recognizable brand name will get you customers, but you can’t rely on it to carry your business. You need to focus on providing quality food and service
Not considering supplier relationships
Some franchisors require you to buy your ingredients from their suppliers, so make sure that the prices are reasonable before you commit
Not factoring in seasonal variations
Pizza sales tend to vary throughout the year, so you need to make sure that you have enough cash flow to carry you through slow seasons
Not considering technology. Having a POS system and online ordering capabilities is a necessity in the modern pizza restaurant
Should You Actually Do This?
You should only consider franchising a pizza restaurant if.You’re willing to work long hours for the first few years. You’re interested in managing people. You have a passion for food. You’re willing to accept low profit margins. You have enough capital and access to financing. You’re willing to be tied to a location
You should avoid franchising a pizza restaurant if. You’re looking to get rich quick. You don’t like working long hours. You don’t have much capital.You think this is a get-rich-quick scheme.You have no business experience.You want to be a passive income investor
Research
The first thing you need to do is research pizza franchise opportunities that fit your budget. Request their FDDs (Franchise Disclosure Documents) and review them carefully. Talk to franchisees. Contact existing franchisees and ask them about their experiences. Ask them about the things that are important to you
Do your own calculations. Take the numbers provided by the franchisor and reduce them by 20% before finalizing your decision
Find a location
Before you sign a franchise agreement, you need to find a location that you can afford and that fits your needs. Consult with a franchise lawyer. It’s a good idea to consult with a franchise lawyer, especially if you’re not familiar with the legal intricacies of franchising
Secure financing
Most franchisors require you to have a certain amount of financing before they’ll accept your application. Only after completing these steps should you sign a franchise agreement
FAQ
Can I open a pizza business without franchising? Yes, you can always open your own pizza business and avoid franchising fees and ongoing royalties. However, you won’t have the benefit of an existing brand and will have to build your own supplier relationships
What do franchisors typically take in royalties? Most franchisors take between 5-8% of your gross revenue in royalties and another 2-3% in marketing fees, so anywhere between 7-11%
How long does it take to turn a profit on a pizza franchise? It usually takes between 18 and 36 months to turn a profit on a pizza franchise
Can I franchise my pizza business once it becomes successful? Yes, but franchising your own pizza business is an entirely different endeavor
What’s the difference between single and multi-unit franchising? Single-unit franchising means you only operate one pizza restaurant, while multi-unit franchising requires you to open several pizza restaurants
Do I need restaurant experience to open a pizza franchise? You don’t need restaurant experience, but it’s a good idea to hire experienced pizza chefs and managers
What if the franchisor goes out of business? Unfortunately, it’s possible, but you should always research their financials before signing a franchise agreement
How do delivery apps impact pizza franchise profits? Delivery apps are now the norm, but they drastically cut into profits since most apps take between 15-30% of each order
Can I negotiate the terms of my franchise agreement? You can, but most franchisors have standard terms that apply to everyone
What are the most common reasons pizza franchises fail? The most common reason pizza franchises fail is due to poor location and a lack of understanding of the time commitment required
Final Thoughts
Pizza franchising is not a way to get rich quick, but it can be a steady source of income if you’re willing to put in the time and effort. The initial investment for most affordable pizza franchise oppurtunity is around $25K-$1 300K, which is significantly lower than the half a million dollar+ range you’ll see with other pizza concepts. This means you can minimize your financial risk while still reaping the rewards of franchising a pizza business.
