Pizza Chain

ProHub Comment

This is a straightforward break-even analysis case requiring candidates to calculate the required contribution margin needed to cover fixed costs and current profits from other product lines. The case tests financial modeling skills and ability to work backwards from a target profit level. Strong candidates will contextualize the pricing decision by discussing demand elasticity and competitive positioning of signature versus classic pizzas.

Estimated Time 15 minutes
Difficulty Medium
Source PeterK
50 / 100
ProFirm, a PE firm, is looking into purchasing a regional pizza chain Crustopia that has been experiencing losses. ProFirm is considering increasing the price for the signature pizzas to improve profitability. What price would ensure the break-even point?

Clarifying Information

  1. Exhibit 1. Economics of an Average Crustopia Restaurant, 2021
  2. The volume for signature pizzas isn’t expected to change after the price increase, given the strong market positioning of the pizza chain
  3. The fixed costs (e.g. marketing, rent) are $200k per restaurant