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Marco’s Pizza Franchise Cost Worth the 2022 Profit Potential?
Written by: Collins Kibet
This article is based on a video originally recorded on Vetted Biz Youtube Channel
Do you enjoy Italian food and want to turn it into a business venture? Marco’s Pizza franchise is an authentic Italian restaurant chain that serves chicken wings, pizza, cheesy bread, sandwiches, desserts, salads, and beverages. The pizza industry makes a large indent on the U.S. economy. This industry produces $46.9 billion in revenue and $2.3 billion in profits. However, with great reward comes higher risk.
According to experts, the pizza industry ranks a 3 out of 4, 4 being the highest at-risk and 0 being the lowest. But if you are up to the challenge and think you can beat the odds, keep reading to see how you can become a franchise pizza owner.
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Marco’s Pizza Franchise History
The Marco’s Pizza Italian chain was started by an Italian immigrant named Pasquale also known as “Pat” Giammarco in 1978. The first store opened in Oregon, Ohio on Starr Avenue. Pasquale was born in Sulmona, Italy but grew up in the U.S. in Michigan. He worked in his family’s pizzeria and his father even made the famous sauce that is in all of Marco’s Pizza locations.
The Co-Ceo and president is Tony Libardi who has held these titles since January 2021. The other CEO is Stephen Seyferth who has held this position since December 2019. The Vice President and CFO are Jeffrey Rager from February 2019.
Marco’s Pizza Franchise Litigation
Marco’s Pizza has a lot of litigation in their history, both from past lawsuits and as well as pending ones. In the past litigation, there was a lawsuit involving an injury that ended in a settlement. There is a similar pending case of a lawsuit against Marco’s Pizzas, where the plaintiffs stated they got injured when they refused to consent to the proposed transfer to a proposed buyer.
The court ruled to dismiss the plaintiff’s claims since they failed to bring up which relief may be granted but were allowed to re-plea their claims. They did and Marco’s pizza filed a motion to dismiss the complaint for the same reason the court dismissed the plaintiffs the first time.
Two other pending lawsuits had a similar problem where the injury was caused when refusing to do something. Both of the lawsuits involved a former area representative getting injured when either refusing to renew the expiring area representative agreement or declaring a default of the area representative agreement.
These are ongoing as well but the court has currently found little evidence to prove their claims. This can be a concerning sign that many of these lawsuits have a common theme but none of these cases have ruled against Marco’s pizza just yet.
Past Litigation
Antonio Sofo & Son Importing Co. and A&M Cheese Co. v. Marco’s Franchising LLC, Marco’s Pizza Distribution LLC, Jack Butorac, Kenneth Switzer, and Don Vlcek, and Byron Stephens, Court of Common Please, Lucas County, Ohio, Case No. CI0201004649 (filed June 18, 2010). This lawsuit was filed against us, our affiliate MDP, and four of our executives by a company that has served as an approved supplier to the Marco’s system.
The plaintiffs filed this lawsuit in state court after originally filling a virtually identical complaint on May 12, 2010 in the U.S. District Court for the Northern District of Ohio, Case No. 3:10-cv-01066-JGC. After a hearing in the federal court on June 16, 2010, the plaintiffs withdrew their federal action.
Marco’s Pizza Franchise Cost
Initial Franchise Fee
The initial franchise fee for one store is $25,000 but it can be lowered if you qualify for their promotional incentives. If you are a first responder with five or more years of service it will cost you $20,000 instead. If you are a qualified U.S. veteran it will be discounted to $15,000.
There are three levels of management employees and the more experience you have the less it will cost. With this, it can cost from $10,000 to as low as $5,000 depending on how many years you have as a director. There is also a discount with current franchisees and with this the more stores you have the lower the cost of the initial fee will be.
Estimated Total Initial Investment
Opening up a Marco’s pizza franchise restaurant will cost between $183,408-$552,713, not including the development fee which can add up to $10,000. There is a wide range of expenses and many of these are required. Leasehold improvements can cost up to $235,000 and equipment fixtures can add up to $97,725, both of which are the most expensive costs. Equipment is always a major expense but it also tends to be a one time rather than an ongoing expense.
This article’s primary source is the 2021 Marco’s Pizza Franchise Disclosure Document (FDD). You can purchase it and have full access to all the data by clicking here
Marco’s Pizza Additional Cost
Additional Cost Breakdown
| Real Property | $6,000 – $18,666 |
| Equipment/Finances | $35,800 – $97,725 |
| Point of Sale Computers | $14,000 – $25,244 |
| Credit Card Processing | $5,090 |
| Leasehold Improvements | $34,000 – $235,000 |
| Signage | $3,000 – $12,000 |
| Opening Inventory | $7,000 – $8,500 |
| Small Supplies | $13,267 – $15,153 |
| Deposits, Pre-Paid Expenses | $2,500 – $6,000 |
| Business Licenses | $18,000 |
| Audio Visual Equipment | $55,000 |
| Business Licenses | $500 – $1,500 |
| Insurance | $2,366 – $16,500 |
| Training Expenses | $3,150 – $10,150 |
| Miscellaneous Expenses | $500 – $5,000 |
| Architectural and Engineering | $5,000 – $12,000 |
| Technology Fee | $335 |
| Delivery Area, streets, database for POS, and shape files for POS and OLO platform maps | $500 |
| Brand Launch Program | $15,000 – $25,000 |
| Store Technology Infrastructure System | $8000 – $2,150 |
| Menu Boards | $600 – $1,200 |
| Additional Funds ( 3 mos) | $9,000 – $30,000 |
Looking through the chart, you may have noticed the brand launch program. This can cost between $15,000 to $25,000 and this is for the grand opening of your new store. This includes print marketing, public relations, social media, and Grand Opening launch kit materials. Although the initial investment is very large, it is part of the process of starting a franchise and with this high investment comes the potential for high reward.
Ongoing Costs and Fees
Ongoing Cost Breakdown
| Royalty | 5.5% of Net Royalty Sales |
| Royalty – Key Management Employee Program | 2.5% of Net Royalty Sales |
| Royalty – Multi-Unit Franchisee Program | Percentage of Net Royalty Sales Stores 1-5: 5.5% Stores 6-10: 5.0% The stores 11-15: 4.5% Stores 16+: 4.0% |
| Brand Development Fund | 1.0& of Net Royalty Sales |
| Geography Based Advertising Funds | 4.0% of Net Royalty Sales |
| Market Advertising Cooperative | Amount set and spend determined by co-op member votes |
| Local Store Marketing | Minimum of 0.5% of Net Royalty Sales, but not more than 7% minus the percentage contributed to the Brand Development Fund |
| Training Registration Fee | $150 per person |
| Replacement Designated Franchise Operator Training | $5,000 per person |
| Performance Deficiencies Service Fee | $500 per continued failure to comply with operational standards or process |
| Financial Reporting Fee | $100 per violation |
| Relocation | $8,250 |
| Transfer | $2,500 – $8,250 or 1/3 of the then current franchise fee |
| Renewal Fee | $6,250 or 25% of the then current initial franchise fee |
| Insurance | Varies |
| Interest and Additional Expense Fees | 1.5% per month interest on all late payments, plus a 5% Additional Expense Fee |
| Delayed Opening Fee | 90% of the weekly Average system-wide sales |
| Liquidated Damage | Average Royalty Fees, Brand Development Fund contributions and Geography Based Fund contributions for 36 Accounting periods |
| Technology Fee | $111.84 per Accounting period by ACH |
| Costs and Attorney Fees | Will vary under circumstances |
| Audit Costs | All costs and expenses associated with the audit |
| Indemnification | Will vary under circumstances |
| Securities Offering Fee | $2,500 or our actual expenses, whichever is greater |
| Development Agreement Continuation Fee | $2,500 or our actual expenses, whichever is greater |
| MUO & Inventory Tablet | $339 – $369 |
| Email Upgrade Fee | $120 per account per year |
Above is the cost of fees that are not associated with the initial buy of the franchise, and are typically ongoing or operational costs. This includes the royalty fee which is 5.5% of gross sales. If you have multiple franchises, the royalty cost can be lowered which encourages franchise owners to open up more Marco pizza establishments.
Also, if you are part of the key management employee program the royalty can lessen to 2.5%. Training is a high cost but the initial franchise fee does include up to two people to be trained. However, after those two people, training will cost $1,150 which includes the registration for the class and the two weeks before the beginning of training.
Advertising and Marketing Payments
The brand development fund is 1% of the gross sales and this can include promotional incentives, advertising materials, public relations. The Brand development fund doesn’t just include advertising but also consumer and product research. Marco’s Pizza also has geography-based advertising and national/regional advertising which is 4% of gross sales. Make sure you keep track of the percentages of your gross sales because that can take a huge chunk out of your profits.
There is also a local store marketing which is a minimum of .5% and a maximum of 7% of gross sales. Marketing is an essential part of growing your business and Marco’s pizza prioritizes this, which is costly but can increase your profits in the long run.
How Much Do Franchisees of Marco’s Pizza Make?
Net Royalty Sales of Franchised Stores by Category
| Top 25% of Franchised Stores | The top 50% of Franchised Stores | Top 75% of Franchised Stores | Total | |
| No. of Stores in Category | 185 | 369 | 554 | 738 |
| Range of Net Royalty Sales in Category | $991,512- $2,121,458 | $789,648- $2,121,458 | $629,507- $2,121,458 | $283,391- $2,121,458 |
| Average Net Royalty Sales in Category | $1,234,353 | $1,059,571 | $941,409 | $838,147 |
| Median Net Royalty Sales in Category | $1,189,328 | $991,512 | $885,113 | $789,565 |
In these charts, it shows the top percentage of the franchised stores and lowest percentage of franchised stores on how much they make and how many stores are within this range. At the top of franchised stores, they average a net royalty of $283,391-$2,121,458.
This is certainly a considerable amount of money, but it is also important to remember that much of these earnings go towards covering initial, ongoing, and operational costs. This is typical of franchises in the Food and Beverage industry — there are high gross sales, but there are also hefty fees and costs associated with running the franchise.
Increases
The chart above shows each quarter in 2020 and the first quarter of 2021 of the net royalty sales. It is of all of the 738 franchised stores for the first 52 weeks they were open.
There is a slight increase in each quarter except for quarter 4. In the 2021 quarter 1, it shows the average is $917,905 which is the first 13 weeks of the year. This is quite high, and if it’s anything like the year 2020 it should increase.
The chart above shows that in 2019 only 98 stores have made over $1,000,000 in net royalty sales and in 2020 it was 177 franchised stores. From this chart, especially in the first few years you are open, don’t expect to have over a million dollars in net royalty sales. After all, it was only a small percentage of franchised stores that reported this data which makes it not very accurate.
Payback Period
BASED ON 676 FRANCHISE UNITS:
Continuing Services and Royalty Fees: 5.5% of Gross Sales
In 2019 franchise royalty revenues were: $29.4 million
Estimated 2019 Total Franchise Sales: $535.2 million
2019 Median Franchise Sales: $681,301
| Initial investment (Midpoint) | %Profit margin of average franchise sales | Estimated Profits | Time to recoup investment |
|---|---|---|---|
| $368,061 | 10% 15% 20% | $68,301 $102,195 $136,260 | 6.4 years 4.6 years 3.7 years |
BASED ON 738 FRANCHISE UNITS:
Continuing Services and Royalty Fees: 5.5% of Gross Sales
In 2020 franchise royalty revenues were: $36.3 million
Estimated 2019 Total Franchise Sales: $660.8 million
2020 Median Franchise Sales: $789,565
| Initial investment (Midpoint) | %Profit margin of average franchise sales | Estimated Profits | Time to recoup investment |
|---|---|---|---|
| $368,061 | 10% 15% 20% | $78,965 $118,434 $157,913 | 5.6 years 4.1 years 3.3 years |
Based on the 2020 median franchise sales and an average of a 15% profit margin, it would take you a little over 4 years to recoup your initial investment into a Marco’s Pizza Franchise.
This is a good return period for a food industry franchise and only takes about 4 years because of the relatively low midpoint investment of around $370,000 to start your franchise.
Is Marco’s Pizza Worth the Franchise Cost?
To assign a valuation multiple for Marco’s Pizza, we leverage estimates from DealStats, a database of acquired private company transactions sourced from U.S. business brokers and SEC filings. We reviewed the pizza franchise industry’s selling price multiples to determine Marco’s Pizza’s resale value.
Under $1 Million Net Sales
- Estimated Selling Price = Net Sales – 0.31
$1 Million – $5 Million Net Sales
- Estimated Selling Price = Net Sales – 0.34
Over $5 Million Net Sales
- Estimated Selling Price = Net Sales -0.86
When you go to sell a Marco’s Pizza based on the median multiple of 0.31 and net sales median of $789,565 in 2020, it would sell for $244,765. This is slightly lower than the midpoint investment of $368,061. However, if you held onto your business for over 4 years at a 15% profit margin, you would make a positive return on your investment in the franchise.
If you own multiple Marco’s Pizza franchises, you do have the ability to make larger profits. Franchise owners with over $5 million in sales have a median multiple of 0.86. So, if you had 7 franchises this would be an estimated $5.5 million in sales. And you could sell your chain of restaurants for $4.75 million which would be almost double your midpoint investment for all your franchises totaling $2.57 million.
The key is to open up multiple locations so you can make more money and sell for a higher multiple!
Number of Marco’s Pizza Franchises Opened and Closed?
Outlets and Franchise Information
| Outlet Type | Year | Outlets at the Start of the Year | Outlets at the End of the Year | Net Change |
| Franchise | 2018 | 825 | 844 | +19 |
| 2019 | 844 | 875 | +31 | |
| 2020 | 875 | 912 | +37 | |
| Company-Owned | 2018 | 42 | 39 | -3 |
| 2019 | 39 | 40 | +1 | |
| 2020 | 44 | 42 | +2 | |
| Net Stores | 2018 | 867 | 883 | +16 |
| 2019 | 883 | 915 | +32 | |
| 2020 | 915 | 954 | +39 |
In this chart, the net change is overall positive which means your franchise will most likely stay open. In both the company-owned businesses and franchised companies, only three in 2018 went out of business or failed. This is a great outcome for your franchise where it will be a rare occurrence if your business ends up closing. Also, there are way more franchise units than company-owned stores.
In 2020 there are 42 company-owned outlets and 912 franchised units. This is a big difference and it shows Marco’s Pizza values their franchises and puts their money and effort into developing their franchise network. This is good news for you because it shows Marco’s pizza is focused on their franchises and for their success.
Also, Marco’s Pizza is expanding its franchises each year, indicating that they are looking to grow their business. From this data, it seems as though there is a a good chance of getting support from Marco’s Pizza to open up your restaurant.
How Much Do the Owners of Marco’s Pizza Franchising Make?
Marco’s Pizza Cash Flow Statement
‘
| 2020 | 2019 | |
|---|---|---|
| Cash Flows from Operating Activities | ||
| Net Income | $5,970,522 | $5,883,879 |
| Adjustments to Reconcile Net Income to Net Cash | ||
| Depreciation and amortization | $ 523,088 | $ 585,031 |
| Loss on disposal of property and equipment | $26,544 | $23,249 |
| Bad Debt Expense | $3,909 | $347 |
| Deferred Compensation Expense | $ 956,440 | $ 123,655 |
| Write-off of debt costs | — | $ 15,690 |
| Equity in earnings of unconsolidated investee | $ 216,525 | —- |
| Changes in operating assets and liabilities that used (provided) cash, cash equivalents, and restricted cash | $ (1,676,665) | $ (233,806) |
| Accounts Receivable | $(1,676,665) | $(233,806) |
| Contract assets | $192,808 | —- |
| Prepaid commissions and other current assets | $785,081 | $20,064 |
| Advertising Fund restricted assets | —- | $ (242,977) |
| Accounts payable | $ 1,969,172 | $(102,626) |
| Accrued and other liabilities | —- | $(29,777) |
| Deposits and other assets | $223,178 | $269,400 |
| Contract liabilities | $ 234,148 | —- |
| Other accrued liabilities | $62,125 | (96,078) |
| Grand Opening Restricted Funds | $(452,223) | —- |
| Net cash flow from investing activities | ||
| Purchase of property and equipment | $(353,666) | $(627,602) |
| Proceeds from disposition of property and equipment | —- | $7,700 |
| Investment in equity method investee | $(1,661,178) | —- |
| Distributions from equity method investee | $160,781 | —- |
| Payments received on notes receivable | $19,639 | $709,370 |
| Issuance of notes receivable | —- | $(175,194) |
| Payments received on loans to affiliates | $467,096 | $447,062 |
| Payments on personal license agreement | $(158,333) | —- |
| Net cash, cash equivalents, and restricted cash provided by investing activities | $1,525,661 | $361,336 |
| Cash Flows Used in Financing Activities – Distributions to member | $(6,619,835) | $(6,028,792) |
| Net increase in Cash, Cash Equivalents, and Restricted Cash | $456,096 | $548,595 |
| Cash, Cash Equivalents, and Restricted Cash – Beginning of Year | $8,601,592 | $6,216,051 |
| Cash, Cash Equivalents, and Restricted Cash – End of Year | $3,845,839 | $3,389,743 |
| Classification of Cash, Cash Equivalents, and Restricted Cash | ||
| Cash and Cash Equivalents | $2,361,173 | $2,426,740 |
| Cash – Restricted – Reserves for financing guarentees | $318,182 | $318,343 |
| Cash – Restricted – Reserves for financing guarentees | $318,182 | $318,343 |
| Cash – Restricted – Advertising and grand opening funds | $3,845,839 | $3,389,743 |
Based on this statement above, in 2019 Marco’s pizza’s net income 2019 is 5.9 million and in 2020 is 8.7 million which shows they are a profitable company and its profits are increasing each year. Also, the franchise had $ 3.8 million in 2019 and then $9.7 million in 2020 of cash. This is a good sign since Marco’s pizza has cash on hand and is not in debt. Marco’s pizza has cash from investing and net income.
Marco’s pizza is continuously making money and other expenses are low enough to still have a sizable profit after.
From this chart, it seems Marco’s pizza will not go bankrupt anytime soon and will have enough profits to expand their business even more.
Conclusion
The pizza business is a booming industry but with this, there are several cons such as competition and risk. Marco’s Pizza has a lot of litigation all consisting of similar problems which you should greatly consider when having them as your franchisor. The initial cost is quite reasonable compared to other franchises which usually can cost franchisees millions of dollars.
The financials seem positive and Marco’s Pizza franchise is not a failing business. From the data, your franchise will most likely stay in business and that’s one of the most important factors of owning a future business.
There are many factors to consider when deciding to run a franchise such as financials, prosperity, the company itself, and whether you have the drive and passion to put in the hard work. If Marco’s pizza lines up with all of these factors, contact the business for more information and do more research yourself.
Are you thinking about investing in Marco’s pizza franchise, or interested in exploring more options? Make sure to check out Vetted Biz’s website for listings of other similar franchises in the Food and Beverage industry.
Credits for this article goes to Brooks Gammill, our Business Data Analyst intern from Colby College.
