Cost Control

Prime Costs

Posted on Apr 23, 2008 in Cost Control, How We See It Blog by Jeffrey Summers 0 Comments

Prime Costs are the sum of the Cost of Goods Sold (Food Cost + Beverage Cost) + Payroll (Labor Cost)

In more detail, the percentages look like:

Food Cost	27% to 33%
Wine Cost	27% to 46%
Liquor Cost	14% to 31%
Beer Cost	10% to 25%
Other Beverage Costs	10% to 25%
Payroll	25% to 35%

 

Total prime costs should run between 60% to 69% of sales.

The closer to 60%, the better. Realize that each restaurant is different from the next. For example, a steak house could have a high food cost and low payroll cost. On the other hand, a pasta house could have a low food cost and high payroll cost Prime costs are a very important ratio for monitoring a restaurant.

If an operator consistently has a prime cost in excess of 69%, the odds are that the operator is losing money. However, there are some exceptions. Some restaurants have a high prime cost of 70%-72% and still make a nice profit. These restaurants are able to do so because of high volume business and low rent.

Lowering the cost of running the restaurant is easier said than done. The sooner an operator can identify a problem, the quicker the problem can be remedied. Taking the time to run weekly statements and reviewing your daily and weekly KPI’s (Key Performance Indicators) will result in significant savings.

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