How We See It

Prime Costs

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:

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.

Call us to begin the process of Coaching you to achieve the kind of success you envisioned when you first started your business. It costs you nothing to consult about the kind of success you want and what we can do to help get you there!

888-9988-SHG (744) (744)
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You Can’t Shrink Your Way To Greatness

If you’ve been following my writing you’ve probably read a few times – there are only three ways to grow revenue;

1. Get more new customers,
2. Increase the value of your average sale, and
3. Increase the frequency and volume of repeat business.

I wish I would have thought of it first, but its been known for a long time. And its true. There are no other ways to grow revenue.

I was asked earlier why I don’t include cost reduction in the revenue growth equation.

When you think about it, the answer is obvious. Cost reduction has nothing to do with revenue growth. Cost reduction is related to profitability and cash flow.

There are two things to consider when thinking of cost reduction:

1. Cost reduction is something all business leaders and managers should be mindful of and doing – its prudent.
2. Cost reduction efforts can give a business a boost, but over time its effects diminish. There’s only so much you can cut and so far you can go to reduce costs. As some point, cutting costs reduces operational capacity and effectiveness – thus you cannot shrink your way to success, you must grow yourself to achieve it!

If you’re  focusing hard on reducing costs to make it you have a revenue problem. While you’re cutting costs to survive, you need to get focused on making money.  And as you know, there are only three ways to do that.

Rules Of Thumb

I don’t like using them, but here they are.

Sales to Investment (Annual Sales/Startup Cost)

Leasehold – at least 1.5 to 1

Own Land and Building – at least 1 to 1

Sales Per Square Foot

Losing Money

Full-service – $150 or less.

Limited-service -  $200 or less.

Break-even

Full-service – $150 to $250.

Limited-service – $200 to $300.

Moderate Profit

Full-service – $250 to $350.

Limited-service – $300 to $400.

High Profit

Full-service – More than $350.

Limited-service – More than $400.

Food Cost

Generally – 28 percent to 32 percent as a percentage of total food sales.

Alcoholic Beverage Costs

Liquor – 18 percent to 20 percent as a percentage of total bar sales.

Bar consumables – 4 percent to 5 percent as a percentage of total bar sales.

Bottled beer – 24 percent to 28 percent as a percentage of total bar sales.

Draft beer – 15 percent to 18 percent as a percentage of total bar sales.

Wine – 35 percent to 45 percent as a percentage of total bar sales.

Nonalcoholic Beverages

Soft drinks (post-mix) – 10 percent to 15 percent as a percentage of nonalcoholic beverage sales.

Regular coffee – 15 percent to 20 percent as a percentage of nonalcoholic beverage sales.

Paper Cost

Full-service – 1 percent to 2 percent as a percentage of total sales.

Limited-service -  3 percent to 4 percent as a percentage of total sales.

Payroll Cost

Full-service– 30 percent to 35 percent as a percentage of total sales.

Limited-service -  25 percent to 30 percent as a percentage of total sales.

Management Salaries

Ten percent or less as a percentage of total sales.

Hourly Employee Gross Payroll

Full-service -  18 percent to 20 percent as a percentage of total sales.

Limited-service -  15 percent to 18 percent as a percentage of total sales.

Employee Benefits

Five percent to 6 percent as a percentage of total sales.

Twenty percent to 23 percent as a percentage of gross payroll.

Prime Cost

Full-service -  65 percent as a percentage of total sales.

Limited-service – 60 percent as a percentage of total sales.

Occupancy and Rent

Rent – 6 percent or less as a percentage of total sales.

Occupancy – 10 percent or less as a percentage of total sales.