What Every Restaurant Owner & Manager Should Know About Prime Cost
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Webinar Presented By
Jim Laube works with restaurant operators who want practical advice to improve their business management practices to build a more profitable restaurant and valuable business.
Jim began his restaurant career at the age of 15 working for a quick-service restaurant and earned his way through college as a server and bartender. After earning his degree, he worked for a regional restaurant chain and an independent fine dining restaurant. In these organizations he held positions in both the operational and financial areas as a restaurant manager, controller and CFO.
As an author, Jim is a contributor to Restaurant Startup & Growth, Restaurant Hospitality, Nations Restaurant News, Foodservice.com, Pizza Today,” the Society for Foodservice Management's "SFM Source,” and American Express’ Briefing newsletter. He is also the co-editor of the National Restaurant Association's Uniform System of Accounts for Restaurants, 8th edition.
Jim is also the creator and publisher of RestaurantOwner.com, an extensive web site specifically for independent restaurant operators. It features business management resources in the form of streaming, Flash-animated, multimedia training programs as well as articles, business tools, downloadable forms, report templates, checklists and a wide variety of restaurant operating procedures. It is one of the most popular restaurant sites on the World Wide Web.
During the past 10 years, Jim has conducted over 500 presentations to thousands of restaurant professionals in the U.S., Canada and Europe. His clients include Red Lobster, Papa John’s Pizza, KFC, Marriott, Hard Rock Café, Cornell University, Aramark, the National Restaurant Association and many state restaurant associations.
Jim Laube
1
Introduction
The restaurant business is "highly" . Two sides to every restaurant -
1. .
2. . Highly successful independents have owners with good skills Operational skills versus business skills -
2
Introduction
Create & market to your own . Goals for this webinar -.
1. Enhance your skills
2. Get you to apply a valuable too to those skills
# Key to Success in the Restaurant Business The .
3
Introduction
Results
“The OWNER“
Decisions
Activities
Business Performance Process
Accounting is a system of that converts
decisions and activities into .
Financial analysis is the process of converting numbers back into
.
Three Undeniable Truths of Business
1. What get's gets managed
2. What gets managed .
3. What gets measured, managed and . improves expodentially
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Prime Cost Three factors that drive restaurant profitability
1. Sales
2. of sales
3. cost
Prime Cost - Rules of Thumb Tableservice - Quick Service -
KEY POINT: Prime Cost gives you a much more meaningful & valid indication of your restaurant’s cost
structure & .
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Prime Cost
Weekly PRIME COST Reporting:
Why Prime Cost: “Every” restaurant does it
Focuses attention on your 2 cost areas
Greater staff & accountability
Faster recognition & to problems
More attention paid to scheduling
"Prime Cost" reflects expenses where operators have the highest exposure for losses and the greatest
opportunities to impact profitability in the short term.
Prime Cost Ratio = Total Sales
Cost of Sales + Payroll Costs
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Prime Cost
How to Calculate Weekly Prime Cost Pro cess
Maintain an “Invoice Log” of all food and beverage purchases ‐
Food Liquor Beer WineBay Seafood 4/6/12 851.65 851.65
Northwest Distribution 4/6/12 496.20 147.80 348.40
Specs Liquor 4/7/12 936.58 936.58
Jake's Poultry 4/7/12 239.80 239.80
Sundown Bread 4/7/12 321.65 321.65
Adams Meats 4/8/12 875.47 875.47
Bay Seafood 4/8/12 627.35 627.35
Jake's Poultry 4/8/12 152.47 152.47
Sundown Bread 4/8/12 202.83 202.83
Adams Meats 4/8/12 524.68 524.68
Bay Seafood 4/9/12 621.40 621.40
Spec Liquor 4/9/12 (125.40) (125.40)
5,724.68 4,417.30 811.18 147.80 348.40TOTALS BY CATEGORY
Invoice (credit) AmountDateSupplier
Category
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Prime Cost
If you need to calculate daily hourly labor cost:
Track daily labor hours -
MON TUE WED THU FRI SAT SUN
6‐Apr 7‐Apr 8‐Apr 9‐Apr 10‐Apr 11‐Apr 12‐Apr
1. Sandra Mills 6.0 6.0 6.0 6.0 8.0 8.0 0.0 40.0
2. John Jeffreys 4.0 6.0 7.0 4.0 6.0 8.0 0.0 35.0
3. Jose Cruze 5.0 5.0 5.0 8.0 8.0 0.0 0.0 31.0
4. Migel Herndaz 4.0 6.0 6.0 6.0 0.0 0.0 8.0 30.0
5. Erin Mazlow 0.0 8.0 4.0 4.0 5.0 6.0 4.0 31.0
6. Dominick McCreary 0.0 0.0 0.0 0.0 8.0 8.0 8.0 24.0
7. Jason Robarts 7.6 7.6 8.0 7.6 7.6 7.6 7.6 53.6
8. Marian Means 6.0 6.0 6.0 6.0 6.0 8.0 10.0 48.0
9. Malcolm Mason 6.0 6.0 6.0 6.0 6.0 6.0 6.0 42.0
10. Bill Waylon 0.0 0.0 6.0 6.0 8.0 8.0 8.0 36.0
11. Charlie Matson 0.0 0.0 5.0 5.0 8.0 8.0 8.0 34.0
12. Walter Judd 4.0 4.0 0.0 6.0 6.0 7.0 8.0 35.0
13. Annabel Adams 0.0 0.0 4.0 4.0 4.0 6.0 8.0 26.0
14. Judith Sunvale 5.0 5.0 5.0 5.0 5.0 5.0 5.0 35.0
15. Ester Braddick 0.0 0.0 6.0 5.0 3.6 8.0 0.0 22.6
TOTAL LABOR HOURS 47.6 59.6 74.0 78.6 89.2 93.6 80.6 523.2
TOTAL DAILY SALES $1,562 $1,869 $2,186 $2,420 $2,886 $3,464 $2,378 $16,765
SALES PER LABOR HOUR 32.8 31.4 29.5 30.8 32.4 37.0 29.5 32.0
TOTAL
EMPLOYEE
NAME
Calculate daily hourly labor cost -
MON TUE WED THU FRI SAT SUN
6‐Apr 7‐Apr 8‐Apr 9‐Apr 10‐Apr 11‐Apr 12‐Apr
1. Sandra Mills 2.50 15.00 15.00 15.00 15.00 20.00 20.00 0.00 100.00
2. John Jeffreys 2.50 15.00 15.00 17.50 10.00 15.00 20.00 0.00 92.50
3. Jose Cruze 8.00 56.00 56.00 40.00 64.00 64.00 0.00 0.00 280.00
4. Migel Herndaz 8.50 51.00 51.00 51.00 51.00 0.00 0.00 68.00 272.00
5. Erin Mazlow 9.00 54.00 72.00 54.00 36.00 45.00 54.00 36.00 351.00
6. Dominick McCreary 8.50 17.00 17.00 34.00 0.00 42.50 68.00 68.00 246.50
7. Jason Robarts 7.50 60.00 60.00 45.00 48.75 30.00 30.00 0.00 273.75
8. Marian Means 6.00 36.00 36.00 36.00 39.54 36.00 48.00 0.00 231.54
9. Malcolm Mason 6.50 39.00 39.00 39.00 39.00 39.00 39.00 45.50 279.50
10. Bill Waylon 4.35 0.00 0.00 0.00 26.10 26.10 34.80 34.80 121.80
11. Charlie Matson 2.50 10.00 10.00 12.50 12.50 12.50 20.00 20.00 97.50
12. Walter Judd 2.50 10.00 10.00 0.00 15.00 15.00 17.50 20.00 87.50
13. Annabel Adams 7.50 30.00 37.50 60.00 30.00 30.00 45.00 60.00 292.50
14. Judith Sunvale 8.00 40.00 56.00 40.00 40.00 40.00 40.00 40.00 296.00
15. Ester Braddick 8.50 0.00 0.00 51.00 42.50 30.39 68.00 0.00 191.89
HOURLY LABOR COST 433.00 474.50 495.00 469.39 445.49 504.30 392.30 3,213.98
TOTAL DAILY SALES 1,562 1,869 2,186 2,420 2,886 3,464 2,378 16,765
HOURLY LABOR COST % 27.7% 25.4% 22.6% 19.4% 15.4% 14.6% 16.5% 19.2%
TOTALRATE
EMPLOYEE
NAME
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Prime Cost Prepare the “Prime Cost Worksheet” ‐
MON TUE WED THU FRI SAT SUN
6‐Apr 7‐Apr 8‐Apr 9‐Apr 10‐Apr 11‐Apr 12‐Apr BEG END
SALES:
Food 1,406 1,598 1,847 2,058 2,456 2,857 1,983 14,205 84.7%
Liquor 51 105 96 123 150 221 148 894 5.3%
Beer 50 101 106 88 105 136 105 691 4.1%
Wine 55 65 137 151 175 250 142 975 5.8%
Total Sales 1,562 1,869 2,186 2,420 2,886 3,464 2,378 16,765 100.0%
COST OF SALES:Purchases
Food 4,417 3,231 (2,885) 4,763 33.5%
Beverage ‐
Liquor 811 1,958 (2,554) 215 24.1%
Beer 148 572 (595) 125 18.1%
Wine 348 1,021 (1,146) 223 22.9%
Total Beverage 1,307 3,551 (4,295) 563 22.0%
TOTAL COST OF SALES 5,327 31.8%
LABOR:
Management 1,200 7.2%
Hourly Personnel 433 475 495 469 445 504 392 3,214 19.2%
Payroll Taxes & Benefits 971 5.8%
TOTAL LABOR 5,385 32.1%
PRIME COST 10,712 63.9%
6,053 36.1%
Customer Count 85 95 125 149 145 174 122 895
Check Average 18.38 19.67 17.49 16.24 19.90 19.91 19.49 18.73
PCT
GROSS MARGIN
INVENTORY
TOTAL
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Financial Analysis
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Financial Analysis
Financial Analysis Tools -
1. size analysis
2. Per analysis
3. analysis Prime Cost - Current Period
SALES $
Food 14,205
Liquor 894
Beer 691
Wine 975
Total Sales 16,765
COGS Food 4,763
Liquor 215
Beer 125
Wine 223
Total COGS 5,326
PAYROLL Management 1,200
Hourly Staff 3,214
Employee Benefits 971
Total Payroll 5,385
Prime Cost 10,711
Gross Margin 6,054
Account Description
$ Amounts
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Financial Analysis
SALES %
Food 84.7
Liquor 5.3
Beer 4.1
Wine 5.8
Total Sales 100.0
COGS Food 33.5
Liquor 24.0
Beer 18.1
Wine 22.9
Total COGS 31.8
PAYROLL Management 7.2
Hourly Staff 19.2
Taxes & Benefits 5.8
Total Payroll 32.1
Prime Cost 63.9
Gross Margin 36.1
Account Description
Common Size
$ Per Guest
Guest Count 895
SALES Per Guest
Food 15.87
Liquor 1.00
Beer 0.77
Wine 1.09
Total Sales 18.73
COGS Food 5.32
Liquor 0.24
Beer 0.14
Wine 0.25
Total COGS 5.95
PAYROLL Management 1.34
Hourly Staff 3.59
Taxes & Benefits 1.09
Total Payroll 6.02
Prime Cost 11.97
Gross Margin 6.76
Account Description
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Trend Analysis
SALES $ $ $ $
Food 12,677 12,998 13,541 14,205
Liquor 1,023 1,125 1,068 894
Beer 521 575 657 691
Wine 854 903 957 975
Total Sales 15,075 15,601 16,223 16,765
COGS Food 3,857 4,015 4,257 4,763
Liquor 190 205 204 215
Beer 115 125 137 125
Wine 205 221 238 223
Total COGS 4,367 4,566 4,836 5,326
PAYROLL Management 1,200 1,200 1,200 1,200
Hourly Staff 2,852 2,963 3,006 3,214
Employee Benefits 891 916 925 971
Total Payroll 4,943 5,079 5,131 5,385
Prime Cost 9,310 9,645 9,967 10,711
Gross Margin 5,765 5,956 6,256 6,053
Account Description
$ Amounts
SALES % % % %
Food 84.1 83.3 83.5 84.7
Liquor 6.8 7.2 6.6 5.3
Beer 3.5 3.7 4.0 4.1
Wine 5.7 5.8 5.9 5.8
Total Sales 100.0 100.0 100.0 100.0
COGS Food 30.4 30.9 31.4 33.5
Liquor 18.6 18.2 19.1 24.0
Beer 22.1 21.7 20.9 18.1
Wine 24.0 24.5 24.9 22.9
Total COGS 29.0 29.3 29.8 31.8
PAYROLL Management 8.0 7.7 7.4 7.2
Hourly Staff 18.9 19.0 18.5 19.2
Employee Benefits 5.9 5.9 5.7 5.8
Total Payroll 32.8 32.6 31.6 32.1
Prime Cost 61.8 61.8 61.4 63.9
Gross Margin 38.2 38.2 38.6 36.1
Account Description
Common Size
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Trend Analysis
Guest Counts ‐ 875 885 906 895
SALES Per Guest Per Guest Per Guest Per Guest
Food 14.49 14.69 14.95 15.87
Liquor 1.17 1.27 1.18 1.00
Beer 0.60 0.65 0.73 0.77
Wine 0.98 1.02 1.06 1.09
Total Sales 17.23 17.63 17.91 18.73
COGS Food 4.41 4.54 4.70 5.32
Liquor 0.22 0.23 0.23 0.24
Beer 0.13 0.14 0.15 0.14
Wine 0.23 0.25 0.26 0.25
Total COGS 4.99 5.16 5.34 5.95
PAYROLL Management 1.37 1.36 1.32 1.34
Hourly Staff 3.26 3.35 3.32 3.59
Employee Benefits 1.02 1.03 1.02 1.09
Total Payroll 5.65 5.74 5.66 6.02
Prime Cost 10.64 10.90 11.00 11.97
Gross Margin 6.59 6.73 6.90 6.76
Account Description
$ Per Guest
What is our analysis telling us? Potential issues / problems to correct?
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Notes
To download the latest versions of our Prime Cost Worksheets go to - http://www.restaurantowner.com/primecost.htm. To automate your prime cost reporting, learn about the Prime Cost Wizard* reporting tools at - http://www.restaurantowner.com/primecostwizard.htm. * Prime Cost Wizard integrates with Quickbooks and other popular accounting programs.
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Action Plan
What to Implement / Changes to Make
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2. .
3. .
4. .
5. .