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

9

Financial Analysis   

      

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10

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

11

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

12

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

13

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

1. .

2. .

3. .

4. .

5. .