Today, I want to answer one of the most frequently
asked questions I get on my website,
which is - should I include utilities
and labor in my plate cost?
Hey, everybody. My name is Ryan Gromfin. I'm an author,
speaker, chef, restaurateur, and I'm the founder of TheRestaurantBoss.com,
as well as RestaurantProfitAndPerformance.com.
And today, I want to address like I said,
one of the most frequently asked questions I get on my website,
which is - should I be including labor?
Should I be including utilities in my plate cost, in my food cost?
And the answer is, unequivocally 100%
without a doubt,
no! People are always asking me; how do I do this?
How do I calculate that? And the reason I don't have a formula for it,
the reason I don't have a way to calculate it because you should not
ever be including labor or utilities in your plate cost.
The only thing that goes in your plate cost
is the food that you're putting on that plate to sell to a customer.
That means chemicals don't go in there.
Generally speaking, to-go containers and plastic knives and phones and sporks.
Wow! In phones and sporks. Sporks!!!
Wow! Forks and spoons. I'm having a hard time getting my words out today.
Generally speaking, that stuff doesn't go in there either.
Those are direct operating expenses
and I'll film a whole another video about when you should include those and when you shouldn't,
but getting back to today's video, labor.
Utilities - that stuff never goes into food costs and here's why.
Food cost is just that. It's the food cost or the plate cost,
the cost of the food to prepare that plate.
Now people say, yeah, but if we need the labor
to make that plate, but labor is a completely separate calculation.
And the reason I like to keep them separate and then bring
them together to get a number, that number is called Prime cost.
Prime cost is your total cost of goods sold plus total labor.
So those two numbers together will give us
the number that we want.
And your target prime cost from your restaurant
is generally speaking 60% of sales or below.
I have other videos explaining prime costs that we can link to here,
but the point is, never include your labor because
labors are a separate calculation. Wow!
I'm struggling today and when you want to combine those two together,
we combine them into the prime cost.
Let me tell you another reason why we don't ever do that
because labor isn't the same every time.
If you sell a hamburger, it's always going to have a bun,
it's always going to have the burger, it’s always going to have lettuce, tomato, pickle, whatever it is,
but if you're cooking seven hamburgers
at the same time or cooking one hamburger at the same time,
it doesn't take any extra labor.
So how would we ever include that in there?
Again, that's where I go back to prime cost.
Now as far as utilities, it's similar to that same answer.
We don't even include utilities because you've got a grill.
If you cook your burgers on a grill, it's a 36-inch grill.
You turn that grill on at the beginning of the day,
if you cook one hamburger that entire day
or if you cook a thousand hamburgers that entire day,
you're generally not going to use
any more utilities so there'd be no way of evenly figuring that out.
People think that your utilities in a restaurant are variable expenses,
but they're really not. They're variable in the smallest degree.
If you're substantially busier,
your electricity bill and your gas bill and your water bill might be a little bit higher,
but generally speaking, whether you're busy or slow,
your electricity, your gas, your water bills are going to be very, very similar.
I hope this helps explain to you why you never
include utilities or labor in your plate costs,
in your food costs in your restaurant.
And I look forward to seeing you on another video next week.
This has been Ryan saying, have a wonderful day.
Hey, everybody Ryan here. I really hope you enjoyed that video.
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