You might have heard the term prime cost.
If you're not 100% sure what that is or why it is so important to your restaurant,
stick around, I'm going to share that with you right now.
Hey, everybody. Ryan Gromfin here – author, speaker, chef, restaurateur,
and the founder of the www.Restaurantboss.com,
as well as www.clickBACON.com.
And today, we're talking about prime cost.
So if you're an owner, operator, employee, manager, chef,
whatever, GM of a restaurant or any food service business,
this number is probably the most
important number that you can keep track of and you have to know prime cost.
Now, I'm going to get quick here and I'm going to talk about
food costs and labor cost. So if you're not
100% certain and 100% sure of your skills in those categories,
check out the rest of this playlist and go back and
watch that food cost video and that labor cost video,
then come back to this, but before I get into labor costs,
please, if you haven't already subscribe to my channel,
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Now, when we're talking about prime costs,
this is a term that's used over almost all industries,
pretty much any industry that manufactures anything.
The very simple formula for prime cost is
total cost of goods sold plus total labor divided by total sales.
Now again, go back to food cost to figure out how to get total cost of goods sold,
go back to the labor to figure out how to get total labor,
but those two together divided by total sales for a period
or a rolling period (as I suggest,
mentioned in the previous videos in the food cost video)
divided by the sales for that same period will give you prime cost.
Now, why is prime cost so important?
It's because it's possible to have
a high food cost and a low labor cost, or a cost of goods sold.
It's possible to have a low cost of goods sold and a high
labor costs. Obviously, we want them both to be low,
but the thing is when people say what should my food cost be?
I don't know. What should my liquor cost be?
I don't know. What's my total cost of goods sold be?
I don't know. What should my labor cost be?
I don't know. What I do know
is generally speaking,
the more you make in-house,
the lower your cost of goods sold should be,
but it takes labor to produce that so the higher your costs of,
or the higher your labor cost will be.
Vice versa, if you're buying your salad dressings already made,
you buy a lot of your prep items already made,
you buy bread and tortilla chips, all that stuff already made, well then,
your cost of goods sold is a little higher because to buy that stuff costs more,
but your labor cost should be a little lower.
Here's what I do know.
Your prime cost needs to be less than 60% of sales.
Less than 60% of sales.
Now it used to be people were always talking about sixty% as a magic number,
maybe even 65%, but as insurances have gone up and just
the cost of doing business has gone up and rent has gone up and marketing
expenses and everything else,
we need your prime costs to be less than 60%.
There are a few exceptions to this.
One of those exceptions that I always say is a restaurant in a hotel,
maybe a Country Club, something where
your restaurant is expected to do more and stay open later
because of the other services that it supports.
Those are the rare exceptions where you could be over 60 and still be profitable,
but generally speaking, with the clients I'm working with,
if their prime cost is above 60%,
they are not as profitable or even profitable at all.
Your goal is to get your prime cost to 60% or below.
I hope you enjoyed today's video. If you haven't already,
please subscribe to the channel. Leave a comment, ask your questions below.
I will be sure to address them as soon as possible.
I look forward to bringing you another great video like this next week.
Have a wonderful day.
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