Hey, restaurant owners and managers. Today in our how to manage a restaurant series,
we're going to do an overview on food cost, labor cost, prime cost.
The three most important metrics
financially that you need to know in your restaurant right now.
Hey, everybody. Ryan Gromfin here. Author, speaker, chef restaurateur,
founder of therestaurantboss.com,
clickbacon.com, scalemyrestaurant.com and like I said author
of our newest book make it happen,
which I'm so excited about and you can get a free copy at therestaurantboss.com
/books. Grab your free copy right now.
So today is part of our how to manage a restaurant series, I think this is our
fourth video in the series. We're going to go ahead and list below this in the comments
all the other links to the different videos in the series, but today is about
financials. We're going to do kind of a brief overview.
I think a lot of people are familiar with these terms, but I don't think a lot of us.
I know when I started out in management,
I didn't really understand what these were. Like, I kind of did,
but I didn't really. So the three things we're going to talk about today the
three things. I don't know if you were able to see that the three things, we're going
to talk about today are
food cost, labor cost and prime cost.
You know what we're going to throw in a fourth, we're going to throw in a bonus,
something I call RCC or RCP.
I'll tease you with that. That'll be the hook for you to watch this at the end. Plus,
there's a great free resource available for you.
So today's video is going to be short because I really want you to go look at that
free resource. But basically, let's first talk about food cost. So
I think food cost gets confused a little bit.
There's really two ways to look at food cost. Food cost is either
your whole -- well,
let's go back let's actually talk about cost of goods sold first.
So cost of goods sold which is the cost of a good that you sell.
I went through two years of accounting and never really broke it down like that.
Like we would talk about cost of goods sold and I kept saying I don't get it I don't get it,
but then for some reason I never thought about it.
It's the cost of a goods
a product that you sell, cost of goods salt.
How much should it cost to buy the stuff that you sell. It's actually pretty simple when you think about it.
Food cost is part of cost of goods sold.
Beer costs, liquor cost, wine costs are all part of cost
of goods sold. So now let's talk about food costs for a second.
Food cost is basically the cost
of the food that you sell. So what you need to get this is you need
to know how much you paid for food
and you need to know how much food you sold to get that. Now
the free resource I'm going to offer you is all of these formulas.
I'm not going to put the formulas up on the screen. I just want you to go to therestaurantboss.com.
Anywhere on that page you can click on a toolkit or to get the toolkit,
it's all over the place.
When you download or when you get access to the toolkit,
there's about a hundred different resources in there for you.
But one of those resources is literally
it's like 10 pages of all the restaurant financial formulas you would ever need to calculate
food cost, beer costs, wine cost, liquor cost, labor cost, cost of goods sold,
plate costs. It's all in there.
So food cost, beer costs. The biggest mistake that people make here is
when you're doing food costs, you need to know
only the the cost, the amount of money
you spent on food and then the amount of food you sold.
It's not total sales because that's wrong,
that won't give you the right percentages. And it's not
total purchases.
It's only food purchases. If you're trying to figure out your beer cost,
you need to know only what you spent on beer
and only what beers you sold or what you sold in dollars of beer.
Now it's kind of similar for labor.
Because when we're figuring out labor,
it's based on total sales. But if we're figuring it out by category,
it's going to be like, let's say, front of the house labor divided by total sales.
Back of the house labor divided by total sales. Maybe cook's labor
divided by total sales.
Labor gets a little more complicated because we have different
periods and payroll periods and end of the month. I mean, the same thing happens with
food costs which is why sometimes we do inventory corrections.
I don't really teach inventory. But again,
all the details of what I'm talking about
are in that worksheet
that I want you to get over at therestaurantboss.com,
get the tool kit it's in there. But I just wanted to do this brief overview for you.
I'm bouncing around here for a second, but let's go back to food cost really quick.
When we're talking about food costs or costs of goods sold,
that's different than a plate cost or a recipe cost, right. A recipe cost
it's a similar formula, but it's only
what is the food that goes on this plate cost divided by the sales.
Whereas food cost is maybe for a week or a month,
it's all the food purchased for that month divided by all the food sales for that month.
So now that we've kind of talked about food costs a little bit,
we've talked about labor cost a little bit, let's talk about prime cost.
If anyone ever tells you what your food cost should be, what your cost
of goods sold should be, what your labor cost should be run,
run as far away from that person as you can.
I don't know what your food cost is.
I'd have to know a lot more or should be.
I'd have to know a lot more about your restaurant
to answer that. I'm not even going to sit here and say
well generally speaking it's 30% and 30%. I have no idea
I've seen restaurants highly profitable with 45% food costs.
I've seen restaurants highly profitable
with 40% labor costs.
So I can't tell you what it's supposed to be.
What I can tell you
is that your prime cost,
which is your total cost of goods sold plus your total labor for a period
together should be less than 60%, I can tell you that.
I can also tell you that if you add in direct operating expenses
to your prime costs, you get something called RCP
or RCC, restaurant controllable costs or RCP,
restaurant controllable profit.
They're just the inverse of each other.
Again, I didn't want to pop up formulas all over the place.
I wanted to give you a brief overview
so then you can go and look at those formulas and it'll make more sense. I have some descriptions on there,
but really this video with that free resource is going to help you a lot.
So really what this was about is
there's only a couple of things that you really need to focus on in your restaurant.
Cost of goods sold, labor costs together equal prime costs.
When we throw in direct operating expenses, we now get
RCC, restaurant controllable costs.
I can tell you right now your prime cost should be less than 60%.
And I can tell you right now that your RCC
should be less than 70%. I'd like to see it less than
about 68%. 66% would be even better,
but somewhere in that 66% to 68% and you should be great.
Here's the challenge though.
When I start working with a restaurant and start helping them
find this information and calculate it all because you could use clickbacon in our
software, clickbacon.com to learn more about that you can get all this information
there and or get it all calculated through there.
But unfortunately, when we start measuring it we find that most people's
prime cost is up as high as in that 72% to 76% range.
Their RCC is up in that like 75% to 80% range.
There's no money for profits at that point.
There's probably not even money for payroll at that point.
And unfortunately, that's where I find most restaurants who are not
properly measuring this stuff or are not measuring it
and taking it seriously and making it part of their daily routine.
So I would encourage you as a manager of a restaurant to really
study this to learn it, to practice it.
It's complicated stuff, I get it. And I'm dramatically oversimplifying it here.
The formulas are going to help a little bit,
but I'll be totally honest with you even those are going to leave some gaps.
So I do have a lot of videos about food cost. You can go back and look for them
on our website or on our YouTube channel at the restaurant boss.
But this is an area that you really need to dig into
and master and ask questions and kind of get
dirty with it. If you want to be a highly successful,
highly paid restaurant manager or chef
or kitchen manager or area manager or district manager,
there's a lot to learn here, but it's hugely valuable
and hugely important to your success as a restaurant manager.
So I hope you enjoyed this week's video. I look forward to bringing you another one
just like this.
My name is Ryan Gromfin. This is the restaurant Boston. And remember systems create freedom,
freedom creates value, value creates scale.
Grab yourself a copy of our book at the restaurantboss.com.
Have an absolutely amazing day. Bye-bye.
I hope you enjoyed this week's training video.
If you haven't subscribed to our channel yet,
would you go ahead and smash the like button right up there
so you can get notified every week when we release a new
free training video.
I've also gone ahead and put a couple of videos for you here and here
that I think you're going to enjoy.
Remember systems create freedom, freedom creates
value and value creates scale.
Manage systems, develop people and be awesome.