September's Featured Speaker: David Scott Peters, TheRestaurantExpert.com
David will be presenting 4 breakout sessions at the upcoming Florida Restaurant & Lodging Show on October 6-8 in Orlando. Hear him speak on controlling food costs, recipe costing and how to reduce labor costs.
Stop the Bleeding Now
For decades restaurants have been run with one key number in mind to ensure they have a chance of making money: prime cost.
Prime cost is the grand total of your total cost of goods sold, which includes both food cost and liquor (also known as pour cost), and total labor cost. In order to have an accurate prime cost number, you must be on an accrual accounting system (sign up for a consultation, and I’ll cover accrual accounting with you).
To calculate your actual cost of goods sold accurately, you start with your beginning inventory, add your total purchases for that period (in this example, let’s say one month), then subtract your ending inventory. This sum product of this calculation will give you your total cost of goods sold (the total of all the product you physically used or have left your shelves during that month).
Now, while total labor cost sounds simple, and it really is, many restaurants still calculate this number wrong. Total labor cost includes not only the total wages your employees have earned for that period (again for this example we will use a month), and this is where most restaurants stop, but is also includes total taxes, benefits and any insurances paid (workers’ compensation and health insurance).
The ideal prime cost and how to get there
While I am not a trained economist, I am not a certified public accountant and I am not a statistician, what I am is a restaurant expert who works with more than a hundred restaurant owners in all of North America on a daily basis. And what I can tell you is that if your restaurant is doing at least $800,000 or more a year, the prime cost target is 55 percent. The margins are just too tight to go any higher.
It is possible. I have members achieving it over and over again.
Prime cost the magic number and a core component of my teaching. For the purposes of this brief blog post, here are some sample labor systems you can use to get you closer to 55 percent.
1) Budget Labor: Using our labor allotment system, members have seen a minimum reduction in labor cost of at least 1 percent and many as high as 10 percent.
2) Tracking: Tracking labor on a daily basis enables management to make small changes on a daily basis to stay on budget.
3) Training: Implement a training system (we offer one for full-service and one for quick-service as well as for management training) to reduce labor costs due to lower turnover and increased sales due to happy guests.
These are actionable systems you can implement today to be on your way to a 55 percent prime cost. They work for any restaurant no matter what kind of service or food you serve.
No matter what path you choose… TAKE ACTION! And get your prime cost to 55 percent.
More about David Scott Peters:
David Scott Peters is a restaurant expert, speaker, coach and trainer for independent restaurant owners. He is the developer of SMART Systems Pro, an online restaurant management software program helping the independent restaurant owner remain competitive and profitable in an industry boxed in by the big chain restaurants. He is best known as the SMART Systems guy who can walk into any restaurant and find $10,000 in undiscovered cash before he hits the back door... Guaranteed! Learn more at www.TheRestaurantExpert.com.