THE NEXT EVOLUTION
WHAT IS PRIME COST?
Prime Cost takes into account the Food Cost
as well as the Gross Labor Cost, including all
of the salaried and hourly employees wages
plus payroll taxes, worker’s compensation and
any employee benefits.
PRIME COST CALCULATION
Cost of Goods + Labor Cost/ Sell Price
WHAT IS A “GOOD” PRIME COST?
65% and less is good for a Full Service
60% and less is good for a Quick Service
THERE ARE OTHER FACTORS
In high rent areas, like malls and
airports, where there is heavy volume, it
probably needs to be substantially lower.
Other high Occupancy Costs areas like
high insurance costs or equipment
F&B Costs $30,000 30%
Taxes/ Benefit $ 5,000
Total Payroll $33,000 33%
Prime Cost $63,000 63%
WHY IS THIS SO IMPORTANT?
Prime Cost allows the Customer to better
analyze their entire cost to produce an item
Now they can decide what trade offs that they
need to do.
Everything gets more realistically reviewed
and better decision making can happen.
An owner now doesn’t pay the chef to get their
Food Cost lowered, they create incentives
based on Prime Cost.
Menu item costs $3.33 (Cost of Goods)
+ $2.67 to prepare the item (Labor Cost)/
$10.00 price on the menu.
($3.33+$2.67)/ $10.00 or $6 / $10 .
Prime Cost in the above example is 60%
WHAT DOES THIS MEAN?
Some lower labor cost operations like a Buffet can
actually sell higher costing quality items because
their labor cost is low and the Prime cost will still
be in line.
Casual Theme Restaurants that won’t consider
higher quality steaks that take the same amount of
time and handling to prepare, because of food
cost, might be able to offer these and offset it with
other lower costing items that have a higher
Loaded baked potato, for example.
HOW DOES IT HELP THE CUSTOMER?
By increasing some quality they will be
perceived as better value than
Can utilize further processed products
and possibly use less staffing.
Customer can make better decisions as
to what they can offer.
Different perspective to running their
business more profitably.
DARE TO DREAM
Do you think that you could make money
with Food Cost at 42%, Labor Cost at
23% and Occupancy Cost at 25% while
you are doing $12,000,000 sales
That is $1.2 million bottom line profit!
Cheesecake Factory runs even better
numbers than this on average!