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					THE NEXT EVOLUTION

  PRIME COST
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
   type restaurant.
  60% and less is good for a Quick Service
   type restaurant.
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
   rental.
CALCULATION EXAMPLE:
  Sales                  $100,000
  F&B Costs              $30,000  30%
  Payroll
        Salaried         $10,000
        Hourly           $18,000
        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 CALCULATION
    EXAMPLE
   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
     perceived value.
       Loaded baked potato, for example.
HOW DOES IT HELP THE CUSTOMER?

   By increasing some quality they will be
    perceived as better value than
    competition.
   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
   annually?
  That is $1.2 million bottom line profit!
   Cheesecake Factory runs even better
   numbers than this on average!
THANK YOU!

				
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posted:8/28/2012
language:English
pages:12