Pizza Today - January 2018 - 44

Road to Expo

C OM P I L E D B Y B R U C E ALLAR

MARCH 19-22, 2018 * LAS VEGAS CONVENTION CENTER

DO YOU KNOW YOUR PRIME COST?

BY DAV ID SCOTT PE TE RS

RE S TAURANT B U S IN E S S
ESSENTIALS , PARTS I AN D
II. SCHOOL O F P I ZZERI A
MANAGEMENT W O RKS H O P S
ON SUNDAY, MARC H 18,
AND MONDAY, MARC H 19 ,
AT PI ZZA EXPO I N LAS
VEGAS.

@PIZZATODAY
#PIZZAEXPO

4 4 / P I Z Z AT O D AY. C O M / J A N UA R Y 2 0 1 8

I bet you've heard that a typical restaurant makes a nickel to
8 cents on every dollar it brings
in. I bet you've heard that a
typical full-service restaurant
is supposed to run a 65 percent
prime cost. I bet you've heard
the National Restaurant Association many years ago said
that the average full-service
restaurant typically runs a 34
percent food cost and a 32 percent labor cost. My goodness!
A lot of numbers! And how do
they apply to your restaurant?
The truth is... THEY DON'T!
The challenge I have with
benchmarked data is it is all
about averages. The average
restaurant makes; the average
restaurant runs, the average . .
. . Is your restaurant average?
No! So if you're not the average
restaurant, what are benchmarks good for? Absolutely
nothing!
Let's instead focus on finding your personal benchmark,
which is based on prime cost.
Simply put, prime cost is your
total cost of goods sold plus
your total labor cost, then
divided by your gross sales. The
resulting number is multiplied
by 100 so your prime cost can
be expressed as a percentage.
Say you have gross sales of
$850,000 with cost of goods
sold at $350,000 and labor

costs of $300,000. Divide
650,000 by 850,000 and get
0.76. Multiply it by 100 and
you're operating at 76 percent
prime cost.
You have a problem.
If you have a restaurant that
does $850,000 a year or more
in gross sales, your prime cost
target should be 55 percent or
lower! That means a restaurant
that does $1 million a year in
sales operating at a 65 percent
prime cost, is leaving 10 points
on the table, or $100,000 in
bottom-line profitability.
This money is available if
you are willing to do the work
to get it. And the crazy part is
the higher your sales, the lower
that number can go. Many of
our member restaurants operate at 50 percent, 42 percent
and even as low as 34 percent!
They are achieving these low
prime costs without changing
product quality or levels of
service.
When I grew up in the business, we referred to prime cost
as controllable expenses. They
are in the direct control of management. That's the good news.
But you must take a systematic
approach to keeping them in
check. And that is what I intend
to show you during my workshops at Pizza Expo in March.
The numbers for cost of goods

and labor can be controlled and
measured. They become your
report card.
There are things to know
about calculating your prime
cost so it will be more accurate.
(For example: you can't get
accurate cost-of-goods numbers
without doing inventories.) And
you must know how to apply
you prime cost goals to your
budget. Once you do, you can
easily see what must be done
to achieve your profitability
target.
For example, a family casual
full-service restaurant might run
a 35 percent cost of goods sold
and a 20 percent labor cost.
A quick-casual pizzeria might
run a 25 percent cost of goods
sold and a 30 percent labor
cost. Both of these scenarios
equal 55 percent prime cost.
Their targets have nothing to
do with industry averages. And
everything to do with running a
15 - 20 percent profit margin.
David Scott Peters, founder
of TheRestaurantExpert.com,
will present Restaurant Business Essentials, Parts I and II,
as School of Pizzeria Management workshops on Sunday,
March 18, and Monday, March
19, at Pizza Expo in Las Vegas.
http://www.TheRestaurantExpert.com http://www.PIZZATODAY.COM
Pizza Today - January 2018

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