Prime cost is the one number you must know to make any money in the restaurant business. The prime cost formula is a measurement of your ability to be profitable and gives you information about how you can be profitable. Watch the video below, or continue reading, for three reasons why restaurant owners must know the prime cost formula.
Here are 3 reasons restaurant owners must know the prime cost formula:
Number 1 - It allows you to set your food and labor cost targets. You can set your numbers based on your quality of product, your style of service, where you're located, and how to balance your food cost and labor cost. For example, you might have a high labor cost because of the style of your restaurant service, so you have to run a lower food cost. And vice versa. It depends on your goals.
Number 2 - knowing your prime cost helps you identify your challenges. After you set your targets, when you get your profit and loss statement, you can compare it to your budget and see where you hit and where you missed. This shows you where you need to focus in the restaurant and what areas need systems.
Number 3 - Use your prime cost as a guide to make corrections. Proactively manage your restaurant based on your prime cost. If you missed your food or labor cost targets, you can go back and see what systems you put in place that your managers aren't following. You can retrain managers on the systems and hold them accountable to get your business back on track. Or you can identify where you need to put new systems to hit your prime cost target.
Instead of getting your P&L and seeing a loss you have no way to recover, use your prime cost to set goals and make corrections. It gives you a path to get back your profits. You get to change your future! That's why it's important to know the prime cost formula and your restaurant's prime cost.
If you would like to learn more about the importance of systems and how to run a restaurant, read our free special report, Is Your Food Distributor Screwing You? 5 Things You Can Do Now to Lower Food Cost. Download it here. Be sure to visit my YouTube channel for more helpful restaurant management video tips.
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