There Go the Prime Costs!

prime costs

Restaurant RockstarsOccasionally in this column, I deviate from Service topics and focus on profit. After all in this most competitive business; your restaurant is either crushing it, getting crushed or somewhere in between. I was obsessed with profit (not at the expense of quality or service) when I ran restaurants and now, I’m passionate to share my knowledge and years of experience with other operators and managers. After all, if you’re not crushing it, what’s the point?

I work with many restaurants and collaborate with other professionals across the hospitality industry. One thing I continually see and hear about are the sheer numbers of operators not taking regular inventory or closely analyzing food, beverage and labor costs. It doesn’t seem to matter if the restaurant is just starting out or has been around for years, the trend is evident. This is crazy! It’s like feeding hundred dollar bills into your shredder several times per week.

Even if you have steady business or lines out the door every night, this does not mean you are maximizing profit. You could be leaving thousands of dollars a month on the table so to speak. Food and labor represent your two biggest monthly expenses and there are common abuses of both in this business, so why not take the time to dial these in to maximize profit?

Every restaurant has what I call their “Sweet Spot” for both food and labor costs. This will vary based on your concept, menu, price point, expenses, etc.., but it basically means that you’re optimizing menu profit item by item, category by category (yes, even drinks) and that you are efficiently scheduling labor day by day, adequately staffing to meet demand with quality, yet monitoring that moment of truth when business slows and extra labor is now costing you money.

On the food side, far too many restaurants have a significant spread of profit in each category. For example, one appetizer might contribute a $3 profit while others contribute $5, $8 or even $10 or more. Entrée profit might swing wildly between a $7 profit to $20 or more depending on the concept. Problem is, in many cases, lower profit items might be your most popular, taking sales from your higher profit items. The point I’m making is a menu should be designed with variety and appeal to the customer of course, but with a focus on profit where each item in each category contributes a very similar if not equal profit with limited spread. If this is done correctly, you don’t care what’s selling as long as you’re moving all the merchandise and you don’t have a waste, spoilage or theft issue. You wouldn’t know any of this if you haven’t costed out each and every dish right down to the garnish. These things are easily done, yet few restaurants look at their menu with this emphasis on profitability.

Speaking of Inventory, you wouldn’t know what your true “food or beverage costs” are without taking regular inventory, and know that accuracy of the price data entered and the calculations you make are incredibly important to this exercise. I always recommend that restaurants start by taking inventory a minimum of three weeks in a row until they arrive at a consistent cost percentage for each.

Winter Fancy Food Show October 2018 728×90

For example, you might calculate a 36% food cost week 1, followed by a 30% and maybe 33% in week 3. In this scenario, the restaurant has no idea what its true food costs are. The same is true for beverages. All the while, this restaurant continues to lose money day by day due to inefficiency, waste, spoilage or even worse, theft.

Once you find your “Sweet Spot” and stay there consistently, you may then resume a month end inventory. And don’t confuse food cost with profit. Many operators mistakenly believe that a high food cost is bad. Not necessarily. Higher cost items in most cases also bring a higher profit if priced correctly or what the market will bear, and you take profit to the bank, not food cost. A lower overall food cost comes from efficiencies, cash cows, solid ordering and sell-through.

Talking labor, there are numerous potential abuses. In my early days, I once had staff ciocking each other in and out even when they weren’t working. In one of my concepts, I had 52 employees and I noticed that as many as half of these would routinely clock in five or ten minutes early and then pour themselves a soda and stand around chatting with other staff before beginning work. All of these situations seemingly innocent or not, were adding up to thousands of dollars in lost profit until I created systems to stop these practices and dial in my schedule and payroll.

So the bottom line really comes down to “systems” that give you the operator knowledge and control of your business. It takes a little homework up front, but once your systems are in place, you can then focus on the other 1000 details of running your restaurant.

The piece of mind you’ll have knowing you are maximizing your profit and pleasing your customer is priceless.

Roger Beaudoin
Roger Beaudoin is the founder of the Sales Stars Server Training System, Author of Rock Your Restaurant, a game-changing guide to Restaurant Finances and Creator of The Restaurant Rockstars Academy. He is a successful restaurant entrepreneur who has founded and operated 4 restaurants/hospitality companies over the past 22 years. He recently sold the Matterhorn SKI BAR in Maine, a seasonal restaurant and bar that generated over $1 MILLION dollars sales in just 4 months, with double the Net Profit of the average full-serve restaurant. While running The Matterhorn it was named “BEST SKI BAR USA” by Skiing Magazine and “Classic SKI BAR” by SKI Magazine, as well as receiving restaurant accolades from the New York Times, Boston Globe, Framers Travel Guides, Powder Magazine, Yankee Magazine and other publications over the years. Roger is a Speaker at industry events, Host of the Restaurant Rockstars Podcast and is frequently interviewed as a Guest Expert on other industry podcasts as well.In addition to providing turn-key restaurant Staff Training and Financial systems, Roger Coaches and Consults to restaurants of all types. As more than 50% of restaurants fail, he has a deep passion for helping new restaurant owners not only survive but knock it out of the park! (There is no reason for them to make the same mistakes he made 20 years ago when he started his first restaurant). With over 20+ years in the business, he is a genius with restaurant analytics, branding, training, systems and efficiencies and uses that expertise to help restaurateurs create not just restaurants, but BUSINESSES that ROCKS PROFITS!