If you're serious about making more money, you've got to know how your biggest, most volatile costs are running, not just once a month, but at the end of every week. In regard to controlling prime costs, once a month is just not good enough.
The most profitable restaurants I've ever worked with all track their prime costs on a weekly basis. They don't wait around until their monthly or 4-week P&L is prepared to find out what happened. And for their efforts in preparing a weekly report, they are rewarded handsomely on their bottom lines.
Many of the large chain operators, prepare a full Profit & Loss Statement each week. A weekly P&L is not feasible for most independent operators, but knowledge of sales and prime costs each week is a must for any restaurant serious about controlling their biggest and most volatile costs.
What Is Prime Cost?
Prime cost is cost of sales (food & beverages) plus all payroll related costs, including gross payroll of all management and hourly personnel and payroll taxes, benefits, worker's compensation, etc.
Prime cost usually runs 60% to 65% of total sales in a full service restaurant and 55% to 60% of sales in a quick service restaurant.
You want to know your prime cost as frequently as possible. If you learn about a problem with hourly payroll or liquor cost from your monthly Profit & Loss Statement what can you do about it then? How long has the problem been going on? By the time you get your financial statements you're probably half way through the following month and it's old news. Think of all the money you're probably already lost. If you know what your prime costs are at the end of every week, when something is out of line, you're in a much better position to react quickly, cut your losses and get the problem resolved.
The most profitable restaurants in the country, know their food and beverage costs at the end of each week. They also know how many days worth of inventory is sitting on the shelf, as of "last night." If there's a problem, they know about it quickly and can respond accordingly. Weekly food cost reporting changes the entire culture in the kitchen because of the awareness and the sense of ongoing accountability it creates.
Another benefit of weekly food cost reporting is that it also makes people very cognizant of their inventory levels. It's very common for restaurants to lower their food cost by 2 to 4 percent of sales in just a few weeks by calculating food cost and tracking inventory levels every week.
The first step in calculating your weekly food cost is to keep a record of your food and beverages purchases every day on what some operators refer to as an Invoice Log. An invoice log worksheet is included in our downloadable Prime Cost Worksheet file. It's just a process of posting your food and beverages to the report each day and indicating what amounts are chargeable to your specific food & beverage categories.
Don't forget about posting credits for any product returns or invoice adjustments and be sure to log in cash paid-out transactions for food and beverages purchases too. At the end of the week you've got your total purchases of food, liquor, beer and wine.
Hourly labor cost should be calculated daily. If your POS or other timekeeping system calculates this for you, great, then you can just enter your hourly labor cost daily or at the end of the week. If you've don't get your daily labor cost daily, we've included a separate worksheet within our Prime Cost Worksheet file so you can easily calculate it. You just list your employees in the same order that you can get their daily hours and then indicate each employee's hourly wage rate. Each day you can enter the hours worked and the worksheet calculates hourly labor cost.
Below is the Weekly Prime Cost Worksheet. Enter the daily sales figures from your Daily Sales Report and your ending inventory from an extended Inventory Count Sheet. The beginning inventory is last week's ending inventory. You can also add the number of covers served each day to get your daily and weekly check average.
Here's the completed Prime Cost Report comparing the current week results with the prior week:
Many restaurants end their week on Sunday and have the report prepared by noon on Monday. Inventory levels are usually at the lowest level of the week on Sunday night (Monday morning) so there's fewer products on the shelves to count.
Some restaurants that have the managers prepare this entire report. Others have a bookkeeper or clerical person assist in some way on Monday morning.
One suggestion. To make it easier to post invoices, have your vendors, particularly the broadline distributors, give you separate invoices for each major product type. Tell them you want a separate invoice for just your food items, a separate invoice for cleaning supplies, an invoice for paper goods and so on. This makes it very easy to log invoices into their correct categories without having to break out the categories manually. Also have them break down your food items by your food categories like meat, seafood, poultry, grocery, etc.
If you're serious about controlling your food and beverage costs, knowing where you stand each week will definitely help. It will be well worth the effort when you notice the difference on your bottom line.
Download Prime Cost Worksheet