Quick Study Course to Lower Your Prime Cost 3 - 6 Points in 2020!
Thank you for signing up for our Quick Study course.
This 3-part video-based course was presented by our friend David Scott Peters over a 3-week period beginning December 19th and concluded with a live webinar on January 6th.
These lessons are a sneak preview of our upcoming online workshop, "Take Back Your Budget: The Key to Your Profitability", which we'll be offering starting January 14th, 2020.
If you happened to sign up late for this course, or didn't get a chance to view the previous lessons, click the links.
Jump to Part 1
Jump to Part 2
Jump to Part 3
Quick Start Course Wrap Up & Live Webinar
Quick Start Course - Part 3
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| Question 1: Looking back over the last 12 months to develop a budget, what or how would I need to adjust the budget if my minimum wage increased from $12/hr to $13/hr for the next 12 months? | ||||
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| David's Reply: Calculate the % increase. Then increase each position's actual wages by that percentage. This is assuming that you will be giving all hourly employees the increase when they are earning over the minimum wage... which is what most of us will have to do. How do you tell a cook at $13, that earned their way there that all the new people just caught up to them? Does that make sense? | ||||
| Question 3: I operate two pizza restaurants. We don't have any high-cost key items except wings and maybe lasagna. Should we do a key item tracker for just these? The restaurants runs ~65% prime cost, but has been profitable for the owners for 30 years. Looking forward to making a lot more money in the coming years. | ||||
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| David's Reply: I've used a key item report for french fries! Many fast food units use them for soda cups. It's anything and I mean anything you don't want stolen. It does not have to been high cost items. I hope this answers your question. Now regarding prime cost... if your sales are 850K or higher... there's 10 points min to go after and in fact, with pizza, 50% prime cost is very obtainable. Thanks for your question. | ||||
| Question 4: Great lesson! When you talk about prime cost total having a mix % you showed different scenarios for COGS/Labor to equal 55%. If we make less than 850k, would that % change? How do you tie in fixed costs (rent/utilities/monthly service fees etc). I know fixed/variable costs % are listed under #5 in the 7 steps. Do they fall into the 55% prime cost or is it separate? If it's separate, how do you incorporate that into the budget? Also, because we own a seasonal business, I plan to implement these steps fresh for the season. Should I be planning based on forecasted or only from last years sales numbers? Thank you. | ||||
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| David's Reply: Yes, my goal is a 55% prime cost or under when you do $850,000 a year in gross sales or higher, and a 60% prime cost when lower. But that is not to say that a 55% or lower isn't possible on lower volumes, its just much harder. Other expenses are not a part of the prime cost calculation. That's why you need a budget! So to answer your questions, they are listed just like your chart of accounts are listed. Your last question regarding seasonality, yes, if there are huge spikes in sales up and down due to time of year, you would use last years month for month. For example June 2019 to forecast for June 2020 and then adjusting sales up or down based on trends, new pricing, new menu, marketing efforts, etc. I hope that helps! | ||||
Quick Start Course - Part 2
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| Question 1: How do you know what your cost per labor hour should be? Are there industry averages? | ||||
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| David's Reply: I don't know of any industry averages. The way I do it starts with your labor allotment numbers to give the numbers to work with. Then you can see where your inefficiencies are. My magic number is looking at where you allotment tells you where you need to be to be on budget. Let's say to be on budget is says you need to operate at $120 per labor hour worked in your kitchen. Then let's assume you run an average food ticket of $20 per person. Simple arithmetic would tell me I am wasting a lot of man hours because that would translate into only 5 entrees and hour. | ||||
| Question 2: I have 5 locations, 2 concepts, $15,000,000 in annual sales. Started after a career in the semiconductor business, no restaurant ownership experience. 300 employees. 8 years in business. You mentioned a 'couple of things 'I already do every day'. I don't do those things. Don't even understand why I should or how to do them. Can you refer me to a more basic tutorial? We're so big now we desperately need systems in place. We take home about 9% overall, so, not bad. I'm an older guy and don't have the energy to do this myself, but need to put the systems in and manage them. Thanks for listening. | ||||
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| David's Reply: First of all... you have built a fantastic company. It's impressive. Ok, so my hope for you with an average of 3M a store, we should be shooting for about a 50% prime cost and even lower (I just don't have enough information). Regarding the 9% overall profit margin... I really want you to imagine a 15 - 20% margin. On the low end, that's life-changing money! Now I don't present that with the intention for you to look at what you're doing in a negative light, but instead, I want you to get excited about the opportunity in front of you... dropping about 1M to your bottom-line by implementing systems, leading your team and holding them accountable to those systems... all without increasing sales. If that doesn't motivate... I'm not sure what will. ?? (Oh yeah... its hard work) The short answer to your question regarding a more basic tutorial... at the end of this free quick-study course we will be offering a more in-depth 3 week live online course with followup Q&A sessions. I think this will be what you need. I will also be giving the systems you can implement right away. Now to address the I'm an older guy and don't have the energy comment... I DON'T want YOU to do the work. I want you to set the agenda, ensure the team learns the systems and want you to ultimately inspect what you expect and hold people accountable to those systems. Your job is to lead the process, not do the work. So I want you to take the excuse off the table of why it can't be done. The next thing is, its also good for us as business leaders to recognize our own strengths and weaknesses. If you know you still may not be ultimately the right guy, we may need to identify one person in your team that is that person. Please note they may be an assistant manager, not a GM. Let's just say there's only 900K on the table and it cost you 100K in a large salary to find those profits? You get the picture. If someone does a crappy job and only pays for themselves, the risk is low. So here's my suggested course of action: 1) You want all 4 lessons 2) If you want a more in-depth approach you sign up for the follow-up course 3) You attend each of the lessons live with all your key managers in one room, not the recording 4) You attend the follow-up Q&A sessions live with all your key managers, so they can ask their questions and remove the excuses of "I don't know how." 5) Then if you still need some help, we can jump on a call. I will be happy to help you develop your plan for success. | ||||
| Question 3: Great stuff, thanks David! The first 2 systems were easy to understand and implement. I am confused about the purchase allotment system. Forecasted food sales-good, actual food sales-good, but how did you calculate food allotment, raw food cost %, and estimated order? | ||||
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| David's Reply: Thank you my friend. Yes, the purchase allotment has a lot going on in it. They are running totals. Actual food sales plus forecasted from the first to 2nd delivery day time budget food cost will give you how much you are ordering in total. Subtract that from what you have already ordered to date and you get your estimated food order. Does that make sense? Please know that I have this spreadsheet all built out and will be offered in the next course. Hope this helps. Let me know. Thanks. | ||||
| Question 4: Very well explained and exactly what I've been looking for and been wanting to implement into my business! My husband and I own on a seasonal bar & restaurant on the beach that is very weather dependant. 4 years ago we started as just a bar (80% alcohol/20% food sales) because we didn't have a proper kitchen and served smoked bbq right off the grill. Over time because of the demand for more food on the beach, we finally built a commercial kitchen and had our first season last summer as a new brand bar and restaurant and averaged 58% alcohol/42% food sales. With continuous growth in gross sales every year, I am more determined to implement systems. But because we are seasonal and weather plays a huge factor on a day to day basis, I don't know where to start with forecasting for the new season. Last year it feels like "year 1" as a restaurant so I have some data to work with. So my question is, where do I start? How do I figure out an annual labor target to work from? Do you offer the type of spreadsheets that you've shown? What tips do you give for "on-call" staff based on the weather? | ||||
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| David's Reply: Knowing this is exactly what you've been looking for makes my day. Thank you for sharing. Let me try and answer your questions and give you a little insight. 1) Since you have grown the food portion of your business, do know as it grows, odds are your labor costs are going up because it takes 1 bartender to sell $1,000 in an hour in booze and it might take 3 cooks on the line to sell $1,000 in food. The good news is there is a point in time where the food sales increase will soften this blow and once you pass your break-even point as a restaurant, every dollar over break-even is at a very large profit margin. 2) I have a Google spreadsheet called Restaurant Sales Forecast Generator that will help with forecasting. For a seasonal business, I would usually recommend using last June to forecast this June. For a more level sales business, I recommend using the last full month. This system will give you your average Monday - Sunday and whatever projected increase or decrease in sales will be a part of that. You then do your very best to manipulate each day of the month based on your best guess, caterings, etc. This is just a start. The beautiful part about this is the purchase allotment system fixes itself every day you enter actual sales. When it comes to labor, as soon as you know there will be a change in projected sales you change it in your systems to let you see what changes you need to make to your labor. Now let me give you the bad news... it's the restaurant business, it's not easy and it's impossible to have a foolproof system make up for the fact that rain clouds come in at 8 am in a shore town and the whole island decides they aren't leaving their hotel rooms. (Full disclosure, I grew up in such a town in Margate, NJ). 3) Now I want you to watch lesson 3! This is where I will go into detail and explain the budgeting process. If that does not answer your question, reach out to me again. In fact, I would be more than happy to get on a call with you. 4) Regarding do I offer the spreadsheets shown? The short answer is yes and no. LOL. No, you cannot find them on my site yet. Yes, they will be available as a part of the 3-week online workshop that follows this quick study course... but only here for RestaurantOwner.com profit tip subscribers/members. I hope I answered all of your questions. Again, if we need a deeper dive after the next lesson... we can jump on a call. | ||||
| Question 5: Another great video! Managing labor cost is an ongoing challenge. I am guilty of having the same schedule for a month, even two, without changing. I do send folks home when it's slow or add additional staff when I anticipate increased volume, but I am definitely in need of creating an annual budget/forecast to better manage labor costs. Looking forward to the next video! Now, what would I do with $60K? Clear out my remaining debt from opening the restaurant, which would create a (gasp) profit! | ||||
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| David's Reply: Thank you for your kind words. Always appreciated. Look, I feel your frustration with scheduling. The reason we want to just copy a schedule one week to the next, or in your case month to month, is writing a schedule sucks. LOL! We spend two hours crafting what we think is going to work only to discover we need to spend another two hours correcting what we wrote. But as you learned in the lesson, it robs YOU of YOUR profits and really doesn't give the guest a better experience... often its the opposite. The next big lesson is when you can give up writing the schedules and be the one who approves them week to week! This will be your growth as a restaurant owner and that's what I am excited to hear from you soon. Yes, stay with me... the next video goes into the budget process. This is where we will find YOUR number. I hope you keep me posted on your progress. This is the kind of thing that makes me get up in the morning. | ||||
| Question 6: What I would do with $60k? Pay down the mortgage, without a doubt! I would be debt-free in 5 yrs! Wouldn't that be great? I am dedicating this year to Food Cost control and Labor control like no other year. 5 years is not that long. | ||||
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| David's Reply: Debt-free sounds awesome. Great goal! Food and labor cost control as your focus is fantastic! That's prime cost in 100% control of management on a daily basis. It's a direct report card on how you purchase and utilize product and how you hire, train, schedule and fire staff. I hope you'll join us for all the lessons. There's more. Thanks for sharing. Cheers! | ||||
| Question 7: David, is there a template available where I can download the spreadsheets you mentioned? | ||||
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| David's Reply: The short answer is yes and no. The no is you cannot come to my site and get them at this time. The yes is they will be included in the follow up online workshop we are offering after this quick study course for RestaurantOwner.com Profit Tip subscribers and members. Make sure you watch all three lessons and attend the live webinar on January 6th. We will give you all the details about the online course on that webinar. Hope that helps. | ||||
Quick Start Course - Part 1
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| Question 1: This was great!!! Is this video available for more of our staff to watch at a latter date? | ||||
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| David's Reply: Thank you for the kind words my friend! I greatly appreciate it. These videos will be available until the live webinar on January 6th. At the webinar we will present an opportunity to sign up for a live online seminar we are doing teach all of this in detail which will include all of the system templates. So please make sure you watch all three parts and attend the webinar. Cheers! | ||||
| Question 2: In response to your question, If I saved an extra $30,000 on food cost I would take a long-overdue vacation. I have not had a vacation since I opened my restaurant in 2014! | ||||
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| David's Reply: A vacation is a fantastic idea! It's good to get away to recharge and find your passion again. A part of this journey is implementing the systems which allow you to leave. On a personal note, the systems are the easy part... it's the people part that is hard. So if you can get people to do things 80% as well as you... you've hit a home run. | ||||
| Question 3: Thank you, David! I am looking forward to putting these systems in place however my question is: What if I have a chef who is not doing the ordering and the person who does the ordering does not do the cooking, can this system still work? | ||||
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| David's Reply: I am excited to hear about your progress and results... now let me do my best to answer your question. To start, I don't understand why you "chef" would not be the person who does the ordering. Is that because they don't do it well? Do they overspend? You don't trust them to do the job? You're a bit of a control freak? All of these can be addressed to help you feel more comfortable giving up ordering and the purchase allotment system is key to that. Another system would be to calculate par levels, but that's a much bigger topic for this email. With that said, no, it is not an issue who cooks and who orders. The key is holding whomever accountable to the budget. Hope that helps. | ||||
| Question 4: I presently own three fast-food Mexican restaurants. One unit does $1,300,000+ sales the other two $890,000+. Everything you said surely fits all three stores. I would like to hire a manager to manage all three stores using your methods in all areas of COG and labor. My husband and I are 65 and have been unable to retire. Always short of cash! Struggling to make payments and or payroll. As a consultant, do you have any suggestions? Thank you, I am looking forward to your answer and next video. | ||||
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| David's Reply: First of all... know you are both incredibly successful restaurant operators. Three locations all doing great sales. You should feel very good about that. Now regarding being 65 and unable to retire, plus always being short on cash... I would say you probably suffer a bit from "if you want something done right, you need to do it yourself," because so many in the past have disappointed you. The good news is, if you're ready for the message... there is plan. You've actually asked a very big question. One that I cannot just simply answer in a quick email. But lucky for us both, I have a speech I gave on this topic for you to watch where I will answer this question for you in great detail! Pretty cool, yes? https://youtu.be/ojLrcq8LRw0 | ||||
| Question 5: David, We are a Craft Brewery with an inside food truck, not a kitchen. Everything is cooked & served off the truck. We do have a prep kitchen. Food is 30% of our revenue. Craft Beer and beverage is most of the rest. We do a food order every Monday. But definitely need to tighten up in this area. We are going to put a system in place such as what you are talking about in 2020. | ||||
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| David's Reply: I'd love to see what your restaurant looks like. As you may know from my bio, I was one of the original brewpub guys in the early 90's. Love craft beer! Definitely look to tighten things up. I will tell you that one of your biggest areas for saving in the kitchen will be labor. Often with 30% of sales being food, your kitchen labor can chew up a ton of your profits if you don't pay careful attention. I'm going to cover some of the in lesson #2. Make sure you watch that one please. | ||||
| Question 6: My wife and I are both chiropractors. We opened a fine dining restaurant complete with grand piano, white table linens and a full service bar all set in a 1900's era historic building. We opened our doors September of 2016. Our original manager created a wonderful product but absolutely would not adhere to a budget. We had to sink in another $160,000 into the restaurant over the past three years. He is no longer with us as he retired-thankfully. Our problem has been finding another manager to complete inventory and calculate prime costs to get this restaurant in the black. I am looking forward to learning as much as I am able from your series to enable me to take the reins and lead from a position of knowledge. | ||||
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| David's Reply: I understand where you are coming from. While I don't have a magic wand to fix this for you, I do have some thoughts... 1) You need to start thinking like a restaurant owner, not an investor. This means, it doesn't matter if you ever work a shift, but you lead your team knowing you own the place and its going to be your way, period. That doesn't mean you are going to not be nice, it just means there are standards, you will train them on those standards and systems and they will do them or not work there. Start by running what I call a democratic dictatorship. You get everyone's input, but it will ultimately be what ever you decide. 2) I want you to watch a speech I gave in TX this past summer - https://youtu.be/ojLrcq8LRw0 This will give you a deep dive into what I think and how I would approach your situation. 3) You learn what needs to be done in your restaurant, not to do it, but to understand what your expectation are of you managers. 4) In a perfect world, I would train that manager from the people you have on your team... not hire an expert. The GM experts almost always show up in your restaurant telling you "that's not how its done." Make sure you watch all three recorded lessons and attend the live webinar... this should open your eyes to what you need. I hope this helps my friend. You are not alone. You are not the only restaurant owner to find yourself in this position. But you are going to take action! | ||||
| Question 7: Thanks for the video I would like to know more about food turnover average why it is important. Also, how does turnover affect waste and spoilage? | ||||
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| David's Reply: Thank for your questions. 1) Inventory Turns - why its important... first of all, what is food on your shelves? Money. Who's money is that? Yours! By increasing your inventory turns, you reduce the amount of product on the shelves, increasing your bank account to pay bills or yourself, you reduce theft because you can see all of your product, you reduce spoilage, have cleaner walk-ins and better health scores. 2) I am not clear on your question regarding waste sheets, but let me take a stab at it. Use your waste sheet everyday. Review the reasons food is being wasted; it is going bad, cooks and servers are making mistakes and so on. Then correct those mistakes that day! If you're asking how to compare it to your actual usage, you look at your variance. If your food cost is over $500. I would expect that at least 50% of that is on a waste sheet and you have proactively stopped those mistakes from happening next week. If the gap is much larger... your team is not using the waste sheet. | ||||
