Restaurants Run on Prime Cost even in a Pandemic

Prime cost? Just in case you are asking “what is prime cost and what should the target be”; Prime cost is the combination of labor expense and food cost as a percentage of revenue. This target for years has been 60%, although your target might need to be lower based on your location and type of food/beverage combination you might have.

If you did not know it, remember it; If you knew it, don’t forget it. I have work with many independent restaurant clients during this pandemic and for some reason several of them felt it was ok to throw prime cost out the window! Although the last eight months have been more than challenging, this was no reason to throw this calculation wayside. In some cases, the PPP loan rules made owners feel forced to keep a staffing level that would never fly normally. Others have failed to consider deliver cost in their prime cost, which has led to over staffing or underpriced menu items. In addition, waste! How do you control waste when we had a par ordering system that worked but now the sales are all over the charts?

All of these prime affecting items need to be looked at carefully during these pandemic restrictions. Think about increasing food delivery frequency so waste can be kept to a minimum. Revert to a review process with strict inventory and sales forecasting methods before any order. Look at your delivery cost and understand how much as a percentage of overall sales. When are deliveries heaviest? Can you adjust your item prices for the delivery programs? Are you staffed correctly considering the 15-30% cost of delivery? If you get support money from grants and other programs can you holdout hiring back and scheduling staff members in effort to prolong the funds use?

Knowledge is the key to your restaurant’s survival. Feel free to reach out if you could use a little help or someone to run your ideas by!