These three costs are the pillars on which your profitability is built and if you manage them correctly, your business will thrive. However, the first step in managing them is to understand them and to understand what these costs should be. In an Irish Pub with revenues of approximately $1.5M, operating at a 55%/45% food to beverage ratio, these costs should look as follows:
Food Cost 30%-33% of food revenues
Beverage Cost 24%-29% of beverage revenues
Labor Cost 24%-28% of total revenues
Depending on your food to beverage ratios, your combined food and beverage cost of sales should be between 27% and 31% of total sales. Adding Labor Cost to this, the total of your Prime Costs should, under normal operating circumstances, lie between 51% and 59% of total sales. The following graphic should make it clearer for you:
|Total Annual Revenues|
|Food Revenues @ 60% of Total Revenues||Beverage Revenues @ 40% of Total Revenues|
|Food Cost @ 31% of Food Revenues||Beverage Cost @ 26% of Beverage Revenues|
|Blended Food & Beverage Cost of Sales $|
|Blended Food & Beverage Cost of Sales %|
|Labor Cost @ 16% of Total Revenues|
|Total Prime Cost|
|Total Prime Costs = 55% of Total Revenues|
Understanding the Components of Prime Cost Management
Poor performance in Cost Management rarely has a single cause and therefore any solution has to examine and address all possible causes. After understanding where you should be on your Prime Costs, these are the questions you need to address to begin to resolve any issues:
Food & Beverage Cost
- Is my retail pricing correct?
- Is my menu sales mix causing an issue?
- Am I paying too much to my vendors for certain items?
- Are my portions too large?
- Is there a lot of waste?
- Is theft happening?
- Are employee food and beverages being accounted for?
- Is there too much shrinkage on certain proteins?
- Am I carrying items on my menu that are too expensive to stock?
- What category of my employees is causing the issue?
- Is there overtime being paid?
- Are employees clocking in and out as they are supposed to?
- Am I scheduling the right number of people for the pattern of business?
- What is the split between my hourly labor cost and my management cost?
- Are my pay rates in line with industry practices?
- Are my payroll taxes abnormally affecting labor cost in some way?