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:

Prime Costs

Total Annual Revenues
$1,500,000
Food Revenues @ 60% of Total Revenues Beverage Revenues @ 40% of Total Revenues
$900,000 $600,000
Food Cost @ 31% of Food Revenues Beverage Cost @ 26% of Beverage Revenues
$279,000 $156,000
Blended Food & Beverage Cost of Sales $
$435,000
Blended Food & Beverage Cost of Sales %
29.00%
Labor Cost @ 16% of Total Revenues
$390,000
Total Prime Cost
$825,000
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?

 

Labor Cost

  • 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?
Owner Insights
….in this economy, we can afford to go easy on our meal prices because they are partially subsidized by high beverage volume and low beverage cost.
Irish Pub Operator | TEXASView Owner Insights
Pub Facts

The Irish Pub Concept came about inn 1992 as the result of an initiative by Guinness Brewing Worldwide, who had watched the great growth of Irish Pubs in Europe during the late 1980's and 1990's.

We ask for your name and email address simply to verify you as a genuine user. Thank you.