Perhaps you have heard of prime cost for quite some time but were never quite sure what it was, or maybe you just heard about it for the first time. Either way, right here and now I'm going to explain to you what prime cost is, how to calculate it and what it should be.
Like pour cost percentage, prime cost is also a percentage metric that helps you measure how well your bar or restaurant is performing, and once again, if you aren't monitoring or measuring your numbers, you are failing to reach your full income and profit potential.
So let's not waste time chewing the fat. Let's get right into the calculation.
WHAT IS PRIME COST?
Prime cost is simply your COGS (cost of goods sold) + your payroll / total sales x 100.
Broken down in more detail, COGS generally include your food costs and bar costs for the month, although it could include anything else you sell, like retail items.
Payroll includes management salaries, employee wages, benefits, etc. Anything you payout to employees.
HOW TO CALCULATE PRIME COST: AN EXAMPLE
Let's do a quick and simple example to show you how to calculate prime cost at the end of the month on your P & L. If you would like to have more in-depth knowledge about analyzing your financials, you can check out this video on How to Read and Analyze Your P & L, which includes prime cost.
Month ending June 30th:
Total Sales = $100,000
Food Purchases = $19,569
Bar Purchases = $15,835
Total Payroll = $33,847
Prime Cost = $69,251
PRIME COST PERCENTAGE CALCULATION:
Total COGS ($35,404) + Total Payroll ($33,847)
_________________________________________ = 69.25%
TOTAL SALES = $100,000 x 100
This calculation was made easy since the total sales is an even $100,000, however, the calculation is always the same and it's quite simple when you follow the above formula.
WHAT SHOULD YOUR PRIME COST PERCENTAGE BE?
The example above is not uncommon, which is why I used it. Your prime cost should be around 60% which and most places we encounter are up around 70%. However, it will vary depending on exactly how much "full service" you provide.
And by that I mean the better dining experience you plan on providing, the more staff, or higher quality staff, you will need to have on, which raises your payroll, which raises your prime cost.
With that said, if you are providing an optimal dining experience, you should be able to charge higher prices to offset the high labor cost. Labor and payroll should only be high if the experience being provided is out-of-this-world, which means sales should reflect that.
Again, if you want to go deeper into analyzing your numbers, check out the video on how to read and analyze your Profit/Loss Statement by CLICKING HERE.
Best of luck, and cheers, until next time,