What is Prime Cost?
Prime cost is the cost of your food, beverages and payroll-related costs, including gross payroll of all management and hourly personnel, and payroll taxes, benefits and workers' compensation. Prime cost usually runs 60 percent to 68 percent of total sales in a full-service restaurant.
Why is Prime Cost Important?
Knowing and keeping track of Prime Costs not only allow a restaurant to accurately price their meals, but also creates awareness to identify problems quickly and with minimal loss to the business. It also helps create a culture of accountability among staff and will make management and owners aware of theft.
How to calculate Prime Cost?
+ Food Cost
+ Beverage Cost
+ Salaries & Wages
+ Payroll Taxes & Benefits
= Prime Cost
How often should you compute Prime Cost?
The most profitable restaurants in the country know their food and beverage costs at the end of each week. They also know how many days' worth of inventory is sitting on the shelf.
Many restaurants end their week on Sunday and have the inventory report prepared by noon on Monday. Inventory levels are usually at the lowest level of the week on Sunday night (Monday morning) so there are fewer products on the shelves to count. It is preferable to have two managers, or a manager and a bookkeeper or other clerical person prepare the inventory report. For control purposes kitchen staff personnel, including the chefs, should not be involved in the inventory count or preparation of the inventory report.
Is your restaurant using a Four Week Accounting Period?
If not, see the tab "Four Week Accounting Period".