The Ultimate Guide for Managing Your Prime Cost

Apr 12, 2016 4:44:29 PM / by Matt Thompson

One of the hardest parts about operating a restaurant is controlling costs. A lot of things seem out of your control, especially as a new restaurant. For example, you have to buy enough stock of everything to meet demand, but not too much where the food becomes a waste of money as it spoils. Throughout the year, costs build up: dishes, silverware, tablecloths, chairs, boosters, and more. And all of this eats into your prime cost, which is a simple equation:

Prime Cost = Food Costs + Labor Costs

It’s what running your restaurant will cost you and it’s essential you have consistent business processes in place to manage the pieces of your prime cost to run a profitable restaurant. The first simple habit of success you should master is managing food costs.

Controlling Your Food Costs

No one likes to feel they’re out of control of their dining room, their kitchen, or their entire restaurant. Better processes ensure you have control of every aspect of your business.

  • Take regular inventory. This process allows you to track what’s going bad faster than you can use it so you can order less of it next time and save money. It also lets you keep an eye on possible theft.
  • Know price increases and decreases. Suppliers change their prices constantly and sometimes they don’t notify you. You end up paying a much higher price than you budgeted for certain items. When you get updated quotes from your suppliers before you order, you can make smarter decisions about what you’re spending your money on.
  • Measure sales against spend. Making more than you spend is how successful businesses pay the bills and increase profits.
  • Track credits and rebates. Getting bad items or the wrong items on an order is commonplace for your kitchen. But you’re probably not tracking the credits owed to you by suppliers and making sure you get paid. You could have thousands of dollars worth of credits and rebates waiting to be redeemed.
  • Streamline ordering. Move your existing order sheets online and order from you existing suppliers online.

Whenever you can, use apps and software to go paperless with your processes. It pays for itself and makes managing food spend much more efficient.

Controlling Your Labor Costs

A significant part of maintaining a manageable prime cost is keeping an eye on labor. With minimum wage on the rise, it’s a careful balancing act. Having too many employees on the floor can eat into your prime cost if there isn’t enough business to support it. Likewise, the cost of those employees’ taxes, healthcare, and other benefits can put stress on your prime cost.

What many managers don’t realize is that lack of scheduling can lead to tragic consequences for you, for your team and for your business. Yes, we all know over- or under-scheduling employees can hurt your prime cost. But the ability to effectively manage scheduling with little time or stress on your part is vital to keeping your prime cost in a happy spot.

The stress of scheduling and the ability of human error hurts your restaurant’s profit. Scheduling intelligently decreases anxiety and mistakes. Smart scheduling is about analyzing your stats to have the right amount of staff at the right time. This gives your restaurant the ability to capture all your sales potential and build raving fans for your food and experience.

Along with the right amount of staff on the floor, a scheduling balance also comes from having enough staff to capture all possible sales - without wasting hours. Likewise, maintaining and encouraging a productive team is essential to maintaining low labor costs. This is done through ongoing training and team-building. How do you get this balancing act right to make money in the restaurant business? It all starts with a sales forecast.

Sales Forecasting Is Your Friend

Creating a sales forecast is all about planning out your year in advance. These are the steps to create your sales forecast and effectively manage your labor costs.

  • Look back at last year's same time period sales performance. Seeing the months you had higher sales will help you plan when to spike up your staffing and when to scale back. This will also help you analyze what changes you need to make in your scheduling strategy if there are patterns of high labor and low revenue costs.
  • See if there are any special events or holidays coming up. Looking back at your sales performance isn’t the only way to figure out staffing. Look at the holidays coming up or special events happening in the community. For instance, if there’s a concert with a big headliner one night, you’ll want extra staffing before and after the concert to handle the traffic.
  • Look at your planned marketing activities that will spike sales. If you’re planning big marketing pushes for certain times of the year, such as a great coupon or a radio ad, then you’ll need to schedule a little heavier for the anticipated traffic during the ad special.

Once you understand what your sales forecast is, you can create a schedule template.

Create a Schedule Template

What is a schedule template? It’s a placeholder schedule without employee names inserted. A schedule template should have all the positions required to meet the forecasted demand with in and out times. Use this document as your ideal labor expense goal for the year. Your sales should equal your forecast in this template, making your scheduled labor dollars ideal. Of course, this would only work in a perfect world, but having this goal in front of you will help you plan accordingly when you have a day of over- or under-scheduling.

Here are some strategies to use your schedule template successfully:

  • Schedule the right people at the right time. This is the most basic first step. You wouldn't want to have an employee roster full of new people for one of the busiest nights of the year. Schedule the employees who can meet demand when demand is needed. Just be careful of burnout - it’s tempting to schedule your all-stars all the time, but you need to give them breaks and work with their flexibility so they’re happy to stay on.
  • Mix strengths and cross train. Since you can't have all all-star employees all the time, you need to learn how to mix strengths on different shifts. Along with that, use the slower nights as an opportunity to cross train. Have the all-star employees work with newer employees to create happy customers and increase sales. This benefits everyone - the new employees will get more tips with happier tables, the restaurant will see more sales, and the all-stars will be able to rely on other employees to take their shifts.
  • Use staff skills to your advantage. I love the saying "aces in their places." It’s perfect when you’re working on scheduling because you want to have your best staff in their best positions for your heaviest sales volume periods during the week. While you want to work with the all-stars’ flexibility, be sure you have the heavily skilled employees available during the busiest times of the week, such as Friday and Saturday nights.

Sales forecast? Check. Schedule template? Check. Think you’re done managing labor costs for an all-around stellar prime cost? You’re not quite finished…

You have to measure what’s working and change what’s not. Assuming your sales forecast will work for the entire year, without monitoring it, can hurt your prime cost. To track your results, complete end-of-the-day reporting to see how well you did and where you may need to adjust for the rest of the week. Use the information in the report to compare the actual sales and labor dollars to the forecast. With the data, you’ll be able to evaluate and adjust your forecast and your templates.

A Happy Prime Cost is Good for Everyone

Managing your food costs and labor costs will do more than just help you maintain a happy prime cost. It will also benefit your staff and your customers. When your staff knows you are working with them to meet their scheduling needs, you aren’t under- or over-working them, and you’re giving them processes that will give them more time and money…

...they’ll be excited to increase sales and provide an excellent customer experience.

In turn, your customers will notice employees are happier and providing a great experience for them. This domino effect can increase profits across the board and help improve your prime cost - all because of tracking food costs and managing scheduling intelligently.

Remember, restaurant profits are made or lost ONE shift at a time.

Bio: Joy Ugi writes about restaurant technology, operational efficiency, and food purchasing trends for Orderly - the #1 restaurant app for online ordering, paperless invoicing, and painless inventory.

ShiftNote’s all-in-one schedule app makes it easy to create, communicate and manage your employees’ schedules. We keep all your scheduling data in one spot so that you can create better schedules using time-off requests, availability as well as sales forecast data. No matter what size restaurant operation you are, ShiftNote gives you the tools to manage your staff and control your labor costs.

Tags: Employee Scheduling, Industry News, Tips & Ideas, Product Updates

Matt Thompson

Written by Matt Thompson

Matt has let his lifelong passion of food and people lead him to 15 amazing years as a restaurant manager and another 9 years working as a Director with a major food service distributor. He has channeled this passion to help create and run ShiftNote. When he's not dominating the food service industry, he's spending time with his 4 children and cheering on the Tigers as a Mizzou Alumni.

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