Prime costs are combination of the Cost of Goods Sold and Payroll. In more detail, the percentages look like:
|Food Cost||27% to 33%|
|Wine Cost||27% to 46%|
|Liquor Cost||14% to 31%|
|Beer Cost||10% to 25%|
|Other Beverage Costs||10% to 25%|
|Payroll||25% to 35%|
Total prime costs should run between 60% to 69% of sales. The closer to 60%, the better. Realize that each restaurant is different from the next. For example, a steak house could have a high food cost and low payroll cost. On the other hand, a pasta house could have a low food cost and high payroll cost. Prime costs are a very important ratio for monitoring a restaurant. If an operator consistently has a prime cost in excess of 69%, the odds are that the operator is losing money. However, there are some exceptions. Some restaurants have a high prime cost of 70%-72% and still make a nice profit. These restaurants are able to do so because of high volume business and low rent.
Lowering the cost of running the restaurant is easier said than done. The sooner an operator can identify a problem, the quicker the problem can be remedied. Taking the time to run weekly statements will result in significant savings.