Restaurant management is a complex and multifaceted process that requires taking into account many factors to achieve profit and sustainable growth.
One of the key indicators that is often underestimated, especially by those new to the restaurant business, is the cost price, or, as it is often called, prime cost. Restaurant prime costs serve as a benchmark for assessing the efficiency of the establishment, which makes it an important part of management accounting.
What is prime cost or cost price?
Cost price, or prime cost, is the sum of all direct costs associated with the production and sale of food and drinks in a restaurant. This indicator includes two main components:
- cost of goods sold — the cost of purchasing ingredients, food and drinks used to prepare dishes. This is everything that is needed to create the final product served to guests;
- labor costs — the wage fund of employees involved in the preparation, maintenance and management of the restaurant. This component includes not only salaries, but also taxes, bonuses and additional benefits provided to employees;
- prime cost, calculated as the sum of COGS and labor costs, allows restaurant owners and managers to estimate real sales profit and manage the profitability of the establishment.
Why is it important to control prime cost?
Effective cost management allows you to improve the financial results of the restaurant by optimizing expenses and rationally using resources. Here are some reasons why prime cost is a fundamental element of successful restaurant management:
- Cost control — constant monitoring of prime cost helps to identify unjustified expenses and optimize them. This applies to both purchases and the wage fund.
- Increasing marginality — by properly managing the cost, you can maintain a balance between the quality of dishes and the cost of their production, which allows the restaurant to earn more.
- Making strategic decisions — knowing the cost helps managers make informed decisions on pricing, menu creation and selection of suppliers.
Managerestaurant offers services aimed at effective cost management, including optimization of food and personnel costs, data analysis and implementation of automated solutions.
