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What is Industry Standard Cost and How do You Calculate it for Your Restaurant

What is Industry Standard Cost and How do You Calculate it for Your Restaurant San Diego Accounting ServicesBy Michelle Flores Gonzales, COO & VP, Flores

One of the top questions we get from all new customers or people who are thinking about opening a restaurant is, what should my industry costs be or what are my standards? The basic formula to calculate a restaurant profit and loss (P&L) or restaurant profitability is 100%, minus 30, minus 30, minus 30, which would give you a 10% bottom line.

100%
-30% (Cost of goods sold)
-30% (Labor costs)
-30% (Operating Costs)
10% (Botton line)

The 30-30-30-10 ratio goes towards 30% cost of goods sold, 30% labor, 30% operating cost, which would leave you with a 10% bottom line. Now, obviously the goal is to get that 10% as high as possible so that you have more money in your pocket and your business is a more profitable one.

Two Biggest Cost Centers

The two biggest cost centers to operate a restaurant are your cost of goods sold and your labor costs. Those two components comprise what we would call prime costs in the restaurant industry. 

60% Prime Cost = 30 cents (Food costs) + 30 Cents (Labor Costs)

The industry average is a 60% prime cost, meaning for every dollar of food sold, 30 cents goes towards food costs and 30 cents would go towards labor cost. Now, being in the state of California, labor is getting tougher and tougher to manage, so it’s critical that restaurants are using some sort of tools to help them manage their prime cost. We like to recommend labor forecasting tools or recipe tools to help you with plate costs so that you know for sure what your expenses are coming in so that when you are putting a product out the door, you’re still meeting those prime cost margins of at least a 60% or lower.

Restaurants need to Budget

One of the key tools that restaurants can do is budgeting, and that’s where Flores comes in. We like to sit with our clients, go through their annual budget, really strategically plan out those prime costs to make sure that they are meeting industry targets or lower, or better, so that every penny counts in the restaurant industry and that every penny can go towards your bottom line so that you’re running a more profitable and successful business. While, at the same time, providing quality and great customer service to your guests as they come through the door. 

Flores is the experts in the hospitality industry and we want to sit down with you to make sure that you are going to have a profitable business. You need to call Flores.