The costs involved in running a restaurant in UAE are pretty high. Right from the rentals to the Food costs and the Labor Costs, all of these add up to the operating expenses of running a restaurant in UAE. This is when the calculation of the Restaurant Prime Cost becomes necessary. The Prime Cost is a magical number for any restaurant; if it is low the profits will soar else you might be facing losses.
This article talks about in detail about what is restaurant prime cost and the steps for reducing the restaurant prime cost
What Is Restaurant Prime Cost And How To Calculate It?
Prime Cost is a key number for any restaurant as it helps you determine the grand total of the goods sold and the Labor Cost. It’s an equation you can use to manage your profits and ensure your restaurant’s prolonged success. Prime Costs include the food and beverage costs, also known as the Pour Cost as well as the Labor Costs.
To accurately calculate your actual Cost of Goods Sold, you begin with your inventory, add to it your total purchase for that period then subtract your ending inventory and add it to the Labor Cost, that is, the cost of wages paid to workers during an accounting period on daily, weekly, monthly, or job basis. It is important that you only add the cost of inventory items used in preparing a dish that was actually sold.
Calculate your Restaurant Prime Cost using this formula –
Prime Cost = Cost of Goods Sold + Total Labor cost
Prime Cost includes the products and people power needed to keep you in business. Your restaurant’s Prime Cost should ideally be sixty percent or less of your total revenue.
Calculating the Prime Cost timely will help you adjust your food costs or trim your labor costs to increase your profits, which helps in reducing the restaurant prime cost.
Reasons For High Prime Cost In UAE
- High attrition rate: The restaurant in UAE faces a high attrition rate which leads to high labor costs. It is expensive to hire new people from time to time. A lot of investment is required to hire and train restaurant staff, leading to inflated prime costs.
- High food cost: In UAE, the raw materials are generally exported which adds to the food cost, therefore directly affecting the Prime Cost. Also, some food costs increase because of seasonality or availability
- Improperly trained employees: This includes improperly trained staff who don’t follow portion control guidelines managers or the employees who steal from the inventory.
Tips For Reducing The Prime Cost Of Your Restaurant In UAE
Prime Cost accounting is one of the most significant numbers every restaurant owner should be calculating frequently.
We have curated a list of ways you can use to reduce the Prime Cost which won’t hamper the quality of your restaurant and the guest experience.
1. Controlling The Inventory Levels
It is common for the restaurant owners to have more than what is required on their shelves, which ultimately results in higher Prime Cost. Cost of food in the United Arab Emirates increased 2.60 percent in July of 2018; if the prices keep going up this would mean a severe loss for the restaurant industry.
There is a severe need to monitor the inventory and base your reorder levels on how much you think you’ll actually use until the next delivery comes in. You can use a POS system to track the stock and inventory. This would help you control the inventory in real-time by using the stock-in and stock-out details. You can also use it to keep track of the ideal stock that should have been consumed in a day and check if there is a considerable variation.
You can also keep a check of the raw materials and manage their shelf life too, it lets you know if a particular raw material is running low. By reducing excess inventory you’ll have less waste and spoilage.
2. Increasing Staff Productivity
Your employee’s payroll is a major contributor to the restaurant’s Prime Cost; therefore you need to ensure they contribute to the restaurant’s success.
Increasing your staff’s productivity during peak hours would mean you’ll be able to serve more customers. You can provide your servers with a tablet that is linked with the restaurant POS system, they can readily accept the orders from the customers which would directly reach the kitchen and avoid the need for the servers to run back and forth, allowing them to take more orders.
Schedule better, have more staff coming in during peak hours when you know you will require more people to handle the crowd. There is no point in having more employees during slow hours and paying them for that. You can also cross-train your employees, this will help you employee minimum staff and is also helpful if someone takes an unplanned leave.
Describe the jobs clearly, this will give your staff more clarity and will help them work better and in a systematic manner.
Give your staff proper training, this will make them feel acknowledged and will make them stay for longer. UAE has a pool of opportunities for people working in the hospitality industry; therefore the employee attrition rate is high.
You want your employees to stay for longer to avoid hiring new people time after time. The hiring process is time-consuming and requires a lot of resources, this inflates the restaurant Prime Cost.
3. Controlling Food Wastage
3.27 million tonnes of food is wasted every year in UAE; which makes it imperative for the restaurant owners to keep track of the food that is being wasted.
Food wastage adds to the restaurant Prime Cost and increases it significantly. In order to keep a check on the food wastage, portion your food correctly. This ensures that you are not over or under filling the plates. You can check if the food portion is correct or not by checking the plates when they come back to the kitchen and see if there are leftovers now and then, this is a clear indicator that you are overfilling the plates.
You can work with the cook and manage the portion sizes. Planning out and executing the same should go hand in hand. You can measure the raw material that is being used by using measuring cups etc. as this would ensure consistency.
Wasting food can bleed the restaurant’s resources dry which ultimately results in shutting down of the restaurant.
It can be difficult to manage and run a restaurant in UAE’s tough and highly competitive restaurant industry; therefore calculating the Prime Cost of your restaurant is important to keep your operating costs in check.
Tracking the restaurant prime cost report is the best way of managing the restaurant extensively. It helps you determine the expenses that are taking up most of your budget.