This is one of the top questions I’m asked all the time. How do I figure out how to include labor and utilities into my plate cost. The short answer: you don’t. Check out the video to see why I don’t recommend this.
To learn more please either watch the video above, read the transcript or listen to the podcast below.
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Should I include utilities and labor in my plate cost?
The answer is unequivocally 100% without a doubt NO. People always ask me how do I do this, how do I calculate that. The reason I don’t have a way to calculate it is because you should not ever be including labor or utilities in your plate cost. The only thing that goes in your plate cost is the food that you’re putting on that plate to sell to a customer. That means chemicals don’t go in there; generally speaking to-go containers; plastic knives, spoons and forks because those are direct operating expenses.
Food cost is just that – the cost of the food to prepare that plate. Now people say, “Yeah but if we need the labor to make that plate.” Labor is a completely separate calculation. And the reason I like to keep them separate and then bring them together to get a number? That number is called PRIME COST.
Prime cost is your total cost of goods sold, plus total labor. So those two numbers together will give us the number that we want. And your target program costs in your restaurant is generally speaking 60% of sales or below.
Let me tell you another reason why we don’t ever do that. Labor isn’t the same every time. If you sell a hamburger it’s always going to have a bun, the burger, and toppings but the amount of labor changes if you’re cooking 7 hamburgers at the same time or just just a single burger. It doesn’t take any extra labor, so how would we ever include that in there?
Now as far as utilities, we never include them because you’ve got a grill. Let’s say you have a 36” grill that’s turned on at the beginning of the day. Do you cook one hamburger that entire day, or do you cook a thousand burgers? You’re not really using any additional utilities during the day so there’s no real way to figure that out.
People think that your utilities and restaurant are variable expenses, but only in the smallest degree. If you are substantially busier your electricity, gas and water bill might be a little bit higher, but generally speaking whether you’re busy or slow those bills are going to be very similar.
I hope this helps explain to you why you never include utilities or labor in your plate costs—in your food cost in your restaurant. And I look forward to seeing you on another video next week.
This has been Ryan, saying have a wonderful day.
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