Question:
What costs comprise prime cost and occupancy percentage?
– Andrew Bakst, Healthcare Account Manager, US Foods, West Palm Beach, Florida
Answer:
Lack of consistent industry benchmarks is a common complaint in our industry. Operators often keep their numbers close and when you do look at others’ numbers, they may not tell the whole picture. For example, in the case of occupancy, does the operator own the building or have some development incentives such as tax abatements or an initial period of free rent? In the case of prime cost, is the owner taking a salary? Do you have an apprenticeship or internship program that takes a bite from labor costs?
Prime cost should include all costs of goods as well as labor. It’s easy to forget to include all beverage costs, supplies and ingredients that go into the cost of sales such as frying oil or paper basket liners, and labor such as management salary.
Occupancy includes rent along with related expenses like insurance, real estate taxes, and common area maintenance fees.
While there is no definitive benchmark, look for prime costs around a maximum of 60-65% and occupancy not to exceed 8-10% of sales.
Keep in mind, while these are general guidelines, every operation is different and your accountant may use a different approach. More on costs and benchmarks here.