2011 August: Ask Big Dave

Hey Dave, I currently own a counter service joint and am looking to open my second location. This location I’m looking to do more sit-down. So my question is, is 30- to 35- percent labor cost reasonable for this type of restaurant?

Ryan Olson
Montana

I think in a full service operation, 30- to 35-percent labor is about right. After the new crew gets in the swing of things, I would like to see the labor percentage around 30 percent.

I focus on the sum of food cost + labor cost. Adding food and labor together yields prime cost. This number, measured in percentage of sales, less sales tax, factors in soft hidden labor costs like unemployment and workers comp expenses (plus employer matching social security taxes). I like to see my clients running their prime cost at
60 to 65 percent. Depending on your fixed occupancy costs and recurring monthly expenses, this should put you in the black.

In today’s economy, how long should it take to be in the black? We have been in operation just over a year and need to double our sales to be at that point. With people having less discretionary income, can we expect an increase in sales?

Christine Puetz
Missouri

Your question is complicated because there are so many variables that affect net profit. The answer a bean-counter may propose is: “The minute your sales are sufficient to pay all expenses.” It seems that you have already heard that pearl of wisdom and are searching for solutions to attaining profitability on a regular basis. Since you know that your sales are only paying half of the bills, I’m sure you are in near panic mode.

Doubling sales is a pretty aggressive goal. I can only recall two or three times in my career that we were able to reach that goal. I used to challenge myself to raise sales $100 a day. This is a very doable goal. It boils down to one more pizza sale an hour. From a simplistic view, my weekly paycheck was the last hour of the day. The first 11 hours of sales went towards paying all expenses, and the last hour of the day was mine.

In order to prescribe a fix for your problem I’d need to know some accounting basics from your financials. Then I would look at and scrutinize your competition. I would want to know how much sales my competition is doing weekly. This study will give you a ‘market share’ percentage. Next would be analyzing the quality of your pizzas. When times get tough, most people quit marketing. When all of the data has been collected I’d know if your shop is savable. Lack of profit goes hand in hand with weak sales.

Big Dave Ostrander owned a highly successful independent pizzeria before becoming a consultant, speaker and internationally sought-after trainer. monthly contributor to Pizza Today.