August 21, 2013 |

Pizza Industry Expert Big Dave Ostrander talk prime cost percentage

By Dave Ostrander

Q: Greetings, Dave. Just searching for an exact answer nowadays for what percentages should be in a pizza shop. Food cost, rent, utilities, payroll, etc. Can’t seem to get a definitive answer. Thanks.

Kenny A.
Pizza Works
Burlington, Massachusetts

A: Hey Kenny, you came to the right place. There is never an exact answer for your questions. Since every operation is a little different than all others, I will give you the industry standards.

Note: I’m basing these percentages on a typical limited-service pizzeria that offers delivery, carryout and self-service dine in. For full-service operations with wait staff, dishwashing and extensive menu offerings, the percentages will increase slightly another three to five percent of gross sales. Be aware that many owners don’t subtract out state sales tax when declaring gross sales. I’ve also seen many professionally prepared financial statements that declare gross sales as the top line (including sales tax) and then at the bottom of the expenses deduct sales tax as an expense. Every time this is done all of the percentages are skewed. The six to nine percent you charge for sales tax isn’t your money — it belongs to the state.

Food costs usually account for 28 to 32 percent of gross food sales without sales tax. Total payroll cost is computed by adding the sum of these three categories: hourly employee gross payroll, management salaries and payroll soft costs. These should be bundled together in the P&L statement. These numbers represent the true costs of employees. Note: an $8-an-hour employee’s cost is closer to $10 an hour when soft payroll costs are accounted for. Keep in mind that the dollar amount of payroll that displays on most POS (point-of-sale computers) does not reflect actual payroll. Labor cost usually is 30 percent or less of gross sales.

Occupancy costs also add up. Rent should account for six to seven percent of sales (or less) and other occupancy costs such as insurance, taxes, liability, etc. is often three to four percent or less. Finally, plan on budgeting three percent of your sales for marketing if you are an established business. If you’re a new business you might need to be up in the seven to eight percent category, or even as high as 10 percent.

Prime cost, which is the sum of total food cost and total labor cost, is the first number I look at when working with clients. If it is over 65 percent I start looking for reasons why. When operations run at over 65 percent for long periods of time, they usually are not profitable. I work with clients to attain a 60 percent prime cost rate. When I owned my business, my manager received heavy bonuses when he kept prime cost at 55 percent. Every percentage shaved off prime usually goes straight to bottom line profits. By delegating responsibility of prime to my manager it made him vested in the day-by-day and shift-by-shift running of the restaurant. He hawked labor, food cost, waste and theft like it was his money. In reality, it was.

Big Dave Ostrander owned a highly successful independent pizzeria before becoming a contributor to Pizza Today.