Glossary · Prime cost
Cost & margin
What is prime cost?
Prime cost is a restaurant's two biggest controllable expenses combined — total cost of goods sold (food and beverage) plus total labor. Operators typically aim to keep it around 55–65% of sales.
The formula: prime cost = cost of goods sold + total labor. As a percentage, divide that by sales. If a restaurant does $80,000 a month with $24,000 in COGS and $26,000 in labor, prime cost is $50,000 — or about 62.5% of sales.
Why it matters to a restaurant
Prime cost is the number seasoned operators watch above almost any other, because it rolls up the two costs you can actually change into one honest figure. Rent, insurance and utilities are mostly fixed once you sign the lease — but food, beverage and labor move every single week, and together they make or break the month. If you track only one thing on your P&L, prime cost is the one, ideally weekly rather than waiting for a monthly close when it's too late to react.
The money angle
What makes prime cost powerful is that it exposes trade-offs a single metric would hide. A scratch kitchen may run a low food cost percentage but high labor; a spot leaning on prepared items runs the reverse. Looking at either alone can flatter or scare you unfairly — prime cost nets it out. Get it under control and there's finally room left, after rent and overhead, for actual profit. The levers live on both sides: tighten purchasing and portioning, and schedule labor to real demand. See inventory & food-cost control that sticks for the COGS half.
Reading the number
There's no single "correct" prime cost — a bar with high-margin drinks and a busy quick-service counter can sit well below a labor-intensive fine-dining room. What matters is knowing your healthy range and defending it. When prime cost climbs past roughly 65–70% of sales for a full-service spot, it's usually a signal that pricing, portioning or scheduling has drifted and needs attention now, not next quarter.
Frequently asked questions
How do you calculate prime cost for a restaurant?
Add your total cost of goods sold — all food and beverage costs — to your total labor cost, including wages, salaries, payroll taxes and benefits. That sum is your prime cost. Dividing it by total sales over the same period gives prime cost as a percentage, which is how operators track it.
What is a good prime cost percentage?
Many full-service restaurants aim to keep prime cost around 55–65% of sales, with quick-service and bar-heavy concepts sometimes running lower. Above roughly 65–70%, there's often too little left to cover rent, utilities and everything else and still make a profit.
Why is prime cost more useful than food cost alone?
Because food cost and labor trade off against each other — a scratch kitchen may have low food cost but high labor, while a spot using more prepared items may have the reverse. Prime cost combines both, so it captures the full controllable-cost picture that either number alone can hide.