Prime cost combines the two biggest controllable restaurant costs: cost of goods sold and labor. It is one of the most useful numbers for operators because it shows whether the core economics of the restaurant are under control.
Restaurant prime cost formula
Prime cost is calculated by adding cost of goods sold and total labor cost.
Prime cost = cost of goods sold + total labor cost
Prime cost percentage is calculated by dividing prime cost by sales, then multiplying by 100.
Prime cost percentage = prime cost ÷ sales × 100
What to include in prime cost
Prime cost usually includes food cost, beverage cost, paper, packaging, hourly wages, overtime, salaried management, payroll taxes, benefits, bonuses, workers’ compensation, and other labor-related expenses.
Excluding manager salary, payroll burden, packaging, or disposables can make prime cost look better than reality. For a true operating view, use the same time period for sales, cost of goods sold, and labor.
Prime cost example
If a restaurant has $90,000 in sales, $28,000 in cost of goods sold, and $30,000 in labor cost, prime cost is $58,000. The prime cost percentage is about 64.4%.
That means about 64 cents of every sales dollar is going toward food, beverage, packaging, and labor before rent, utilities, insurance, repairs, software, debt, taxes, or owner profit.
Why prime cost matters
Prime cost matters because sales alone do not tell the full story. A restaurant can be busy and still lose money if food cost and labor cost are too high. Prime cost helps owners see whether the main controllable costs are leaving enough margin for overhead and profit.
Why weekly prime cost review helps
Waiting until month-end can hide problems. Weekly prime cost review lets you catch vendor increases, over-scheduling, overtime, slow sales, waste, and menu mix problems before they compound.
Common prime cost mistakes
- Looking at food cost and labor cost separately but not the combined number.
- Leaving manager salaries, payroll taxes, benefits, or workers’ compensation out of labor.
- Ignoring paper, packaging, disposables, and delivery-related costs.
- Comparing sales from one period with costs from another period.
- Waiting until the month is over to catch weekly cost problems.
Restaurant prime cost FAQ
What is prime cost in a restaurant?
Prime cost is the total of cost of goods sold and labor cost. It usually includes food, beverage, paper, packaging, hourly labor, management labor, payroll taxes, benefits, and related labor costs.
How do you calculate prime cost percentage?
Divide prime cost by total sales, then multiply by 100. For example, $58,000 in prime cost divided by $90,000 in sales equals about 64.4%.
Should manager salary be included in prime cost?
Yes, if you want a true view of labor cost. Some operators track management labor separately, but it still affects profitability and should be reviewed.
Why is prime cost important?
Prime cost combines the two largest controllable restaurant costs. If prime cost is too high, there may not be enough money left to cover rent, overhead, debt, taxes, and profit.