Understanding Prime Cost and Why It Matters
Prime cost = cost of goods sold + total labor. Here's how to calculate it, what a good prime cost is, why it beats food cost alone, and how to control it weekly.
Prime cost is your cost of goods sold plus your total labor cost — the two biggest, most controllable expenses in a restaurant, added together and expressed as a percentage of sales. Prime Cost % = (COGS + Total Labor) ÷ Total Sales × 100. Most successful full-service restaurants keep it at or below 60–65% of sales; quick service can run a few points lower. Food cost gets all the attention, but prime cost is the number that actually decides whether the restaurant survives.
The prime cost formula
Prime Cost = Cost of Goods Sold + Total Labor Cost
Prime Cost % = Prime Cost ÷ Total Sales × 100
Both halves have to be calculated correctly or the total is meaningless:
- COGS is food and beverage, based on inventory: beginning inventory + purchases − ending inventory. Not just what you bought this month. See How to Calculate Food Cost Percentage.
- Total labor is wages, salaries, overtime, employer payroll taxes, workers' comp, benefits, and PTO. Not just gross pay. See How to Calculate Labor Cost Percentage.
Undercount either one — most owners undercount both — and you'll believe you're at 58% when you're really at 64%.
A worked example
| Item | Amount | % of sales |
|---|---|---|
| Total sales (food + bev) | $120,000 | — |
| Food COGS | $31,000 | 25.8% |
| Beverage COGS | $6,000 | 5.0% |
| Hourly wages + salaries | $30,500 | 25.4% |
| Payroll taxes, comp, benefits | $4,300 | 3.6% |
| Prime cost | $71,800 | 59.8% |
At 59.8%, this restaurant keeps about 40 cents of every sales dollar to cover everything else. That's workable.
What's a good prime cost?
| Concept | Target prime cost |
|---|---|
| Quick service / counter | 55–60% |
| Fast casual | 55–62% |
| Casual full service | 58–65% |
| Fine dining | 60–68% |
| Bar / pub | 50–58% |
Above 65% in full service, you're depending on cheap rent or unusually high volume to stay profitable. Above 70%, the restaurant is probably losing money even when it's busy — which is exactly how packed restaurants close.
Why prime cost beats food cost alone
Food and labor trade off against each other. Buy pre-cut vegetables and portioned proteins: food cost goes up, labor goes down. Do everything from scratch: labor climbs, food cost drops. Look at only one of them and you can "fix" a problem by quietly moving it to the other bucket.
| Strategy | Food cost | Labor cost | Prime cost |
|---|---|---|---|
| Scratch kitchen | 28% | 34% | 62% |
| Pre-prepped product | 34% | 27% | 61% |
| Scratch kitchen, overstaffed | 28% | 39% | 67% |
The first two are equally healthy restaurants with different models. The third looks fine on a food-cost report and is in trouble. Prime cost is the only number that catches it.
What's left after prime cost
Once prime cost is paid, the remaining 35–40% has to cover everything else and still leave a profit:
| Expense | Typical % of sales |
|---|---|
| Occupancy (rent, CAM, property tax) | 6–10% |
| Utilities | 3–5% |
| Marketing | 2–4% |
| Repairs & maintenance | 1–3% |
| Insurance, licenses, fees | 2–3% |
| POS, software, processing | 2–4% |
| Everything else (supplies, linen, accounting) | 3–6% |
| Profit | what's left: typically 3–10% |
If prime cost creeps from 60% to 68%, that eight points comes straight out of profit — and most independents don't have eight points of profit to give. This is why a restaurant can be full every night and still not make money.
How to control prime cost
- Calculate it weekly. The monthly P&L arrives three weeks too late to change anything. A weekly inventory and a weekly labor total take an hour and give you a number you can act on Monday morning. How to Do a Weekly Inventory in Under an Hour covers the food half.
- Attack whichever side is heavier. If labor is 36%, fix the schedule first. If food is 38%, fix portioning and purchasing first. Don't spread effort evenly.
- Watch the trade-off. When you cut labor, verify food cost isn't rising to compensate (more waste from rushed prep, more comps from slow service), and vice versa.
- Schedule to sales. Build labor around a forecast, not around who wants which shift. Two or three points of labor usually live here.
- Cost and reprice quarterly. Ingredient inflation moves food cost a point or two a year if you never touch prices.
- Get both numbers from one system. If sales, labor hours, and inventory live in three different tools, you'll calculate prime cost when you have time — which is never. An all-in-one platform like Cobblestone POS puts sales, time clock, and scheduling in one report, so labor percentage is on screen every day without a spreadsheet. How to Set Up Restaurant Financial Reports shows what the weekly report should look like.
Track prime cost as a percentage of sales every week. It's the fastest early-warning system a restaurant has — and the single number a lender, buyer, or partner will ask about first.
Frequently asked questions
Is prime cost the same as cost of goods sold? No. COGS is product only. Prime cost is COGS plus labor.
Should I include the manager's salary? Yes. All labor, including salaried managers and any owner salary, goes in prime cost.
What about paper goods and packaging? Most operators put disposables in COGS if they're served with the product (to-go containers, cups), and in operating expenses otherwise. Pick one method and stay consistent.
My prime cost is 70%. What first? Split it: if labor is over 35%, start with scheduling to forecast and killing overtime. If food is over 35%, start with a two-week waste log and re-costing your top 20 items. Either one can move three to five points in a quarter.
Track it with the free Prime Cost Tracker (Excel).
