What is prime cost in a restaurant?
How it is calculated
Add up your cost of goods sold, which is mainly food and beverage cost, and your total labor cost for the same period. Divide that total by your sales for the period, then multiply by 100 to get a percentage. Many operators track it weekly so they can spot problems early.
Labor cost in this calculation often includes wages, tips paid through payroll where applicable, payroll taxes and sometimes benefits. Use the same rules every week so the trend is useful.
- Food and beverage cost for the period
- Total labor cost, including payroll taxes
- Total sales for the same period
- Result shown as a percentage of sales
Using it to make decisions
Prime cost helps you see whether a slow week is a labor problem or a food problem. If prime cost rises while sales stay flat, check overtime, extra shifts and portion control. If it rises during a busy week, you may simply need a better staffing plan.
Compare your number to your own past weeks rather than to a universal target. Concepts differ widely in menu prices, service style and wage rates, so your history is the most useful benchmark.
Common mistakes
- Comparing your prime cost to another restaurant's number without matching the definitions.
- Changing how you count labor from week to week, which makes trends meaningless.
- Looking only at the monthly total and missing a bad week until it is too late.
