Costing basics 5 min read

Prime cost for restaurants: what it is and how to use it

Prime cost is the most important operational metric in foodservice. Here is how to calculate it, what the benchmarks are, and how to bring it down.

Prime cost is the combination of your food and beverage cost (cost of goods sold) and your labor cost. Together, they typically account for 55 to 65% of a restaurant's total revenue — making them the two most powerful levers for profitability.

The formula

Prime cost = total cost of goods sold plus total labor cost

Prime cost % = prime cost divided by total revenue x 100

COGS includes every ingredient, packaging item, and beverage product used in a period. Labor includes wages, salaries, benefits, payroll taxes, and workers' compensation.

Benchmarks by concept type

Full-service restaurant: 55 to 65% of revenue

Quick service and fast casual: 50 to 60% of revenue

Cafe and coffee shop: 50 to 62% of revenue

Delivery kitchen: 45 to 58% of revenue (lower front-of-house labor)

Prime cost below 55% is excellent — it means low labor relative to food cost, or exceptional ingredient cost control, or both. Prime cost above 65% leaves too little to cover rent, utilities, marketing, insurance, and profit.

Why prime cost is the most useful metric

You can have a healthy food cost percentage (say 28%) and still have poor overall margins if your labor is too high (say 40%), pushing prime cost to 68%. Tracking them separately lets you see both problems, but tracking prime cost together tells you whether the business is profitable in aggregate before overhead.

A weekly prime cost report is the most common management tool in operator-led restaurant groups.

How to reduce prime cost

Reduce food cost:

Tighten portion control and yield tracking.

Fix recipe adherence.

Reduce spoilage through better inventory management.

Reduce labor cost:

Optimize scheduling to match labor hours to projected covers.

Cross-train staff to reduce over-staffing in any single role.

Monitor overtime. Overtime hours cost 50% more than regular hours.

Review your opening and closing hours. Low-volume hours with full staffing hurt labor percentage significantly.

The relationship between food cost and labor cost

There is often a tradeoff between food cost and labor. Buying pre-cut produce or pre-portioned protein saves labor but costs more per unit. Making everything from scratch saves ingredient cost but requires more labor hours.

The right answer depends on your concept, volume, and local labor rates. In high-wage markets, buying pre-prepped ingredients often reduces prime cost overall. In lower-wage markets, in-house prep is often more cost-effective.

Frequently asked questions

Is prime cost the same as cost of goods sold? No. COGS is only the ingredient and packaging cost. Prime cost is COGS plus labor. They are often confused because both are used in profitability discussions.

How often should I calculate prime cost? Weekly, using actual POS sales data and actual payroll figures. Monthly is too slow to catch problems before they compound.

What if my prime cost is above 65%? Diagnose whether the problem is food cost, labor, or both. If food cost is 32% and labor is 35%, the fix is different than if food cost is 28% and labor is 38%. Address the higher component first with specific, measurable changes.

Does Dishboard track prime cost? Dishboard tracks food cost per dish (ingredients and packaging). Labor cost is outside its scope. For prime cost, use your POS sales data alongside your payroll data.

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