What is prime cost? Definition for restaurants

The sum of food costs and labor costs, typically the largest expenses for a restaurant.

Prime cost is the sum of food costs and labor costs, representing the two largest controllable expenses in any restaurant. For restaurant owners, this single metric captures 60-70% of total operating costs. A restaurant with $100,000 monthly revenue and 62% prime cost has $38,000 left to cover rent, utilities, marketing, and profit. Get prime cost wrong, and nothing else matters.

Key facts

Definition: Total food and beverage costs plus total labor costs
Formula: Prime Cost = (Food Cost + Labor Cost) / Total Revenue x 100
Good benchmark: 55-65% for most restaurant types
Why it matters: Prime cost determines whether profitability is even possible

The quick definition

Prime cost combines your two biggest variable expenses into one metric. Food cost covers all ingredients. Labor cost includes all wages, benefits, and payroll taxes. Together, these typically consume 55-65 cents of every dollar you earn.

Prime Cost % = (Total Food & Beverage Cost + Total Labor Cost) / Total Revenue x 100

Example: A restaurant with $50,000 in monthly revenue, $15,000 food cost, and $17,000 labor cost: Prime Cost = ($15,000 + $17,000) / $50,000 x 100 = 64%

Why prime cost matters

The profitability equation

Restaurant math is unforgiving:

Expense Category	Typical % of Revenue
Prime cost (food + labor)	55-65%
Rent and occupancy	8-12%
Other operating costs	10-15%
Profit margin	5-10%

If prime cost exceeds 70%, profit margin drops to zero or below.

Controllable versus fixed

Prime cost represents your controllable expenses:

Controllable (Prime Cost)	Fixed Costs
Food ordering	Rent
Scheduling	Insurance
Portion sizes	Loan payments
Menu engineering	Property taxes
Staff efficiency	Equipment leases

You cannot negotiate your rent mid-month. You can adjust scheduling and ordering immediately.

Early warning system

Rising prime cost signals problems before they become emergencies:

Prime Cost Trend	What It Indicates
Steady at target	Operations running well
Gradual increase	Prices rising or controls slipping
Sudden spike	Theft, waste, or major issue
Seasonal fluctuation	Expected patterns

Weekly tracking catches problems early.

How to calculate prime cost

The basic formula

Prime Cost = Food Cost + Labor Cost

Prime Cost % = Prime Cost / Total Revenue x 100

Food cost components

Include all food and beverage expenses:

Raw ingredients
Beverages (alcoholic and non-alcoholic)
Packaging (for takeout)
Smallwares used in production
Any kitchen consumables

Do not include cleaning supplies, paper goods, or non-food items.

Labor cost components

Include all labor-related expenses:

Component	Example
Hourly wages	Server, cook pay
Salaries	Manager fixed pay
Overtime	Premium pay
Payroll taxes	Employer portion
Benefits	Health insurance, retirement
Workers comp	Insurance premiums

Some operators exclude management salaries; others include everything. Be consistent.

Sample calculation

Monthly figures for a casual dining restaurant:

Line Item	Amount
Food purchases	$28,000
Beverage purchases	$7,000
Total COGS	$35,000
Hourly wages	$22,000
Salaried wages	$8,000
Payroll taxes and benefits	$6,000
Total labor	$36,000
Total revenue	$115,000

Prime Cost = ($35,000 + $36,000) / $115,000 x 100 = 61.7%

What is a good prime cost?

Benchmarks by restaurant type

Restaurant Type	Target Prime Cost
Quick service	55-60%
Fast casual	58-63%
Casual dining	60-65%
Fine dining	62-68%
Bar/nightclub	50-55%

These ranges account for different labor models and food cost structures.

Breaking down the target

A 62% prime cost might split as:

Scenario	Food Cost	Labor Cost	Prime Cost
High food, low labor	35%	27%	62%
Balanced	30%	32%	62%
Low food, high labor	25%	37%	62%

Fine dining has higher labor; quick service has lower labor but similar prime costs overall.

Warning thresholds

Prime Cost Level	Interpretation
Under 55%	Check for understaffing or quality issues
55-60%	Efficient operations
60-65%	Typical range, room for improvement
65-70%	Concerning, investigate causes
Over 70%	Unsustainable, immediate action needed

How to improve prime cost

1. Control food cost

Reduce food cost without sacrificing quality:

Strategy	Impact
Negotiate with suppliers	2-5% reduction
Reduce waste	1-3% reduction
Right-size portions	1-2% reduction
Menu engineering	1-3% reduction
Better inventory control	1-2% reduction

Small improvements compound. A 3% food cost reduction on $1 million revenue saves $30,000 annually.

2. Optimize labor

Control labor cost while maintaining service:

Strategy	Impact
Sales-based scheduling	2-4% reduction
Cross-training staff	1-2% reduction
Reducing overtime	1-2% reduction
Improving productivity	1-3% reduction

Cutting labor too deep hurts service and increases turnover costs.

3. Increase revenue

Higher revenue with the same costs lowers prime cost percentage:

Revenue Strategy	How It Helps
Check average increases	More revenue per guest
Better table turns	More covers per shift
Reduced no-shows	Fill more seats
Off-peak promotions	Spread labor across more revenue

4. Track weekly

Monthly reviews are too late. Weekly prime cost tracking:

Catches problems within days
Enables rapid corrections
Shows impact of changes
Builds operational discipline

5. Set targets by daypart

Different periods have different prime cost profiles:

Daypart	Expected Prime Cost
Weekday lunch	Higher (lower volume)
Weekend dinner	Lower (higher volume)
Brunch	Variable

Target and measure each period separately.

Common prime cost mistakes

Only measuring monthly

Monthly calculation hides problems until they compound. Weekly tracking reveals issues faster.

Ignoring labor efficiency

Focusing only on food cost while labor spirals is a common blind spot. Both matter equally.

Cutting too deep

Slashing food quality or understaffing destroys revenue. Prime cost optimization is about efficiency, not cuts.

Inconsistent calculation

Changing what you include makes comparisons meaningless. Define your formula and stick to it.

Ignoring seasonality

Prime cost naturally fluctuates. Compare to the same period last year, not just last month.

Cover - Individual guests served; prime cost per cover reveals per-guest profitability
RevPASH - Revenue efficiency metric that pairs with prime cost for full profitability picture
FOH (Front of House) - Labor cost driver that directly affects prime cost

Frequently Asked Questions

What is a good prime cost percentage for restaurants?

Most restaurants target 55-65% of total revenue. Full-service restaurants typically aim for 60-65%, while quick service targets 55-60%. Below 55% may indicate understaffing or quality issues; above 65% usually means profitability problems.

How do you calculate prime cost?

Add total food and beverage costs to total labor costs (including wages, benefits, and payroll taxes). Divide by total revenue and multiply by 100 for the percentage. Prime Cost = (Food Cost + Labor Cost) / Total Revenue x 100.

What is the difference between prime cost and food cost?

Food cost only measures ingredient expenses. Prime cost includes both food costs and labor costs. Prime cost gives a more complete picture of your two largest controllable expenses.

Why is prime cost the most important restaurant metric?

Prime cost captures 60-70% of restaurant expenses in one number. If prime cost is healthy, profitability is possible. If prime cost is too high, no amount of revenue will save you. It is the clearest indicator of operational efficiency.

How often should I calculate prime cost?

Weekly is ideal. Monthly works but delays problem detection. Daily food and labor tracking feeds into weekly prime cost reviews. Waiting longer than a month to check prime cost allows problems to compound.

Track Your Restaurant Metrics

Understanding prime cost is just the start. Resos helps you track covers, manage tables, and grow your restaurant.

Try Resos Free

Free forever up to 25 bookings/month.