What is prime cost?
Prime cost is a restaurant's cost of food and beverage sold plus its total labour cost. It combines a business's two largest and most controllable expense lines into one number. That is why many operators watch it instead of waiting for the monthly P&L.
How do you calculate prime cost?
Prime cost = cost of food and beverage sold + total labour cost
Prime cost percentage = prime cost ÷ sales × 100
Labour is more than wages: overtime, payroll taxes, benefits and bonuses should be included. Rent, marketing, depreciation and utilities are not part of prime cost. The cost of goods sold is *opening stock + purchases − closing stock*.
Worked example
These numbers illustrate the method and do not come from a real business.
| Line | Amount | Share of sales |
|---|---|---|
| Monthly sales | 100,000 | 100% |
| Cost of food and beverage sold | 31,000 | 31% |
| Total labour | 29,000 | 29% |
| Prime cost | 60,000 | 60% |
For every 100 of sales, 60 goes to these two lines. Rent, energy, marketing and profit all have to come out of the remaining 40.
What should prime cost be?
Restaurant365's guide gives 55–60% of sales as the target for most restaurants and splits it by service model:
| Business type | Target prime cost |
|---|---|
| Quick service, fast casual | 55–60% |
| Full service | 60–65% |
| Fine dining | Typically above full service |
| Bars, beverage-led concepts | Under 60% |
These ranges come from a US source and are not a fixed rule, so set your own target and watch your trend line. Rent is not part of the calculation, but a business with heavy rent has to aim for a lower prime cost.
Prime cost vs food cost
Food cost measures the ingredient cost of what is sold and ignores labour. Using pre-prepared products can raise food cost and lower labour, and making everything in-house does the reverse. If one falls while the other rises, an operator looking only at food cost can make the wrong decision. Prime cost makes that trade-off visible.
How do you lower prime cost?
On the food side
- 1Cost recipes using real yield. Ignoring yield understates what a dish really costs.
- 2Read the menu by profitability, using the menu engineering calculator and menu engineering.
- 3Start by measuring waste.
On the labour side
- 4Build the rota around sales by hour and trim cover at quiet times.
- 5Centralise prep and simplify the station structure.
- 6Reduce menu complexity: the number of dishes directly drives prep hours.
How often should you measure it?
A monthly P&L often arrives too late. Prime cost tracked through weekly stock counts and weekly labour figures shows a problem before month end. For supporting indicators, see F&B KPI dashboard examples. We set up this tracking for businesses through kitchen consulting.
For pay data by role on the labour side, see our chef salary data.
