The prime cost formula
Cost of goods sold is food and beverage cost, calculated from inventory counts. Total labor cost includes wages, salaries, overtime, employer payroll taxes and benefits.
Prime cost % = (Cost of goods sold + Total labor cost) ÷ Total sales × 100
A worked example
This uses the same restaurant and week as the labor and food cost guides. Cost of goods sold is $11,700 of food plus $1,700 of beverages.
| Food and beverage cost of goods sold | $13,400 |
|---|---|
| Total labor cost | $13,700 |
| Prime cost | $27,100 |
| Total sales | $42,000 |
| Prime cost percentage | 64.5% |
$27,100 ÷ $42,000 = 0.645. Bringing it to 62% would mean about $1,060 less in cost each week at the same sales, roughly $55,000 over a year.
Why prime cost matters more than either number alone
A scratch kitchen spends more on labor and less on ingredients than one that buys prepared food. A steakhouse runs a high food cost and a lean floor. Judged on food cost or labor alone, each would seem to have a problem. Prime cost shows whether the combination works.
It also keeps you from fixing one number at the expense of the other: cutting a prep cook to save labor and then buying prepared product at a higher food cost may not save anything.
What a good prime cost looks like
Many full-service restaurants aim to keep prime cost at or below 60–65% of sales, and quick-service restaurants often run lower. What is left has to cover rent, utilities, marketing, repairs and everything else, and still leave a profit, so a rising prime cost is the earliest warning on the P&L.
How to lower prime cost
- Track it weekly, not monthly, so you can correct a bad week the following week.
- Schedule labor from a sales forecast and sales per labor hour.
- Cost recipes and recost them when supplier prices move.
- Close the gap between ideal and actual food cost: waste, portions, comps.
- Price the menu from plate cost, and revisit prices when costs change.