Prime cost is the single most important number in your restaurant. Most owners have never heard of it. Here's what it is, how to calculate it, and what to do when it's too high.
If you only track one number in your restaurant, make it prime cost. Not revenue. Not net profit. Prime cost.
Prime cost is the combination of your two biggest expenses: Cost of Goods Sold (COGS) - your food and beverage cost - plus total labor cost. Together they represent the largest and most controllable costs in your operation, and their combined percentage tells you almost everything you need to know about the health of your business.
Prime cost = COGS + Total labor cost
Prime cost % = (Prime cost ÷ Total revenue) × 100
Example: You did $60,000 in revenue last month. Your food and beverage cost was $19,200 (32%) and your total labor - including wages, payroll taxes, and benefits - was $20,400 (34%). Your prime cost is $39,600, or 66%.
That's above target. The benchmark for a healthy full-service restaurant is 55–65%. Fast casual can run a bit higher. Fine dining lower. But if you're above 68%, you have a structural problem no amount of revenue growth will fix.
Most operators who track anything track food cost percentage. That's a start, but it only tells you half the story. You can have a perfect 29% food cost and still be losing money because your labor is at 42%. Prime cost forces you to look at both levers at the same time.
The other reason prime cost matters: food cost and labor often move in opposite directions. Restaurants frequently cut labor to save money and then watch food cost creep up because there aren't enough experienced hands to control portions and reduce waste. Prime cost catches this trade-off in a single number.
First, figure out which side of the equation is the problem.
If COGS is high: audit your top 10 menu items for accurate costing, check for portion creep on your line, review recent vendor invoices for price increases you haven't adjusted for, and look at your waste log if you keep one.
If labor is high: pull your scheduling data and compare hours worked to sales by day of week. You're almost certainly over-staffed on your slow days. Calculate your sales per labor hour - if it's below $30–35, you're running too many people for the volume you're doing.
If both are high: that's a pricing and operational problem simultaneously. You may need to raise prices, cut underperforming menu items, reduce your team size, or some combination of all three.
Monthly prime cost is a lagging indicator - by the time you see the number, you've already had three or four bad weeks. Weekly prime cost lets you catch problems while they're still small. It takes about 20 minutes to calculate if you keep your numbers tidy.
Pull your weekly revenue from your POS. Pull your food purchases and beginning/ending inventory to get COGS. Pull your payroll summary for labor. Do the math. If prime cost jumped 4 points week over week, something changed - find it before it becomes a month-long problem.
The restaurants that survive their first three years are not necessarily the ones with the best food. They're the ones where the owner knows their prime cost without having to look it up.
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