If you track one number in your restaurant, make it prime cost. Not revenue. Not net profit. Prime cost — because it's the largest expense you can actually control, and it tells you faster than anything else whether your restaurant is trending toward profit or toward trouble.
This guide covers the prime cost formula, what a healthy percentage looks like, how to calculate it for your restaurant, and how often you should be doing it.
What Is Prime Cost?
Prime cost is the combined total of your two biggest variable expenses:
- Cost of Goods Sold (COGS) — what you spend on food and beverages
- Total labor cost — wages, salaries, payroll taxes, and benefits
Together, these two categories typically represent 55–65% of a restaurant's revenue. They move every week based on how busy you are, what you're paying vendors, and how many hours your staff works. That's why prime cost is called "prime" — it's the core of your cost structure, and it's where you have the most leverage.
The Prime Cost Formula
Prime Cost % = (Prime Cost ÷ Total Revenue) × 100
Cost of Goods Sold is what you actually used to produce what you sold — not just what you purchased. The correct formula is:
Total labor cost includes everything tied to your people:
- Hourly wages (BOH and FOH)
- Salaried employee compensation
- Payroll taxes (FICA, FUTA, SUTA)
- Health benefits, if you provide them
- Workers' comp insurance (some operators include this, some don't — be consistent)
A common mistake is to only count hourly wages. If you exclude payroll taxes and benefits, your labor cost looks 15–25% lower than it actually is, and your prime cost number is meaningless.
Prime Cost Calculator
Calculate Your Prime Cost %
Include payroll taxes and benefits in labor, and use used inventory (not just purchases) for COGS — otherwise the number understates your real prime cost.
A Real Calculation Example
Total Revenue: $120,000
COGS (food + beverage): $38,400
Total Labor Cost: $36,000 (wages $29,000 + taxes/benefits $7,000)
Prime Cost: $38,400 + $36,000 = $74,400
Prime Cost %: $74,400 ÷ $120,000 = 62%
62% is on the higher end of acceptable for a full-service operation. This restaurant is profitable — but there's not much cushion. Rent, utilities, repairs, marketing, and everything else comes out of the remaining 38%.
What Is a Good Prime Cost Percentage?
| Prime Cost % | What It Means | Status |
|---|---|---|
| Below 55% | Excellent. Strong margins, well-controlled costs. | Healthy |
| 55% – 60% | Good. Typical range for well-run full-service restaurants. | Healthy |
| 60% – 65% | Acceptable, but thin. Small problems compound quickly. | Watch It |
| Above 65% | Warning sign. You're likely losing money or close to it. | Trouble |
These benchmarks apply to full-service restaurants. Fast casual and QSR operators typically target lower prime costs (50–55%) because their labor model is leaner — but their margins on individual items are also thinner, so the math is different.
Don't compare yourself to a benchmark in a vacuum. Compare yourself to your own history. If your prime cost ran 58% for 18 months and jumped to 63% this quarter, that's the signal — not whether 63% is "bad" in the abstract.
What Moves Prime Cost Up or Down?
On the food cost side:
- Vendor pricing changes — A single price increase on protein can move your COGS 2–3 points
- Waste and spoilage — High waste inflates COGS without adding revenue
- Menu mix shifts — Selling more high-cost items without raising prices
- Theft and portioning — Inconsistent portions or back-of-house theft show up here
- Inventory counting errors — If you're not counting inventory carefully, your COGS number is fiction
On the labor side:
- Overstaffing — Scheduling too many covers for a slow shift
- Overtime — Unplanned OT is an expensive way to fill gaps
- Wage increases — Minimum wage hikes hit you all at once if you haven't planned for them
- Management-to-hourly ratio — Adding salaried managers raises fixed labor without volume protection
- Training time — High turnover restaurants pay double during training periods
How Often Should You Calculate Prime Cost?
Weekly is the gold standard. Monthly is the minimum.
The reason weekly matters: labor and food costs move independently and they move fast. A bad food cost week — a vendor delivery issue, an off inventory count, a prep waste problem — can be investigated and fixed if you catch it in week 1. If you find it at month-end, you've already paid for it three more times.
The practical challenge is that calculating weekly prime cost requires you to have your labor data (from your POS or payroll system) and your COGS data (from your invoices and inventory) in the same place, on a weekly cadence. Most restaurant owners don't have that, so they do it monthly — or quarterly, if they're honest with themselves.
Breaking Down Prime Cost Into Its Components
When prime cost moves in the wrong direction, you need to know which component is driving it. That means tracking food cost percentage and labor cost percentage separately:
Beverage Cost % = Beverage COGS ÷ Beverage Revenue × 100
Labor Cost % = Total Labor Cost ÷ Total Revenue × 100
Typical targets for a full-service restaurant:
- Food cost: 28–32%
- Beverage cost: 18–24% (higher-margin beverages help lower overall COGS)
- Labor cost: 25–35%
If prime cost is running high, knowing which component is responsible tells you where to focus. A 68% prime cost where food is at 30% and labor is at 38% calls for a scheduling review. The same 68% with labor at 28% and food at 40% points to vendor costs, waste, or theft.
Prime Cost on a Weekly P&L
The most disciplined operators run a simple weekly P&L that looks something like this:
Revenue: $28,400
Food Cost: $8,520 (30.0%)
Beverage Cost: $1,700 (6.0%)
Labor Cost: $9,100 (32.0%)
Prime Cost: $19,320 (68.0%) ← flag this
vs. Prior Week: 61.4% ← labor spiked 6.6 points
One week doesn't make a trend, but 68% with a 6.6-point labor spike versus the prior week is worth investigating before it repeats. Did you overstaff a slower-than-expected night? Did a manager pick up extra shifts? Is there a scheduling inefficiency that keeps hitting Sundays?
You can't answer those questions if you're looking at a monthly report. By then you've paid the cost five more times.
The Biggest Prime Cost Mistake Restaurant Owners Make
Calculating prime cost once a month — or once a quarter — and calling it bookkeeping.
Prime cost is not a bookkeeping metric. It's an operational signal. The whole point is to see problems early enough to fix them. A monthly number tells you what happened. A weekly number tells you what's happening.
The second biggest mistake is using an incomplete labor number. If your prime cost calculation doesn't include payroll taxes and benefits, you're making decisions based on data that's 15–20% wrong. Your actual prime cost is worse than you think.
How Portioned Tracks Prime Cost
Portioned pulls in your Toast POS revenue data, your payroll exports from ADP or your processor, and your vendor invoices — and shows you prime cost by week, automatically. No spreadsheet. No manual entry. No waiting until your accountant sends you a report.
You can ask it things like "how's prime cost trending this month?" or "which week this quarter had the worst food cost?" and get a real answer from your actual data in seconds — not a report to interpret, an answer.
Track Prime Cost Without the Spreadsheet
Portioned connects to Toast, ADP, and your vendor invoices — and shows you prime cost by week, automatically. Ask questions, get answers.
Get Early Access →Frequently Asked Questions
What is prime cost in a restaurant?
Prime cost is the sum of a restaurant's food and beverage cost (COGS) plus total labor cost, including wages, payroll taxes, and benefits. It's the largest controllable expense category and the single most important number for measuring restaurant profitability.
What is the prime cost formula for restaurants?
Prime Cost = Cost of Goods Sold (food + beverage) + Total Labor Cost. As a percentage: Prime Cost % = Prime Cost ÷ Total Revenue × 100.
What is a good prime cost percentage for a restaurant?
Below 60% is healthy for most full-service restaurants. 55% or lower is excellent. Fast casual and QSR operators often target 50–55%. Above 65% is a warning sign that food cost, labor, or both need attention.
How often should restaurants calculate prime cost?
Weekly is ideal. Monthly is the minimum. Tracking weekly lets you catch problems — a bad food cost week, an overstaffed shift — before they compound into a bad month.
Does prime cost include rent?
No. Prime cost is specifically food/beverage cost plus labor cost. Rent, utilities, marketing, and repairs are separate operating expenses. Prime cost intentionally excludes these because they're harder to control on a week-to-week basis.
What's the difference between prime cost and food cost?
Food cost is just the COGS portion — what you spent on ingredients and beverages. Prime cost adds labor on top of that. A restaurant could have a 28% food cost but a 65% prime cost if labor is running at 37%. Prime cost gives you the complete picture.