Prime cost is your cost of food and beverage plus your total labor cost, shown as a percentage of sales for the same period. Add the two costs, divide by sales, multiply by one hundred. Watch it weekly, because it is the biggest part of your costs that you can change.
What prime cost is
Prime cost is the sum of two numbers: what you spent on food and beverage that you sold, and what you spent on people. Together they are the largest costs most restaurants can change from week to week. Rent and utilities are mostly fixed. Food and labor move with decisions you make.
The formula
Prime cost = cost of goods sold + total labor cost. Prime cost percentage = prime cost divided by sales, times one hundred.
Cost of goods sold is not what you bought. It is what you used: beginning inventory plus purchases minus ending inventory. If you skip counts, you are measuring purchases and not usage, and the result will swing from week to week.
A worked example
Suppose last week you sold 10,000 dollars. Your beginning inventory was 2,000, you bought 3,000, and your ending inventory was 1,800. Food and beverage used is 2,000 plus 3,000 minus 1,800, which is 3,200. Your total labor, with payroll taxes and benefits, was 3,200.
Prime cost is 3,200 plus 3,200, which is 6,400. Divided by sales of 10,000, that is 64 percent. The numbers here are made up to show the math. Use the calculator below with your own.
What is a good number
Many owners aim for a prime cost of roughly 60 to 65 percent of sales [VERIFY source]. Treat any published range as a starting point. Your own concept, menu and market matter more. The useful comparison is your own last eight weeks.
How to lower it
Look at food and labor separately before acting. If food is high, check portion size, waste, and whether prices have kept up with ingredient costs. See food cost percentage in ten minutes. If labor is high, compare scheduled hours with sales by day, and read about labor cost percentage.
Change one thing at a time. If you cut hours and change the menu in the same week, you will not know which one worked.
Common mistakes
Mixing periods is the most common one: food measured over a month, labor over a week. Another is leaving out salaried managers or payroll taxes, which makes labor look lower than it is. A third is counting inventory at different times of day.
Systems that tie sales, labor and inventory together make this easier, because the three numbers come from the same place. See inventory and food cost and labor for what is live today.
Prime cost calculator
Cost of goods sold for the same period.
Wages plus payroll taxes and benefits.
- Prime cost
- $0.00
- Prime cost as a share of sales
- Enter sales
- Food and beverage share
- Enter sales
- Labor share
- Enter sales
Compare against your own past periods. Published target ranges need a source [VERIFY].
Nothing you enter is saved or sent. Example numbers are made up.