How to calculate prime cost (and what a healthy number looks like)

Prime cost is the two biggest costs you control, added together: what you spend on the food and drink you sell, and what you spend on the people who make and serve it.

Rent, insurance and loan payments change slowly. Food and labor move every week, with every order you place and every shift you schedule. That is why many owners treat prime cost as the number to watch first. If it is on target, the rest of the P&L usually has room to work. If it is high, no amount of extra sales fixes it.

There are three steps.

1. Work out cost of goods sold (COGS) for the period. Use inventory, not just purchases:

2. Add up total labor cost for the same period (what counts is below).

3. Add them together and divide by sales:

Here is one month at an example full-service restaurant with $80,000 in sales.

At 56.9%, this example restaurant is under the 60% target and inside the usual full-service range. The next step is to check the trend: one good month can hide a bad one if inventory was counted differently.

COGS usually includes: food, non-alcoholic drinks, beer, wine and spirits. Many owners also track beverage cost on its own, because bar margins are very different (see the pour cost calculator). Whether you count to-go packaging here or as an operating cost is up to you. Pick one and stay with it.

Total labor cost usually includes:

• hourly wages for front and back of house
• salaries for managers and chefs
• overtime and bonuses
• the employer’s share of payroll taxes
• health insurance, workers’ comp and other benefits

Tips paid out to staff are the guests’ money, not your cost, so they usually stay out. If you pay yourself a wage for working a station or managing shifts, include it; otherwise your prime cost looks better than it would with someone hired to do that job.

A common rule of thumb is 60% of sales or less. What is healthy depends on how you serve guests:

• Full-service restaurants: about 60–65%. Table service needs more staff per guest.
• Quick-service and fast casual: about 55–60%. Counter service needs fewer staff.

Food cost is typically 28–35% of food sales. For labor, National Restaurant Association data put the median at 36.5% for full-service and 31.7% for limited-service restaurants in 2024, so many operators are above the usual labor targets.

These are industry-wide ranges, not rules. A steakhouse with high food cost can do well with a lean team, and a scratch kitchen may spend more on labor and less on food. Watch the total and the trend. The industry benchmarks page shows our estimates for different types of restaurant.

Monthly is the minimum, because that is when your books close. Weekly is better. A problem found in week one costs one week of margin; found at month end, it has cost four.

A weekly count doesn’t need to be perfect. Count the same high-cost items (proteins, dairy, liquor) at the same time on the same day each week, and use your POS sales and your payroll report for the same seven days.

On the food side:

• Cost out every recipe and re-check it when supplier prices change.
• Portion with scoops, scales and ladles, not by eye.
• Compare what you should have used with what you did use. The food waste gap calculator shows how much the difference costs you.
• Look at which dishes earn the most per plate, and promote those. The free Menu Review helps you sort them.
• Check each invoice against the price you agreed with the supplier.

On the labor side:

• Schedule to your sales forecast by hour, not the same roster every day.
• Track sales per labor hour. The labor efficiency calculator does the maths.
• Watch overtime daily, before the week closes.
• Cross-train staff so a slow station doesn’t need its own person.
• Keep good people: every new hire costs time to train. The staff retention checklist lists what helps.