Prime cost, explained without the accounting
Prime cost is the one number that tells you whether a restaurant works. What it includes, what a healthy figure looks like, and why weekly beats monthly.
Prime cost is cost of goods sold plus total labour, including taxes and benefits, as a percentage of sales. It is the portion of every dollar that goes out before you have paid a single fixed bill, and it is the only ratio that reliably separates restaurants that make money from restaurants that are busy.
What goes in
- COGS: opening inventory plus purchases minus closing inventory. Not simply what you bought this month.
- Labour: hourly, salaried, payroll taxes, workers' comp, benefits. Management salaries included — they are labour.
- Sales: net sales, after comps and discounts. Gross sales flatters the ratio and fools you.
What good looks like
| Service model | Workable prime cost | Note |
|---|---|---|
| Full service | Around 65% of net sales | Higher labour, lower food cost than QSR. |
| Quick service / fast casual | Around 60–62% | Lower labour but tighter margins on food. |
| Bar-led | Can run under 60% | Beverage COGS is structurally lower. |
One point of food cost is not one point of profit
At a 2.8% median net margin, taking a single point off food cost raises net profit by roughly a quarter to a third. This is why cost control moves the needle harder than a sales push at the same effort.
Why weekly beats monthly
A monthly prime cost tells you what happened three weeks ago, which is late enough that the cause has been forgotten. A weekly figure lets you connect a bad number to a specific event — a party, a bad delivery, a training week — while the answer is still in someone's head. Accuracy suffers slightly at weekly; usefulness roughly triples.