Prime Cost Explained
· 4 min read
Add your COGS and your fully loaded labour for the same week, then divide by that week's sales. A bistro at $14,880 of COGS and $16,320 of labour on $48,000 of sales runs 65.0%. The step most operators skip is loading labour with taxes and benefits, which understates prime cost by four to six points.
Formula
Prime cost % = (COGS + Total labour) ÷ Total sales × 100
Total labour means fully loaded: wages, salaries, payroll taxes, workers' comp and benefits. Not just gross wages.
Worked example · One week at a 90-seat bistro
- Food sales
- $38,400
- Beverage sales
- $9,600
- Total sales
- $48,000
- COGS — food + beverage
- $14,880
- Wages and salaries
- $13,200
- Payroll tax, comp, benefits
- $3,120
- Prime cost in dollars
- $31,200
- Prime cost
- 65.0%
Right at the ceiling. Every point above comes out of the 5–8 points of profit a healthy independent has left after rent and overhead.
Why food cost alone lies to you
Food cost and labour cost trade against each other constantly, and looking at either alone hides the trade completely.
| Butcher in house | Buy pre-portioned | |
|---|---|---|
| Food cost % | 29% | 34% |
| Labour cost % | 34% | 28% |
| Prime cost | 63% | 62% |
| Prep hours per week | 22 | 6 |
Read the food cost column and buying pre-portioned looks like a five-point catastrophe. Read prime cost and it's a one-point improvement that also gives you back sixteen prep hours. This is the single best argument for the combined number.
What belongs in each half
| In COGS | In labour | In neither |
|---|---|---|
| Food inventory consumed | Hourly wages | Rent and occupancy |
| Beverage inventory consumed | Salaried management | Utilities |
| Packaging that goes out with the order* | Employer payroll taxes | Insurance |
| Workers' compensation | Marketing | |
| Benefits and paid leave | Repairs and maintenance | |
| Contract labour | Third-party delivery commission |
*Packaging is a judgement call — some operators put it in COGS, some in supplies. Either is defensible. What isn't defensible is moving it between categories, because that makes your trend line meaningless and the trend is the entire point.
The 65% benchmark, and when it doesn't apply
65% is a planning benchmark, not a law. Derive your own from the bottom of the P&L up:
Worked example · Your actual ceiling
- Occupancy — rent, utilities, insurance
- 9%
- Other operating expenses
- 12%
- Target owner profit
- 8%
- Everything below prime cost
- 29%
- Your prime cost ceiling
- 71%
A restaurant with 6% occupancy has room for a 74% prime cost. One paying 14% needs it under 66%. This is why borrowed benchmarks mislead — and why a low-rent food truck can run a food cost that would sink a downtown bistro.
Both halves of that are a minute of arithmetic. The prime cost calculator does the weekly number with labour loaded properly; the break-even calculator derives the ceiling from your own fixed costs rather than from an industry average.
How to run it weekly
- Same period boundaries for everything. Sales, inventory count and payroll all covering the same days. Mismatched weeks produce phantom swings and send you chasing nothing.
- Count inventory weekly. Only what's expensive and what moves — proteins, seafood, dairy, alcohol. Forty-five minutes, not four hours.
- Use loaded labour. Gross wages understate by four to six points, which is exactly enough to make a problem invisible.
- Watch the trend, not the week. A holiday, a large private event, or a month with three pay periods will each throw one week. Three weeks in a row is a signal.
- Split it when it moves. A prime cost that jumped two points tells you something is wrong; the food/labour split tells you where.
Does prime cost include rent?
No. Rent, utilities, insurance and marketing sit below prime on the P&L. Prime cost is deliberately restricted to the two lines you can change this week — which is exactly what makes it actionable.
My prime cost is 58% — should I be worried?
Check it isn't the result of understaffing or buying below the quality your menu implies. Consistently very low prime cost with flat or declining sales sometimes means you're under-investing in the thing guests came for.
How do I calculate prime cost without weekly inventory?
You can approximate it using purchases instead of COGS, but only if your inventory level is genuinely stable week to week. It will be wrong in any week you stock up or draw down, which is most weeks. Use it as a rough signal, not a number you act on.
The weekly number, without the weekly spreadsheet.
Marji keeps your recipe costs current from your invoices so the food half of prime cost is always right — and tells you which dishes moved it.
Start free →Terms this guide uses
Prime cost
Total cost of goods sold plus total labor cost — the two numbers that decide whether a restaurant survives.
COGS (cost of goods sold)
The cost of the food and beverage actually consumed in a period, computed from inventory rather than from purchases.
Labor cost percentage
Total labour cost divided by sales — the other half of prime cost, and the half that's usually larger.
Read next
The Restaurant P&L, Line by Line (For Owner-Operators)
A full restaurant profit and loss statement explained line by line, with a worked example, healthy percentage ranges, and the four lines where problems actually show up first.
What's a Good Food Cost Percentage? (By Restaurant Type)
Typical food cost ranges for pizzerias, cafés, bars, fine dining and food trucks — and why the right target depends on your rent and check average, not an industry average.
Ideal vs. Actual Food Cost: Where the Variance Actually Hides
How to compute theoretical food cost from your POS mix, compare it against actual COGS, and work through the six causes of variance in the order that usually pays.