Prime cost
By Marji · Updated · Sources and editorial policy
Prime cost is cost of goods sold plus total labor cost, expressed as a percentage of sales. It captures the two costs a restaurant can actually control week to week. A widely quoted rule of thumb puts it at no more than 65% of sales for table service; that is a practitioners' guideline, not a measured average, so derive the ceiling your own P&L allows. For limited-service restaurants, the National Restaurant Association reported a median prime cost of 65 cents per sales dollar in its 2025 data abstract.
Formula
Prime cost % = (COGS + Total labor) ÷ Total sales × 100
Total labor means everything: wages, salaries, payroll taxes, workers' comp, and benefits — not just hourly wages.
Worked example · A week at a 90-seat bistro
- Food sales
- $38,400
- Beverage sales
- $9,600
- Total sales
- $48,000
- COGS (food + beverage)
- $14,880
- Wages + salaries
- $13,200
- Payroll tax, comp, benefits
- $3,120
- Prime cost (dollars)
- $31,200
- Prime cost
- 65.0%
Exactly at the 65% rule of thumb. Whether that is too high depends on what rent, other expenses and profit need; the prime cost guide derives the ceiling from the rest of the P&L.
Why prime cost beats food cost as a weekly ritual
Food cost and labor cost trade against each other constantly, and looking at either alone hides the trade. Buy pre-portioned protein and your food cost rises while your prep labor falls. Butcher in house and the reverse happens. Neither move is good or bad on its own — only the combined number tells you which way it went.
| Butcher in house | Buy portioned | |
|---|---|---|
| Food cost % | 29% | 34% |
| Labor cost % | 34% | 28% |
| Prime cost | 63% | 62% |
Read only the food cost column and buying portioned looks like a five-point disaster. Read prime cost and it is a one-point improvement — plus a shorter prep list.
How to run it
- Measure it weekly, not monthly. A month is four chances to be wrong before you find out.
- Use the same period boundaries for sales, inventory and payroll. Mismatched weeks produce phantom swings that send you chasing nothing.
- Track the trend line, not the single week. Holidays, a big private event, or a payroll with three pay periods will all throw one week.
- Break it into its two halves when it moves. A prime cost that jumped two points tells you something is wrong; the split tells you where.
Does prime cost include rent?
No. Rent, utilities, insurance and marketing are occupancy and operating costs, below prime on the P&L. Prime cost is deliberately limited to the two lines you can change this week.
Is 65% a hard rule?
It's a practitioners' rule of thumb, not a law. A restaurant with unusually low rent can survive a higher prime cost; one paying prime downtown rent may need it under 60%. Compute your own ceiling from your actual fixed costs and target profit — that's what the break-even calculator does.
Run the numbers
Prime cost calculator
The guide that works it through
Prime Cost Explained
What prime cost includes, how to calculate it weekly, where the 65% rule of thumb comes from, and how to derive the ceiling your own P&L allows.
Related terms
COGS (cost of goods sold)
The cost of the food and beverage actually consumed in a period, computed from inventory rather than from purchases.
Food cost percentage
The share of a dish's menu price consumed by the ingredients on the plate.
Labor cost percentage
Total labour cost divided by sales — the other half of prime cost, and the half that's usually larger.
Break-even point
The sales volume at which total revenue exactly covers total cost — the number below which you are paying to open.