Prime Cost: The One Number That Tells You If Your Restaurant Is Profitable

Bottom line: Prime cost is food cost plus total labor cost, expressed as a percentage of sales. Healthy prime cost is 55 to 65 percent for full-service and 55 to 60 percent for QSR. Above 65 percent, the location is unlikely to be profitable no matter what the other lines say.

Last updated 2026-07-29.

In the restaurant industry, there is no shortage of metrics to track, food cost percentage, labor percentage, gross profit, net profit, occupancy ratio, and on down the list. Each of these tells part of the story. But if you could only track one number to understand the fundamental health of your restaurant, prime cost is that number.

Prime cost is simple in its definition: it is the sum of your cost of goods sold (COGS (cost of goods sold, meaning the food and beverage a restaurant uses)) and your total labor costs, expressed as a percentage of net sales. It combines the two largest and most controllable expense categories in the business into a single, telling figure. When prime cost is in a healthy range, the rest of the P&L, including your gross profit and operating income, has room to breathe. When it is out of range, every other line item becomes a struggle.

Run your own numbers: use our free Restaurant Prime Cost Calculator to see your prime cost percentage and how it compares to the benchmarks for your concept.

How to Calculate Prime Cost

The formula is straightforward:

• Prime Cost = (COGS + Total Labor Costs) ÷ Net Sales × 100

Total labor costs should include everything: hourly wages, salaried management, payroll taxes, and benefits. Not just the hourly line employees, all of it.

As an example, if a restaurant generates $80,000 in net sales in a given week, spends $24,000 on food and beverage, and incurs $28,000 in total labor, the prime cost calculation looks like this:

• ($24,000 + $28,000) ÷ $80,000 × 100 = 65%

That is a prime cost of 65 percent. Whether that number is good or bad depends on the restaurant concept, but it provides an immediate, clear signal about financial performance.

What Are the Benchmarks?

Prime cost benchmarks vary meaningfully by concept. A quick-service restaurant, which has lower labor intensity, might target prime cost in the range of 55 to 60 percent. A full-service restaurant, with more hours of labor, more complexity of service, and higher cost menu items, typically operates with a prime cost target between 60 and 65 percent. Above 65 percent, most restaurant models begin to struggle to generate meaningful profit after paying occupancy, marketing, and overhead expenses.

These are not hard rules, a high-volume, low-overhead concept might sustain a 68 percent prime cost profitably, while a struggling location with high occupancy costs might need to be at 58 percent to survive. The benchmark exists as a point of reference, not a mandate. What matters is knowing your number, understanding your model, and managing toward a target that works within your specific financial structure.

Why Prime Cost, and Not Just Food Cost or Labor Cost Separately?

Restaurant operators often become fixated on one side of the prime cost equation at the expense of the other. A kitchen focused obsessively on food cost may cut portion sizes or quality in ways that damage the guest experience and, ultimately, sales. A management team focused only on labor may run the restaurant understaffed during key periods, resulting in poor service and reduced revenue.

Prime cost corrects for this tunnel vision by forcing both costs into a single view. A restaurant that achieves a 28 percent food cost but runs 42 percent labor has a prime cost of 70 percent, a serious problem, regardless of how attractive the food cost percentage looks in isolation. Conversely, a concept running 35 percent food cost with 26 percent labor has a prime cost of 61 percent, which may be quite manageable depending on the model.

The relationship between food cost and labor cost is also not static. When you invest in skilled kitchen staff who reduce waste and control portions, labor costs rise but food cost may fall. When you simplify your menu to reduce prep complexity, labor comes down. Managing prime cost means understanding this tradeoff and making deliberate decisions rather than optimizing each line independently. It also helps to understand how your fixed versus variable expenses interact with changes in prime cost at different sales volumes.

Tracking Prime Cost Weekly

Prime cost is most valuable when it is tracked consistently and frequently. A monthly prime cost calculation tells you what happened. A weekly prime cost calculation tells you what is happening, and gives you time to respond before the month is lost.

To track it weekly, you need three inputs: weekly net sales (readily available from your POS), weekly food and beverage cost (which requires a weekly inventory count), and weekly labor cost (from your payroll system or scheduling software). The discipline of tracking weekly inventory is where many operators fall short, and it is precisely the discipline that separates operators who control their costs from those who are simply watching them.

Once you are tracking prime cost weekly, begin comparing it across days, dayparts, and seasons. High prime cost weeks often have a pattern, a supply delivery that came in heavier than normal, a slow week where labor wasn’t adjusted, a period of management transition. Identifying those patterns is where real cost management begins.

When Prime Cost Is Too High

If your prime cost is running above your target, the diagnosis requires looking at both components. Start with labor, because labor is the faster-moving variable, it responds to scheduling decisions made this week. If food cost is the driver, the path is through inventory controls, portioning, waste reduction, and purchasing discipline.

What prime cost cannot tell you is which specific items or shifts are driving the problem. It tells you that a problem exists and approximately where to look. From there, more granular analysis, daily waste logs, ideal versus actual food cost comparisons, labor productivity metrics like sales per labor hour, helps identify the root cause.

The goal is not to minimize prime cost at all costs. Cutting labor below the level needed to deliver a quality guest experience, or cutting food cost by compromising on ingredient quality, will damage the business in ways that don’t show up immediately in the prime cost number but show up soon enough in declining traffic and eroding sales.

The goal is to understand what your prime cost needs to be for your model to work, to track it relentlessly, and to make the operational decisions that keep it in the range that allows the rest of your P&L to function.

The author is a former CFO for a multi-unit restaurant brand. RestaurantBottomLine.com is dedicated to helping independent operators protect their financial model.

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Related Reading

• The Real Math on Third-Party Delivery: What It Actually Costs You
• Ideal Food Cost vs. Actual Food Cost: How Waste Is Quietly Killing Your Margins
• Sales Per Labor Hour (SPLH): The One Labor Metric Every Restaurant Operator Needs

Prime cost (COGS + labor) is the metric that separates success from struggle. The Restaurant Finance Toolkit’s P&L template highlights prime cost automatically and shows you the exact impact of food cost and labor changes.

Track the one number that determines profitability. Get the Restaurant Finance Toolkit →

Related reading: Use the 30/30/30 rule as a quick benchmark for where your prime cost components should land, and track it alongside the other seven KPIs every restaurant operator should watch weekly.

Frequently asked questions

What is prime cost in a restaurant?

Prime cost is the sum of cost of goods sold (food and beverage) and total labor, expressed as a percentage of net sales. It combines the two largest and most controllable expenses into the single best measure of operational profitability.

What is a good prime cost percentage?

A healthy prime cost is 60 to 65 percent of net sales for full-service restaurants and 55 to 60 percent for quick-service concepts. Above roughly 70 percent, profitability becomes very difficult regardless of sales volume.

How do I lower my prime cost?

Attack both halves. Lower food cost through tighter purchasing, portion control, and waste reduction; lower labor by scheduling to forecasted sales by daypart and controlling overtime. Track prime cost weekly so creep is caught early.

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See also: The 30/30/30/10 Rule for Restaurants: Where It Breaks · Restaurant Food Cost by Concept: Is 33% Good or Bad? · Staff Meals, Employee Discounts, and the Hidden Impact on Your Food Cost