Prime Cost

Prime cost is the sum of your two biggest expenses: food cost and labor cost. It includes everything you spend on ingredients plus all wages, salaries, benefits, payroll taxes, and any other staff-related expenses. Together, these two categories typically account for 55% to 65% of a restaurant's total revenue.

Why it matters for your restaurant

Prime cost is the single most important number for understanding your restaurant's financial health. It captures the two expenses you have the most direct control over, and it tells you whether your operation is running efficiently before rent, utilities, and other fixed costs even enter the picture.

If your prime cost is too high, it does not matter how busy you are. You can pack the dining room every night and still lose money if your food and labor costs are eating up too much of each dollar that comes in. On the other hand, a well-managed prime cost gives you breathing room to cover your fixed expenses and actually generate profit.

The industry benchmark is to keep prime cost at or below 60% of total revenue. A fast-casual restaurant with lower labor needs might aim for 55%. A full-service restaurant with extensive table service might land closer to 65% and make up for it with higher check averages.

How it works in practice

Calculate your prime cost by adding total food cost and total labor cost for a given period, then dividing by total revenue. If your restaurant did $120,000 in revenue last month, spent $38,000 on food and $34,000 on labor, your prime cost is $72,000, or 60% of revenue. That leaves 40% to cover rent, utilities, insurance, supplies, and profit.

Now imagine your labor cost climbs to $38,000 the following month because you added shifts during a slow period. Your prime cost jumps to 63.3%, and suddenly the cushion for your fixed expenses and profit has shrunk by four thousand dollars. That is why monitoring prime cost weekly, not just monthly, helps you react quickly to cost overruns.

The power of prime cost is that it forces you to look at food and labor together. Cutting food cost by switching to cheaper ingredients might save money, but if it slows down your kitchen and requires more labor hours, the net effect on prime cost could be zero or even negative.

Connecting the dots

Prime cost connects your menu pricing strategy with your staffing decisions. It is the number your accountant, your chef, and your general manager should all be watching. When prime cost stays in line, profit follows naturally.