Prime cost is the sum of what you spend on food and drink and what you spend on people. For most restaurants it accounts for the majority of every sales dollar, which makes it the most useful single number for judging whether the business is healthy. Rent, utilities and card fees matter, but they are mostly fixed. Prime cost is the part you can actually move from week to week.
December is a good time to calculate it properly. You have a full year of sales, invoices and payroll to work from, and the choices you make now on menu prices, schedules and purchasing will shape the first quarter of 2027. This guide explains what goes into prime cost, walks through a month of illustrative numbers, shows the ranges commonly used as benchmarks, and lays out a year-end review you can finish in an afternoon.
Prime cost has two parts: cost of goods sold and total labor cost.
Cost of goods sold (COGS) is the cost of the food and beverages you actually used to make what you sold. It is calculated from inventory counts as well as invoices, since what you bought in a month is rarely what you used. Many restaurants also include takeout packaging here, since it scales with sales. Our guide to cost of goods sold covers the calculation methods in more detail.
Total labor cost is broader than hourly wages. It should include:
Prime cost does not include rent, utilities, marketing, credit card processing fees, third-party delivery commissions or repairs. Those belong in operating expenses. Keeping them out of prime cost lets you compare it across months and across locations.
The formula is simple:
Prime cost = COGS + total labor cost
Prime cost % = prime cost ÷ total sales × 100
Here is a month for an illustrative full-service restaurant with $120,000 in net sales.
Step 1, COGS. Beginning inventory was $14,000. The restaurant bought $36,000 of food and beverage during the month. Ending inventory was $13,000. COGS is $14,000 + $36,000 − $13,000 = $37,000.
Step 2, labor. Hourly wages were $26,000. Salaried managers and the head chef cost $9,000. Employer payroll taxes, benefits and workers' compensation added $5,000. Total labor is $40,000.
Step 3, prime cost. $37,000 + $40,000 = $77,000.
Step 4, percentage. $77,000 ÷ $120,000 = 64.2%.
That leaves about 36 cents of each sales dollar to cover rent, utilities, fees, marketing and everything else, with whatever remains as profit. If prime cost rose to 70% while other costs stayed the same, that remaining share would drop to 30 cents, and most of the drop would come straight out of profit. Our article on average restaurant profit margins shows how thin that remaining share usually is.
Industry guidance commonly puts prime cost at roughly 60% to 65% of sales for full-service restaurants and around 55% to 60% for quick-service restaurants. Restaurant365, a restaurant accounting software provider, publishes these ranges, and many operators use them as a first reference point.
For the labor side alone, the National Restaurant Association's 2025 Restaurant Operations Data Abstract, based on 2024 data, reports median labor costs of about 36.5% of sales for full-service restaurants and 31.7% for limited-service restaurants.
Your own concept will shift the balance between the two halves:
Because the mix varies, the most useful benchmark is your own prime cost tracked month by month. A steady 63% is in a far better position than a number that swings from 58% to 69%.
Prime cost is only as accurate as its inputs. Each one comes from a different source, and the timing does not always line up.
When your POS, timeclock and payroll are connected, most of these numbers arrive without retyping. Our article on what syncs between POS, accounting and payroll explains which pieces usually transfer automatically and which still need a bookkeeper.
A monthly prime cost tells you what happened. A weekly one gives you time to react.
Many operators run a quick weekly version: net sales from the POS, purchases received that week as a stand-in for COGS, and labor from the timeclock plus an estimate for taxes and benefits. It is less exact than the monthly figure, since purchases and usage do not match in any single week, but it shows trends early. A week where labor jumps three points above normal is visible on Monday instead of at month-end.
Do a full inventory count at least once a month to correct the weekly estimates. High-cost items such as seafood, beef and imported specialty goods are often counted weekly, since small errors there make a large difference.
Set aside an afternoon in December and work through these steps.
Write down a target prime cost range for each quarter of 2027 based on what you find, rather than a single annual figure.
Once you know which half of prime cost is drifting, the response is more focused.
If food cost is rising: review recipes and portion sizes for the top sellers, update menu prices where plate costs have climbed, and tighten ordering so you hold less stock that can spoil. Our guides on controlling food cost and menu pricing strategy cover these steps.
If labor cost is rising: compare scheduled hours against sales by hour, look for overtime that could have been avoided, and check whether slow shifts are carrying the same staffing as busy ones. Plan for 2027 wage increases using the minimum wage by state as a starting point.
If both are steady but profit is still thin: the pressure is likely outside prime cost, in rent, delivery commissions or card fees. That points to a different review.
Q1: What is restaurant prime cost?
Prime cost is the total of cost of goods sold and total labor cost. COGS covers the food and beverages used to make what you sold, and labor covers wages, salaries, payroll taxes, benefits and workers' compensation. It is usually expressed as a percentage of net sales.
Q2: How do you calculate prime cost?
Add COGS and total labor cost for the period, then divide by net sales and multiply by 100. COGS is beginning inventory plus purchases minus ending inventory. Labor should include salaried staff and employer taxes, not only hourly wages.
Q3: What is a good prime cost percentage for a restaurant?
A common benchmark is roughly 60% to 65% of sales for full-service restaurants and 55% to 60% for quick-service. Your concept changes the balance between food and labor, so track your own monthly trend and set a target range based on it.
Q4: Is prime cost or food cost more important to track?
Prime cost gives the fuller picture, since a restaurant can lower food cost by adding prep labor or lower labor by buying pre-prepared ingredients. Tracking both halves together shows whether a change actually saved money or just moved it.
Q5: How often should a restaurant calculate prime cost?
Calculate it accurately each month using a full inventory count and payroll records. Many operators also run a quick weekly estimate using purchases and timeclock hours, which shows problems early enough to adjust schedules and ordering.
Q6: What reports do I need from my POS to track prime cost?
You need net sales after discounts and comps, sales by item to check plate costs, and labor hours by role from the timeclock. Combine these with vendor invoices, inventory counts and payroll statements to complete the calculation.
Prime cost puts the two costs you control most closely into one number. Calculated with full labor, real inventory counts and net sales, it shows whether the restaurant is gaining or losing ground long before the year-end accounts do.
Use the quiet days between the holidays to lay out your 2026 months side by side, find the months that drifted and set quarterly targets for 2027. The work takes an afternoon and gives you a clear reference point for every pricing and scheduling decision in the new year.
