The formula
Prime cost adds the two costs that move with every shift and every delivery. Cost of goods sold (COGS) here means the food and beverages you used. Total labor includes hourly wages, salaries, payroll taxes, and benefits, and for most operators manager pay.
Prime cost
Prime cost = cost of goods sold + total labor
Prime cost % = prime cost ÷ total sales × 100
A worked example
Take a week with $50,000 in sales. Food and beverage used cost $14,000. Labor was $12,000 in hourly wages, $3,000 in manager salaries, and $2,000 in payroll taxes and benefits.
The sum
Total labor = $12,000 + $3,000 + $2,000 = $17,000
Prime cost = $14,000 + $17,000 = $31,000
Prime cost % = $31,000 ÷ $50,000 × 100 = 62.0%
Why operators watch it
Rent and most overhead are fixed for the year. Food and labor are what you steer day to day, and together they are usually the bulk of a restaurant's spending. That is why prime cost is the number many operators look at first.
A common rule of thumb is to keep prime cost at or below roughly 60% to 65% of sales. Concepts differ, so treat that as a starting point and then track your own trend: a number that creeps up for three weeks matters more than where it sits against a benchmark.
How to read it when it moves
Prime cost is the sum of two parts, so look at the parts:
- COGS % up, labor % flat: look at vendor prices, portions, and waste
- Labor % up, COGS % flat: look at the schedule against sales, overtime, and open punches
- Both up on a slow week: sales fell and the costs did not, so look at how the schedule and the prep list were set
Weekly, not monthly
Prime cost needs a COGS figure, which needs inventory, and a labor figure, which needs payroll. Done by hand that is a monthly job. The more of it that is computed continuously, with inventory deducted as dishes sell and labor read from the schedule and punches, the sooner you can see a week going wrong.
What does not belong in prime cost
Rent, utilities, marketing, insurance, and other overhead sit outside prime cost. Keeping it to COGS and labor is what makes it comparable from week to week.