What is prime cost in a restaurant?

The industry-standard target

For full-service independent restaurants, the operational target is 60–65% prime cost. Above 65%, operating margin gets squeezed before the rest of the P&L is even calculated. Below 60% usually means either underpricing the menu or running a model that won't scale (per the National Restaurant Association's State of the Industry benchmarks).

Quick-service restaurants (QSR) typically run a tighter 55–60% prime cost because their food cost band is similar but labor cost runs lower thanks to a less labor-intensive service model.

Why operators track prime cost weekly, not monthly

Prime cost is the headline operational number worth knowing every Monday morning. The bottom-line monthly P&L is a lagging indicator — by the time it tells you something, the month is over. Prime cost calculated weekly catches food-cost drift and labor-overrun patterns inside the window where they can still be corrected.

How to calculate prime cost

1. Pull weekly sales: total revenue for the week (food + beverage + service charges).
2. Calculate COGS: beginning inventory + purchases − ending inventory = cost of goods sold for the week.
3. Calculate labor: hourly wages + salaried management + payroll taxes + benefits paid that week.
4. Add COGS + Labor.
5. Divide by sales, multiply by 100.

Example: $40,000 weekly sales, $13,000 COGS, $13,500 labor. Prime cost = ($13,000 + $13,500) ÷ $40,000 × 100 = 66.25% — slightly above the 65% upper bound, signaling either food-cost drift or labor over-scheduling.

Common operator mistakes

• Using monthly prime cost instead of weekly. Monthly numbers smooth out the weekly patterns where the actual problems live.
• Excluding payroll taxes and benefits from labor. True labor cost runs 1.15–1.30× gross wages depending on which benefits are layered in: 1.15–1.20× for indies without health/401k (FICA + FUTA + state SUI + workers' comp ≈ 12–14% baseline burden); 1.20–1.30× once health insurance and retirement match are included. Operators who track only gross wages systematically understate prime cost.
• Counting purchases instead of usage. COGS = food used, not food bought. If you bought $15K but only used $13K, your COGS is $13K — the $2K difference is closing inventory, not cost.

Related concepts

• Food cost percentage — the COGS half of prime cost
• Comp percentage — sales-side metric tracked alongside prime cost
• How to read your restaurant P&L — full-context deep-dive including prime cost
• How do I lower labor costs? — the labor half of prime cost
• How do I automate food cost management? — the COGS half of prime cost