Restaurant Prime Cost: Formula, Benchmarks & Example
Restaurant prime cost is your cost of goods sold (COGS) plus your total labor cost: the food, drinks, and payroll it takes to serve every guest, and the two highest costs you control. Divide it by total sales to get your prime cost percentage.
Below are the formula, a weekly worked example, NRA benchmarks by restaurant type, a four-step weekly routine, and what to fix first when the number runs high.
What is prime cost in a restaurant?
Prime cost is the sum of two numbers for the same period:
- Cost of goods sold (COGS): the food and beverages, including beer, wine, and liquor, used to make what you sold. Some operators add to-go packaging; whichever you choose, count it the same way every week.
- Total labor cost: hourly wages, overtime, manager salaries, payroll taxes, workers' compensation, health insurance, and other benefits. If you work shifts in your own restaurant and pay yourself little or nothing, add what you would pay a manager for that role, or prime cost will look better than it is.
Rent, utilities, card fees, delivery commissions, marketing, and repairs stay outside prime cost; they belong to your other restaurant operating costs. Food and labor get their own line because they make up the largest share of sales and fluctuate week to week.
Prime cost formula
COGS is beginning inventory plus purchases minus ending inventory; our guide to total cost of goods sold covers what to include.
Total labor cost is gross payroll plus payroll taxes and benefits; our guide to restaurant labor cost percentage lists every item to include. Use the same week for all three inputs.
What is a good prime cost percentage?
The right target depends on your service style. Two references are worth knowing: the industry rule of thumb and what restaurants actually report.
Benchmark | Full-service (table service) | Limited-service (quick service) | Source |
|---|---|---|---|
Prime cost ceiling (rule of thumb) | 65% of sales or less | 60% of sales or less | |
Median food and non-alcoholic beverage cost | 32.0% | 32.4% | |
Median labor cost (salaries, wages, benefits) | 36.5% | 31.7% | |
Median labor cost, operators with a pre-tax profit | 34.2% | 30.0% | |
Median income before taxes | 2.8% | 4.0% |
NRA figures come from the 2025 Restaurant Operations Data Abstract, based on 2024 data from more than 900 restaurants. They describe what operators reported, not targets.
The gap between the rule and reality is real: the median limited-service restaurant spent 65 cents of every sales dollar on prime cost in 2024 (NRA), five points above the 60% ceiling. With restaurant profit margins this thin, every point of prime cost you recover goes almost straight to the bottom line.
Don't judge food cost or labor in isolation. A high-volume steak or seafood house can run a food cost percentage well above average and still stay under its prime cost ceiling, because high sales keep payroll low.
A labor-heavy scratch kitchen can post a low food cost and still overshoot. Set your own target from your best recent weeks and use the ceiling as a sanity check.
How to calculate prime cost
Here is one week at a full-service restaurant without a bar, with $40,000 in sales.
Line | Amount | % of sales |
|---|---|---|
Beginning inventory (food and non-alcoholic beverages) | $9,000 | |
+ Purchases | $12,800 | |
− Ending inventory | $8,600 | |
COGS | $13,200 | 33.0% |
Hourly wages and overtime | $9,800 | |
Manager salaries (one week's share) | $2,400 | |
Payroll taxes and benefits | $2,600 | |
Total labor cost | $14,800 | 37.0% |
Prime cost | $28,000 | 70.0% |
What the result says:
- 70% is the danger line. As prime cost approaches 70% of sales, almost any table-service restaurant struggles to turn a profit.
- Labor is the first half to fix. Food at 33.0% sits close to the full-service median of 32.0% in the table above, while labor at 37.0% is above both the 36.5% median and the 34.2% reported by profitable operators.
- Each point is worth real money. On $40,000 a week, one point of prime cost is $400 a week, or $20,800 a year.
To get one week's share of salaries, divide monthly salaries by the days in the month and multiply by seven.
If payroll taxes and benefits aren't in your weekly reports yet, use 20%–23% of gross payroll, the range most restaurants fall into, as a placeholder until your accountant gives you your actual rate.
How to track prime cost every week
Monthly numbers arrive too late to fix the month. Restaurants commonly see prime cost drop by 2% to 5% of sales within the first few weeks of switching to weekly tracking. A routine that works:
- Close the week on the same day. Sunday works for many operators because inventory is lowest, so counting goes faster.
- Total the week's purchases. Log food and beverage invoices daily, including credits and cash payouts, so you have the total ready on Monday.
- Count inventory. Count in shelf order at the same time every week; our guide on restaurant inventory management covers the process.
- Pull labor and sales. Take hourly pay from your POS or time clock, add one week's share of salaries plus payroll taxes and benefits, then divide prime cost by the week's sales.
Review the result at the same weekly manager meeting and compare it with the previous four weeks; the trend tells you more than any single week.
UpMenu's restaurant analytics brings sales, POS, and inventory data into one dashboard, so you don't have to pull the sales side of the report from several systems.
Prime cost too high? Fix the half that's out of line
Labor usually decides whether a restaurant makes money. Full-service operators that lost money in 2024 reported a median labor cost of 42.9% of sales, against 34.2% for those that turned a pre-tax profit (NRA).
Before cutting anything, compare each half of prime cost with your own target and start with the one that's off:
What you see | Likely causes | First fixes | Go deeper |
|---|---|---|---|
Food cost above target, labor on target | Supplier price increases not passed on, portion drift, waste, theft | Recost recipes when prices move, standardize portions, log waste every shift, compare theoretical and actual usage of proteins | |
Labor above target, food on target | Schedules built from habit, overtime, turnover | Schedule to forecast sales by daypart, track sales per labor hour, cross-train for slow shifts, cap overtime | |
Both above target | Prices too low or a sales mix tilted to low-margin items | Reprice, promote high-margin dishes, cut items that are both unpopular and unprofitable | |
Both on target, profit still thin | Costs outside prime cost | Review rent, card fees, and delivery commissions | Your P&L |
Don't cut servers on your busiest shifts to hit a weekly number; thin service costs you regulars. And remember the other side of the ratio: more sales on the same schedule lowers your labor percentage without anyone working less.
Frequently Asked Questions
Include it if you work in the business. If an owner covers manager shifts without pay, labor looks cheaper than it would with a hired manager, so add a market-rate salary for the role you fill.
Yes. A number well below your usual range may point to understaffed shifts, shrinking portions, or an inventory-counting error. Check the count first, then ticket times and guest feedback.
In cost accounting, prime cost is direct materials plus direct labor per unit, and direct labor plus manufacturing overhead is called conversion cost. Restaurants use a broader version that includes all payroll, including management.
About the author
Co-Founder
Co-Founder of UpMenu, leading the UpMenu Partner Program. Writes about partner programs, restaurant finance, franchise & multi-location operations, and growth strategy. Serial entrepreneur with 30+ years of building and scaling businesses across CEE and Switzerland.