Restaurant Prime Cost: Formula, Example, and Weekly Review
Calculate restaurant prime cost from cost of goods sold and labor, then use it without hiding weak dish margins.
Prime cost combines the two large variable cost groups a restaurant can actively manage: cost of goods sold and labor. It is useful as an operating signal, but only when the source numbers are current and the total is not used to excuse unprofitable menu items.
The prime cost formula
Prime cost = cost of goods sold + total labor cost. Prime cost percentage = prime cost divided by net sales, multiplied by 100.
For example, if weekly net sales are 20,000, cost of goods sold is 6,200, and labor is 5,800, prime cost is 12,000 or 60% of net sales. Use net sales consistently and document whether taxes and service charges are excluded.
Why a weekly total can mislead
A stable total can hide opposite movements. Ingredient costs may rise while understaffing temporarily lowers labor, or overtime may rise while purchasing improves. Review both components before reacting.
Prime cost also does not tell you which dish caused the problem. Connect supplier prices and recipe costs to the products sold so the operating total leads to a specific menu action.
A practical review rhythm
Close the same seven-day period for sales, purchases, stock movement, and labor. Mark estimates clearly and replace them when confirmed data arrives.
Investigate the largest change first: supplier price, waste, portion yield, sales mix, overtime, or scheduling. Assign one owner and a review date instead of creating a broad cost-cutting project.
Operator checklist
Use net sales and the same weekly cut-off every time.
Separate food and beverage cost when that helps diagnosis.
Include payroll taxes and benefits consistently in labor.
Trace the total back to products and supplier price changes.
Sources
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