What Is Prime Cost?

Introduction

Prime cost is a restaurant benchmark that combines food cost and labor cost. It helps you answer a practical question: how much of our sales are being consumed by the two biggest controllable expenses?

Use the table of contents to review the definition, formulas, benchmark ranges, worked examples, and the most common ways teams miscalculate prime cost.

Step-by-step: compute prime cost

1. Compute total food cost for the same period you will use for labor and sales.
2. Compute total labor cost using loaded labor: base wages plus payroll taxes, employee benefits, and other direct labor if tracked separately.
3. Compute prime cost = food cost + total labor.
4. Compute prime cost % = (prime cost ÷ sales) × 100.
5. Optional target mode: compare your prime cost to a target and review variance.

Formula (food + loaded labor)

Prime Cost = Food Cost + Labor Cost + Payroll Taxes + Benefits + Other Direct Labor
Prime Cost % = (Prime Cost ÷ Sales) × 100

Real restaurant examples

Benchmark status (industry ranges)

Many operators use ranges that treat prime cost below roughly 55% as excellent and above 70% as critical. Exact targets vary by concept, wage structure, and menu mix. Use the status as a guideline, not a guarantee.

Common mistakes

• Counting wages only and excluding payroll taxes and benefits.
• Mixing period scopes (food cost from one window, labor cost from another).
• Using sales that do not match the food cost definition (e.g., food cost based on food sales but sales includes non-food revenue).
• Setting a target without reviewing variance frequently and acting on root causes.

Best practices

• Include loaded labor for accuracy (taxes, benefits, and other direct labor).
• Track prime cost consistently week to week (or by period close).
• Diagnose variance early: purchasing, waste, prep yield, and scheduling all interact.
• Reconcile with food cost and gross profit metrics to keep your story coherent across dashboards.