Restaurant prime cost is food and beverage cost of goods sold plus labor cost. Prime cost percentage divides that total by the same period’s net sales. Owners and operators use the measure to review these costs together before accounting for occupancy and other expenses.
Prime cost is a dollar amount; prime cost percentage is a ratio. Neither is net profit. Restaurant365’s prime-cost equation guide uses the combined food, beverage and labor definition.
Restaurant prime cost formula
Prime cost = Food and beverage COGS + Labor cost
Prime cost % = Prime cost / Net sales × 100
Use matching dates, locations and accounting definitions. In this article, net sales means food and beverage sales after the applicable discounts, comps and returns, excluding collected sales taxes. Confirm the reporting treatment with finance.
Food and beverage COGS is the cost assigned to the period, not simply the amount ordered or paid to suppliers. A simplified inventory calculation is opening stock plus net purchases minus closing stock, with transfers and other adjustments added according to the reporting policy. See food cost percentage for the distinction between actual cost and recipe estimates.
Include the labor expenses defined by your report, such as hourly wages, management salaries, employer payroll taxes and benefits. Accrue costs to the period worked rather than comparing one week’s sales with whichever payroll payment happened to clear that week. Prevent double counting if a cost is already included elsewhere.
Worked example
The following fictional week uses consistent food-and-beverage inventory values and assumes no transfers or additional inventory adjustments. Labor includes all employer labor costs in this example.
| Input or calculation | Amount |
|---|---|
| Opening food and beverage inventory | $8,200 |
| Net food and beverage purchases | $12,400 |
| Closing food and beverage inventory | $7,900 |
| Food and beverage COGS | $12,700 |
| Labor cost | $14,100 |
| Prime cost | $26,800 |
| Net food and beverage sales | $43,000 |
| COGS / net sales | 29.53% |
| Labor / net sales | 32.79% |
| Prime cost / net sales | 62.33% |
The remaining $16,200, or 37.67% of sales, must cover costs outside prime cost and any profit. The ratio alone cannot establish whether that amount is sufficient for this restaurant.
Calculate from the underlying dollars before rounding. Rounded component percentages can differ slightly from the rounded total.
Can I add food cost percentage and labor percentage?
Only if they use the same sales denominator and together cover the intended costs. A food-only ratio divided by food sales cannot simply be added to a labor ratio divided by total food and beverage sales.
For example, $10,000 food cost divided by $30,000 food sales is 33.33%. If beverage COGS is $3,000, total sales are $40,000 and labor is $12,000, prime cost is:
($10,000 + $3,000 + $12,000) / $40,000 × 100 = 62.5%
Adding the 33.33% food-only ratio to the 30% labor ratio would give 63.33%, which is incorrect. It leaves beverage cost out and changes the denominator. Use the cost amounts and total sales to calculate the combined measure reliably.
What is a good restaurant prime cost?
Set a budget that reflects your service model, sales mix, wage structure, occupancy and required return. A broad industry target cannot establish profitability for a particular location. Compare actual dollars and percentages with that budget and with comparable prior periods.
A weekly review can surface a change sooner than a monthly report, provided stock, purchasing, payroll and sales inputs are sufficiently complete. Label provisional estimates and reconcile them to closed-period records. More frequent reporting does not fix inconsistent inputs.
Investigate the cause before choosing an intervention
| Observation | Evidence to inspect | Possible action |
|---|---|---|
| COGS dollars increased | Units sold, supplier prices, product mix, yield and movements | Separate sales growth from cost or usage changes |
| COGS ratio increased | COGS and sales definitions, recipe estimates, counts and discounts | Correct reporting errors, then investigate item-level differences |
| Labor ratio increased | Hours, wage rates, payroll accruals, covers and net sales | Review staffing and sales assumptions with the operating manager |
| Both ratios increased | Sales volume, pricing, service model and fixed commitments | Evaluate the combined operating plan |
Food and labor decisions can interact. Buying a prepared ingredient may raise purchase cost while reducing preparation time. A cheaper cut may require more labor and produce less usable yield. Compare the combined cost and service implications rather than assigning every ingredient outcome to purchasing.
What purchasing controls can improve
Review supplier changes before acceptance. Suppose an otherwise identical $50,000 purchase increases by 2%, adding $1,000. That is a purchase-value difference. If all of the incremental cost is recognized in the same period and net sales are $100,000, it raises prime cost by one percentage point, holding everything else constant. If some goods remain in stock, the recognized cost effect differs. Preserve the supplier confirmation and the buyer’s decision.
Record actual receipts and resolve exceptions. If eight cases arrive against ten invoiced, retain the eight-case receipt and investigate the balance, correction or credit. The effect on COGS depends on the inventory and invoice entries and subsequent counts. A shortage record alone neither proves a credit nor establishes the direction of the final accounting adjustment.
Match order quantities to expected use. Check usable stock, planned demand, inbound orders, shelf life and supplier packs before buying. Record waste when it occurs. A forecast can inform the decision; it does not guarantee lower loss or a particular prime-cost result.
Evaluate the purchasing part of the workflow
Bring a changed supplier price and a partial delivery to the restaurant purchasing workflow. Follow the living purchase order from supplier confirmation through receiving and the accounting handoff. Identify who reviews the change and which system supplies recipes, inventory valuation, payroll and the final prime-cost report.
LineNow connects supplier execution with those systems. This workflow supports ingredient-cost investigation; finance and restaurant operations still need the complete cost and sales records.
Related
- Food cost percentage: reconcile actual and theoretical ingredient costs.
- Cost of goods sold: distinguish purchases from recognized cost.
- Purchase price variance: compare actual prices with a defined baseline.
- Goods received note: document delivery evidence and exceptions.
- Food cost management software: evaluate tools against the workflow you need.