How to Calculate Prime Cost, with a Worked Example

Prime cost is your cost of goods sold plus your total labour cost. It is the most useful single number on a restaurant P&L, because it covers the two costs you can change this week.

Divide prime cost by net sales for the same period to get it as a percentage. Published guidance from restaurant software vendors puts a healthy full-service restaurant at around 60 to 65 percent of sales, and quick-service at around 55 to 60 percent.

The formula

Prime cost = cost of goods sold + total labour cost. Prime cost percentage = prime cost ÷ net sales × 100. All three figures must cover the same period, usually a week or a month.

Step 1: work out cost of goods sold properly

Cost of goods sold is not what you bought. It is what you used: opening inventory plus purchases minus closing inventory.

Do it separately for food and for beverage, then add them, because they run at different percentages and hide each other when combined. Include the disposables that go out with each order. Leave out equipment, repairs and cleaning supplies, which belong elsewhere on the P&L. And count stock at the start and end of the period: without a real count you are measuring deliveries, not usage.

Step 2: work out total labour cost

Total labour is everything it costs to have people working: hourly wages including overtime, salaried managers in the kitchen and on the floor, payroll taxes and employer contributions, and benefits. Leaving out salaried managers and payroll taxes is the most common way prime cost gets understated. More on this in how to reduce restaurant labour cost.

Tips paid straight through to staff are usually not part of your labour cost. Check how your payroll and your accountant treat them, and treat them the same way every period.

Step 3: divide by net sales

Use net sales: after discounts, comps and voids, before sales tax, for the same period you counted.

A worked example

This is an illustrative example, not a client result.

A full-service restaurant closes the month with $100,000 in net sales: $75,000 food and $25,000 beverage.

• Food cost of goods sold: $9,000 opening + $25,000 purchases − $10,000 closing = $24,000, which is 32% of food sales.
• Beverage cost of goods sold: $6,000 opening + $6,500 purchases − $6,500 closing = $6,000, which is 24% of beverage sales.
• Labour: $19,000 hourly wages + $8,000 salaried managers + $5,000 payroll taxes and benefits = $32,000.
• Prime cost: $30,000 + $32,000 = $62,000, or 62% of sales.

That sits inside the 60 to 65 percent range. But if the target is 60 percent, the two-point gap is $2,000 a month, or $24,000 a year. If the same restaurant had counted only hourly wages, prime cost would have shown 49 percent: it looks excellent and is wrong by 13 points.

What is a good prime cost?

Published guidance, all from restaurant software vendors rather than independent surveys: about 60 to 65 percent for full-service, about 55 to 60 percent for quick-service, and under 60 percent as a common target. Above 70 percent it becomes very hard to make a profit; below 50 percent can mean quality or staffing has been cut too far. Your own right number depends on rent, price point and service style, which is why prime cost is best read next to occupancy. See the five numbers that tell you if a restaurant is healthy.

How often should you calculate it?

Weekly if you can, monthly at minimum. A quarterly figure tells you what went wrong three months ago. A weekly one tells you what to change on Monday.

From the real world

Prime cost is two numbers, and they move for different reasons. As Director of F&B for three Marriott- and Hilton-branded hotels at MLS Hospitality, Denys brought food cost from 34% to 29% and labour from 36% to 28%. Those were separate pieces of work on separate lines, each with its own causes.

Common questions

Do you include managers' salaries in prime cost?

Yes. Total labour includes salaried managers as well as hourly staff, plus payroll taxes and benefits.

Is prime cost the same as food cost?

No. Food cost is one part of it. Prime cost is food and beverage cost of goods sold plus total labour.

Sources: Toast, "How to Calculate Prime Cost"; Restaurant365, "How to Calculate Restaurant Prime Cost"; TouchBistro, "How to Calculate Your Restaurant's Prime Costs". All accessed September 2026.

Related: Food and labour cost consulting →