Restaurant prime cost: formula and targets

Your restaurant prime cost is food and drink cost plus total labor cost, divided by sales. It is the biggest cost you control week to week. Rent and most other lines move slowly, while prime cost moves with every shift you run. It doesn't cover everything, though: occupancy and delivery app commissions sit outside it and need their own check.

What is prime cost?

Cost of goods sold is the food and drink you used in the period: opening stock plus purchases, minus closing stock. If stock levels hold roughly steady week to week, purchases alone are a fair stand-in.

Total labor cost is gross pay for everyone on payroll, hourly and salaried, plus the employer's share of payroll taxes and the benefits you pay. Which taxes and benefits apply depends on your state and payroll setup, and your payroll report lists yours. It's the full cost of employing your team, not the number on a pay stub.

Add the two together, divide by net sales, and you have prime cost as a percentage. It covers what it takes to run the kitchen and the floor, before rent, marketing, insurance or anything else.

Prime cost never includes occupancy: rent, property charges and utilities. That is a separate, mostly fixed line. The occupancy ranges RestaurantDoctorAI uses are 6–10% of sales for quick service and fast casual, and 7–12% for full service, fine dining and bar or lounge formats.

Delivery app commissions sit outside prime cost too. If apps bring in a real share of your orders, check what those commissions cost you on their own.

Prime cost targets by restaurant type

Prime cost ceilings run higher for service-heavy dining rooms, where both food and labor take a bigger share of each dollar. They run lower for bar-driven concepts, where drinks carry a lower cost of goods per dollar of sales. The figures below are the targets RestaurantDoctorAI uses for each format. Treat the ceiling as a line to aim under, not a hard pass-fail test.

Add the top of the cost of goods range to the top of the labor range. For every format, the total is above the prime cost ceiling. That is why each half can look fine while the combined number runs over.

Many restaurants run above their ceiling. In the National Restaurant Association's 2025 Restaurant Operations Data Abstract, the median limited-service restaurant, meaning counter service, ran a prime cost of 65% of sales. That's 5 points over the 60% ceiling for quick service and fast casual.

How to calculate prime cost: a worked example

Take an example full-service restaurant with $90,000 in monthly sales. Food cost and labor cost each sit inside their range on their own. Watch what happens once you add them together.

Here the total is one point over. At these sales, one point is $900 a month. Taking that out of either half brings prime cost back to the ceiling.

Why a weekly number beats the monthly P&L

A monthly P&L tells you what already happened, often weeks after the month ends, once invoices are entered and payroll is closed. By the time it lands, the month that hurt your margin is long over.

A weekly prime cost number uses invoices you already have and a time clock you can pull today. It tells you on Monday whether last week ran hot. You still have time to correct it before the pattern repeats for a whole month.

Food cost and labor cost also move on different clocks. A supplier price rise shows up the day it hits an invoice. A scheduling problem shows up the day a shift runs long. Waiting for the P&L means you see both a month too late to act on either.

The Monday routine

This is the same weekly check the RestaurantDoctorAI action plan gives owners who don't track prime cost yet. It needs no new software and no new hires, and the plan allows about 30 minutes a week for it.

1. 01Add up last week's food and drink invoices, Monday to Sunday. If stock levels stayed about the same, purchases are a fair stand-in for what you used.
2. 02Add up last week's labor: gross wages from payroll or the time clock, plus the employer taxes and benefits on your payroll report.
3. 03Divide each total by last week's net sales from your POS. That gives you food cost and labor cost as a share of sales. Add the two and you have your prime cost. Compare it with the ceiling for your format above.
4. 04Write all three numbers, food, labor and prime cost, on a sheet in the office. Repeat every Monday. Four weeks in a row show whether food or labor is the one creeping up.

Fixing a prime cost that's over target

When prime cost sits above your ceiling, split it back into its two halves before you touch anything. Food cost and labor cost need different fixes. Your Monday sheet shows which one has been rising.

• If food has been creeping up, work out and fix your food cost percentage.
• If labor has been creeping up, bring your labor cost back toward target.
• If drinks are a meaningful share of sales, look at bar pour cost too.

Sometimes neither half is over its own range and only the total runs over, as in the worked example. Then start with the half sitting nearer the top of its range, or the one that has risen over your last few Mondays.

Common questions

What is a good prime cost for a restaurant?

Anything at or under the ceiling for your format in the table above. A result just under the ceiling is fine, but it leaves little room for a supplier price rise or a slow month. Being under is a good sign, not a guarantee of profit. Rent, delivery commissions and every other cost still come out of what's left.

What should prime cost be for a bar?

57% of sales or less for a bar, taproom or lounge, the lowest ceiling of any type. Drinks are usually about half of a bar's sales or more, and they cost less per dollar of sales than food, so cost of goods runs 20–26% and labor 25–32%. Watch the drink side on its own with pour cost.

Does prime cost include payroll taxes, benefits and managers' pay?

Yes. Count everyone on payroll, hourly and salaried, including kitchen and floor managers. Then add the employer's share of payroll taxes and the benefits you pay. Leaving any of it out makes prime cost look better than it is.

Should I use gross or net sales?

Use net sales: what you rang up for food and drink after discounts and comps, not counting sales tax. Gross sales are a bigger number, so they make both halves look smaller than they are. Use the same sales figure every week so the weeks compare fairly.

Is prime cost the same as food cost percentage?

No. Food cost percentage is only cost of goods sold divided by sales. Prime cost adds total labor cost to that same fraction, so it covers your two biggest controllable costs. See food cost percentage for that half by itself.