Prime cost

Prime cost is food cost plus labour cost, as a percentage of sales. It is considered the most important operating number in a restaurant because it combines the two largest variable expenses.

Common rule: keep prime cost under 60–65% of sales. Above that it is hard to make a profit after rent and fixed costs. Use the free prime-cost calculator.

Why it is the most important metric

Prime cost = cost of goods sold (food and beverage) + total labor, divided by sales. These are the two biggest lines in a restaurant, and many consider keeping it around 60% or less a healthy sign. When it rises it eats the margin before you even reach rent and other costs.

How to track it

Calculate it weekly rather than monthly so you can correct drift quickly, compare labor with the peak schedule, and analyse the higher-cost items.

• Add food cost and all the week's wages
• Divide by the same week's sales
• Set a clear target and watch the deviation
• Fit the work schedule to real peak times

A numeric example

Weekly sales = 10,000, food and beverage cost = 3,200, total labor = 2,800. Prime cost = (3,200 + 2,800) ÷ 10,000 = 60%. (Illustrative figures.)