Prime Cost
Prime cost is the sum of total food and beverage cost plus total labor cost, including wages, salaries, benefits, and payroll taxes. It represents the two largest controllable expenses in a restaurant and is the most important profitability metric for operators.
Try Cucinovo freePrime cost is the sum of total food and beverage cost plus total labor cost, including wages, salaries, benefits, and payroll taxes. It represents the two largest controllable expenses in a restaurant and is the most important profitability metric for operators.
Understanding Prime Cost
Prime cost typically accounts for 55% to 65% of a restaurant's total revenue. Within that range, food and beverage cost usually represents 28% to 35% and labor cost represents 25% to 35%, though the split varies by concept. A fine-dining restaurant with highly skilled staff may run labor at 35% and food at 33%, while a quick-service operation might run labor at 25% and food at 28%. What matters most is the combined number — if prime cost exceeds 65%, there's very little room left for rent, utilities, insurance, and profit.
The reason prime cost gets special attention is controllability. Rent is fixed. Insurance is contractual. But food and labor costs can be managed daily through purchasing decisions, portion control, waste reduction, scheduling efficiency, and menu engineering. An operator who reduces food cost by 2% and labor cost by 1.5% on €50,000 monthly revenue saves €1,750 per month — €21,000 annually — without changing the menu or raising prices.
Tracking prime cost weekly (not just monthly) allows operators to catch trends early. Labor cost might creep up during a slow season as the schedule doesn't adjust to lower covers. Food cost might spike when a supplier raises prices on a key protein. Weekly prime cost monitoring surfaces these issues within days rather than weeks, enabling faster corrective action.
Formula
Prime Cost
Prime Cost % = Prime Cost / Total Revenue x 100
Target range: 55-65% of revenue. Above 65% signals profitability risk.
Labor cost includes wages, salaries, benefits, payroll taxes, and any contract labor.
Example: Monthly Prime Cost Analysis
A neighborhood restaurant generates €85,000 in monthly revenue. Food and beverage cost is €27,200 (32%) and total labor cost is €24,650 (29%). Prime cost = €27,200 + €24,650 = €51,850, or 61% of revenue. This is within the healthy range, leaving 39% to cover rent (€8,500), utilities, insurance, loan payments, and profit.
The following month, revenue dips to €72,000 due to a slow period, but the chef doesn't adjust ordering and the manager doesn't cut hours. Food cost stays at €26,800 (37.2%) and labor holds at €23,400 (32.5%). Prime cost jumps to 69.7% — well above the 65% ceiling. At this rate, the restaurant barely covers its fixed costs and generates no profit. The operator responds by reducing prep staff hours on slow days and switching to a smaller-format menu to reduce ingredient waste.
Why Prime Cost Matters
Prime cost is the single number that tells an operator whether the restaurant can be profitable. Revenue can be high, food cost can be on target, but if labor is out of control, the business still loses money. Conversely, tight labor scheduling means nothing if food waste is rampant. Prime cost forces operators to look at both controllable expenses together, preventing the trap of optimizing one at the expense of the other.
Investors, lenders, and potential buyers all look at prime cost as the first indicator of operational health. A restaurant consistently running prime cost below 60% demonstrates strong management discipline. One running above 65% raises immediate questions about whether the operation can sustain itself. For multi-unit operators, prime cost comparisons across locations quickly reveal which units are well-managed and which need intervention.
Restaurant Cost Management
Cucinovo tracks ingredient costs across all recipes in real time. By maintaining accurate food costs at the dish level, operators can monitor the food cost component of prime cost without manual spreadsheet work.
Learn moreRelated Terms
Food Cost Percentage
Food cost percentage is the ratio of a dish's total ingredient cost to its menu selling price, expressed as a percentage. It is the primary metric restaurants use to measure recipe profitability and set menu prices.
Cost of Goods Sold (COGS)
Cost of Goods Sold (COGS) is the total cost of all food and beverage ingredients consumed during a specific period. It represents the direct material cost of producing the dishes a restaurant sells.
Contribution Margin
Contribution margin is the amount of money remaining from a dish's selling price after subtracting its food cost. It represents the per-plate contribution toward covering labor, overhead, and profit.
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