If there is one metric that quietly determines whether a restaurant survives or struggles, it’s prime cost.
Prime cost is simple in definition but unforgiving in execution. It represents the two largest controllable expenses in a restaurant — food and labor — and it moves faster than almost any other financial indicator.
In this article, we’ll break down what prime cost is, why it matters more than most operators realize, and how disciplined prime cost management creates margin, stability, and long-term optionality.
What Prime Cost Actually Is
Prime cost is the combined total of cost of goods sold and labor costs, expressed as a percentage of sales.
At a basic level:
- Prime Cost = Food Cost + Labor Cost
While the formula is straightforward, the implications are not. Prime cost captures how efficiently a restaurant turns sales into contribution margin.
Why Prime Cost Matters More Than Almost Any Other Metric
Food and labor typically account for 55% to 70% of restaurant revenue. That means small swings in either category can quickly erase profit.
- A 1% increase in food cost directly reduces margin
- A slight labor scheduling miss compounds weekly
- Discounting without cost control amplifies damage
Prime cost is unforgiving because it reflects day-to-day execution, not accounting adjustments.
Healthy Prime Cost Ranges (and Why They Vary)
There is no single ‘perfect’ prime cost percentage. Healthy ranges vary by concept, service model, and price point.
- Quick service restaurants: 55%–60%
- Fast casual concepts: 60%–65%
- Full service restaurants: 65%–70%
The goal isn’t to chase an arbitrary benchmark. It’s to understand what sustainable looks like for your concept and protect it consistently.
The Hidden Danger of Watching Food and Labor Separately
Many operators track food cost and labor cost independently but miss the interaction between them.
Overstaffing to protect service can inflate labor. Cutting labor too aggressively can increase food waste, errors, and comps.
Prime cost forces balance. It reveals whether decisions are improving total efficiency or simply shifting cost from one bucket to another.
A Simple Prime Cost Example
Consider a restaurant generating $100,000 in monthly sales.
If food cost is 32% and labor is 34%, prime cost is 66%.
Reducing food cost by 1% or labor by 1% creates the same margin impact. That equivalence is why prime cost is such a powerful management tool.
How Often Prime Cost Should Be Reviewed
Prime cost is not a monthly metric. It’s a weekly discipline.
- Weekly tracking highlights trends early
- Monthly review confirms sustainability
- Quarterly analysis informs pricing and staffing strategy
Waiting until month-end often means reacting after margin damage has already occurred.
Discipline Creates Stability
In her work on intention and awareness, Rhonda Byrne emphasizes that consistent focus, not sporadic effort, shapes outcomes over time (Byrne, 2006).
Prime cost works the same way. Restaurants that review it weekly and adjust calmly create predictability — and predictability is what turns chaos into control.
Final Thought
Prime cost is not about perfection. It’s about awareness. When operators understand how food and labor interact, they gain leverage over the most powerful forces in their business.
References
Byrne, R. (2006). The Secret. Atria Books.
National Restaurant Association. Restaurant cost structure resources.
Restaurant365. Prime cost and margin management guidance.
