What is prime cost in a restaurant?
It's the number your controller closes the month to find, and the one your general manager needed on Tuesday.
Prime cost
Prime cost percentage
Prime cost is a restaurant's cost of goods sold (food, beverage and packaging) plus its total labor cost (wages, payroll taxes and benefits), usually expressed as a percentage of net sales. It is the largest controllable cost a restaurant carries, and the one that changes with every shift worked and every delivery received.
Its formula is short: cost of goods sold plus total labor, divided by net sales. Cost of goods sold is what you used, not what you bought, so it needs an opening count, purchases and a closing count. Labor is your fully loaded figure: hourly wages, salaried managers, payroll taxes and benefits.
Rent, insurance, utilities and marketing stay out. Those are fixed or semi-fixed, and a manager can't move them this week. Prime cost is the part a manager can move: how many hours are on the floor tonight and how much product goes into each plate.
Why it matters
Prime cost is the earliest honest read on a location's margin. Sales can look fine while a location bleeds. An extra server on a slow Tuesday and a heavy pour on every cocktail never show up in the sales total. They show up in prime cost, and only if someone adds it up.
The arithmetic is simple. Your data isn't in one place. Sales sit in the POS (Toast, Square, Lightspeed or whatever you run). Product cost sits in invoices and inventory counts (MarginEdge, Restaurant365, a spreadsheet). Labor sits in scheduling and payroll (7shifts, your payroll provider). Packaged tools bridge some of those seams: MarginEdge, for example, states that it incorporates labor data from 7shifts onto the P&L, updated daily. Where your systems don't connect, the number waits for month-end close.
- 01One location can compute it on a napkin. Ten locations on two POS systems and three vendors can't.
- 02Targets differ by concept, so compare a location against its own budget and last period, not against a number from a blog post.
- 03Read it weekly at minimum. A monthly prime cost tells you what happened; a weekly one tells you what to change on Thursday's schedule.
- Sales closeNet sales by location from the POS.
- Product usedOpening count, purchases, closing count.
- Labor loadedHours, salaries, taxes, benefits.
- Divide(COGS + labor) over net sales.
- CompareAgainst budget and last week, by site.
- ActSchedule, portions, vendor, menu.
Every step is easy; getting three systems to close on the same day is the hard part.
01How is prime cost different from food cost percentage?+
Food cost percentage is cost of goods sold divided by sales, on its own. Prime cost adds total labor to the cost of goods before dividing. A location can hold food cost steady and still lose margin through overstaffing, which is exactly what prime cost catches and food cost percentage misses. It is also the number that moves week to week, which is why operators read it weekly.
02Does prime cost include salaried managers?+
In most operator definitions, yes: prime cost uses total labor, salaried and hourly, with payroll taxes and benefits loaded in. What matters more than the choice is consistency. Pick one definition, write it into the chart of accounts, and apply it to every location, or the group-level comparison is meaningless.
03Is a restaurant's prime cost the same as prime cost in cost accounting?+
Same idea, different ingredients. In cost accounting, prime cost is direct materials plus direct labor. Restaurants borrowed the term for food and beverage plus all labor, because in a kitchen nearly all labor is direct.
Some of the systems we have shipped
Related
- What is food cost variance? →Product half of prime cost, split into theoretical and actual.
- Why can't multi-unit groups see prime cost in real time? →Three systems, three clocks, and what a daily view takes.
- How to connect Toast to QuickBooks →Nightly sales journal that feeds the sales side.
- What is reconciliation? →Numbers have to tie before anyone trusts the ratio.
- Software for restaurants →What we build around the POS you already run.
- Business intelligence →The reporting layer behind a group-level prime cost view.
