Prime cost: the one number to watch weekly

Prime cost is the cost of food and drink plus the cost of labour, usually expressed as a share of sales. It brings together the two largest costs in almost every restaurant, the two that move most from week to week and the two that management can most directly influence. If a venue watches only one number every week, prime cost is a strong candidate, because it captures most of what decides whether the week made money.

Many venues watch food cost and labour separately, often monthly, and often by different people: the chef looks after food, the manager looks after the rota. That split hides an important trade-off. A kitchen that prepares more from scratch spends more on labour and less on bought-in products; one that buys more prepared items spends more on food and less on labour. Looked at separately, each number can seem to get worse when the business as a whole is getting better.

This guide explains prime cost: what goes into it, how to calculate it weekly, why the pair matters more than either number on its own, the range many operators aim for and why yours may differ, how prime cost connects to restaurant profit margin and other restaurant KPIs, and what to do when it moves. It is practical guidance for a single venue or a small group, not accounting advice.

Prime cost is the sum of two costs over the same period. The first is the cost of goods sold: the food and drink used to make what was sold. The second is labour cost: wages, salaries and everything that comes with employing people. Add them together and divide by sales, excluding tax, for the same period, and you have the combined figure as a percentage.

The general idea of prime cost comes from accounting, where it means the direct costs of producing something. In a restaurant, food and labour are the direct costs of producing a meal, so the term fits closely.

It is usually the largest share of a restaurant's costs. What is left after it pays for rent, energy, equipment, marketing, insurance and everything else, and leaves the profit.

Food cost and labour cost are linked. Many decisions move one up and the other down. Making stock, bread or desserts in-house uses more labour and less bought-in food. Buying them in does the opposite. A more elaborate menu may raise both; a simpler one may lower both. A new piece of equipment may reduce labour at the cost of energy and depreciation.

Watching only one of the two can mislead. A chef praised for lowering food cost by buying prepared sauces may have raised the venue's costs overall if the labour saved was small and the products were expensive. A manager praised for lowering labour by cutting prep hours may have pushed food cost up through waste and bought-in items.

The combined figure shows the effect. If it falls, the venue is spending less on its direct costs for each unit of sales, whichever way the balance has moved.

Food and drink cost here is the cost of what was actually used, not simply what was bought. The usual way to calculate it is from purchases and stock: opening stock, plus purchases, minus closing stock, gives the cost of what was used during the period.

That requires a stock count at the start and end of the period. A weekly count of key items, or at least a monthly full count, makes the figure far more accurate than purchases alone, which can swing with delivery timing. Our guide to how to calculate food cost percentage step by step covers the method, and our guide to how to run a restaurant stock count properly covers the count.

Food cost percentage, the food and drink cost divided by sales, is half of the measure.

Labour cost here should be the full cost of employing people, not only wages. That includes salaries, employer taxes and contributions, holiday and other leave, benefits such as staff meals, agency staff, and a share of recruitment and training. Using wages alone makes the total look lower than it really is.

Use actual hours worked, not scheduled hours, because shifts often run long. Our guide to labour cost in a restaurant, counted properly sets out what belongs in the figure.

Be consistent. Whatever you include, include it every week, so the trend is meaningful.

To calculate it for a week:

For example, in an illustrative week with sales of 40,000, food and drink cost of 12,400 and full labour cost of 11,200, the combined cost is 23,600, or 59 per cent of sales.

Weekly is better than monthly, because a problem found after one week costs one week; a problem found after a month costs four.

A rule of thumb often quoted in the industry is that prime cost should be somewhere around 60 to 65 per cent of sales for a full-service restaurant. It is a useful starting point, but only a starting point. The right range for your venue depends on its format, its prices, its rent and its other costs.

A venue with very low rent can afford a higher figure and still make money; one in an expensive location may need a lower one. A fine dining room with high labour and high prices will look different from a fast-casual counter with low labour and lower prices. Quick-service formats often run lower; labour-intensive formats often run higher.

The best way to find your range is from your own accounts: work out what level leaves enough to cover your other costs and the profit you need, and set that as your target. Our guide to restaurant profit margin, honestly calculated covers how.

Prime cost and restaurant profit margin are closely linked. Everything else, rent, energy, equipment, marketing, insurance, fees and profit, comes out of what is left. If the combined figure is 60 per cent, 40 per cent remains for all of those. If it rises to 65 per cent, only 35 per cent remains, and most of the difference comes straight out of profit, because the other costs rarely fall.

That is why small movements in prime cost matter so much. A rise of two percentage points, which can come from a little waste here and a few extra hours there, can remove a large share of a venue's profit.

Watching it weekly is, in effect, watching profit before the accounts arrive.

It can be calculated by service as well as by week, at least roughly. Labour can be split by service from the rota; sales by service from the till; food cost by service from the menu mix and recipe costs. The result shows which services carry the heaviest direct costs.

A weekday lunch with a modest labour bill and a generous set menu may have higher direct costs than it appears; a busy Saturday dinner may have a low one. Our guide to labour cost percentage, by service not by month covers the labour side.

When prime cost rises, find out which half moved. If food cost rose, look at supplier prices, waste, portion sizes, theft, stock counting errors and menu mix. If labour rose, look at hours worked against sales, overtime, agency use and the shape of the rota.

Then look at sales. It is a percentage, so it rises when sales fall even if costs stay the same. A quiet week with a normal rota will show a higher figure; that may call for a rota that flexes with trade rather than a change in purchasing.

Act on the cause, not the symptom. Cutting hours to fix a food cost problem, or the other way round, rarely helps.

A falling prime cost is usually good news, but check why. If it fell because sales rose while costs held steady, the venue is benefiting from busier trade. If it fell because portions were cut or staffing was thinned, check that quality and service have not suffered. A figure that falls while reviews worsen is not a success.

Look at service measures alongside it: ticket times, guest feedback, complaints, staff turnover. The aim is a healthy figure with good service, not the lowest possible number.

Prime cost is one of several restaurant KPIs, key performance indicators, that tell a manager how the venue is doing. Others include sales, covers, average spend per cover, food cost percentage, labour cost percentage, sales per labour hour, table turnover, no-show rate and guest return rate. Each answers a different question.

It is the one that best summarises the direct cost of producing the venue's sales. Combine it with a few others, such as covers and spend per cover, which explain sales, and you have a compact weekly picture. Our guide to restaurant reporting: six reports, no more covers which reports to keep.

Its value comes from watching it every week. Choose a day, often Monday, to calculate last week's figure. Keep a simple sheet: sales, food and drink cost, labour cost, the combined total and the percentage, with a note of anything unusual.

Share it with the chef and the manager, because they control the two halves. A short weekly conversation, "prime cost was 61 per cent, up from 59; labour was up because of the extra Saturday cover", keeps both halves in view and stops either being optimised at the other's expense.

The biggest source of error is usually food cost, because it depends on stock counts. A stock count that misses a walk-in fridge, or values stock at the wrong prices, can move food cost by several points in a week. When the figure jumps unexpectedly, check the count before changing anything else.

Count the same items, the same way, at the same time each week. Use current supplier prices for valuation. Count high-value items, such as meat, fish and alcohol, most carefully, because they move the figure most.

The menu shapes both halves of prime cost. Dishes with expensive ingredients raise food cost; dishes that need a lot of preparation raise labour. A menu built from dishes that are popular, profitable and efficient to prepare keeps the combined cost healthy.

Menu engineering helps, by showing which dishes contribute most per plate. Our guide to menu engineering covers how. Consider labour too: a dish with a good food margin that takes a cook fifteen minutes at the busiest station may cost more than it seems.

In a group, calculate prime cost for each venue separately. A group-wide figure can hide one venue's strong result and another's problem. Compare venues with care, because rents, formats and locations differ, but look for venues whose figure is moving in the wrong direction.

Shared purchasing and central kitchens can affect both halves across the group. Make sure costs from a central kitchen are allocated fairly to each venue, so each figure is meaningful.

Drinks often carry higher margins than food, and the bar's share of sales changes the picture. A venue that sells more wine and cocktails will usually see its food and drink cost fall as a share of sales, while a venue that sells mostly food will see it rise. Neither is wrong; they are different businesses.

Track food and drink separately within the cost of goods, so you can see which is moving. A rise in drink cost may point to over-pouring, a price change from a supplier or a shift towards lower-margin drinks. A rise in food cost points elsewhere. Combined, they can hide each other.

Three items quietly push the food side up: waste, complimentary dishes and staff meals. Waste includes trimmed produce, spoiled stock and dishes that are cooked and thrown away. Comps include dishes given free to put something right or to welcome a regular. Staff meals are a real cost of feeding the team.

Record each where you can. A waste sheet in the kitchen, a note of every comp on the till and a simple estimate for staff meals make the food figure far easier to explain when it moves. Our guide to reducing food waste in a restaurant kitchen covers the largest of the three.

Supplier prices change, sometimes sharply. A rise in the price of a key ingredient, such as meat, fish, dairy or cooking oil, can move the food side within a week, especially if the menu leans heavily on it. Watch supplier invoices for changes, and update recipe costs when prices move.

When a rise looks permanent, decide how to respond: adjust the recipe, change the supplier, change the dish or raise its price. Our guide to menu pricing covers the options.

A single target for the whole year can mislead, because trade is seasonal. In quiet months, fixed labour is spread over fewer sales, so the combined figure rises even when the venue is well run. In busy months, it falls. Setting a slightly different target for quiet and busy periods, based on your own past figures, makes the weekly number easier to judge.

Compare each week with the same week last year as well as with the target, so seasonal swings are not mistaken for problems. A quiet January that looks alarming against a December target may be perfectly normal against last January.

Here is an illustrative month of weekly prime cost for a venue. The figures are examples.

Watching the figure weekly caught the problem after one week instead of four.

servearound does not calculate prime cost, because it does not hold your stock counts, purchases or payroll. What it holds is the sales side and the menu. Payment analytics shows what was collected by day and by hour, the dashboard shows spend per cover, and reservation analytics shows covers by day and meal period, so the denominator and the explanation of sales are ready each week.

With the Analytics module, the menu report shows each dish's units, revenue and gross margin once its cost is set, with a cost coverage figure that shows how much of the revenue has a cost behind it, which helps explain movements in food cost percentage through the menu mix. See Analytics, or get in touch.

Food and drink cost plus labour cost, usually expressed as a share of sales.

A commonly quoted rule of thumb for full-service restaurants is around 60 to 65 per cent, but your right range depends on your format and other costs.

Because a problem found after one week costs one week, not a month.

Yes. Using wages alone understates the figure.

Look at whether the rota and purchasing flexed with trade, rather than changing prices or menus straight away.

Yes, as part of the cost of goods, but track food and drink separately within it, so you can see which one moved when the total changes and act on the right one.

The chef and the manager together, because each controls one half. The owner reads the combined figure each week and asks about any half that moved.

Prime cost is food and drink cost plus labour cost as a share of sales, and it is one of the most useful numbers a restaurant can watch weekly. The pair matters more than either alone, because many decisions trade one against the other. Calculate it every week from actual usage, with a stock count, and from full labour cost, not just wages.

Use the commonly quoted range only as a starting point, and set your own from what your other costs and profit need. Read it alongside food cost percentage, labour cost and other restaurant KPIs, act on the half that moved, watch service as well as cost, and remember that small movements in prime cost move restaurant profit margin most of all.