Most restaurants track food costs religiously but miss the bigger picture. Prime cost combines your food expense with labor cost to show exactly how much revenue disappears before you even touch fixed expenses. The difference between a 55% and 65% prime cost? About $48,000 in annual profit for a typical full-service operation — money you are leaving on the table.
What exactly is prime cost?
Prime cost is the sum of two operating expense buckets:
- Food cost (COGS): all food and beverage you purchase to sell
- Labor cost: hourly wages, salaries, payroll taxes (FICA, FUTA, SUTA), benefits, contract labor, and overtime
Together, these two line items typically consume 55-65% of total revenue in U.S. restaurants. What is left has to cover rent, utilities, insurance, marketing, debt service — and hopefully generate a profit margin.
📊 Example:
Restaurant with $50,000 in monthly revenue:
- Food cost: $15,000 (30%)
- Labor cost (fully loaded): $13,000 (26%)
Prime cost: $28,000 (56%)
How do you calculate prime cost?
The formula is simple but the inputs are not. Use the same period for all three numbers:
Prime cost % = ((Food cost + Labor cost) / Revenue) × 100
Monthly periods work best for most operators because they smooth out weekly fluctuations from busy weekends or slow Mondays. Track weekly only if you have an automated system that pulls clean numbers without manual reconciliation.
📊 Calculation example:
March results:
- Revenue: $45,000
- Food and beverage purchases: $13,500
- Labor cost (fully loaded): $11,250
Prime cost: ($13,500 + $11,250) / $45,000 × 100 = 55%
What are the NRA prime cost benchmarks?
Per National Restaurant Association industry data, prime cost varies by concept:
- Quick-service / fast casual: 55-60%
- Casual dining: 60-65%
- Fine dining: 65-70%
- Coffee shop with kitchen: 55-62%
Once your prime cost crosses 65%, profitability becomes structurally difficult. Too much revenue is being eaten up by food and wages alone, leaving insufficient margin for the rest of your P&L.
⚠️ Critical:
Always include payroll taxes (FICA at 7.65%, FUTA at 6% on first $7,000 per employee, plus state SUTA which ranges 2-6%), workers comp, and benefits in labor cost. Using gross wages alone understates true labor expense by 15-25% and gives you a falsely flattering prime cost number.
Why is prime cost so important?
Prime cost reveals whether profitability is mathematically possible for your operation. If it is excessive, you cannot cover fixed operating costs no matter how well you run the front of house.
Consider a 68% prime cost. You are left with just 32% to cover everything else:
- Rent (typically 6-10% in most U.S. markets, higher in NYC/SF/LA)
- Utilities (3-5%)
- Insurance and licensing (1-3%)
- Marketing (2-4%)
- Other operating expenses, supplies, repairs (5-8%)
- Profit margin
With only 32% remaining for all of the above, the math barely allows for break-even. This is why 60% represents the practical ceiling for most U.S. restaurants. In our experience, this is one of the most common blind spots in restaurant management — operators focus intensely on food cost while labor expense quietly spirals.
📊 Impact example:
Two restaurants, identical $40,000 in monthly revenue:
- Restaurant A: 55% prime cost = $18,000 left for fixed costs
- Restaurant B: 65% prime cost = $14,000 left for fixed costs
Annual difference: $48,000 in lost margin
How do you reduce prime cost?
You have two levers to pull:
1. Reduce food cost:
- Standardize recipes (eliminates yield waste and over-portioning)
- Smarter purchasing (group purchasing organizations, contract pricing, supplier comparisons)
- Tight portion control (scales, jiggers, portion cups)
- Menu engineering — promote the high-margin items, demote the dogs
2. Optimize labor cost:
- Demand-based scheduling (avoid overstaffing in slow shifts)
- Cross-training (one server can cover two stations during slow periods)
- Productivity improvements (better mise en place, better station layout)
- Watch overtime — sustained overtime is a scheduling failure, not a staffing strategy
⚠️ Critical:
Never compromise ingredient quality or fair wages. Both backfire spectacularly: cheap ingredients destroy your guest experience and reviews, underpaid staff leads to turnover that costs you 50-200% of an employee's annual salary in replacement and training. Focus on efficiency and waste reduction, not pay cuts.
Tracking prime cost in practice
Track prime cost monthly at minimum. Annual reviews are useless because you cannot make adjustments retroactively. Operators who win at this are tracking weekly or even daily.
Excel works for a single location but consumes hours of bookkeeper time. Automated systems that pull from your POS, accounting platform, and payroll provider give you real-time prime cost visibility — which is what you need to make staffing and purchasing decisions before the week ends, not after.
How to calculate prime cost (step by step)
Collect your numbers from one month
Pull your total revenue (top line), all purchases of food and beverages, and all labor cost including payroll taxes (FICA, FUTA, SUTA), benefits, and any contract or temporary staff. Use the SAME period for all three numbers — mismatched periods produce garbage results.
Add food cost and labor cost together
Food cost = total food + beverage purchases for the period. Labor cost = gross wages + employer FICA (7.65%) + FUTA + SUTA + benefits + workers comp + temp labor + overtime. Sum these two numbers.
Calculate as a percentage of revenue
Divide the sum from step 2 by your total revenue and multiply by 100. That is your prime cost percentage. Below 60% is healthy per NRA benchmarks. Above 65% is a profitability warning.
✨ Pro tip
Track prime cost weekly for 6 consecutive weeks, then calculate the rolling average. This reveals your true operational baseline and eliminates noise from one-off events like staff turnover, holiday shifts, or seasonal supplier price spikes.
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In the KitchenNmbrs app you can do this in just a few clicks. 7 days free, no credit card.
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Frequently asked questions
What is a good prime cost for restaurants in the U.S.?
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Sources consulted
- EU Verordening 852/2004 — Levensmiddelenhygiëne (2004) — Official source
- EU Verordening 853/2004 — Hygiënevoorschriften voor levensmiddelen van dierlijke oorsprong (2004) — Official source
- EU Verordening 1169/2011 — Voedselinformatie aan consumenten (2011) — Official source
- NVWA — Hygiënecode voor de horeca (2024) — Official source
- NVWA — Allergenen in voedsel (2024) — Official source
- Codex Alimentarius — International Food Standards (2024) — Official source
- FSA — Safer food, better business (HACCP) (2024) — Official source
- BVL — Lebensmittelhygiene (HACCP) (2024) — Official source
Food Standards Agency (FSA) — https://www.food.gov.uk
The HACCP standards shown in this application are for informational purposes only. KitchenNmbrs does not guarantee that displayed values are current or complete. Always consult the FSA or your local authority for the latest regulations.
Written by
Jeffrey Smit
Founder & CEO of KitchenNmbrs
Jeffrey Smit built KitchenNmbrs from 8 years of hands-on experience as kitchen manager at 1NUL8 Group in Rotterdam. His mission: give every restaurant owner control over food cost.
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