Prime cost combines food expenses with labor costs. It's the critical metric that determines restaurant profitability. Most owners track food costs but miss the labor component that typically runs 30-40% of revenue.
Are you tracking the one number that makes or breaks restaurant profitability? Most restaurant owners obsess over food costs while their labor expenses quietly eat away at profits. Prime cost combines both your ingredient expenses and total labor costs into one revealing percentage.
What falls under prime cost?
Prime cost consists of two main components that together form the largest part of your costs:
- Cost of Goods Sold (COGS) - all ingredients and beverages
- Labor costs - all personnel costs including employer contributions
Cost of Goods Sold (COGS) - what counts?
Every product you purchase to serve guests:
- All ingredients for dishes
- Beverages (alcoholic and non-alcoholic)
- Garnishes and decoration
- Sauces, oils, spices
- Bread, butter for the table
- Everything the guest consumes
💡 COGS calculation example:
Restaurant with €50,000 monthly revenue:
- Food ingredients: €12,000
- Beverage purchases: €8,000
- Spices, oils, sauces: €1,500
- Bread, butter, garnish: €500
Total COGS: €22,000 (44% of revenue)
Labor costs - what counts?
All expenses related to staffing your restaurant:
- Gross wages - what you pay out to staff
- Employer contributions - social charges, pension premiums
- Holiday pay and 13th month
- Hiring through temp agencies
- Freelance cooks/staff
- Yourself as owner (if you pay yourself a salary)
💡 Labor cost calculation example:
Restaurant with 4 FTE staff:
- Gross wages: €12,000/month
- Employer contributions (25%): €3,000
- Holiday pay reserve: €1,000
- Hiring extra staff: €2,000
Total labor costs: €18,000 (36% of €50,000 revenue)
Prime cost formula and calculation
The math is straightforward, but the implications are massive:
Prime Cost % = ((COGS + Labor costs) / Revenue) × 100
💡 Complete prime cost example:
Restaurant with €50,000 monthly revenue:
- COGS: €22,000 (44%)
- Labor costs: €18,000 (36%)
- Total prime cost: €40,000
Prime cost %: €40,000 / €50,000 × 100 = 80%
⚠️ Watch out:
A prime cost of 80% leaves you in trouble. You've got just 20% remaining for rent, utilities, equipment costs AND profit. Target 65-70% maximum.
What does NOT fall under prime cost?
These expenses are separate from prime cost but still impact profitability:
- Rent and rental costs
- Utilities (gas, water, electricity)
- Insurance
- Marketing and advertising
- Equipment depreciation
- Accountant, administration
- Cleaning supplies
- Repair and maintenance
Prime cost benchmarks by restaurant type
Typical percentages across different concepts:
- Fast casual: 55-65%
- Casual dining: 60-70%
- Fine dining: 65-75%
- Delivery/takeaway: 50-60%
⚠️ Watch out:
These serve as guidelines, not rigid rules. Your location, concept, and operational choices create unique circumstances.
Why prime cost matters so much
Prime cost reveals your operational efficiency in one number. Most kitchen managers discover too late that they've been tracking food costs religiously but ignoring how labor impacts their bottom line.
- Shows if dishes are truly profitable (beyond just ingredient costs)
- Reveals staffing efficiency issues
- Guides pricing decisions for new menu items
- Prevents the trap of cutting food costs while labor expenses spiral
Monitoring both components gives you complete visibility into what's actually driving your costs each month.
How do you calculate prime cost? (step by step)
Collect all COGS data
Add up all purchase costs of ingredients, beverages, garnishes and everything the guest consumes over a certain period (week/month). Don't forget spices, oils and sauces.
Calculate total labor costs
Add gross wages, employer contributions, holiday pay, temp hiring and all other personnel costs together. Also include yourself if you pay yourself a salary.
Calculate prime cost percentage
Divide the sum of COGS and labor costs by your total revenue and multiply by 100. Aim for maximum 65-70% for a healthy margin.
✨ Pro tip
Calculate your prime cost every Tuesday morning for the previous week's performance. Most kitchen managers who wait until month-end discover problems 3-4 weeks too late to make meaningful adjustments.
Calculate this yourself?
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
Does my own salary belong to prime cost?
Yes, if you pay yourself a fixed salary this belongs to labor costs. If you only take profit distributions at year-end, then no.
What's a good prime cost for my restaurant?
Most profitable restaurants maintain prime costs between 60-70%. Above 75%, you'll struggle to cover remaining expenses and generate profit.
Should I include VAT in prime cost calculation?
No, always calculate excluding VAT. Both revenue and purchase costs should be net amounts for accurate comparison.
How often should I calculate prime cost?
Monthly minimum, but weekly tracking gives better control. You'll spot problems faster and can adjust before they compound.
What if my prime cost is too high?
First identify if it's food cost or labor driving the issue. Then take targeted action—recipe adjustments for food costs, schedule optimization for labor costs.
Do tips count as labor costs in prime cost?
Only if you process tips through payroll and pay employer taxes on them. Cash tips that don't go through payroll don't count as your labor expense.
Should I include training costs for new staff?
Yes, any wages paid during training periods count as labor costs. This includes shadowing shifts and formal training sessions where you're paying the trainee.
📚 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
- Warenwetbesluit Bereiding en behandeling van levensmiddelen (2024) — Official source
- WHO — Foodborne diseases estimates (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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