Question 1

What is Prime Cost?

Accepted Answer

Prime Cost is the total of your Cost of Goods Sold (COGS) and your total labor costs. For a restaurant, this means the total cost of all food and beverages plus the total cost of all staff (wages, salaries, taxes, benefits). It represents the largest and most controllable group of expenses in a restaurant.

Question 2

Why is Prime Cost so important?

Accepted Answer

Prime cost is the single most important number for understanding your restaurant's day-to-day financial health. While metrics like food cost and labor cost are important individually, prime cost gives you a holistic view of your operational efficiency. If your prime cost is too high, your restaurant will struggle to be profitable, even with strong sales.

Question 3

What is a good prime cost percentage for a restaurant?

Accepted Answer

The industry benchmark for a healthy prime cost is 60% or less of total revenue.Excellent: 55% or lessGood: 56% - 60%Fair: 61% - 65%High: Over 65% (This is a danger zone for profitability)

Question 4

How do I calculate total labor cost accurately?

Accepted Answer

To get an accurate total labor cost, you must include more than just hourly wages. A true calculation includes all salaries, all hourly wages, payroll taxes (like employer FICA contributions), health insurance premiums, workers' compensation, and any other employee benefits you provide.

Question 5

My prime cost is over 65%. What should I do first?

Accepted Answer

A high prime cost requires immediate attention. The first step is to analyze which side of the equation—food cost or labor cost—is higher than its industry benchmark.If your food cost is too high (e.g., over 35%), focus on reducing waste, renegotiating with suppliers, and checking for theft.If your labor cost is too high (e.g., over 35%), focus on optimizing schedules to match sales volume and cross-training staff for better efficiency.

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Understanding Prime Cost

What is Prime Cost?

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