What is a Good Prime Cost for a Restaurant?

Ask any successful restaurant owner what number they keep a close eye on, and you’ll probably hear the same answer: prime cost.

Why?

Because prime cost makes up the majority of your expenses—and if you’re not tracking it, you could be watching your profits disappear without realizing it.

You might already be monitoring food costs and labor costs separately, but focusing on good prime cost for a restaurant as a whole gives you the clearest picture of your financial health. It’s not just a number on your P&L—it’s the key to controlling expenses, improving profitability, and making better business decisions.

So, let’s break it down: what prime cost actually is, why it matters, how to calculate it, and—most importantly—how to lower it without cutting corners.

Starting with the basics: what is prime cost?

What Is Prime Cost?

Think of the prime cost as the total of what you spend to make and serve your food. It includes two major expense categories:

1. Cost of Goods Sold (COGS): This includes food, beverage, and raw materials.
2. Total Labor Costs: This covers wages, payroll taxes, benefits, insurance, and any other employee-related expenses.

The Prime Cost Formula:

Prime Cost=Total COGS+Total Labor Costs

If you’re wondering why these costs are grouped together, it’s because they’re the most controllable expenses in your business. Unlike fixed costs (like rent or utilities), you can adjust food purchases, tweak labor schedules, and make menu changes to lower your prime cost.

Here’s the catch: if your prime cost is too high, it doesn’t matter how many customers walk through your doors—you’ll still struggle to turn a profit. That’s why tracking and improving prime cost is crucial for long-term restaurant success.

Why Is Prime Cost So Important?

A lot of restaurant owners focus on increasing sales as a way to increase their restaurant profits. And while sales are important, if your expenses are eating away at your margins, higher sales won’t fix the problem.

Let’s look at an example:

• You sell a $15 burger, and the prime cost to make and serve it is $10. That leaves you with a $5 profit per burger.
• If you reduce the prime cost to $8, your profit jumps to $7 per burger—without changing your menu price.

That’s a 40% increase in profit, just by managing costs more effectively.

This is why prime cost is one of the most powerful levers for profitability. A small improvement can make a huge difference in your bottom line.

Why Not Just Focus on Food and Labor Costs Separately?

You might already track food cost percentage or labor cost percentage, which is great, but looking at prime cost as a whole gives a much clearer picture of profitability.

For example:

• A steakhouse might have a high food cost (45%) but a low labor cost (20%), keeping total prime cost manageable.
• A fast-food restaurant might have a lower food cost (30%) but a higher labor cost (35%), yet still maintain profitability.

Monitoring prime cost as a whole helps you make better financial decisions, instead of obsessing over individual numbers.

How to Calculate Your Restaurant’s Prime Cost

Next, let’s walk through how to calculate the prime cost in your restaurant, starting with your Cost of Goods Sold (COGS): 

1. Calculate Your Cost of Goods Sold (COGS)

• COGS includes:
  • Food, beverage, and raw materials
    

Example:

If the cost of the food and beverages you sold during the period was $30,000 (beginning inventory plus purchases minus ending inventory) then your COGS are $30,000.

2. Calculate Your Total Labor Costs

• Labor costs include:
  • Wages for salaried and hourly employees
  • Payroll taxes
  • Employee benefits (health insurance, 401(k) contributions)
  • Paid time off and workers’ compensation
    

Example:

If your total labor expenses for the month were $25,000, your labor cost is $25,000.

3. Add COGS and Labor Costs Together

Prime Cost=COGS+Labor Costs

Using our example: 

Prime Cost=30,000+25,000=55,000

4. Find Your Prime Cost Percentage

Prime Cost Percentage = (Prime Cost ÷ Total Sales) × 100

If your total sales were $100,000, then:

Prime Cost Percentage = (55,000 ÷ 100,000) × 100 = 55%

Note: The lower this percentage, the more profit you keep.

What’s a Good Prime Cost for Restaurants?

So, what percentage should you be aiming for in your restaurant? 

A “good” prime cost depends on your restaurant type:

• Full-Service Restaurants (FSRs): 60-65% of total sales
• Quick-Service Restaurants (QSRs): 55-60% of total sales
• High-volume, efficient QSRs: Can go as low as 50%

In general, if your prime cost is above 65%, it’s a sign you need to take a closer look at food waste, labor scheduling, or menu pricing.

How to Lower Your Restaurant’s Prime Cost (Without Cutting Corners)

If your restaurant’s prime cost falls into this category (above 65%), you don’t need to slash wages or start skimping on ingredients. The goal isn’t to cut corners—it’s to run a smarter, more efficient operation.

Here are five practical ways to bring down your prime cost while keeping quality and service intact:

1. Stop Letting Food Go to Waste

Think of food waste like throwing money in the trash—because that’s exactly what it is. If you’re not tracking inventory weekly (not just once a month), you might be over-ordering, letting food spoil, or losing track of portions.

• Train your staff on portion control—a slightly smaller serving can make a big difference over time. We like to recommend having a picture of the portion size easily accessible in the kitchen so every employee knows exactly how much to use.
• Get creative with leftovers—turn veggie scraps into stock, day-old bread into croutons, and extra proteins into daily specials.
• Keep an eye on prep waste and plate waste—are your cooks trimming too much? Are customers leaving food behind? These are red flags.

2. Negotiate Smarter with Your Suppliers

Just because you’ve used the same vendors for years doesn’t mean you’re getting the best deal. Prices change. So should your strategy.

• Regularly compare pricing between suppliers—you might be overpaying without realizing it.
• Buy in bulk when it makes sense, but don’t overstock perishables. Nobody wins when food expires before you can use it.
• Renegotiate contracts—if your sales volume has increased, you might qualify for better pricing. It doesn’t hurt to ask!

3. Make Sure Your Menu Works for You

Your menu isn’t just a list of dishes—it’s a profitability tool. If you’re not making money on what you’re selling, what’s the point?

• Highlight high-margin dishes on your menu. Make them stand out visually or give them premium real estate.
• Keep an eye on ingredient price fluctuations—if the cost of an item jumps, adjust your pricing accordingly.
• Be ruthless with low-margin, slow-moving dishes—if something isn’t selling or isn’t profitable, it’s probably time to take it off the menu.

4. Get Smarter About Scheduling

Labor is one of the biggest expenses, but cutting shifts isn’t always the answer. It’s about scheduling smarter, not just scheduling less.

• Use sales data to staff efficiently—do you really need extra hands during slow afternoons?
• Cross-train your team so employees can fill multiple roles when needed.
• Keep an eye on overtime—it adds up quickly, and sometimes a schedule adjustment is all it takes to avoid it.

5. Track Prime Cost Weekly—Not Just Monthly

If you’re only calculating prime cost once a month, you’re reacting too late. By the time you see the numbers, the damage is done.

Successful restaurant owners check prime costs weekly.

• Catching issues early means you can fix them before they eat into your profits.
• If labor costs spike this week, you can adjust next week’s schedule—instead of realizing it a month later when payroll is already paid.
• A small change every week adds up to big savings over time.

Want Help Keeping Your Prime Cost in Check?

Here at Vast, this is what we do—every single day. We work with restaurant owners to make sense of the numbers, find hidden inefficiencies, and improve profitability without cutting corners.

We know that running a restaurant is demanding, and staying on top of financials while managing staff, suppliers, and customer experience is no easy task. That’s where we come in.

When you work with us, we help you:

✅ Track and analyze your prime cost so you always know where your money is going.
✅ Spot red flags early—before they turn into major profit drains.
✅ Fine-tune food costs, labor scheduling, and vendor pricing to keep expenses under control.
✅ Build a financial strategy that aligns with your restaurant’s goals.

If you’re ready to take real control over your restaurant’s finances, we’d love to help!

👉 Book a call with us today by heading over to our Getting Started page and let’s talk about how we can help your restaurant become more profitable.

Until next time!