Restaurant Prime Cost: Food Plus Labor, Explained

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Published September 26, 2026 · Updated September 26, 2026

Calculate restaurant prime cost from food and beverage COGS plus loaded labor. Compare three sales cases and connect the result to monthly break-even.

Restaurant · Financial Planning · Break-Even

Restaurant prime cost combines cost of goods sold with the labor needed to run service. Express it in dollars and as a share of sales so you can see whether a menu or staffing change improves the operation. Prime cost stops before rent, insurance, utilities and financing. Treating the remainder as net profit can lead to an expensive lease decision.

Quick answer: Prime cost = food and beverage COGS + loaded labor. Prime-cost percentage = prime cost ÷ sales × 100. With $18,000 COGS, $24,000 loaded labor and $70,000 sales, prime cost is $42,000 or 60% of sales. The remaining $28,000 must still pay occupancy, overhead, owner compensation if excluded from labor, and any profit.

Calculate food and labor on one basis

Use food and beverage cost of goods sold for the same month, and define loaded labor: wages, salaried managers, employer payroll costs and benefits that you intend to include. If the owner covers shifts, decide whether to include a fair wage in labor; say so when comparing periods. Avoid double counting owner pay in fixed overhead.

Suppose sales are $70,000, ingredient COGS $18,000 and loaded labor $24,000. Prime cost is $42,000. Dividing $42,000 by $70,000 gives 60%. The $28,000 left is before rent, insurance, software, marketing, utilities, repairs and profit. If those other expenses total $25,000, the illustrative operating result is $3,000. The calculation is not an industry benchmark.

Why prime cost can improve while profit falls

Imagine ingredient cost falls by $2,000, reducing COGS to $16,000, but new delivery commissions cost $4,000. Prime cost becomes $40,000, or 57.1% of the same $70,000 sales. Yet after commissions and the original $25,000 overhead, operating result is $1,000, down from $3,000. A prime-cost ratio does not capture every variable cost.

More prep labor can replace expensive pre-prepared ingredients. COGS and labor move in opposite directions; compare total dollars and sales contribution by channel. The US Foods food-cost guidance explains period food cost, and restaurant labor-cost guidance explains how labor costs compare with sales.

Three prime-cost scenarios

Counter service: $70,000 sales, $18,000 COGS and $24,000 labor produce $42,000 prime cost, or 60%. After $25,000 other costs, operating result is $3,000.

Supplier increase: COGS rises to $21,000, labor stays $24,000 and sales stay $70,000. Prime cost is $45,000, or 64.3%. With the same $25,000 overhead the business breaks even at $0 before tax and financing cash needs.

More sales with extra staff: sales rise to $82,000; COGS becomes $22,000 and loaded labor $28,000. Prime cost is $50,000, or 61.0%. Assuming other costs stay $25,000, operating result is $7,000. This is a favorable dollar outcome even though its ratio is higher than the first case.

What changes the answer?

Food mix changes COGS, while daypart coverage and wage rates affect labor. Waste, portion variation and overtime are visible only when you compare actual cost with the recipes and schedule you expected. In full-service operations, tipped work has wage and tax rules that differ by state; use local payroll facts instead of importing a national percentage as a plan.

Use the same period and definition for all three inputs. Excluding manager pay one month and including it the next creates a false trend. Prime cost is a question to investigate, not a substitute for a complete income statement or cash forecast. Separate food cost by category and compare whether additional labor produces enough incremental contribution. If you switch from hourly staff to a manager salary, model the shift coverage and guaranteed payroll separately; the apparent labor saving may vanish in a slow month.

How to run your own numbers

Record ingredients, direct labor and other costs per order, then include guaranteed labor with fixed commitments. Compare the required orders when either food or staffing costs rise.

Enter your own average ticket, variable cost, monthly fixed costs, owner pay and operating capacity in the free restaurant break-even calculator. It is a planning model, not a forecast of customer demand.

Common mistakes

Using purchases instead of COGS. Adjust for beginning and ending inventory. Leaving out payroll burden. Wages alone understate loaded labor. Counting owner pay twice. Assign it to labor or other fixed costs, then reconcile once.

Calling the leftover net profit. Occupancy, fees and insurance remain. Comparing unlike sales bases. Remove sales tax and keep discount treatment consistent. Comparing only ratios. A small fall in food percentage can coexist with lower dollar profit.

Takeaways

• Prime cost is COGS plus defined, loaded labor.
• Keep the numerator and sales on the same period and basis.
• Investigate changes in both dollars and percentage.
• Include remaining operating costs before deciding if the restaurant makes money.

FAQs

What is included in restaurant prime cost?

Food and beverage COGS plus the labor categories you define for the period. Document whether salaried management and owner wages are included.

Is a 60% prime cost profitable?

The ratio alone cannot tell you. In the example, 60% leaves $28,000 on $70,000 sales to pay all remaining costs and profit.

Do rent and utilities belong in prime cost?

Usually they are shown separately as operating expenses. Include them in full break-even planning even though they are outside the prime-cost formula.

Should employer taxes be in labor?

Yes if you want a loaded labor measure. Use the same inclusion rule each month and avoid counting them again elsewhere.

Can prime cost fall while profit gets worse?

Yes. Delivery commissions, rent or marketing can rise outside prime cost; the $4,000 commission example shows a lower ratio with a lower operating result.

How often should I check prime cost?

Choose a cadence that matches reliable sales, inventory and payroll records. Weekly estimates flag problems; reconcile actual monthly numbers before strong conclusions.

Browse the MyBreakeven guide library for other business models.