Finance & Metrics
Prime Cost
Definition: The sum of cost of goods sold (food and beverage) plus total labor cost, expressed as a percentage of sales.
Prime cost is the most watched efficiency metric in full-service and fast-casual restaurants because it combines the two largest variable expenses operators can influence weekly. Most independent full-service restaurants target prime cost between 60% and 65% of gross sales, though pizza-focused and beverage-heavy concepts may run lower on food while higher on labor.
Operators who manage prime cost well review sales category mix, waste, scheduling, and purchasing together rather than in silos. A 2-point improvement in prime cost on $1.2 million annual sales adds $24,000 to gross profit before rent and fixed overhead.
Prime cost does not include rent, marketing, repairs, or debt service. Those belong in operating profit analysis and break-even modeling.
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