Restaurant prime cost is the total of your cost of goods sold, meaning food and beverage, plus your total labor cost. Total labor includes wages, payroll taxes and benefits. Divide that sum by sales to get prime cost as a percentage. If a restaurant has $80,000 in monthly sales, $24,000 in food and beverage cost, and $22,000 in wages plus 7.65% in employer Social Security and Medicare tax, its prime cost is about $47,683, or 59.6% of sales.
This number matters because it is the largest group of expenses a restaurant controls week to week. Here is how to calculate it correctly and what to do with the result.
What goes into prime cost?
The figure has two parts:
- Cost of goods sold: food, beverages and other items that go directly into what you sell
- Total labor cost: hourly wages, salaries, overtime, employer payroll taxes and employee benefits
Rent, utilities, marketing and supplies such as cleaning products are not included. They are operating expenses. Keeping the definition consistent from month to month matters more than which small items you include, because the trend is what you manage.
How do you calculate cost of goods sold for a restaurant?
Use the inventory method: beginning inventory plus purchases, minus ending inventory. IRS Publication 334 lays out the same structure for figuring cost of goods sold on Schedule C. If you started the month with $6,000 of food and drink on hand, bought $25,000, and ended with $7,000, your cost of goods sold is 6,000 + 25,000 − 7,000 = $24,000. Count inventory on the same day each period, or the result will swing for reasons that have nothing to do with how the kitchen ran.
Which payroll costs count as labor?
Wages are only the start. Employers pay their own share of Social Security and Medicare taxes. IRS Publication 15 lists those for 2026 at 6.2% and 1.45% of wages, or 7.65% combined. The Social Security part applies up to a $184,500 wage base. Employers also owe federal unemployment tax (FUTA) of 6.0% on the first $7,000 of each employee’s wages. With the maximum 5.4% credit for state unemployment tax, the net federal rate is 0.6%. State unemployment tax, workers’ compensation insurance, health benefits and paid time off add more, so total labor cost runs well above gross wages.
How does the worked prime cost example add up?
Here is one month for a restaurant with $80,000 in sales:
- Cost of goods sold: $24,000
- Gross wages: $22,000
- Employer Social Security and Medicare at 7.65%: $1,683
- Total labor in this simplified example: $23,683
- Prime cost: $24,000 + $23,683 = $47,683
- Prime cost percentage: $47,683 ÷ $80,000 = 59.6%
In practice, add unemployment taxes, workers’ comp and benefits to labor as well. The restaurant prime cost calculator does the math once you enter your numbers. The employee cost calculator estimates the full cost of each team member.
What is a good prime cost percentage?
No government agency publishes a standard target for restaurants. The right level depends on your concept, menu prices, service style and rent. A full-service restaurant with table service usually carries more labor than a counter-service shop, and a fine-dining menu often has a higher food cost. The most useful benchmark is your own history. Track the figure weekly or monthly and investigate any jump of more than a point or two.
How does prime cost connect to profit?
Whatever is left after food, drink and labor has to cover rent, utilities, insurance, repairs, marketing, debt payments and profit. If the combined percentage rises from 60% to 65% of sales, that five-point jump comes straight out of what is left for everything else. On $80,000 in monthly sales, five points is $4,000 a month. The profit margin calculator and the break-even calculator show how each change flows through to the bottom line.
How can you lower prime cost without hurting the guest experience?
- Cost every menu item and update prices when ingredient costs move
- Track waste, spoilage and comps, since each one raises food cost without adding sales
- Schedule staff to match covers by hour, using your sales history
- Cross-train staff so you can cover slow shifts with fewer people
- Review overtime weekly, because it costs more per hour than regular pay
- Count inventory consistently and order to par levels
Small changes to both parts add up. Cutting food cost by one point and labor by one point on $80,000 in sales frees $1,600 a month.
How often should you calculate prime cost?
Many operators run these numbers weekly, because waiting for a monthly statement means a bad trend can run for weeks before anyone sees it. Weekly tracking needs a quick inventory count and a payroll report, so the habit is easier than it sounds. Keep the method the same each week so the numbers stay comparable. A simple spreadsheet with sales, purchases, inventory counts and payroll totals is enough to start, and it gives managers a shared view of what changed and why.
What mistakes skew the prime cost number?
The most common errors are counting purchases instead of usage, leaving out payroll taxes and benefits, and mixing in non-food supplies. Each one makes the percentage look better or worse than reality. Use cost of goods sold based on inventory and fully loaded labor, and the number will tell you something real about how the restaurant is running.
Sources
- IRS Publication 15 (Circular E): Employer’s Tax Guide
- IRS Publication 334: Tax Guide for Small Business
FAQ
What does “What Is Restaurant Prime Cost?” explain?
Restaurant prime cost is the total of your cost of goods sold, meaning food and beverage, plus your total labor cost. Total labor includes wages, payroll taxes and benefits. Divide that sum by sales to get prime cost as…
How should I use this guide with a calculator?
Read the definitions and assumptions first, then open the linked calculator with the same inputs. Treat results as estimates, not professional advice.
Is this financial or medical advice?
No. Calcenzo content is educational. Confirm important decisions with a qualified professional and official sources for your situation.