What is Prime Cost (Restaurant)?
The Short Answer
Prime Cost (Restaurant) explained simply
Prime cost is a critical number for any restaurant owner. It combines your Cost of Goods Sold (COGS)—what you pay for all the food and drinks you sell—with your labor costs—what you pay your staff, including wages, benefits, and payroll taxes.
Think of it as the direct cost of making and serving your menu items. Keeping a close eye on prime cost helps you understand how efficient your operations are and how much profit you’re actually making.
Real-World Example
The Burger Joint Example
Let’s say a burger joint has these numbers for a month:
- Food Costs (COGS): $15,000
- Beverage Costs (COGS): $5,000
- Employee Wages: $10,000
- Employee Benefits & Payroll Taxes: $2,000
To calculate the prime cost, you add these up:
$15,000 (Food) + $5,000 (Beverages) + $10,000 (Wages) + $2,000 (Benefits/Taxes) = $32,000 Prime Cost
If this restaurant had $60,000 in sales for the month, their prime cost percentage would be:
($32,000 / $60,000) * 100 = 53.3%
A good target for prime cost percentage in a restaurant is often between 55% and 60%.
Why this matters
Understanding your prime cost is crucial because it’s usually the biggest chunk of your restaurant’s expenses. If your prime cost is too high, it eats into your profits, even if you have strong sales. By tracking it, you can make smart decisions about pricing, portion sizes, supplier negotiations, and staffing levels to keep your business healthy.
Many restaurant owners focus only on food costs. But labor is just as important. You need to manage both to make real money.
Many restaurant owners focus only on food costs. But labor is just as important. You need to manage both to make real money.
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