How to calculate and review restaurant prime cost
Calculate restaurant prime cost from cost of goods sold, full labor cost and sales for the same period. Check the inputs before interpreting the percentage.
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Published 2026-09-10
Updated 2026-10-01
Summary
Prime cost is cost of goods sold plus labor cost, divided by sales for the same period. It measures major operating costs, not final profit.
Use costs and sales from the same period
Prime cost combines cost of goods sold and labor cost. Divide that combined amount by sales for the same dates and multiply by 100. Agree the accounts included, the labor-cost basis and the inventory treatment with the person preparing the report.
Example calculation
In a fictional reporting period, cost of goods sold is $18,000, labor cost is $22,000 and sales are $70,000. Prime cost is $40,000, or about 57.1% of sales. This calculation illustrates the method; it is not a target or a Ready Margin customer result.
Check completeness before comparison
Late invoices, different payroll dates and incomplete inventory counts can alter the ratio. Identify estimates and use comparable cutoffs before comparing this period with another.
Investigate food and labor separately
An overall percentage does not identify the cause. Review supplier prices, usage and sales mix for food cost; compare planned hours, attendance and full employment costs for labor. Set a working target around your restaurant’s format and operating plan.
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