What is prime cost?
Last updated 1 min read
TL;DR
Your cost of goods sold plus your total labour cost — the biggest controllable cost in a restaurant.
Rent is fixed for years. Energy you can only nudge. But what you spend on ingredients and on people changes every single week — and together they are usually well over half of what a restaurant takes. That pair is prime cost.
The formula
Prime cost = cost of goods sold + total labour cost
Prime cost % = prime cost ÷ net sales × 100
Total labour means everything a person costs you, not only their hourly rate: employer's National Insurance, pension contributions and holiday pay too.
A worked example
In a month you take £40,000 before VAT. Food and drink used cost £11,600, and labour cost £13,200.
Prime cost is £24,800, which is 62% of sales.
What is a good prime cost?
A common rule of thumb is to keep prime cost at or below about 60–65% of sales. Above that, there is little left for rent, bills and profit.
Why it matters
- Food and labour pull against each other. Cutting a chef's hours can push food cost up through waste and mistakes; one combined number shows the real effect.
- It is the number to check when a busy month somehow did not make money.
Common mistakes
- Using wages only. Leaving out employer's NI, pension and holiday pay understates labour.
- Using purchases instead of usage. A big delivery on the 30th is not this month's food cost — the stocktake is what makes it accurate.
- Looking at it once a quarter. By then the money is gone. Weekly is better.
Tracking it in DUMA
The Prime cost report shows food and labour as a share of sales for any period. Food cost comes from your recipes and stock, labour from the rota and the hours your team clocked — see labour cost percentage.
Questions and answers
Does prime cost include the owner’s salary?
If you pay yourself a wage for working in the business, include it — otherwise your prime cost looks healthier than it is.
Is prime cost only for restaurants?
It is a hospitality term, but any business that makes what it sells — a bakery, a coffee roaster — can use it the same way.
How can I lower my prime cost?
Rota to your sales by hour, cut waste, re-cost recipes when suppliers change prices, and rework dishes that are slow to make and low in margin.