Prime cost is the two biggest costs you control, added together: what you spent on food and drink, and what you spent on people. It's the number that tells you whether the menu and the schedule are working. Most restaurants only see it once a month, when the books close. By then the month you could have fixed is over.
This guide covers the formula, a worked example, and a weekly routine that makes prime cost something you act on instead of something you read about.
The formula
Prime cost = cost of goods sold + total labor cost
Prime cost % = prime cost ÷ net sales × 100
Cost of goods sold (COGS) is the food, drink and packaging you used up to make what you sold. The standard way to work it out for a period is:
COGS = opening inventory + purchases − closing inventory
Total labor cost is everything you pay for people in the period: wages, salaries, overtime, and the employer-side costs on top, such as payroll taxes and benefits. Count managers and salaried staff too. Leaving them out makes the number look better than it is.
Net sales is sales after discounts, comps and refunds, before tax and tips.
A worked example
Example: a café over one week, with made-up round numbers.
| Line | Amount |
|---|---|
| Opening inventory (Monday morning count) | $4,000 |
| Purchases delivered during the week | $3,000 |
| Closing inventory (Sunday night count) | $3,500 |
| COGS (4,000 + 3,000 − 3,500) | $3,500 |
| Hourly wages from timecards | $3,200 |
| Salaried manager, one week | $1,000 |
| Payroll taxes and benefits | $600 |
| Total labor | $4,800 |
| Prime cost (3,500 + 4,800) | $8,300 |
| Net sales | $14,000 |
| Prime cost % (8,300 ÷ 14,000) | 59.3% |
Example: now say the next week has the same sales, but a supplier raised the price of milk and two extra closing shifts crept onto the schedule. COGS goes to $3,800 and labor to $5,100. Prime cost is $8,900, or 63.6% of sales. On the same revenue, that's $600 less left over to pay rent and everything else. Found in week one, it's one conversation with a supplier and one schedule edit. Found at month end, it's four weeks of the same leak.
What's a good prime cost?
There's no single right number. It depends on your concept, your rent, your prices and how much of your menu is made from scratch. A café with a small team and a high-margin coffee menu will look nothing like a full-service kitchen. The useful comparisons are:
- Against your own budget. If your budget assumes a certain food cost and a certain labor cost at your expected sales, the prime cost that budget implies is your target.
- Against your own trend. Is it moving up week over week? Which half is moving, food or labor?
- Against what's left. Prime cost plus your fixed costs (rent, utilities, insurance, loan payments) has to be less than sales for the week to make money.
Why weekly beats monthly
A monthly P&L is accurate, but it's late. The accountant needs every invoice, every bill and the final payroll before closing the month, so the numbers can land weeks after the month ends. Anything that went wrong in the first week has been going wrong for six weeks by the time you see it.
Checking prime cost weekly is less exact, and that's fine. You're not filing taxes. You're looking for movement early enough to do something about it. A weekly number that's a little rough but on time is more useful than a perfect number that's a month old.
A weekly prime cost routine
Pick the same day every week, for example Monday morning, and work through the week that just ended.
- Pull net sales for the week from your POS.
- Pull labor from your timecards or payroll report. Add a weekly share of salaries, and an estimate for payroll taxes and benefits. Use the same method every week so the trend is honest.
- Work out COGS. The most accurate way is a full count at the start and end of the week plus the week's purchases. If a full count every week is too much, count your highest-cost items (proteins, dairy, coffee, alcohol) every week, and do a full count once a month.
- Add them up and divide by net sales.
- Write down one cause and one fix. If food cost moved, check supplier prices, waste and portioning. If labor moved, compare scheduled hours with the sales you actually did, day by day.
Shortcuts that keep it honest
- Use recipe costs as a cross-check. If every menu item has a costed recipe, you can multiply what you sold by what each item should have cost. That's your theoretical food cost. The gap between that and your counted COGS is waste, over-portioning, theft or a price change you didn't catch.
- Keep fixed costs separate. Prime cost is only the variable half. Spread rent, insurance and other fixed bills into a weekly figure so you can see whether the week covered them.
- Don't change the method mid-month. A new way of counting labor will look like a change in labor.
How Ospelia does it
Ospelia's P&L & prime cost page adds this up for any period, any day of the month: revenue from your POS, labor from timecards, food cost from your stock counts and purchases (or your food-cost target until you count), and every recurring bill (rent, utilities, insurance, loans, software) normalized to a monthly figure. It shows cost of goods, gross profit, labor, prime cost, fixed costs and net profit, plus how many days of sales it takes to cover the month's fixed costs.
Labor tracking shows labor as a percent of net sales day by day against the target you set, with hours synced from Square timecards. Recipes & plate cost cost every recipe from the unit prices you actually pay, so a supplier price change moves every plate that uses it.
It doesn't replace your accountant. Your bookkeeper still closes the books. It gives you the number to act on in the meantime.
