The formula
Prime cost is cost of goods sold plus total labor, divided by total sales. Cost of goods is food and beverage. Total labor is hourly wages, management salaries, payroll taxes, workers' compensation, and benefits — not just the wage line. Operators who exclude the burden understate prime cost by roughly two to four points and compare themselves against benchmarks that assume it is included.
Prime cost is measured weekly, not monthly, because the two inputs move faster than a month-end close. A weekly number with imperfect inventory beats a perfect monthly number that arrives three weeks after the period it describes.
What good looks like
Full service generally targets a prime cost in the low-to-mid 60s as a percentage of sales, with food cost near 30 and labor in the low 30s. Fast casual and quick service typically run lower labor and slightly higher food cost, landing in the high 50s to low 60s. Franchised concepts carry royalty and advertising fees below prime cost, which compresses what is left for everything else.
The band matters more than the point estimate. A concept running 65 with stable weekly variance is a healthier business than one averaging 62 with eight-point swings, because the swing is where unrecovered waste, theft, scheduling failure, and vendor error live.
Why a healthy prime cost is not the whole story
Prime cost covers food and labor. It does not cover card processing, third-party delivery commissions, POS and technology subscriptions, insurance program design, occupancy pass-throughs, or waste hauling. On a multi-unit P&L those lines aggregate into the largest single pool of recoverable spend precisely because none of them is big enough on its own to earn management attention.
That is why operators with textbook prime cost still find meaningful margin in a diagnostic. The disciplines that produce a strong prime cost — weekly counts, scheduling to forecast, recipe adherence — do not touch the below-the-line categories at all.
How to use the number
Track prime cost by unit, not by portfolio. A portfolio average of 63 hides units at 58 and units at 70, and the units at 70 are where the recoverable dollars are concentrated. Rank stores by prime cost variance from their own trailing average rather than from the chain mean, which controls for daypart mix and market wage rates.
Then read the rest of the P&L separately. Prime cost is an operations metric; the lines beneath it are a procurement and contract metric, and they respond to different work.
Takeaways
Prime cost = (COGS + fully burdened labor) / sales, measured weekly.
Full service targets the low-to-mid 60s; limited service runs high 50s to low 60s.
A healthy prime cost says nothing about payments, delivery, insurance, or occupancy.
Related reading
The Multi-Unit Restaurant Cost Reduction Playbook: How Operators Find 6-8% of MarginRestaurant labor cost percentage: the burden most operators leave outRestaurant profit margin: where the points actually come fromHidden Costs Draining Your Restaurant P&L (And How to Find Them)