Restaurant finance
Restaurant Prime Cost Guide [2026]
Prime cost is the single most important number in restaurant finance. COGS (food + beverage cost) + Labor = Prime Cost. If these two items are under control, everything else is manageable. If they're not, no amount of revenue will save you. Target: under 60% of revenue. World-class: under 55%.
The Prime Cost Formula
Prime cost combines the two largest expense categories in any restaurant. Understanding each component is essential before you can manage them.
Prime Cost = COGS + Total Labor Cost
COGS = (Beginning Inventory + Purchases − Ending Inventory) ÷ Revenue
Target Food Cost
Full-service: 28–35% of revenue
Quick-service: 25–30% of revenue
Target Labor Cost
Full-service: 25–35% of revenue
Quick-service: 20–25% of revenue
Example: $100K monthly revenue, $30K food cost, $28K labor = 58% prime cost (healthy)
Restaurant Type Benchmarks
Prime cost targets vary by restaurant concept. Fine dining tolerates higher labor; QSR demands lower food cost. Compare your numbers to your concept type, not to all restaurants.
| Restaurant Type | Food Cost | Labor | Prime Cost |
|---|---|---|---|
| Fine Dining | 28–32% | 30–35% | 58–67% |
| Casual Dining | 30–33% | 28–32% | 58–65% |
| Fast Casual | 28–32% | 25–30% | 53–62% |
| Quick Service (QSR) | 25–30% | 20–25% | 45–55% |
| Pizza | 22–28% | 25–30% | 47–58% |
| Bar / Tavern | 25–30%* | 20–25% | 45–55% |
* Bar/Tavern food cost is 25–30%; beverage cost (not shown) typically runs 18–22%.
How to Reduce Food Cost
Food cost is the most controllable prime cost component. These ten tactics move the needle.
- Engineer your menu: Identify high-profit + high-popularity items (stars) and low-profit + low-popularity items (dogs). Promote stars, eliminate dogs.
- Enforce portion control:Every dish should have a recipe card with exact portions. A 10% over-portion on a $15 dish costs $1.50 in food — across 1,000 orders per month, that's $1,500 in lost profit.
- Count inventory weekly: Theft and waste show up as unexplained food cost creep. Target waste under 3% of COGS.
- Negotiate with suppliers:Get 3 quotes for every major ingredient annually. Don't be loyal to a lazy supplier.
- Use seasonal menu adjustments: Feature in-season ingredients when prices are lowest. A seasonal special menu keeps food cost down and creates marketing buzz.
- Track yield management: How much usable product do you get from each raw ingredient? A 20 lb salmon with 75% yield = 15 lbs usable. Buying lower-yield but cheaper fish may cost more per usable pound.
- Track prep waste:Record what gets thrown away during prep. If prep cooks toss 10% of vegetables as trim, that's direct food cost.
- Track plate waste: What comes back uneaten? Large portions may increase food cost without increasing customer satisfaction.
- Price based on food cost %:Price = Plate Cost ÷ Target Food Cost %. If a dish costs $4.50 and your target food cost is 30%, price at $15.00.
- Control staff meals:Staff meals can add 1–2% to food cost if uncontrolled. Set a clear policy: 50% off menu items or a specific staff meal menu.
How to Optimize Labor Cost
Labor is semi-fixed — you can't cut a cook on a busy Saturday. But smart scheduling and cross-training unlock significant savings.
- Schedule to sales forecast, not fixed shifts. Use POS data to predict hourly demand. Cut labor during slow hours and staff up for predictable rushes. Fixed shifts guarantee overstaffing during slow periods.
- Cross-train staff. A server who can also host during slow periods reduces idle labor hours. A dishwasher who can prep during off-hours improves utilization. Cross-trained staff mean you need fewer people on the clock at any given time.
- Track labor as % of sales daily, not just at month-end. A 3% labor overrun in week 1 means you have 3 weeks to catch up. Daily tracking gives you time to adjust.
- Overtime is a scheduling failure.It's 1.5x cost for the same output. Target overtime under 2% of total labor hours. If you consistently exceed 2%, your scheduling model is broken.
- Use tip credit correctly(where legal): Federal tipped minimum wage is $2.13/hour if tips bring the total to $7.25+. Some states (CA, WA, NY) don't allow tip credit — servers must get full minimum wage plus tips.
- Track prime cost weekly.If you only see it at month-end, you're managing a month too late. Every restaurant management system (Toast, Square, TouchBistro) can generate weekly prime cost reports. Review them every Monday.
The Restaurant P&L in One Table
A simplified restaurant profit and loss statement showing how each line item should stack up as a percentage of revenue. Target net profit for a healthy, independent restaurant is 10% or more.
| Line Item | % of Revenue |
|---|---|
| Revenue | 100% |
| COGS | 28–35% |
| Gross Profit | 65–72% |
| Labor | 25–35% |
| Prime Cost | 55–65% |
| Occupancy (Rent + Utilities) | 6–10% |
| Operating Expenses | 10–15% |
| Net Profit (target 10%+) | 5–15% |
Tools to Help You Control Prime Cost
Use our restaurant calculators to track food cost, profit margins, and your break-even point. Data-driven restaurants outperform gut-feel restaurants every time.
Frequently Asked Questions
What's more important to fix first — food cost or labor cost?
Food cost. Labor is semi-fixed — you can't cut a cook on a busy Saturday. Food cost has more controllable levers: portion sizes, supplier negotiation, menu engineering, and waste reduction. Plus, food cost errors compound across every plate. Fix food cost first, then optimize labor scheduling once your kitchen is running efficiently.
How do I handle fluctuating ingredient prices in my menu pricing?
Don't reprint menus for every price change. Three strategies: (1) Market price (MP) items — used for seafood, steaks, and seasonal items where prices swing significantly. (2) Quarterly menu updates aligned with seasonal ingredient availability and pricing. (3) Digital menus via QR codes make price changes instant and free. If ingredient costs spike across the board due to inflation, raise prices across the menu — your competitors are doing the same.
What's the difference between food cost and plate cost?
Food cost is the aggregate — total food purchases (adjusted for inventory changes) divided by total revenue. It tells you how your kitchen is performing overall. Plate cost is per-dish — the cost of ingredients on a single plate. You need both: plate cost to price individual items correctly, food cost to track the overall health of your kitchen. A restaurant can have good plate costs but poor aggregate food cost if waste or theft is eating into margins.
How much should I pay my kitchen manager vs head chef?
Kitchen manager (operations-focused): $45K–$65K in most markets. Head or Executive Chef (culinary-focused): $55K–$90K. Both roles should have performance bonuses tied to food cost % and labor % targets — not just revenue targets. A chef incentivized on food cost will find every ounce of waste. A kitchen manager incentivized on labor % will find scheduling efficiencies you missed.
How do I transition from owner-operator to absentee owner while protecting prime cost?
You need a general manager (GM) with profit-sharing, not just salary. Structure: base salary plus a quarterly bonus based on hitting prime cost target (under 60%) and net profit target. Give the GM real-time access to P&L data — no waiting for month-end. Hold a weekly prime cost review meeting with the GM: 30 minutes, review the numbers, identify issues, assign fixes. Without profit-sharing and weekly accountability, an absentee owner's restaurant will drift within 6 months.