Prime cost is the number that separates restaurants that thrive from restaurants that survive. It is cost of goods sold plus total labor, as a percentage of revenue, and it is the single most useful figure on a restaurant P&L. If an owner knows nothing else about their numbers, they should know this one.
The benchmarks below are the ones we teach inside the Scaling Engine OS and use on every audit. They are targets for independent full-service, fast-casual and fine-dining operations in the United States.
What is a good prime cost percentage?
Below 60% is the target, 60 to 65% is tight, and above 65% is structurally unprofitable.
| Prime cost | What it means | What to do |
|---|---|---|
| Below 55% | Strong. Usually a disciplined fast-casual or a high-margin bar mix | Protect it. Watch for quality slipping |
| 55 to 60% | Healthy target range for most concepts | Hold it with weekly tracking |
| 60 to 65% | Tight. Profit exists but there is no room for a bad month | Attack the larger of the two components first |
| Above 65% | Structurally unprofitable | Stop chasing revenue. Fix the cost structure |
The reason the ceiling matters so much is that prime cost is roughly 60 percent of every dollar that comes through the door. Two cost categories consume more than half the business, so a couple of points of drift outweighs almost anything else an owner can do that month.
What should my food cost percentage be?
28 to 32% for full service, 25 to 28% for fast casual, and 18 to 22% on beverages for bar concepts.
| Concept | Target cost of goods |
|---|---|
| Full service | 28 to 32% |
| Fast casual | 25 to 28% |
| Bar concepts (beverage) | 18 to 22% |
Calculate it as beginning inventory plus purchases minus ending inventory, divided by revenue. If food cost is running high, the cause is almost always one of four things: prices are too low, portions are too large, there is waste or theft, or supplier costs rose and menu prices did not follow. Those four are worth checking in that order, because the first two are inside the owner's control this week.
What should my labor cost percentage be?
28 to 35% for full service, 25 to 30% for fast casual, and 30 to 38% for fine dining.
| Concept | Target labor cost |
|---|---|
| Full service | 28 to 35% |
| Fast casual | 25 to 30% |
| Fine dining | 30 to 38% |
Labor includes wages, benefits, payroll taxes and workers' compensation, not just the hourly rate. When labor runs high the cause is one of four things: overstaffed schedules, not cutting when business slows, unmanaged overtime, or paying above market without a productivity gain to justify it.
Why is labor cost percentage a misleading number?
Because it moves when revenue moves, so a slow week inflates it even when the schedule was correct.
A week where revenue drops 10 percent will spike labor cost percentage even with perfect staffing, because the denominator shrank. The more useful operating metric is sales per labor hour: net sales divided by total labor hours. It adjusts naturally, because both sides of the equation reflect what actually happened.
| Service model | Target sales per labor hour |
|---|---|
| Fine dining | $30 to $45 |
| Full-service casual | $35 to $50 |
| Fast casual | $45 to $65 |
| QSR and counter service | $55 to $80 |
The spread inside a single band is worth real money. Take two restaurants both doing $2 million a year, both paying an average of $15 an hour. One runs sales per labor hour of $42, the other runs $55. Same wage rate, same revenue, and the second spends roughly $169,000 less on labor across the year, because every hour on the clock produces more.
What is one point of prime cost actually worth?
On a $2 million restaurant, one point of prime cost is $20,000 a year.
| Annual revenue | 1 point of prime cost | 3 points |
|---|---|---|
| $1,000,000 | $10,000 | $30,000 |
| $2,000,000 | $20,000 | $60,000 |
| $5,000,000 | $50,000 | $150,000 |
| $10,000,000 | $100,000 | $300,000 |
This is why prime cost beats almost every other project an owner could run. A two-point food cost overage on a $2 million restaurant is $40,000. A three-point labor overage is $60,000. Those are not rounding errors. They are renovations and second locations that never happen.
What does fixing prime cost look like in practice?
The fix is almost always a reporting problem before it is a purchasing or scheduling problem.
One Founders Board member had prime cost swinging between 62 and 68 percent every month with no pattern he could identify. The change was not a new supplier or a new schedule. It was moving the numbers to an independent source: an overseas controller pulling from the point of sale and payroll, instead of managers reporting on their own performance. Within 90 days prime cost stabilised at 59 percent, which added about $54,000 of profit in the first year.
Another member ran a bistro doing $2.1 million with labor stuck at 36 percent. He was working 70 hours a week, covering shifts and making cut decisions himself, and had never calculated sales per labor hour. Once his first-level manager owned the number and tracked it daily, labor fell from 36 to 29 percent in 45 days, worth roughly $147,000 a year. He now works 40 hours a week, because the manager runs the system.
The pattern in both cases is the same. The percentages did not move because someone tried harder. They moved because a named person owned the number, the number came from a source that could not flatter anyone, and it was reviewed on a fixed rhythm. That is the management system, applied to cost rather than to people.
What net profit should the restaurant make?
10 to 15% net profit is the benchmark for a well-run independent restaurant.
Net profit cannot be fixed directly. It is the output of everything above it, so if it is low the answer is in revenue, cost of goods, labor or fixed overhead, and prime cost is where to look first. If prime cost is above 62 percent and net profit is under 8 percent, the math has already told you the answer: this is a cost structure problem, not a sales problem.
It is also worth remembering that revenue is a vanity metric until you know what you keep. A $2 million restaurant at a 4 percent margin makes $80,000. A $900,000 restaurant at 14 percent makes $126,000. The smaller business pays its owner more.
How do I start tracking this properly?
Pull the last three months, calculate prime cost to the decimal for each, and give the number a named owner with a weekly review.
- Pull the last three months of profit and loss statements and extract five numbers per month: revenue, cost of goods, labor, prime cost, and net profit.
- Calculate prime cost as a percentage for each month and compare it against the bands at the top of this post.
- Work out sales per labor hour for the last two weeks, day by day, using point-of-sale net sales and actual clocked hours.
- Set a target 10 to 15 percent above your current average sales per labor hour, and post it where the managers can see it.
- Give both numbers a named owner and review them weekly, using data from the point of sale and payroll rather than from the person being measured.
Weekly, not monthly. Monthly is too late to catch a problem while it is still cheap to fix.
