Prime Cost: The Most Important Number in Restaurant Finance (And How to Control It)

If Restaurant Operators Focused on One Metric, It Should Be Prime Cost

If restaurant operators focused on just one financial metric, it should be prime cost. Prime cost tells you—instantly—whether your restaurant is healthy, understaffed, overstaffed, overpriced, or bleeding money.

It’s the heartbeat of the business.

Prime cost is the quickest real-world read on how efficiently you manage your two most volatile, most operationally sensitive expense categories: food and labor. Nail these two and everything else falls into place. Miss them, and even strong sales won’t save the bottom line.

What Is Prime Cost?

Prime cost is the sum of:

• Cost of Goods Sold (COGS)

• Labor Costs (wages, payroll taxes, benefits, manager salaries)

These two categories represent 60–70% of a typical restaurant’s total expenses. If you control prime cost, the rest of the business becomes predictable.

Every other expense — rent, software, marketing, utilities, repairs — matters, but none of them swing as wildly or as quickly as COGS and labor.

Prime Cost Benchmarks

Here’s where strong, profitable operators typically land:

• Fast Casual: 52%–60%

• Casual Dining: 55%–65%

• Full Service: 58%–68%

• Multi-Unit Operators: Often target <60% across stores

Above these ranges? You’re losing profit you may not even see.
Below these ranges? You have a competitive advantage — and probably a well-documented playbook.

Prime cost doesn’t lie. Operators do.

Breaking Down the Components

1. Cost of Goods Sold (COGS)

Target: 25%–35% of revenue.

This is where restaurants silently lose thousands. A few cents off on portioning or yield can wreck margins without anyone noticing.

Where to Focus

• Vendor pricing & contract negotiation
  Lock in pricing, challenge increases, shop markets quarterly.

• Portion control
  Scoops, scales, batch sheets — consistency lowers cost.

• Recipe costing & yield management
  Your food cost is wrong if your recipes aren’t accurate.

• Waste reduction & prep accuracy
  Over-prepping kills margin quietly and consistently.

• Menu engineering
  Push high-margin items; retire low-margin darlings.

• Inventory accuracy & cadence
  Weekly inventories outperform monthly, every time.

Truth: COGS leaks are almost always operational, not culinary.

2. Labor Costs

Target: 25%–35% of revenue.

Labor is emotional — and expensive. Operators often react by cutting hours, but that usually backfires. Labor problems are rarely solved by cutting; they’re solved by forecasting, training, and staffing smarter.

Where to Focus

• Smart scheduling (based on forecast, not habit)
  Basing the schedule on “what we ran last week” is how labor creeps up.

• Cross-training
  Multiskilled staff reduce overtime and dependency.

• Overtime control
  Overtime isn’t a labor cost issue — it’s a scheduling issue.

• Turnover reduction
  Every departure increases labor cost by 25–150% of that role’s wage.

• Clear FOH + BOH responsibilities
  Ambiguity = inefficiency = higher cost.

• FLSA + state labor compliance
  Misclassification penalties destroy EBITDA faster than anything.

Truth: Great labor management isn’t about paying people less — it’s about aligning people to demand.

Why Prime Cost Is the One Number Every Operator Should Monitor Weekly

Because it answers the questions operators ask themselves every day:

• Are we priced correctly?

• Do we have the right staffing levels?

• Is our menu profitable or just popular?

• Are we controlling waste?

• Is this week going to be profitable or painful?

Prime cost tells you all of it — and it updates with every shift and every prep cycle.

How to Improve Prime Cost Immediately

Prime cost is the one metric that tells you whether the business is under control — or running you. The good news? You don’t need a full financial overhaul to improve it. Operators who focus on the following moves see results this week, not months from now.

1. Perform a Weekly Prime Cost Review

The best operators don’t wait for a monthly P&L to understand their business — by then, the damage is done. Weekly prime cost reviews let you:

• Catch waste before it compounds

• Adjust labor on the next schedule, not the next month

• Reprice or reengineer items quickly

• Hold teams accountable in real time

A weekly prime cost rhythm builds a culture of financial awareness. Your chef, GM, and managers begin thinking like operators, not firefighters.

If you watch it weekly, you will improve it weekly.

2. Integrate Your Systems (Stop Reconciling in Your Head)

If your POS, accounting system, inventory tool, and invoice processing platforms don’t talk to each other, you’ll never get accurate prime cost.

The ideal restaurant tech stack:

• Toast (or Square/SpotOn) → daily sales + labor

• QuickBooks Online → real-time financials

• xtraCHEF or MarginEdge → invoice automation, recipe costing, COGS insights

Integrating these systems unlocks:

• Real-time food cost

• Vendor price-change alerts

• Automated accruals

• Daily theoretical vs. actual COGS

Integration is how operators stop guessing and start managing.

3. Reforecast Labor Daily

Labor cost problems aren’t solved by cutting — they’re solved by forecasting.

Daily reforecasts allow managers to:

• Adjust mid-shift based on pacing

• Reduce excess hours on slow days

• Add support on high-demand days (protecting service quality)

• Prevent overtime before it happens

Too many restaurants schedule based on habit, last week’s numbers, or “what feels right.” Smart operators schedule to demand, and demand changes every hour.

4. Engineer Your Menu for Profitability

Menu engineering is where real margin is built. Every menu item should fall into one of four categories:

• Stars - High margin, high volume. Keep them, feature them, promote them.

• Plowhorses - High volume, low margin. Adjust portion, price, or plate cost.

• Puzzles - High margin, low volume. Reposition on the menu or train servers to recommend them.

• Dogs - Low margin, low volume. Eliminate, reprice, or rework entirely.

Your menu is not a brochure — it’s a financial instrument. Treat it like one.

5. Tighten Prep Levels

Over-prepping is one of the biggest silent killers of food cost. When prep levels don’t align with actual demand, waste skyrockets.

Strong operators implement:

• Daily prep lists based on forecast

• End-of-day usage logs

• Yield checks

• Portioning tools (scoops, scales)

• Prep audits (especially on weekends)

Every extra pan, container, or batch eventually hits COGS — and it hits hard.

6. Monitor Vendor Price Creep

Vendors rarely increase prices in big jumps. They increase them in quiet increments — a nickel here, a dime there — until your margins slowly disappear.

Weekly vendor review allows you to:

• Catch price increases early

• Renegotiate item pricing

• Switch suppliers when necessary

• Identify substitutions or reformulations

This is where many operators leave 5–10 points of margin on the table without realizing it.

The Bottom Line

Prime cost is the single clearest indicator of a restaurant’s financial health. When operators lock in:

• Food cost discipline

• Labor optimization

• Weekly prime cost visibility

• Real-time system integrations

• Menu profitability

…they create a business that is stable, predictable, and built for growth.

A strong prime cost doesn’t happen by accident — it happens by design, by habit, and by relentless weekly execution.

If you want help getting your prime cost under control with a full systems approach—Toast integration, xtraCHEF workflows, QBO cleanup, and weekly reporting — Lumiere Strategies can get you there.