What prime cost is
Prime cost is the cost of the food and drink you use plus the cost of your team, divided by sales excluding VAT. They are a restaurant's two biggest costs and, unlike rent, the ones you can change every week.
How to calculate it
Prime cost = (cost of goods used + staff cost) ÷ sales excluding VAT
- Consumption, not purchases: opening stock + purchases − closing stock. Without a stock count you measure what you buy, not what you use.
- Full staff cost: gross wages plus employer social security, including overtime and cover.
- Sales excluding VAT: VAT isn't yours. If you include it, the percentage comes out lower than it really is.
An example
| Monthly sales, excluding VAT | €200,000 | |
| Cost of goods used | €64,000 | .% |
| Staff, including social security | €72,000 | .% |
| Prime cost | €136,000 | .% |
At 68%, 32 cents of every euro are left for rent, utilities, marketing and profit. That's not much.
What is a good figure?
As a common industry benchmark, a prime cost below 60–65% of sales leaves room for other costs and for profit. Above 65%, the business is usually tight. It depends on the concept: a restaurant with full table service will have higher staff costs than a quick-service one, and one with expensive produce, higher food costs. What matters is knowing your figure every month and which way it is heading.
→ In our assessments we use 65% as the red line.
The most common mistakes
- Calculating it with purchases instead of consumption.
- Forgetting social security or overtime.
- Using sales including VAT.
- Lumping all sites together: a good one hides a bad one.
How to bring it down
- Dish costings with real waste and portion weights on every spec sheet.
- Comparing actual and theoretical consumption to find where it is being lost.
- Menu engineering: reprice or rework dishes that sell a lot but earn little.
- Staff rotas matched to sales in each time slot.