Restaurant Prime Cost Guide: How to Reduce Labor and COGS

Prime cost is the single most important number for restaurant profitability, and most operators don’t track it often enough. It’s the combination of your two largest controllable expenses: labor and cost of goods sold (COGS). When prime cost creeps above 65% of sales, there’s not much left for rent, utilities, and profit.

The good operators know their prime cost weekly, not monthly. This guide breaks down how to calculate prime cost, what targets to aim for by restaurant type, and the specific tactics that actually move the needle on labor and food costs.

What is prime cost in a restaurant?

Prime cost is the sum of your labor costs and cost of goods sold (COGS). It represents the two largest controllable expenses in any restaurant, and it typically falls between 55% and 65% of total sales. When prime cost climbs above 65%, there’s often little left over for rent, utilities, and profit.

What makes prime cost so useful is that it captures the expenses you can actually influence. You can’t renegotiate your lease mid-contract, but you can adjust how you schedule your team and manage your inventory. That’s the power of tracking prime cost: it points directly to where your money goes and where you have room to make changes.

Here’s what goes into each component:

• Labor costs: Hourly wages, salaried manager pay, payroll taxes, workers’ comp, and benefits for everyone on your team
• Cost of goods sold (COGS): The cost of food, beverages, paper goods, and supplies used to produce what you sell

How restaurant prime cost is calculated

The formula itself is simple. The tricky part is making sure you’re capturing all the right numbers in each category.

The prime cost formula

Prime Cost = Total Labor Costs + Total COGS

For labor, include everything: hourly wages, salaries, payroll taxes, benefits, and bonuses. Don’t forget managers, because their compensation counts too.

For COGS, use this calculation: Beginning Inventory + Purchases – Ending Inventory. This gives you the actual cost of what you used during the period, not just what you bought.

To express prime cost as a percentage of sales, divide your prime cost by total sales and multiply by 100.

Sample prime cost calculation

Here’s what a single week might look like:

Cost Category	Weekly Amount
Total labor costs	$8,500
Total COGS	$6,200
Prime cost	$14,700
Total sales	$24,000
Prime cost percentage	61.25%

In this example, 61.25% of every dollar that came in went straight to labor and food. That leaves 38.75% for everything else: rent, utilities, equipment, marketing, and hopefully some profit.

What is a good prime cost for restaurants?

There’s no universal “right” number. Your target depends on your service model, menu complexity, and market. That said, here are typical ranges by restaurant type.

Quick service restaurants

QSR operations usually run lower labor costs because there’s limited table service. However, food cost margins can be tighter due to lower check averages. Prime cost for QSR typically falls between 55% and 60%.

Fast casual restaurants

Fast casual sits in the middle: some counter service, maybe a few table touches, and often a more complex menu than QSR. Prime cost usually lands between 58% and 63%.

Full-service restaurants

Full-service carries higher labor costs. You’re paying servers, bussers, hosts, bartenders, and often a larger kitchen team. Prime cost targets typically range from 60% to 65%.

Fine dining restaurants

Fine dining often runs the highest prime costs, sometimes above 65%. Premium ingredients, skilled kitchen staff, and high-touch service all drive costs up. The trade-off is higher check averages that can still deliver solid margins.

Tip: Don’t chase someone else’s benchmark. Calculate your own prime cost for the past 12 weeks, find your average, and set a realistic target based on your actual operation.

How to reduce labor costs in your restaurant

Labor is often the larger of the two prime cost components, and it’s also where you have the most control week to week. Small adjustments here add up fast.

1. Schedule based on sales forecasts

Your Tuesday night doesn’t need the same staffing as Saturday brunch. Pull historical sales data from your POS and build schedules around expected demand, not gut feeling.

Look at sales by day, by daypart, even by hour if your system allows it. A slow 2 PM to 4 PM window might not need three servers on the floor.

2. Reduce overtime hours

Overtime pay, typically 1.5x the regular rate, can blow up your labor budget in a hurry. The fix is visibility: track hours mid-week, not just when payroll runs.

If someone’s at 35 hours by Thursday, redistribute their Friday shift to a part-timer who’s only at 20. Some states have daily overtime rules too, so check your local requirements.

3. Make real-time staffing adjustments

Train your managers to watch sales-per-labor-hour during service. If it’s a slow Tuesday and you’re overstaffed, cut someone early. If a surprise rush hits, call in backup.

Your team would rather go home early on a dead night than stand around folding napkins.

4. Cross-train your team

A server who can expo. A line cook who can prep. A host who can bus tables. Cross-trained employees give you scheduling flexibility without adding headcount.

Cross-training is especially valuable during transitional shifts, like that 3 PM to 5 PM window when you’re between lunch and dinner. One cross-trained person can cover what might otherwise require two.

5. Review labor reports daily

By the time you see monthly labor numbers, you’ve already overspent for three weeks. Daily visibility lets you catch problems while you can still fix them.

Check your labor cost percentage against sales every day. If you’re running 32% on Monday and your target is 28%, you know you have to tighten up the rest of the week.

Watch our video to learn more about the average restaurant labor costs (and where you stand):

How to control COGS in your restaurant

Food and beverage costs are the other half of the prime cost equation. Unlike labor, COGS problems often hide until inventory day, which is why consistent tracking matters.

1. Track actual vs theoretical food cost

Theoretical food cost is what you would spend based on your sales mix and recipe costs. Actual food cost is what you did spend based on inventory.

The gap between the two reveals waste, theft, or portioning issues. If your theoretical food cost is 28% but your actual is 33%, something’s off, and it’s costing you money every week.

2. Calculate and update recipe costs

Every menu item has a cost. But ingredient prices change, sometimes weekly. If you haven’t updated your recipe costs in six months, your menu pricing might be based on outdated numbers.

Cost out your top 20 sellers at a minimum. Update those costs quarterly, or whenever you see significant price changes from your vendors.

3. Reduce food waste and over-portioning

Small overages on every plate add up fast. An extra ounce of protein here, a heavy pour there: it compounds across hundreds of covers.

• Weigh proteins before plating, especially expensive items like steak and seafood
• Track waste in a simple log: what was thrown out and why
• Review prep pars weekly to avoid over-prepping perishables

4. Audit vendor invoices for errors

Check every invoice against the purchase order and the actual delivery. Pricing errors, shorted items, and double charges happen more often than you’d expect.

Assign someone to verify deliveries at the door. It takes five minutes and can save you hundreds per month.

5. Negotiate with or switch vendors

Loyalty matters, but so does your bottom line. Get competitive quotes on your high-volume items, like proteins, dairy, and produce, and use them as leverage.

You don’t have to switch vendors to get better pricing. Sometimes, just showing a competitor’s quote is enough to start a conversation.

How often to track restaurant prime cost

Monthly tracking is too slow. By the time you see the numbers, the problems are already three or four weeks old.

• Daily: Review labor cost reports and compare to sales. Catch scheduling misalignment before it compounds.
• Weekly: Calculate full prime cost (labor + COGS) and compare to your target. This is your core rhythm.
• Monthly: Analyze trends, identify patterns, and adjust for the coming period.

Weekly prime cost tracking is the minimum standard for operators who want real control over their margins.

Common prime cost mistakes to avoid

Even experienced operators fall into a few common traps. Here’s what to watch for.

Tracking monthly instead of weekly

Monthly numbers are history. Weekly numbers are actionable. If you’re only looking at prime cost once a month, you’re managing your restaurant in the rearview mirror.

Ignoring labor costs until payroll

Many operators don’t see labor costs until payroll runs. By then, you’ve already spent the money. Real-time or daily visibility is the fix: track labor as you schedule, not after.

Setting targets without benchmarks

Picking an arbitrary prime cost target, like “let’s aim for 60%,” without understanding your actual performance is a recipe for frustration. Start with your current numbers, then set incremental improvement goals.

Better scheduling is the key to lower prime cost

Of all the levers you can pull, scheduling has the biggest impact on prime cost. It’s where labor costs are made or broken, week after week.

When you build schedules around forecasted demand and track labor costs in real time, you catch problems before they hit your P&L. You stop guessing and start managing.

Doing this manually means spreadsheets, a calculator, and about 30 minutes per schedule. Or you can use scheduling software like 7shifts that calculates labor costs as you build the schedule, so you know exactly where you stand before you publish.

Start a free trial and see your labor costs in real time.

FAQs about restaurant prime cost

Is labor included in COGS for restaurants?

No. Labor and COGS are separate components of prime cost. COGS covers food, beverage, and supply costs. Labor includes wages, payroll taxes, and benefits. They’re tracked separately, then added together for the prime cost.

What is the 30 30 30 rule for restaurants?

The 30 30 30 rule is a general guideline suggesting roughly equal portions of revenue going to labor (30%), COGS (30%), and overhead (30%), with the remaining 10% as profit. Actual targets vary significantly by concept and market.

What percentage of restaurant revenue goes to labor?

It depends on your service model. Quick service typically runs 20% to 25%. Full service often runs 28% to 35%. Fine dining can run higher. Set your target based on your concept, not a generic industry number.

How can restaurants reduce prime cost without cutting staff?

Focus on smarter scheduling (matching shifts to demand), reducing overtime, controlling food waste, and negotiating better vendor pricing. All of these lower the prime cost without layoffs or service cuts.