1. What is Prime Cost Percentage?

Prime Cost Percentage is a key financial metric in the restaurant industry that measures the total cost of goods sold (COGS) and labor costs as a percentage of total revenue. It helps restaurant owners understand their core operational efficiency and profitability.

2. How Does the Calculator Work?

The calculator uses the Prime Cost Percentage formula:

Where:

• \( \text{COGS} \) — Cost of Goods Sold (food, beverages, supplies)
• \( \text{Labor} \) — Total labor costs (wages, benefits, payroll taxes)
• \( \text{Revenue} \) — Total sales revenue

Explanation: This calculation shows what percentage of your revenue is consumed by your two largest expense categories - food costs and labor.

3. Importance of Prime Cost Calculation

Details: Monitoring prime cost percentage is crucial for restaurant profitability. Industry benchmarks typically range from 55-65% for full-service restaurants. A percentage above 65% may indicate profitability issues, while below 55% suggests strong cost control.

4. Using the Calculator

Tips: Enter all values in dollars. COGS should include all food and beverage costs. Labor costs should include all payroll expenses. Revenue should be total sales before any deductions.

5. Frequently Asked Questions (FAQ)

Q1: What is a good prime cost percentage for restaurants?
A: Generally, 55-65% is considered healthy. Fine dining restaurants may run higher (60-65%), while quick service may aim for lower (55-60%).

Q2: What expenses are included in COGS?
A: Food costs, beverage costs, packaging, and any directly related supplies used in food preparation and service.

Q3: Should management salaries be included in labor costs?
A: Yes, all payroll expenses including management salaries, hourly wages, benefits, and payroll taxes should be included.

Q4: How often should prime cost be calculated?
A: Ideally weekly to catch issues early, but at minimum monthly for proper financial management.

Q5: What if my prime cost percentage is too high?
A: Analyze both COGS and labor separately. Consider menu engineering, portion control, supplier negotiations, or labor scheduling optimization.