The short answer
Prime cost = cost of goods sold (food, beverage and usually packaging) + total labour cost (wages, salaries, payroll taxes and benefits). Divide it by total sales to get your prime cost percentage, and track it the same way every period.
How to calculate it
Cost of goods sold is what you used, not what you bought: opening inventory, plus purchases, minus closing inventory. Count inventory at the end of every period, or this number is a guess.
Total labour means all of it: hourly wages, salaried managers and chefs, overtime, payroll taxes, and benefits you pay for. Leaving out payroll taxes or salaried staff is the most common way prime cost looks better than it is.
Example: one month
Example figures only.
What's a good prime cost?
Rules of thumb in the industry often put prime cost somewhere around 60 to 65 percent of sales, but the right target depends on your concept. A quick-service counter, a full-service dining room and a bar each balance food and labour differently. A high food cost can be fine if labour is low, and the other way around.
That's the point of combining them. Food cost alone or labour alone can each look bad while the business is healthy. Prime cost shows whether the trade-off between them is working.
How to use it
- Track it every period, weekly if you can, monthly at minimum, calculated the same way each time.
- Track it by location. A group average hides the location that's drifting.
- Look at the trend, not one number. A two-point rise over three months is a menu or scheduling problem worth finding now.
- Split it back out when it moves, to see whether food or labour caused it.
How Savoury handles it
Prime cost and labour targets are set for your concept and reviewed every period, location by location, with an operator's lens.
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