Prime cost

Definition in practice

Purchases are not necessarily food usage. Inventory remaining at the end of a period has not all been consumed. Labor definitions also differ: a wage-only figure is not directly comparable with wages, salaries and benefits. Make the cost boundary explicit before comparing periods or published surveys.

Formula and worked example

Prime cost % = (food and beverage cost + labor cost) ÷ net sales × 100.

In an illustrative period, food and beverage usage is $32,000, labor including employer costs is $33,000 and net sales are $100,000. Prime cost is $65,000, or 65% of sales. That leaves $35,000 before occupancy, utilities, other expenses and income. It does not imply a 35% profit margin.

Use it in the kitchen

Treat the combined ratio as a diagnosis starting point. A change might come from food prices, staffing, sales mix or weak sales volume. Separate those effects before acting. Do not add separately reported median food and labor ratios and label the result a median prime cost; the statistical operations are different.

Boundary check

For a group report, combine the food, labor and sales dollars across locations before calculating the total ratio. Averaging location percentages without sales weighting answers a different question and can overstate the influence of a small site.

Keep the input record

Write the unit, period and preparation beside the figure you use. Keep the original receipt, count or recipe record available so another person can reproduce the calculation. A clearly labeled assumption is useful for planning; it should not later be mistaken for a measured result.

Use the linked calculator to test your own inputs, then check the result against the original record. The browser ledger can hold recipe quantities and purchase prices, while your stock and accounting records provide the wider operating context. Export a backup before replacing a working ledger.