Prime Cost Calculator for Restaurants

The formula

Prime cost = cost of goods sold + total labor.

Cost of goods sold for a period is beginning inventory plus purchases minus ending inventory, for food, beverage and the paper and packaging you treat as COGS. Total labor is hourly wages, salaries, the employer's payroll taxes and the cost of benefits, workers' compensation and staff meals if you count them as labor.

Prime cost percentage = prime cost ÷ net sales × 100.

How to use the calculator

1. Choose the period. A week, a four-week period or a month all work if your inventory and payroll cover the same days.
2. Enter net sales after discounts and comps. Leave out sales tax and tips.
3. Enter food, beverage and other COGS from your inventory math, not just from purchases. Purchases alone swing with delivery timing.
4. Enter hourly wages, salaries, payroll taxes and benefits for the same period. If your payroll runs on a different calendar, prorate it.
5. Enter your target. The result shows the gap in percentage points and in dollars.
6. Download the CSV and add it to a running file so you can see the trend.

A worked example

A restaurant does $92,000 in net sales for a four-week period. Food costs $26,400, beverage $5,300 and packaging $1,900, so COGS is $33,600, or 36.5 percent of sales. Hourly wages are $17,800, salaries $9,500, payroll taxes $2,600 and benefits $1,700, for total labor of $31,600, or 34.3 percent.

Prime cost is $65,200, or 70.9 percent of sales. Against a 62 percent target, that's 8.9 points over, about $8,200 for the period. Splitting it shows where to look: COGS at 36.5 percent is high for most full-service concepts, so plate costs, portioning and waste deserve the first review. Labor at 34.3 percent may be reasonable or high depending on the service style.

What to do with the result

Start with the bigger of the two halves. If COGS is high, re-cost your top ten sellers with the food cost calculator, compare theoretical with actual food cost, and check receiving and portioning. If labor is high, compare scheduled hours with sales by daypart. Often the issue is a few shifts that are staffed for a rush that rarely comes.

Look at turnover, too. Every hourly employee who leaves costs money to replace, and much of that shows up as overtime and training hours. The turnover cost calculator puts a number on it.

Common mistakes

Using purchases instead of usage makes prime cost bounce from week to week, depending on when deliveries arrive. Count inventory, even if only your highest-value items, at the end of each period.

Leaving out payroll taxes and benefits makes labor look a few points better than it is. Include them so your number matches your P&L.

Comparing different definitions is the last trap. If one week includes manager salaries and the next doesn't, the trend is meaningless. Write your definition at the top of your tracking sheet.