Prime Cost: The One Number That Runs Your Restaurant

What prime cost actually tells you

Every restaurant owner tracks food cost. Most track labour cost. Almost nobody puts them together.

Prime cost is the sum of those two numbers, expressed as a percentage of total sales. Food cost (what goes on the plate) plus total labour cost (wages, benefits, payroll taxes, and overtime) divided by total revenue. That's it. One number.

For a 40-seat independent in Ontario doing $700,000 a year in sales, here's what that looks like:

Component	Annual Cost	% of Sales
Food and beverage (COGS)	$210,000	30.0%
Gross wages	$196,000	28.0%
Payroll burden (CPP, EI, WSIB, vacation pay)	$33,300	4.8%
Prime cost	$439,300	62.8%

That 62.8% means for every dollar this restaurant earns, nearly 63 cents goes to ingredients and people before a single rent cheque, utility bill, or insurance premium gets paid.

The remaining 37.2% has to cover everything else: rent (typically 6-10% of sales), utilities, insurance, equipment, marketing, loan payments, and profit. At 3-5% full-service margins, the math is unforgiving.

Why this number matters more than food cost or labour cost alone

Here's where most cost-tracking goes sideways.

An owner notices food cost crept up to 34%. So they cut portion sizes, switch suppliers, rework a few menu items. Food cost drops to 31%. Problem solved, right?

Not if they hired an extra prep cook to handle the new recipes. That pushed labour from 30% to 33%. Food cost went down by three points; labour went up by three points. Prime cost didn't move. Nothing actually changed.

This is the pattern independents fall into constantly: fixing one side of the equation while the other side shifts underneath them. Tracking food and labour separately creates blind spots. Prime cost eliminates them by giving you one number that captures both.

The National Restaurant Association's 2025 survey found that full-service operators who reported a pre-tax profit in 2024 had a median labour cost of 34.2% of sales. Unprofitable operators ran more than two points higher. Two percentage points on $700,000 in annual sales is $14,000. That's the difference between a thin margin and no margin at all.

The benchmarks (and why the old rules are wrong)

You've probably heard the 30/30/30/10 rule: 30% food, 30% labour, 30% overhead, 10% profit. It shows up in textbooks and business plan templates. It's also wrong.

The rule assumed a world with stable food prices, lower minimum wages, and smaller payroll tax burdens. Canadian minimum wages range from $15.00 in Alberta to $17.85 in BC as of 2026, and the payroll burden (CPP, EI, WCB/WSIB, vacation pay) adds 15-20% on top of gross wages. The 30/30 split hasn't been realistic for a decade.

Here's what actually holds up:

Restaurant Type	Prime Cost Target	Notes
Full-service independent	60-65%	Above 65% makes profitability very difficult
Quick-service	55-60%	Lower labour, higher volume
Fine dining	62-68%	Premium ingredients and skilled labour push both sides up
Fast casual	58-63%	Between QSR and full-service
Best-in-class (any type)	Under 55%	Possible, but below 50% usually means cutting corners

The 60-65% target for full-service independents comes from industry benchmarks confirmed by multiple sources, and it aligns with what Canadian operators experience. At 65%, a restaurant with average overhead can still clear a small profit. At 68-70%, the math breaks.

How to calculate yours (the real version, not the textbook one)

The formula is simple. Getting the inputs right is where independents stumble.

Prime Cost = Total COGS + Total Labour Cost

Prime Cost Ratio = Prime Cost / Total Sales x 100

What goes into COGS

Everything that goes on the plate or in the glass:

• Food purchases (net of credits and returns)
• Beverage purchases (alcohol, coffee, soft drinks)
• Paper goods and disposables (takeout containers, napkins, straws)

Do not include cleaning supplies, equipment, or smallwares. Those are overhead.

The mistake: most independents estimate COGS from their purchasing invoices without doing a proper inventory count. If you bought $18,000 in food this month but you have $3,000 more in your walk-in than you started with, your actual COGS is $15,000, not $18,000. Beginning inventory plus purchases minus ending inventory. Every month.

Your food cost percentage should land between 28-35% of sales for most concepts. Above 35% and something needs attention: waste, portioning, pricing, or all three.

What goes into labour

This is where the number gets bigger than people expect:

• Gross wages (hourly and salaried, including overtime)
• Payroll taxes (CPP 5.95%, EI ~2.32%, provincial workers' comp 1-3%)
• Benefits (health, dental, if offered)
• Vacation pay (4% minimum in most provinces)
• Staff meals (often forgotten, but a real cost)

In Canada, the payroll burden alone adds 15-20% on top of gross wages. A cook earning $20/hour actually costs the restaurant $23-24/hour before overtime, before benefits, before the meal they eat on shift.

What independents usually miss: owner labour. If you're working 55 hours a week on the floor or in the kitchen and not paying yourself, your prime cost looks artificially low. You're subsidizing the restaurant with free labour. That works until it doesn't. We wrote about this in detail in what your team really costs beyond wages.

Weekly tracking changes everything

This is the single most actionable thing in this article.

RestaurantOwner.com reports that independents who calculate prime cost weekly instead of monthly save 2-5% of sales. On $700,000 in annual revenue, that's $14,000-$35,000. For a restaurant with a 4% net margin ($28,000 annual profit), recovering even two points of prime cost doubles the profit.

Why weekly works better than monthly:

You catch problems in real time. Labour cost spiked 4 points last week? You can look at the schedule, check who was on overtime, see whether a slow Tuesday had too many people clocked in. Wait until month-end and you're looking at blended averages that hide the problem.

You connect cost to behaviour. Weekly reviews let you link prime cost to specific decisions: the weekend you ran with one extra server, the week the fish order was too large and $400 went to waste, the shift where overtime kicked in because someone called in sick.

You build the habit. Monthly reviews feel like accounting. Weekly reviews feel like management. One is reactive; the other is proactive.

The 15-minute weekly check

You don't need software for this. A spreadsheet works. Every Monday morning:

1. Total sales for the previous week (from your POS)
2. Food and beverage purchases for the week (from invoices, not a full inventory count, that's monthly)
3. Total labour for the week (from your scheduling app or payroll, including your estimate of payroll burden)
4. Divide the sum of food plus labour by total sales

That's your weekly prime cost. Write it down. Compare it to last week. If it moved more than a point or two, figure out why.

A simple tracking table:

Week	Sales	COGS	Labour	Prime Cost	%
Mar 24	$13,400	$4,020	$4,400	$8,420	62.8%
Mar 31	$14,100	$4,370	$4,650	$9,020	64.0%
Apr 7	$12,800	$3,710	$4,480	$8,190	64.0%

When you see the number climbing week over week, you act before a bad month becomes a bad quarter.

What to do when your prime cost is too high

If you're running above 65%, here's where to look. In order of impact:

Check the labour side first. Labour is typically the larger and more controllable component. Look at scheduling: are you staffing for your busiest day every day? Cross-training reduces the number of bodies you need per shift. Review overtime, it often hides in plain sight. And connect your reservation count to your prep schedule, so you're not overstaffed on slow nights.

Then check the food side. Run a food cost percentage calculation on your top 10 sellers. If your bestselling dish has a 40% food cost, that one item is dragging the whole number up. Menu engineering helps you identify which items make money and which ones just move plates.

Look at the interaction. Sometimes the fix isn't cutting either component. It's adjusting the mix. A restaurant that shifts 10% of sales from low-margin entrees to high-margin appetizers and drinks can drop prime cost without changing a single recipe or a single shift.

The real cost of not tracking this

Forty-four percent of Canadian restaurants are operating at a loss or breaking even. The industry has 3-5% full-service margins. And the operators who track prime cost weekly run 2-5 points leaner than those who don't.

That's not a coincidence. It's the same math, visible or invisible.

A 40-seat independent running at 67% prime cost on $700,000 in sales has $231,000 left for rent, utilities, insurance, equipment, marketing, loan payments, and profit. After rent alone ($49,000-$70,000), the remaining money gets thin fast.

The same restaurant at 62% prime cost has $266,000 left. That extra $35,000 is the difference between surviving and building something.

Most independents have never calculated their prime cost. Not because they can't. Because nobody told them it was the one number worth checking. Now you know.

Sources: Restaurants Canada, Foodservice Facts 2025, Restaurant365, National Restaurant Association, Wagepoint, Government of Canada.

Know your number. Our free food waste calculator and menu engineering analyzer break down both sides of the prime cost equation for your restaurant. Takes two minutes. No signup required.

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