Prime cost is the sum of food cost and labor cost. Prime cost percentage expresses that sum relative to revenue: (food cost + labor cost) ÷ revenue × 100. Restaurant operators use it to review two major operating costs together. A useful target depends on the service model, rent, other overhead, and required margin; a single percentage does not establish whether a business is profitable.
Food cost is the procurement side of prime cost. Labor is the scheduling and management side. They move differently, they are managed differently, and they have different levers — but they share the same denominator (revenue) and the same consequence when they run high together. Closed-loop procurement addresses the food cost half: the buying workflow that connects demand signals, purchase orders, supplier replies, receiving, and accounting handoff in one continuous record without manual re-entry. That is what closed-loop procurement describes — and controlling the food cost component of prime cost is where procurement discipline, receiving accuracy, and recipe costing all converge.
Quick answers
What is prime cost? Prime cost is food cost plus labor cost as a percentage of revenue. It is the sum of the two largest variable operating expenses in a food business. If food cost % is 30% and labor cost % is 33%, prime cost is 63%.
What is the prime cost formula? Prime Cost % = (Food Cost + Labor Cost) ÷ Revenue × 100. Alternatively: Prime Cost % = Food Cost % + Labor Cost % — the two percentages add directly because they share the same revenue denominator.
What is a good prime cost for a restaurant? Industry guidance targets prime cost below 60–65% of revenue. Full-service restaurants typically operate in the 60–65% range; quick-service and high-volume fast-casual operations can run 55–60%. A prime cost above 65–70% rarely produces enough margin to cover occupancy, utilities, and profit, regardless of sales volume.