Restaurant Financials: Food Cost, Labor Cost, and Prime Cost
The three numbers that actually determine whether a restaurant survives — and how to calculate them from your own menu and schedule.
Why Restaurant Math Is Different
Most businesses can absorb a bad month. Restaurants usually can't — the margins are thin enough that a few percentage points of drift in the wrong direction turns a profitable month into a losing one. That's not a reason to avoid the business, but it is why restaurant operators track cost percentages weekly, not just revenue.
Three numbers matter more than any others: food cost, labor cost, and the combination of the two — prime cost. If you only ever calculate one thing in this business, calculate prime cost.
Food Cost Percentage
Food cost percentage is what it costs you in ingredients to make a dish, divided by what you sell it for. A $4 plate of ingredients sold for $16 is a 25% food cost — which is a healthy, typical target for most full-service restaurants.
The formula
Food cost % = (Cost of ingredients used ÷ Food sales) × 100
Calculated per dish for menu pricing, and across your whole kitchen weekly (total food purchases ÷ total food sales) to catch waste, theft, or portioning drift that per-dish math won't show you.
Most restaurants target 28–35% food cost overall. A dish can run higher than that and still be fine — a signature item with a lower margin often exists to sell higher-margin drinks and sides alongside it. What matters is the blended number across the whole menu, not any single dish in isolation.
Labor Cost Percentage
Labor cost percentage is your total payroll (wages, taxes, benefits) divided by total sales for the same period. It swings the most by service style — a fine-dining restaurant with a large front-of-house team runs a very different labor cost than a counter-service spot with three people on shift.
Typical labor cost ranges by service style
| Typical labor cost % | Why | |
|---|---|---|
| Quick service / counter | 25–30% | Small crew, limited table service, fast turnover |
| Fast casual | 28–32% | Some prep and assembly labor, still no full table service |
| Full service (casual) | 30–35% | Servers, hosts, and a fuller kitchen brigade |
| Fine dining | 35–40%+ | High server-to-table ratio and specialized kitchen roles are the point, not a cost to minimize away |
There's no universal "right" number — a fine-dining restaurant running a 38% labor cost isn't mismanaged, that ratio is what the format requires to deliver what customers are paying for. The number only means something in context of your service style and price point.
Prime Cost: The Number That Matters Most
Prime cost is food cost percentage plus labor cost percentage combined. It's the single best early-warning number in the business, because food and labor typically move in opposite directions when you try to fix one in isolation — cut labor too aggressively and food cost creeps up from waste and inconsistent portioning by an undertrained, overstretched staff.
Target range
A prime cost of 60–65% of sales is the standard healthy target across most restaurant formats. Above 70% and there's usually not enough left over for rent, utilities, and profit — even before anything goes wrong.
Warning Signs Your Prime Cost Is Slipping
Worth checking weekly, not just at month-end
0/4Key Terms
Key Terms
- Food cost percentage
- Cost of ingredients used, divided by food sales, for the same period.
- e.g. $4 in ingredients on a $16 dish is a 25% food cost.
- Labor cost percentage
- Total payroll cost (wages, taxes, benefits) divided by total sales for the same period.
- Prime cost
- Food cost percentage plus labor cost percentage combined — the standard health check for a restaurant's core operating costs.
- Blended food cost
- Food cost calculated across the whole menu and all sales, not any single dish — the number that actually determines profitability.
Discussion & questions
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