Every restaurant owner knows the thrill of a busy weekend and the reality check that comes with Monday’s numbers. Profitability does not start with a busy dining room; it starts with understanding your costs and making sure every dollar you bring in works just as hard as you do.
In this guide, we will walk through the major types of restaurant costs and then focus on the one number that deserves your closest attention: prime cost. We will show you how to calculate it and how to use it to improve your restaurant’s bottom line.
Every restaurant expense falls into one of three categories: fixed, variable, or semi-variable.
Fixed costs stay relatively steady regardless of how busy you are. Examples include rent, insurance, and salaried management. You can negotiate them from time to time, but they do not change week to week.
Variable costs rise and fall with sales. If you serve more tables, you will need more ingredients, more hourly staff, and perhaps more electricity running ovens and dishwashers.
Semi-variable costs have both fixed and variable elements. For example, you might pay a flat fee for certain maintenance services but spend more if a piece of equipment breaks. Marketing, repairs, and overtime labor often fit here, too.
Understanding which costs are flexible and which are locked in gives you a roadmap for where to focus your energy and your cost-control efforts.
COGS is everything you spend on the food, beverages, and other consumable products you serve to guests — from fresh produce and proteins to paper cups and napkins.
Cost of Goods Sold Formula:
COGS = Starting Inventory + Purchases – Ending Inventory
Monitoring COGS regularly can help you spot waste, theft, portioning problems, or pricing issues before they cut into your margins.
Labor Cost covers all costs associated with paying your team, including wages, salaries, payroll taxes, benefits, and insurance.
Labor Cost Formula:
Total Labor Cost = Wages & Salaries + Payroll Taxes + Benefits + Insurance
Keeping a close eye on labor cost allows you to adjust schedules, limit overtime, and maintain profitability even when sales fluctuate.
| Restaurant Type | Target Prime Cost % |
| Quick Service | 55–60% |
| Full-Service Casual | 60–65% |
| Fine Dining | 60–65%+ |
Knowing your prime cost is only half the battle. The real value comes from acting on it. The goal is not to slash costs recklessly, but to make smart, targeted adjustments that protect margins while keeping guests happy.
1. Tighten Inventory Control
Spoiled produce, unused ingredients, and over-ordering quietly eat into profits. Track usage, set realistic par levels, and review ordering patterns regularly. A simple spreadsheet, inventory app, or integrated POS tool can make it easier to spot waste and adjust orders before it becomes a problem.
2. Optimize Labor Schedules
Schedule based on forecasted sales, not assumptions. If Wednesdays are slow until the dinner rush, stagger start times to avoid paying for idle hours. Cross-train employees so servers can handle light prep or cooks can pitch in on dish duty during peak periods—building flexibility without adding payroll costs.
3. Use Menu Engineering
Analyze each menu item for profitability and popularity. Promote high-margin dishes, adjust portion sizes to control COGS, and remove low performers. Even small changes, like swapping a garnish or adjusting a protein cut, can improve margins over time.
4. Strengthen Vendor Partnerships
Negotiate better pricing, consolidate purchases for volume discounts, and take advantage of seasonal ingredients with better margins. Good vendor relationships can also give you early insights into market trends so you can prepare for cost increases before they happen.
Prime cost is not a set-it-and-forget-it metric. Tracking it quarterly might look good on paper, but it does not give you the agility to respond when sales dip, supplier prices rise, or labor needs change. Weekly tracking is the gold standard because it keeps your numbers fresh and your decision-making nimble.
Imagine noticing your prime cost jumped two points this week compared to last. A quick review might reveal an overstock on a slow-moving item or a few unexpected overtime shifts. Catch it now, and you can course-correct before those extra costs compound. Wait until the quarterly review, and the damage is already done.
Regular reviews also keep your team aligned. Share the numbers in staff meetings, explain what they mean, and celebrate improvements. When employees understand how their actions, from portioning to prepping to clocking in on time, directly influence the restaurant’s financial health, they are more likely to take ownership.
The key is consistency. By building prime cost tracking into your weekly routine, you are not just reacting to problems; you are staying ahead of them.