Disclosure: This article is written by Shaun McManus, founder of SmartPubTools and creator of the Restaurant Console. All operational claims reflect genuine experience at Teal Farm Pub, Washington.
What Is Prime Cost in a Restaurant and Why Does It Matter More Than GP%?
Key Takeaway: Prime cost = Cost of Goods Sold (food and drink) + Labour cost. UK target: under 65% of net revenue. At Teal Farm Pub, food cost runs ~30% and labour at 15% — a prime cost of 45%, well below the UK average of 60-65%. Prime cost is the single metric that predicts profitability better than GP% alone, because it captures your two largest and most controllable cost lines together.
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By Shaun McManus | Last Updated: May 2026
GP% tells you your food and drink margin. Labour% tells you your staffing efficiency. But neither one alone tells you whether your restaurant will be profitable. Prime cost combines both — and because food cost and labour together account for 55-70% of most restaurant revenue, controlling prime cost is the fastest path to improving net margin.
The Prime Cost Formula
Prime cost = COGS (food and drink cost) + Labour cost (wages + employer NI + pension)
Prime cost% = Prime cost ÷ Net revenue (ex-VAT) × 100
Worked example — Teal Farm Pub:
| Component | Weekly figure | % of net revenue |
|---|---|---|
| Net revenue (ex-VAT) | £17,615 | 100% |
| Food and drink cost (COGS) | £5,285 | 30% |
| Labour (wages + employer NI + pension) | £2,642 | 15% |
| Prime cost | £7,927 | 45% |
At 45% prime cost, 55% of every pound of revenue remains to cover rent, rates, utilities, insurance, and profit. That headroom is what makes the difference between a struggling restaurant and a profitable one.
UK Restaurant Prime Cost Benchmarks 2026
| Prime cost range | What it means | Typical net profit margin |
|---|---|---|
| Under 55% | Exceptional — well-managed food and labour costs | 10-15%+ |
| 55-60% | Good — above-average control | 7-10% |
| 60-65% | UK average — acceptable but leaves little room | 3-7% |
| 65-70% | Below benchmark — food or labour needs attention | 0-3% |
| Above 70% | Loss territory — immediate action required | Loss-making |
Prime Cost Calculator — Your Weekly Numbers
Prime cost% = (Food cost + Drink cost + Wages + Employer NI + Employer pension) ÷ Net revenue × 100
Common mistakes in prime cost calculation:
Using gross revenue instead of net-of-VAT revenue — this understates prime cost% by approximately 17%. Always use ex-VAT revenue. See the VAT on restaurant food guide for the correct calculation.
Excluding employer NI and pension from labour — these add 15-20% to the gross wage bill. A restaurant running £5,000/week in gross wages has true labour cost closer to £5,750-6,000 when employer NI and pension are included. See the restaurant payroll guide for the full 2026 employer cost breakdown.
Tracking monthly instead of weekly — prime cost at month-end is history. Prime cost tracked weekly is a management tool. A restaurant that tracks prime cost weekly can identify a food cost spike in week 1 and act in week 2; monthly tracking identifies it in week 5, after four weeks of margin loss.
What Drives Prime Cost Above Target?
| Driver | Impact on prime cost | Fix |
|---|---|---|
| Food cost above 32% | Directly raises prime cost | Portion control, menu engineering, supplier review |
| Labour above 32% | Directly raises prime cost | Rota optimisation, covers-per-server tracking |
| Delivery platform commission not tracked as COGS | Understates true COGS | Include net commission deductions in food cost calculation |
| Over-staffing during low-cover services | Raises labour% rapidly | Service-level labour tracking — see covers-per-server guide |
| Menu prices not updated for supplier increases | Raises food cost% silently | Quarterly menu price review against current supplier costs |
Prime Cost vs GP% — Which Should You Track?
Track both — they answer different questions. GP% tells you your margin on what you sell. Prime cost tells you whether your operation is viable after your two main controllable costs. A restaurant can have excellent GP% (70%) and poor prime cost (72%) if labour is wildly out of control — the high margins are being consumed by an overstaffed team.
See the restaurant GP% calculator guide for the GP% formula, and the restaurant labour cost guide for the labour% benchmark and reduction strategies. Together these feed your prime cost calculation.
The restaurant profit margin guide shows the complete P&L journey — prime cost is the largest single block on that journey and where the most leverage exists for independent operators.
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The Restaurant Console Dashboard shows net revenue, GP%, labour%, food cost%, and combined prime cost weekly — with red/amber/green RAG status against your targets. The Weekly Cockpit shows actual prime cost vs target vs last year, so you know by Monday whether last week was within benchmark.
✓ Dashboard: prime cost (food + labour) tracked weekly
✓ Weekly Cockpit: actual vs target vs last year
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Frequently Asked Questions
What is prime cost in a restaurant UK?
Prime cost = COGS (food + drink cost) + Labour (wages + employer NI + pension). Prime cost% = Prime cost ÷ Net revenue × 100. UK target: under 65%.
What is a good prime cost percentage for a UK restaurant?
Under 65% is benchmark. Under 55% is exceptional. Above 70% is typically loss-making. Teal Farm runs at ~45% (30% food + 15% labour).
How do you calculate prime cost for a restaurant?
Food cost + Drink cost + Wages + Employer NI + Pension, divided by net revenue (ex-VAT) × 100. Never use gross revenue — it understates prime cost% by ~17%.
How often should a restaurant calculate prime cost?
Weekly. Monthly is too slow — a cost spike identified in week 1 corrected in week 2 saves three weeks of margin vs monthly discovery at week 5.
How can a restaurant reduce prime cost?
Two levers: reduce food cost% (portion control, menu engineering, waste reduction) and reduce labour% (rota optimisation, covers-per-server tracking). Moving from 65% to 60% saves £26,000/year at £10,000/week net revenue.
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