Prime Cost
What is Prime Cost?
Prime cost is the combined cost of your ingredients and your labor.
It’s the two biggest expenses in your operation, put together into one number.
If you want a quick read on how your business is doing, this is usually where you look first.
The Formula
COGS + Labor Cost = Prime Cost
You can also look at it as a percentage of sales:
(COGS + Labor) ÷ Total Sales = Prime Cost %
Quick Example
Let’s say for a week:
Sales: $20,000
COGS: $5,000
Labor: $6,000
Prime Cost = 5,000 + 6,000 = $11,000
Prime Cost % = 11,000 ÷ 20,000 = 55%
That means 55% of your revenue is going to product and labor before anything else.
Why It Matters
Prime cost is one of the fastest ways to understand if your operation is sustainable.
If this number is too high:
there’s not enough left for rent, utilities, and everything else
profitability gets tight very quickly
If it’s under control:
you have room to operate
pricing and staffing are likely in a good place
It’s not the whole picture, but it’s a strong indicator.
What Goes Into Prime Cost
Two buckets:
COGS (Cost of Goods Sold)
liquor, beer, wine
food ingredients
syrups, juice, prep items
anything you sell or use to make what you sell
Labor
hourly wages
salaried staff (allocated appropriately)
payroll taxes and benefits (if you’re tracking accurately)
If it directly ties to producing or serving the product, it belongs here.
What Doesn’t Count
Prime cost does not include:
rent
utilities
insurance
marketing
software
equipment
Those still matter, but they live outside this number.
Prime cost is about production and service, not overhead.
What a “Good” Prime Cost Looks Like
Most restaurants and bars aim for something around 55% to 65%.
But this depends on:
your concept
your pricing
your staffing model
how much prep your menu requires
A high-touch cocktail bar will look different than a high-volume dive.
What matters is whether the number leaves enough room for everything else.
Common Mistakes
Looking at COGS or labor in isolation
You can run a “great” pour cost and still have a bad prime cost if labor is too high.
Cutting labor too aggressively
Lower labor might improve the number short-term, but it can hurt service and sales.
Ignoring how the menu affects labor
More complex drinks = more prep = more labor cost.
Not tracking consistently
If your numbers aren’t measured the same way each week, you can’t trust trends.
Assuming one target works forever
As your business changes, your ideal prime cost might shift.
Prime Cost vs Pour Cost
Pour cost focuses only on product
Prime cost includes product and labor
Pour cost helps you price drinks.
Prime cost helps you run the business.
You can have a strong pour cost and still struggle if labor is out of control.
Prime Cost vs Profit Margin
Profit margin looks at individual items
Prime cost looks at your operation as a whole
One is about menu efficiency.
The other is about overall sustainability.
One Thing Most People Miss
Prime cost is where your menu and your staffing meet.
You can’t fix it from one side alone.
expensive menu + efficient labor → still high
cheap menu + inefficient labor → still high
It only works when both sides are working together.
When to Pay Attention to Prime Cost
weekly or monthly financial reviews
after menu changes
after staffing changes
when profitability feels tight
when scaling up or down
If something feels off at a high level, this is one of the first numbers to check.
Related Terms
Related Guides from Spec
Bottom Line
Prime cost is your two biggest expenses combined.
If it’s under control, you have room to run the business.
If it’s not, everything else gets harder to fix.
