The Number That Saved a Restaurant From Closing Its Doors

Two years ago, a restaurant owner sat across from us looking defeated. Revenue was up 15% year over year. He had lines out the door on weekends. But somehow, he was barely breaking even.

"I do not understand," he said. "We are busier than ever."

We asked one question: "Do you know your prime cost?"

He did not. And that single blind spot was the reason a thriving restaurant was barely surviving.

What Prime Cost Tells You

Prime cost is the combination of your food costs and your total labor costs. It is the single most important number in the restaurant business because it represents your two largest controllable expenses.

Prime Cost = Cost of Goods Sold + Total Labor

For this owner, prime cost was running at 72% of revenue. That means for every dollar coming in the door, 72 cents was going straight to food and labor before he paid rent, utilities, insurance, or anything else.

The industry target for full-service restaurants is 60-65%. He was hemorrhaging money with every plate served.

Where the Money Was Going

We dug in. On the food cost side, we found three problems. First, portion sizes had crept up over time with no corresponding menu price increase. Second, food waste was significantly higher than it should have been. Third, he had not renegotiated vendor pricing in over a year despite rising order volumes that should have earned him better rates.

On the labor side, overtime was out of control. Staff scheduling was based on gut feel rather than actual sales data. And he was overstaffed during slow periods while understaffed during rushes, which led to even more overtime.

The Turnaround

We set up weekly prime cost tracking. Every Monday morning, he got a one-page report showing exactly where food and labor costs stood. Within three months, here is what happened:

Food cost dropped from 34% to 29% through portion standardization and vendor renegotiation. Labor cost dropped from 38% to 33% through scheduling optimization. Prime cost went from 72% to 62%.

On his revenue base, that 10-point improvement was worth over $80,000 a year straight to his bottom line.

Why This Matters for Every Restaurant

Most restaurant owners check their numbers monthly. In this business, monthly is too late. A bad food cost week can wipe out a good month. An overtime spike can eat your profit before you even know it happened.

Weekly tracking is the difference between catching problems early and discovering them too late.

The Formula

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Calculate COGS

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Calculate Total Labor

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Get Your Percentage

If that number is above 65% for a full-service restaurant, something needs to change. If it is above 70%, it is urgent.