Restaurant prime cost: how to calculate it in the UK

Prime cost at a glance

• Restaurant prime cost = cost of goods sold (food and drink) + total labour cost.
• Prime cost % = prime cost ÷ net sales excluding VAT × 100.
• Labour means the full cost of employing people. Wages, employer National Insurance, pension contributions, holiday pay and agency staff all count.
• These are the two biggest costs you can change week to week. Rent and rates are fixed for months at a time; the rota and the order sheet change every week.
• The best UK survey figures we found are from 2021: payroll at 28.3% of turnover and a food gross profit of 67%. They were measured during furlough and a VAT cut, so set your own ceiling from your overheads and the profit you need.

What is prime cost?

Restaurant prime cost is what you spend on the things you sell and the people who make and serve them, over a period. It adds your cost of goods sold (COGS) to your total labour cost. As a percentage, you divide it by your net sales for the same period.

It's useful because food and labour pull against each other. Buying in prepared vegetables cuts prep hours and raises food cost. Making everything from scratch does the opposite. Watching food cost or labour cost alone can make a change look like a saving when it's only moved the cost from one line to the other. Prime cost shows both.

Where the term comes from

"Prime cost" comes from cost accounting. In a factory, it's the sum of the direct costs of making one unit. OpenTuition's notes for the CIMA BA2 paper, a professional accounting exam, define direct costs as "those costs which can be identified with and allocated to a particular cost unit", and give "Total direct costs = prime cost (direct materials + direct labour + direct expenses)".

Restaurants use the term more loosely, in two ways:

• Materials become COGS. That's the food and drink used up in the period, worked out from stock and purchases, rather than the cost of one plate.
• Labour means all staff. In accounting, the pay of a factory supervisor is indirect labour and stays out of prime cost. Restaurant prime cost usually includes everyone on the payroll at the site: chefs, servers, kitchen porters and the general manager.

So a restaurant's prime cost is larger than an accountant's would be for the same business. That's fine, as long as you use the same definition every week and when you compare with anyone else.

Accountants also use conversion cost, the cost of turning materials into finished goods. The IFRS for SMEs module on inventories (third edition, 2026) says these costs "include costs directly related to the units of production, such as direct labour" plus "a systematic allocation of fixed and variable production overheads". Direct labour sits in both prime cost and conversion cost, so the two can't be added together. Restaurants rarely use conversion cost.

In building contracts, a "prime cost sum" (PC sum) is something else: an allowance in a contract for work or materials from a supplier the client will nominate. It has nothing to do with restaurant costs.

How do you calculate prime cost?

Prime cost = COGS + total labour cost

Prime cost % = prime cost ÷ net sales excluding VAT × 100

All three figures must cover the same period, usually a week or a month. Sales come from your till, excluding VAT. Menu prices include VAT by law, so the till total isn't your sales figure. The food cost percentage page explains why, and how to strip the VAT out.

Example: one week at a restaurant (illustrative)

How the NI and pension lines are worked out. The £6,600 of gross pay is made up of 4 staff on £600 a week, 10 on £300 and 6 on £200. Nobody is claiming the Employment Allowance in this example.

The £120 a week pension figure is the weekly version of the £6,240 lower limit (£6,240 ÷ 52). The pension line assumes everyone is enrolled. In practice, only staff who meet the auto-enrolment conditions (below) or who choose to join will be.

Two mistakes would change that figure:

Both errors make your business look healthier than it is. Gross pay alone leaves out £1,478 of real cost here, 6.2 points of sales.

What goes into cost of goods sold?

COGS is the food and drink you used, worked out from stock counts:

COGS = opening stock + purchases − closing stock

Count food and drink separately and add them for prime cost. Keeping them apart lets you see which one moved. The food cost percentage page covers the detail: valuing stock at cost, credit notes, staff meals, waste, transfers between sites, and the difference between theoretical and actual cost. Use the same rules here, so your prime cost and your food cost always agree.

Packaging for takeaways can go in COGS or in overheads. Either works if you do it the same way every period.

A regular stock count is what makes the COGS figure reliable. A bad closing count spoils two periods, because it becomes the next period's opening stock.

What goes into labour cost?

Labour cost is everything it costs you to employ the people who work in your business, for the hours in the period.

Employer National Insurance

HMRC's rates and thresholds for employers 2026 to 2027 (last updated 1 September 2026) set the employer (secondary) rate at 15% for most employees. The secondary threshold is "£96 per week £417 per month £5,000 per year". Employer NI is due on each employee's earnings above that threshold. Some categories pay 0% up to a higher threshold, including apprentices under 25. HMRC's National Insurance category letters page lists them as category H, "Apprentices under 25". If you employ apprentices, check payroll is using the right letter, or you'll pay NI you don't owe.

Employment Allowance

The Employment Allowance lets eligible employers "reduce their annual National Insurance liability by up to £10,500". GOV.UK says you pay less employer NI each time you run payroll "until the £10,500 has gone or the tax year ends". Not everyone can claim: under the eligibility rules, if your company has only one director, that director must not be the only employee paying secondary Class 1 NI.

That timing matters for prime cost. If you claim, your employer NI is lower in the first weeks or months of the tax year and then jumps once the allowance is used up. Your labour cost will look as if it rose overnight. You have two options: spread the allowance evenly across the year in your own figures, or note the change so nobody chases a problem that isn't there.

Pension contributions

Under auto-enrolment, GOV.UK's workplace pensions page gives the minimum employer contribution as 3%, with a total minimum of 8%. In most schemes, contributions are based on earnings "between £6,240 and £50,270 a year". So the employer's 3% applies to earnings above £6,240, not the whole salary. Your scheme may be more generous; use what you pay.

Not everyone has to be enrolled. The duty comes from section 3 of the Pensions Act 2008. GOV.UK's guidance for employers says you must enrol staff who "are aged between 22 and the State Pension age" and "earn at least £10,000 a year". Kitchens have a lot of younger and part-time staff, so some of your team won't be enrolled automatically, although they can ask to join. Base the pension line in your labour cost on who is actually enrolled.

Holiday pay

Workers are "legally entitled to 5.6 weeks' paid holiday a year" (GOV.UK holiday entitlement). For irregular-hours and part-year workers, GOV.UK's leave entitlement guidance says "their entitlement will be 12.07% of the hours they worked in a pay period". Its own example: someone who works 30 hours and is paid weekly earns 3.621 hours of leave. GOV.UK says entitlement "must be rounded up to the nearest hour if the entitlement is 0.5 of an hour or more", so that worker can book 4 hours.

The law behind this is the Working Time Regulations 1998. Regulation 13 gives "four weeks' annual leave", and regulation 13A adds the rest, making 5.6 weeks. Regulation 15B sets the irregular-hours accrual "at the rate of 12.07% of the number of hours that they have worked during that pay period", up to a maximum of 28 days in a leave year.

Kitchens have a lot of irregular-hours staff, so this adds up. If you only count holiday pay in the week it's paid, labour looks cheap in summer and expensive in the weeks people take time off. Building up the cost as it's earned keeps each week honest.

Example: holiday built up by one casual worker (illustrative). 30 hours at £12.71 = £381.30 gross. If you pay the holiday when it's taken, the worker books 4 hours, which costs 4 × £12.71 = £50.84. If you pay rolled-up holiday pay (below), the cost is 12.07% × £381.30 = £46.02, which is the same as 3.621 hours × £12.71. Use whichever matches how you pay, and use it every week.

You can also pay holiday as you go. Regulation 16A of the Working Time Regulations covers irregular-hours and part-year workers. It says their holiday pay "may be paid by way of a 12.07% uplift to the worker's remuneration for work done", and it "must be paid at the same time as the worker's remuneration for work done". Payslips must show the holiday pay amount. With rolled-up pay, the holiday cost is in the same week's payroll, so there's nothing to accrue for those workers.

Sick pay and the Apprenticeship Levy

Statutory Sick Pay is a labour cost you won't see coming. GOV.UK's employer guide to sick pay says it's "either £123.25 a week or 80% of average weekly earnings - whichever is lower", and "paid for up to 28 weeks". If someone is off, you usually pay their SSP and also pay someone else to cover the shift. Both belong in labour cost for that week. Expect a spike, and don't read it as a rota problem.

The Apprenticeship Levy is "paid at a rate of 0.5% of an employer's annual pay bill". You only pay it if you "have an annual pay bill of more than £3 million", or you're connected to other companies whose combined pay bill is over that. Most independent restaurants won't pay it. Groups that do should include it in labour cost.

Tips and service charge

The Employment (Allocation of Tips) Act 2023 came into force on 1 October 2024 (commencement regulations). Its statutory code of practice says the Act "makes it mandatory for all tips to be passed on to workers without deductions". The code says employers must "Pass on all tips and service charges to workers without deductions", and that this covers service charges "both automatically added and other voluntary". So tips and service charge aren't your sales, and paying them out isn't your labour cost.

The duty sits in the Employment Rights Act 1996, as amended. Section 27C defines qualifying tips, gratuities and service charges. Section 27D says the employer "must ensure that the total amount ... is allocated fairly between workers". These sections apply in England, Wales and Scotland. Leave both out.

Northern Ireland has no equivalent duty. The government's explanatory memorandum for the code says the code's extent "is England and Wales and Scotland" and that "Employment policy is devolved to Northern Ireland". If you run a site in Northern Ireland, what happens to tips and service charge depends on your contracts and your own policy. Any service charge you keep is your revenue: put it in sales and leave it out of labour. Anything you pass to staff stays out of both, as it does elsewhere in the UK. Counting tips in labour cost would make a busy, well-tipped weekend look like a labour problem.

Staff food and live-in staff

Free staff meals don't count towards the minimum wage. GOV.UK's accommodation offset guidance says: "No other kind of company benefit (such as food, a car, childcare vouchers) counts towards the minimum wage." So staff food is a cost on top of pay. Record it as food used, not as a labour saving.

Accommodation is the one exception. If you provide accommodation, for example for live-in chefs, part of its value can count towards minimum wage pay. GOV.UK says that "From April 2026, the rates are: £11.10 (daily rate) £77.70 (weekly rate)". If you charge more than that, the difference reduces the worker's pay for minimum wage purposes. The National Minimum Wage Regulations 2015 set the detail. If you house staff, check the offset each April, because a rate change can push someone below the minimum without their pay changing.

The owner's own time

If you work in the kitchen and take drawings rather than a wage, your time doesn't show up in labour cost. That makes your prime cost look lower than a business that has to pay a head chef. That can mislead you when you compare sites or plan for the day you step back. Add a notional wage for your own hours as a separate line, so you can see the figure with and without it.

What does an employee really cost?

The two examples below show the gap between pay and cost, using 2026/27 rates and worked out over a year to keep things simple. Payroll works out NI each pay period using the weekly or monthly threshold.

Example: a full-time chef on £30,000 (illustrative)

That's 14.9% on top of salary, before any Employment Allowance. Holiday is already inside the salary for a salaried worker, because they're paid the same in the weeks they're off.

Example: a part-time server, 20 hours a week at the National Living Wage (illustrative)

The National Living Wage for workers aged 21 and over is £12.71 an hour from April 2026 (GOV.UK minimum wage rates). For the server, the on-costs add 10.9%.

When you plan a rota, use a loaded hourly cost for each role, which includes NI, pension and holiday pay on top of the pay rate. In the weekly example above, £6,600 of gross pay became £8,078 of labour.

What happens to prime cost when the minimum wage rises?

GOV.UK's rates page shows the National Living Wage at £12.21 from April 2025 to March 2026, and £12.71 from April 2026. That's 50p an hour, and the on-costs rise with it.

Example: 400 hours a week paid at the National Living Wage (illustrative)

That's £12,272 a year. On £24,000 of net weekly sales, it's about one point of prime cost (£236 ÷ £24,000 = 0.98%). This assumes everyone is already above the NI and pension thresholds. It also leaves out the knock-on effect: staff just above the minimum often expect their rates to move too.

Each April you can see the change coming. Recost your rota and your menu before the rise lands.

Why look at prime cost rather than food cost alone?

Because many kitchen decisions swap one cost for the other.

Example: making a dessert in-house or buying it in, 200 portions a week (illustrative)

Making it in-house drops food cost by £180 a week, and prime cost goes up by £140. If the pastry chef would be on shift and idle anyway, the extra labour isn't real and making it wins. If the hours are extra, buying in wins. Prime cost makes you ask that question.

The same applies to:

• Prepared versus whole vegetables, meat and fish.
• A bigger menu, which means more prep and more stock.
• Self-service or counter ordering versus table service.
• Cutting a shift, which may increase waste if prep is rushed.

What is a good prime cost percentage?

Set your own ceiling from your own costs (below). It still helps to know what other operators report, and how reliable those figures are.

The UK survey figures

The most detailed UK source we could open is the UKHospitality Christie & Co Benchmarking Report 2022 (abridged edition). The sample was 54 companies, covering 4,791 licensed managed outlets, and the report "is based on results for the six months to December 2021". It doesn't publish a prime cost figure, but it gives both halves:

• Payroll: 28.3% of turnover, "1.2ppts lower than in the previous survey". The report defines payroll as "gross payroll costs including staff wages, PAYE, NICs and manager's salary". Bar, kitchen and floor staff were 19.0% of turnover, and managers' salaries were 9.2%.
• Food: a gross profit margin on food sales of 67% across the survey, so food cost was 33% of food sales. The gross margin on wet sales was 66%.

You can't simply add these to get a prime cost. Payroll is measured against all turnover, and the food margin against food sales only. The period also had unusual conditions on both sides. The report says furlough "only came to an end on 30 September 2021, which means half of the survey period will include some element of furloughed staff". It also links the higher food margin to "the temporary VAT reduction that applied to the sector during the survey period" (see the food cost percentage page for the dates). On top of that, employer NI and the National Living Wage have both gone up since 2021.

The same report gives one more figure that's easy to mistake for prime cost. It says "the average operating costs across all market segments amounted to 55.2% of turnover, before rent is taken into account". By segment, costs ranged "from lows of 47.6% for Wine Bars, to a high of 59.8% for Accommodation-Led outlets". Those are operating costs before rent, which take in more than food and labour. Don't read 55.2% as a prime cost benchmark.

Vendor ranges you'll see online

Software sites publish ranges. Jelly's prime cost guide says prime cost "is commonly advised to sit at or below 60–65% of net sales excluding VAT for many UK full-service restaurants", and adds that "this figure is a widely quoted guideline rather than a published UK benchmark". Treat the range as opinion, as Jelly says.

The same goes for the 30/30/30/10 rule. Jelly's menu engineering guide calls it "a widely used financial benchmark" and says that "for every pound of revenue, a restaurant should allocate roughly 30% to food and beverage costs, 30% to labour and 30% to overheads, retaining 10% as operating profit". That implies a prime cost of about 60%. We found no published UK survey that reports it, so treat it as a rule of thumb.

Setting your own ceiling

Example: setting your own ceiling (illustrative, per £100 of net sales)

On those numbers, 64% is your ceiling. If rent goes up, the ceiling comes down. Split it between COGS and labour in the way that suits how you operate.

Prime cost worksheet

Copy this into a spreadsheet or onto paper. The example column uses the weekly figures from this page. Fill in the right-hand column for your own period.

A. Net sales

B. Cost of goods sold

C. Labour

D. Prime cost

How often should you calculate prime cost?

Weekly, if you can. Food and labour can both drift fast: one bad rota or one supplier price rise is enough. Monthly figures tell you about a problem four weeks late.

A weekly routine:

1. Take net sales from the till, split into food and drinks, and check them against your daily cash count.
2. Work out COGS from your stock count and invoices.
3. Take labour from payroll or your rota system, with employer NI, pension, holiday built up and agency added.
4. Calculate prime cost %, COGS % and labour %.
5. Compare with the last eight weeks.

Make sure all three figures match. If payroll runs Monday to Sunday but your stock count happens on a Tuesday, the period is off. Line the dates up, or the figure will swing for no real reason.

How do you lower prime cost?

Start with what doesn't cost customers anything:

1. Fix the food side first. Recipe costing, portion control, delivery checks, stock rotation, safe storage and waste. Review your approved suppliers when prices move, and check every drop with a food delivery check. The food cost percentage page goes through these.
2. Match the rota to your sales. Look at sales by hour and day, and staff to that, for both the kitchen team and the bar team. Sales per labour hour shows how hard each hour is working.
3. Cut staff turnover. Every leaver brings recruitment, training and slower shifts. Labour turnover covers how to measure it.
4. Look at prep against bought-in, using the example above, and decide by prime cost.
5. Review the menu. Dishes with a high food cost, long prep and low sales hurt both lines. Menu engineering helps you choose what to keep.
6. Then look at prices. Once the costs are under control, a price rise covers what's left.

If your daily checks, stock counts and waste logs are kept in an app such as Pilla, the figures behind prime cost are in one place, with a time and a name on each entry.

Prime cost myths

Prime cost FAQs

Does prime cost include drinks?

Yes. Prime cost covers all the goods you sell, so include drinks COGS and drinks sales. Track food and drinks separately as well, so you can see which one moved.

Should salaried managers be in prime cost?

Yes, if they work in the business: a general manager or head chef is part of running service. Keep head office or area manager costs in overheads, so each site's figure only shows what that site controls.

Is prime cost the same as gross profit?

No. Gross profit on most accounts is sales minus cost of sales only. Prime cost also includes labour. Sales minus prime cost is sometimes called "contribution after prime cost". It's what's left for rent, overheads and profit.

Where does prime cost fit in running a restaurant?

It's one of the weekly numbers alongside sales, food cost and labour. Our restaurant management tips cover the other routines that keep those numbers in shape.

Should I include the Employment Allowance?

Include it, because it's a real saving. Spread it over the year in your own figures, or your labour cost will jump once it's used up.