In the US restaurant management model, prime cost is the core KPI: food cost + labour cost. The standard benchmark is to stay below 60-65% of sales.
Prime cost is the English-language term for what Spain calls coste primo, although the way it is applied and the benchmarks used have important nuances. In the American restaurant management model, prime cost is considered the most important KPI (Key Performance Indicator) because it represents the only two costs that are truly variable and controllable by the operator: the cost of product (food cost + beverage cost) and labour cost (which includes wages, payroll taxes and employee benefits). The US industry has set clear benchmarks by type of venue: Quick Service Restaurants (QSR / fast food) should keep prime cost at 55-60%; Fast Casual at 58-63%; Casual Dining at 60-65%; Fine Dining can reach 65-70% because of its high prices. The main difference from the Spanish model is what goes into labour cost: in the US it includes federal and state payroll taxes, health insurance (healthcare) and benefits such as the 401(k) (a retirement plan), items that in Spain are partly covered by Social Security.
Base wages in US hospitality are also lower (the minimum wage for tipped employees is $2-5 an hour in many states, made up by tips), which makes labour cost as a percentage structurally different. When you apply the US prime cost model to a Spanish restaurant, you need to recalculate the benchmarks to account for the difference in employer contributions (around 30% on top of gross pay in Spain versus 7.65% in payroll taxes in the US) and the absence of significant tipping.
Prime Cost = (Food Cost + Beverage Cost + Total Labour Cost) / Total Sales × 100
In the US model, prime cost is calculated by adding the total cost of food (food cost), the total cost of drinks (beverage cost) and the full labour cost (gross wages + payroll taxes + employee benefits), dividing by total sales (excluding taxes) and multiplying by 100. Some organisations separate food cost and beverage cost because they have different benchmarks: food cost usually sits at 28-35% and beverage cost at 18-24%, depending on the type of venue. Labour cost in the US typically represents 25-35% of sales, but what goes into it differs from Spain: it includes base pay, payroll taxes (6.2% Social Security + 1.45% Medicare = 7.65% paid by the employer), workers' compensation insurance, health insurance contributions and other benefits. In Spain, the employer's Social Security contributions (~30%) and the absence of contributions to private health insurance make the calculation different.
A casual restaurant in Spain turns over €60,000 a month (excluding VAT). Food cost: €17,400 (29%). Beverage cost: €3,600 (6%). Total staff cost (gross pay + employer's Social Security): €19,200 (32%).
Prime cost: (17,400 + 3,600 + 19,200) / 60,000 × 100 = 67%. Compared with the US benchmark of 60-65% for Casual Dining, it is slightly high. But it needs adjusting: if we calculate using a purely American method (without the extra 30% of Social Security), the comparable labour cost would be ~€14,800 (24.7%), and the adjusted prime cost would be 59.7%, within range. This example shows why it is important to understand the differences in method before comparing yourself with international benchmarks.
What matters is to define your own consistent benchmark and track it, rather than blindly comparing yourself with figures from other countries.
Prime cost as a single concept (rather than analysing food cost and labour cost separately) is powerful because it recognises that the two costs depend on each other. A restaurant can have a high food cost and offset it with a low labour cost (for example, a venue with very elaborate dishes but few staff because everything is prepared in advance), or the other way round (simple food but very labour-intensive table service). Managing both costs together allows optimisations that are not visible separately: perhaps investing 2% more in quality ingredients (food cost rises from 28% to 30%) lets you simplify preparation and cut kitchen hours (labour cost falls from 32% to 29%), improving overall prime cost. Use of the term 'prime cost' in Spanish restaurant management is growing because it makes communication with international investors and consultants easier, and because US benchmarks, although they need adjusting, offer useful reference points for judging operational efficiency.
Zindra calculates your prime cost automatically, separating food cost, beverage cost and labour cost, and shows you where you stand against industry benchmarks. It also models scenarios to optimise the balance between product and staff costs.
Tools and content to go deeper into this concept.
Food cost is the percentage of a dish's selling price that goes on the cost of its ingredients. It is the single most important indicator of how profitable your menu is.
The staffing ratio is the relationship between the number of employees and the restaurant's customers, tables or revenue. It tells you whether you have the right team to give good service without costs running away.
Prime cost (coste primo in Spanish) is food cost plus staff cost. It is the most complete measure of a restaurant's direct operating cost and should stay between 55% and 65% of turnover.
Labour cost is the percentage of turnover that goes on staff. In restaurants, a healthy benchmark ranges from 25% to 35% depending on the type of venue.
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