Prime cost matters because it is the largest cost you control week to week. Rent is fixed by a lease; prime cost moves with every order, rota and delivery. This guide shows what to include for a Gulf restaurant, a worked example for a Dubai café, benchmarks, and where to look when the number is too high.
What goes into restaurant prime cost?
Prime cost has two parts: the cost of the food and drink you actually sold, and everything you spend on the people who prepare and serve it. In the Gulf, labour includes much more than salaries.
| Part | Include | Leave out |
|---|---|---|
| Cost of goods sold | Opening stock + purchases − closing stock, for food and beverages | Cleaning supplies, smallwares |
| Salaries and wages | Basic pay, allowances and overtime for kitchen and service staff | Owner drawings |
| Staff housing and transport | Accommodation, transport to and from site | |
| Visa and insurance costs | Work permits, visas and medical insurance, spread monthly | |
| End-of-service | Monthly gratuity accrual | |
| Social insurance (Saudi Arabia) | GOSI employer contributions |
Two rules keep the number honest. First, use net sales excluding VAT: VAT collected at 5% in the UAE or 15% in Saudi Arabia belongs to the tax authority, not to you. Second, measure cost of goods with a stock count, not just purchases. A month with a big delivery on the 30th looks expensive on purchases alone.
Packaging for delivery orders is often tracked separately. Whichever way you choose, apply it every month so the trend is comparable.
How do you calculate prime cost? A worked example
A Dubai café has net sales of AED 300,000 in March, excluding VAT. Its prime cost comes to AED 193,000, or 64.3% of sales.
Step 1: cost of goods sold.
| Item | AED |
|---|---|
| Opening stock, 1 March | 22,000 |
| Add: food and beverage purchases | 96,000 |
| Less: closing stock, 31 March | (24,000) |
| Cost of goods sold | 94,000 |
Step 2: total labour cost.
| Item | AED |
|---|---|
| Salaries and allowances | 72,000 |
| Overtime | 4,000 |
| Staff accommodation | 12,000 |
| Staff transport | 3,000 |
| Visas and medical insurance, monthly share | 5,000 |
| End-of-service accrual | 3,000 |
| Total labour | 99,000 |
Step 3: prime cost.
- Prime cost = 94,000 + 99,000 = AED 193,000
- Prime cost % = 193,000 ÷ 300,000 × 100 = 64.3%
- Food and beverage cost = 31.3% of sales; labour = 33.0% of sales
To reach a 60% target, the café needs prime cost of AED 180,000 on the same sales, which means finding AED 13,000 a month. The next sections show where that money usually is.
What prime cost should a restaurant aim for?
Industry guidance puts a healthy prime cost at about 60% of net sales: lower for quick-service outlets, higher for full-service restaurants. The common split is roughly 30% cost of goods and 30% labour.
| Restaurant type | Typical prime cost target | Source |
|---|---|---|
| Quick-service and limited-service | 55% to 60% | Restaurant365; Toast |
| Full-service | 60% to 65% | Restaurant365; Toast |
| Any type, food cost alone | 28% to 35% of sales | MarginEdge |
Treat these as starting points. The published benchmarks come from US sources, where labour rarely includes housing, visas or end-of-service. A Gulf restaurant that counts those costs properly, as it should, will often see labour above 30% and needs to win it back on food cost or sales per labour hour.
The café in our example, at 64.3%, sits at the top of the full-service range and above the quick-service range. For a café, the AED 13,000 a month needed to reach 60% is worth chasing.
What should you do when prime cost is too high?
Start by finding which half is high, then compare what you should have used with what you did use. Cutting staff or switching suppliers before you know where the gap is usually moves the problem rather than fixing it.
On the food side, compare actual cost with theoretical cost. Theoretical cost is what your recipes say the month's sales should have used. In the café example, if recipe costing says AED 85,000 and the stock count says AED 94,000, AED 9,000 went somewhere: waste, over-portioning, unrecorded staff meals, comps, or theft.
| Where the gap usually is | How to check it |
|---|---|
| Portions larger than the recipe | Weigh ten plates of your top three dishes |
| Waste and spoilage | Log every item thrown away for two weeks |
| Staff meals and comps not recorded | Ring staff meals through the POS as a separate zero-price order type, and record each comp with a reason |
| Supplier price rises not passed on | Compare this month's prices for your top 20 items with last quarter's |
| Menu mix shifted to low-margin dishes | Rank dishes by contribution, not just by sales |
On the labour side, compare hours with covers. Look at sales per labour hour by day and shift. Quiet afternoons staffed like lunch, regular overtime and split shifts with idle hours are the common causes. In the Gulf, housing and visa costs are fixed per head, so fewer, better-scheduled staff usually saves more than cutting hours.
How often should you track prime cost?
Track it weekly. A monthly figure tells you what went wrong four weeks ago; a weekly figure lets the kitchen and the manager act while it still matters.
A weekly routine that takes about an hour:
The full stock count and the full labour cost still happen at month-end, as part of your close. The weekly number is a flash figure; it only needs to be right enough to show the trend.
Where do restaurants misread their prime cost?
In HYP's work with restaurant groups, the most common problem is not a high prime cost but a wrong one. The figure looks fine, or terrible, because something is missing from it.
| What we see | Effect | The fix |
|---|---|---|
| Sales taken including VAT | Sales overstated by 5% (UAE) or 15% (Saudi), so prime cost % looks lower than it is | Always use net sales excluding VAT |
| Housing, visas and end-of-service left in "overheads" | Labour looks far cheaper than it is | Put every per-head staff cost in labour |
| Cost of goods taken as purchases only | Big swings month to month | Count stock at month-end |
| Delivery app sales recorded net of commission | Sales understated, so prime cost % looks higher | Record gross sales and the commission as a separate cost |
| One figure for a group of branches | Good branches hide bad ones | Calculate prime cost per branch |
Once the inputs are right, prime cost becomes a number the team trusts. That is when it starts to change behaviour in the kitchen. To turn food cost into menu prices, see Menu Pricing From Food Cost: A Step-by-Step Method With a Worked Example.