Prime Cost Formula, With a Free Calculator

Prime cost = cost of goods sold + labor cost. For a bakery, café or food maker, that's the ingredients and packaging used plus what the hours cost, wages with payroll taxes and benefits. Prime cost percentage = prime cost ÷ sales. They're the two costs that move with every day's work, and together the biggest share of what a food business spends. A bakery with $7,650 of ingredients and packaging and $8,151 of labor on $25,500 of sales has a prime cost of $15,801, 62.0% of sales, which leaves 38 cents of each dollar for the rent, the power, the card fees and the owner. Below is the formula, the bakery's October week by week, what's left after the other costs, and a free calculator.

The short version

• Prime cost = cost of goods sold + labor cost, for the same period.
• Cost of goods sold = what was on hand at the start + what was bought − what's on hand at the end.
• Labor cost = wages + payroll taxes + benefits.
• Prime cost % = prime cost ÷ sales; everything else comes out of what's left.
• Watch it weekly: a slow week shows in labor, a wasteful one in ingredients.
• The owner's unpaid hours aren't in it; what's left after the other costs is what pays the owner.
• TaroStack costs every batch, ingredients and labor, and values the stock at month end. More below.

The formulas

Cost of goods sold comes from counts, not from the month's invoices: the bakery bought $7,900 of flour, butter, sugar and boxes in October, but $250 more was on the shelf at the end than at the start, so $7,650 was used. How the ending count fits in is in how to calculate COGS for a bakery.

An example: a bakery's October

Red Clay Bakehouse, a made-up bakery in Athens, Georgia, I use in these examples, works its prime cost out every week, with the ingredients from its batch costs and the labor from payroll:

The slow second week jumps to 69.2%, and both halves moved: labor, because the crew costs about the same whatever the sales, and ingredients, because unsold cases of muffins were thrown out, pushing ingredients from 30% to 31% of sales. The busy last week falls to 59.2%. How the labor in each recipe is worked out is in how to compute labor cost in baking, and ingredient cost as a share of sales in what is a good food cost percentage.

What's left after prime cost

The $4,934 pays an owner who works about 240 hours a month, about $20.56 an hour. Every point of prime cost is $255 a month at these sales. Bringing prime cost from 62% to 59%, by baking closer to what sells and scheduling the slow week tighter, would leave $765 more, a 15% raise for the owner.

What a good prime cost is

Low enough that the rent and the other costs still leave the owner a living. The bakery's other costs are $4,765 a month, about 19% of sales, so a prime cost of 62% leaves 19% for the owner; at 70%, the owner would earn about 40% less. A rule of thumb often quoted for restaurants is a prime cost around 60% of sales; a bakery that bakes everything by hand from scratch may run higher on labor and lower on ingredients. Your own target comes from your own rent: prime cost % = 100% − other costs % − what the owner needs. How much of each sale is left to pay the fixed costs is in contribution margin example.

Get the calculator

Download the prime cost calculator. Two sheets: prime cost, one line a week with sales, ingredients and packaging used, and labor cost, where prime cost, its percentage and its two parts fill in; and the month, where cost of goods sold comes from the counts at the start and end, and what's left after rent, power, card fees and the rest fills in. It's an ordinary Excel file with no macros, and it works in Google Sheets, LibreOffice and Numbers.

Where this stops working

A weekly prime cost needs a weekly ingredient cost, and that needs either a count every week or a cost for every batch. Counting a bakery's shelves every Saturday night takes hours, and a sheet of batch costs typed by hand goes stale the week butter goes up. And a prime cost percentage says the second week was bad, not that it was the muffins.

How TaroStack does it

TaroStack costs every batch, ingredients and labor, and values the stock at month end.

Batches costed as you bake. Each batch takes its ingredients off stock at what they cost and records its labor minutes, so the week's ingredient and labor cost of what was baked is there without a weekly count. Unsold muffins thrown out are an adjustment with a reason, so waste shows by item.

Stock value at month end. Stock is valued by site and by month, from first-in-first-out or moving-average costs, so the month's cost of goods sold comes from the books, checked by a count on a phone.

Margins by product. Margins are reported by product and by customer, so the muffins that pushed the second week up show as the muffins. How costs drift from the recipe is in food cost variance formula.

Recipes, batches, stock value and margin reports are on every plan, from $49 a month. The first 30 days are free, with no credit card. If you'd like a hand setting up, ask, and we'll do it with you.

Questions people also ask

How do you calculate prime cost?

Add the cost of goods sold, the ingredients and packaging used, to labor cost, wages with payroll taxes and benefits. In the example, $7,650 + $8,151 = $15,801.

What is a good prime cost percentage?

One that leaves enough after rent and other costs to pay the owner. A rule of thumb often quoted for restaurants is around 60% of sales; in the example, 62% leaves the owner about $4,900 a month.

Does prime cost include the owner's salary?

Only if the owner is paid as labor. In the example, the owner works unpaid, so prime cost leaves out those hours, and what's left after all the costs is what pays the owner.

What is the difference between prime cost and cost of goods sold?

Cost of goods sold is the ingredients and packaging used. Prime cost adds labor to it.