How to Calculate Your Restaurant's Prime Cost in Canada

Understanding and managing your restaurant’s prime cost is one of the most effective ways to stay profitable — especially in Canada’s challenging hospitality landscape. This guide will walk you through how to calculate prime cost, why it matters, and how you can lower it using smart tech and strategic menu decisions.

What Is Prime Cost in a Restaurant?

Prime cost = Cost of Goods Sold (COGS) + Total Labour Costs

In Canadian restaurants, your COGS includes the cost of ingredients (food, alcohol, non-alcoholic drinks), packaging, and anything used to deliver menu items. Labour cost covers wages, payroll taxes, employer contributions (like EI and CPP), staff meals, and benefits.

Why does this matter? Because these are your most controllable expenses — and small shifts here can lead to big gains.

Why Prime Cost Matters in Canada

According to the Toast Voice of the Canadian Restaurant Industry report, Canadian restaurateurs list profitability and productivity as their top business goals. But one in three restaurants still operated at a loss in 2023, often due to inefficiencies in food cost control or staffing.

Smart restaurateurs across Canada are tackling these head-on with a clearer understanding of prime cost.

Benchmarks:

• Full-service restaurants: Aim for a prime cost around 65%

• Quick-service restaurants: Aim for 60% or less

• Best-in-class: Under 55%, though too low may risk quality

How to Calculate Prime Cost

Here’s a basic example:

Prime Cost = Total COGS + Total Labour

If your monthly COGS is $30,000 and labour is $20,000:

Prime Cost = $50,000

If total sales were $80,000:

Prime Cost % = ($50,000 / $80,000) = 62.5%

What Canadians Think About Menu Prices

The results of the Toast Consumer Preferences Survey 2025, where 200 Canadians were were surveyed about restaurant pricing and value, showed that they are more price-conscious than ever:

• 69.5% say rising prices have changed their dining habits

• 84% are now more selective when choosing a restaurant

• 79% want loyalty schemes and value promotions

• 47% say price is a “quite influential” factor in deciding where to dine

How to Lower Prime Cost in Your Restaurant

Here are five Canadian-optimized strategies:

1. Optimize Menu Design

Use menu engineering to highlight high-margin dishes. Swap costly or wasted ingredients for better value alternatives. Canadians particularly favour seasonal, sustainable, and farm-to-table options.

2. Track Labour Cost Consistently

Use tools like Toast’s integrated scheduling and payroll features to monitor:

• Overtime

• Understaffing

• Tip pooling efficiencies

3. Use Automation for Invoicing

Canadian restaurants using invoice processing tech saw reduced COGS fluctuations and fewer stock errors. Automating this process helps you keep accurate inventory and cost records with fewer mistakes.

4. Improve Inventory Turnover

Track beginning and ending inventory weekly. Use tools to flag slow-moving stock and avoid over-ordering. Refer to your POS system’s product mix reporting to decide what to keep or cut.

5. Communicate Price Strategy Clearly

Transparency boosts loyalty. In fact, about 60% of Canadians say they’d support a restaurant more if it openly shared sustainability and cost practices.

Final Thoughts

Prime cost is more than just a formula — it’s a mindset. Understanding where your money goes and using tools like real-time POS analytics, labour tracking, and menu cost calculators can help Canadian restaurants stay profitable, even in tough times.