The Restaurant P&L: Revenue, COGS, and Prime Cost
A restaurant's profit and loss (P&L) statement reveals the financial health of the operation in a structured hierarchy: Revenue → Cost of Goods Sold (COGS) → Gross Profit → Operating Expenses → Net Profit. Revenue is total sales: food sales + beverage sales + any other revenue streams (private events, merchandise). Revenue is the starting point but means nothing without cost context. Cost of Goods Sold (COGS) is the direct cost of all food and beverage consumed in producing the sold items. Food COGS = Beginning inventory + Purchases − Ending inventory. If you started the week with $8,000 in food inventory, purchased $6,500 more, and ended with $7,200, COGS = $8,000 + $6,500 − $7,200 = $7,300. Food cost percentage = Food COGS ÷ Food Revenue. At industry benchmarks, food cost % should run 28–32% for most full-service restaurants. Labor cost includes all wages, payroll taxes, benefits, and insurance for all employees (kitchen, front of house, management). Labor cost % = Total labor cost ÷ Total revenue. Target: 25–35% depending on restaurant type. Prime cost is the sum of COGS + Labor — the two largest and most controllable cost categories. Prime cost % = (COGS + Labor) ÷ Revenue. Industry target: below 60% for a profitable full-service restaurant; below 55% for fine dining (offset by higher average check). A restaurant grossing $50,000 per week with $16,000 COGS and $18,000 labor has a prime cost of $34,000 and a prime cost % of 68% — dangerously above target. The remaining costs below prime cost (rent, utilities, insurance, supplies, marketing, repairs) are semi-fixed — they do not respond quickly to sales volume adjustments — which is why the restaurant industry obsessively focuses on prime cost as the primary lever of profitability.