The relationship
Food cost and labor cost are part of the margin picture.
When food cost and labor cost use the same net-sales basis and time window, their percentages can be combined to show prime cost. Prime cost still is not operating margin: other operating expenses also reduce operating income.
Starting point
Net sales
Subtract
Food cost
Subtract
Labor cost
Subtract
Other operating expenses
Result
Operating income
Operating income divided by net sales equals operating margin. Define the included operating costs clearly and use the same definition from period to period.
Food cost
Trace the ingredient signal.
Food cost compares the cost of food used with net sales for the same period. Purchasing prices, inventory movement, waste, portions, and menu mix can all change that relationship.
Read the food-cost field guidePractical checks
- Match invoices, credits, inventory counts, and net sales to the same dates.
- Check unit prices, usable yields, recipe portions, and waste before changing a par or recipe.
- Compare dish contribution with menu mix before testing placement or price changes.
Labor cost
Read labor beside the service.
Labor cost compares the labor included in your definition with net sales. Sales timing, covers, scheduled hours, actual hours, role coverage, and service workload help explain a change.
Read the labor-cost field guidePractical checks
- Use the same labor-cost components, sales basis, and time boundaries for each comparison.
- Compare sales and covers by time block with scheduled and clocked hours by role.
- Test one schedule adjustment on a comparable service while checking coverage and service needs.
Operating margin
Review what remains after operating costs.
Operating margin relates operating income to net sales. Food and labor are part of the operating picture, while other operating expenses also affect what remains.
Request the free 30-day margin-leak reviewPractical checks
- Define which costs belong in operating income and apply that definition consistently.
- Calculate operating income and net sales over the same period before comparing margins.
- Follow the largest movement to its supporting records, assign a next check, and compare a like period.