Nearly 80% of restaurants that close within their first year had prime cost ratios above 70%. Prime cost combines your food costs and labor expenses as a percentage of revenue - essentially showing if you're making money or bleeding it. A healthy prime cost sits between 55% and 65%, anything higher and your profits vanish fast.
What exactly is prime cost ratio?
Prime cost ratio merges your two largest expense categories: ingredients and payroll. These combined costs determine if your restaurant stays profitable or struggles to survive.
Prime cost ratio formula:
Prime Cost Ratio = ((Food Cost + Labor Costs) / Revenue) × 100
💡 Example:
Restaurant with monthly revenue €50,000:
- Food cost: €15,000 (30%)
- Labor costs: €18,000 (36%)
- Total prime cost: €33,000
Prime cost ratio: (€33,000 / €50,000) × 100 = 66%
Why prime cost ratio matters so much
You might nail a 28% food cost, but if labor hits 45%, you're still hemorrhaging cash. Prime cost reveals the full financial picture - something most kitchen managers discover too late after months of puzzling over why profits remain elusive despite decent food costs.
- 55-60%: Excellent - solid profit potential
- 60-65%: Good - healthy margins achievable
- 65-70%: Critical - minimal buffer for surprises
- Above 70%: Danger zone - likely losing money
⚠️ Note:
Calculate labor costs including payroll taxes, vacation pay, and all additional expenses. Base salary alone won't cut it.
What counts toward labor costs?
Every penny you spend on staff counts:
- Gross salaries (including your own as owner)
- Payroll taxes and employer contributions
- Vacation pay and bonus payments
- Pension and retirement contributions
- Worker's compensation insurance
- Temporary staff and on-call workers
💡 Rule of thumb:
Gross salary × 1.35 = actual labor costs (covers taxes and benefits)
Prime cost ratio by restaurant type
Different restaurant styles have varying benchmarks:
- Fast casual: 50-60% (limited service model)
- Casual dining: 55-65% (standard table service)
- Fine dining: 60-70% (high-touch service)
- Delivery/takeout: 45-55% (no front-of-house service)
What to do if your prime cost runs too high
Above 65%? You've got three main levers to pull:
- Cut food costs: Revise recipes, negotiate better purchasing, eliminate waste
- Streamline labor: Smarter scheduling, cross-train staff, reduce overstaffing
- Increase prices: Strategic menu price adjustments to boost revenue
💡 Practical example:
Prime cost 68% → 62% through:
- Food cost 32% → 29% (recipe optimization)
- Labor 36% → 33% (smarter scheduling)
- Average check €28 → €31 (strategic pricing)
Prime cost tracking tools
Food cost calculators help automate the ingredient portion of your prime cost analysis. For complete tracking, you'll need to combine food cost data with your payroll system. The food cost component often proves trickier to track accurately than labor expenses.
How to calculate prime cost ratio? (step by step)
Gather your food cost data
Add up all ingredient costs from the past month. Include beverages, garnishes, and everything you purchase for the kitchen. Use your purchase invoices or calculate it through your recipes.
Calculate total labor costs
Add up all labor costs: gross salaries, payroll taxes, vacation pay, temporary staff. Don't forget to include yourself as owner. Rule of thumb: gross salary × 1.35 for total costs.
Divide by revenue and multiply by 100
Prime cost ratio = ((Food Cost + Labor Costs) / Revenue) × 100. Use revenue excluding VAT for an accurate picture. The result is your prime cost percentage.
✨ Pro tip
Track your prime cost ratio every 2 weeks and compare it against your 6-month rolling average. Single bad periods happen, but consistent upward drift over 8-10 weeks signals you need immediate action.
Calculate this yourself?
In the KitchenNmbrs app you can do this in just a few clicks. 7 days free, no credit card.
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Frequently asked questions
What is a good prime cost ratio for my restaurant?
Most restaurants should target 55-65%. Fast casual operations can run leaner at 50-60%, while fine dining might reach 60-70% due to intensive service requirements.
Should I count myself as owner in the labor costs?
Absolutely. Include a market-rate salary for yourself, even if you don't draw it consistently. Skipping this creates a false picture of your true operating costs.
How often should I calculate prime cost ratio?
Monthly at minimum for trend analysis. Many successful operators track it weekly to catch problems early and make quick adjustments.
What if my prime cost ratio exceeds 70%?
You're likely losing money. Start by attacking food costs through recipe optimization, then tackle labor scheduling. Price increases may also be necessary to restore profitability.
📚 Sources consulted
- EU Verordening 852/2004 — Levensmiddelenhygiëne (2004) — Official source
- EU Verordening 853/2004 — Hygiënevoorschriften voor levensmiddelen van dierlijke oorsprong (2004) — Official source
- EU Verordening 1169/2011 — Voedselinformatie aan consumenten (2011) — Official source
- NVWA — Hygiënecode voor de horeca (2024) — Official source
- NVWA — Allergenen in voedsel (2024) — Official source
- Codex Alimentarius — International Food Standards (2024) — Official source
- FSA — Safer food, better business (HACCP) (2024) — Official source
- BVL — Lebensmittelhygiene (HACCP) (2024) — Official source
- Warenwetbesluit Bereiding en behandeling van levensmiddelen (2024) — Official source
- WHO — Foodborne diseases estimates (2024) — Official source
Food Standards Agency (FSA) — https://www.food.gov.uk
The HACCP standards shown in this application are for informational purposes only. KitchenNmbrs does not guarantee that displayed values are current or complete. Always consult the FSA or your local authority for the latest regulations.
Written by
Jeffrey Smit
Founder & CEO of KitchenNmbrs
Jeffrey Smit built KitchenNmbrs from 8 years of hands-on experience as kitchen manager at 1NUL8 Group in Rotterdam. His mission: give every restaurant owner control over food cost.
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