Mastering prime cost and prime cost ratio transforms how you control restaurant profitability. Prime cost shows the actual dollars you spend on ingredients and labor, while prime cost ratio reveals this spending as a percentage of revenue. These two measurements together tell you if your kitchen operates profitably.
What is prime cost?
Prime cost combines your two biggest expenses: ingredients (food cost) and staff wages (labor costs). These represent your 'primary costs' - the foundation of restaurant spending. Most successful restaurants see these costs account for 55% to 65% of total revenue.
💡 Prime cost example:
Restaurant with €50,000 monthly revenue:
- Ingredients: €15,000 (30% food cost)
- Labor costs: €17,500 (35% labor cost)
Prime cost: €32,500
What is prime cost ratio?
Prime cost ratio converts your prime cost into a percentage of revenue. This percentage lets you compare performance across different periods and measure against industry benchmarks.
Prime cost ratio formula:
Prime cost ratio = (Prime cost / Revenue) × 100
💡 Prime cost ratio example:
Using the figures above:
- Prime cost: €32,500
- Revenue: €50,000
Prime cost ratio: (€32,500 / €50,000) × 100 = 65%
Why both figures matter
The dollar amount (prime cost) reveals your actual spending power. The percentage (prime cost ratio) shows if this spending aligns with your revenue. From years of working in professional kitchens, I've watched restaurants celebrate lower prime costs while their ratios actually worsened due to declining sales.
⚠️ Watch out:
A low prime cost can mislead you if revenue drops at the same time. Always examine the ratio to confirm your costs stay proportional.
Common prime cost ratios
Target prime cost ratios vary by restaurant type:
- Fine dining: 55-60% (premium ingredients, extensive service)
- Casual dining: 60-65% (balanced approach)
- Fast casual: 65-70% (streamlined operations)
- Delivery only: 50-60% (no front-of-house, but packaging costs)
Using prime cost for management
Your prime cost ratio acts as an immediate profitability indicator. Ratios above 70% leave insufficient funds for rent, utilities, equipment, and profit margins. Ratios below 50% might signal opportunities to upgrade ingredients or expand staffing.
💡 Management example:
Prime cost ratio jumps from 60% to 68%:
- Check: have ingredient prices increased?
- Check: are you overstaffed during slow periods?
- Check: do menu prices reflect current costs?
How do you calculate prime cost and prime cost ratio?
Calculate your total ingredient costs
Add up all food and beverage expenses from the past month. Use your supplier invoices, not your inventory value. This gives you your actual food cost.
Calculate your total labor costs
Add up all personnel costs: gross wages, employer contributions, social premiums and any bonuses. Don't forget to include your own 'salary' as a business owner.
Add up and calculate ratio
Prime cost = ingredients + labor costs. Prime cost ratio = (prime cost / revenue) × 100. Compare with the previous month to see trends.
✨ Pro tip
Review your prime cost ratio every Wednesday morning for 6 consecutive weeks to spot patterns. Most restaurants discover their ratio climbs 3-5% on weekends due to overtime wages and weekend premium ingredient deliveries.
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
Should I include VAT in the prime cost calculation?
No, exclude VAT from all calculations. Both revenue and costs should be VAT-free for accurate comparison.
How often should I calculate my prime cost ratio?
Calculate it weekly for optimal control. Monthly calculations work too, but weekly tracking helps you spot trends faster and adjust before problems escalate.
What if my prime cost ratio exceeds 70%?
You're leaving too little for other expenses and profit. Investigate expensive ingredients, oversized portions, or excessive staffing levels immediately.
Do cash tips count toward labor costs?
Only tips processed through payroll count toward prime cost. Direct cash tips to staff don't affect your prime cost calculation since they bypass your books entirely.
📚 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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