Prime cost ratio is the percentage of a restaurant’s sales represented by its combined food and beverage cost of goods sold and labour cost. Prime cost is a major operating measure because it brings together two of the largest controllable cost categories in a foodservice business.
Prime cost = food and beverage cost of goods sold + labour cost.
Prime cost ratio = (prime cost ÷ net sales) × 100.
If food and beverage cost is $32,000 and labour cost is $30,000, prime cost is $62,000. If net sales are $100,000, the prime cost ratio is 62%.
Use a consistent accounting definition. Food and beverage cost should reflect the cost of goods used or sold for the period. Labour may include wages, salaries, overtime, employer payroll taxes, benefits and other employment costs, depending on the reporting method. Some businesses report management, contract labour or payroll burden separately, so comparisons must use the same basis.
Food cost percentage measures food cost relative to sales. Labour percentage measures labour cost relative to sales. Prime cost ratio combines both. A restaurant can have a favourable food cost but an unfavourable prime cost if labour is too high, or vice versa.
Track the ratio by week or accounting period, review the underlying dollar amounts and investigate changes in purchasing, menu mix, pricing, portion control, waste, sales volume and scheduling. There is no universal prime-cost target that fits every restaurant; appropriate benchmarks depend on service style, location, concept and operating model.
Chef’s tip: use prime cost as a diagnostic measure, not as a reason to cut labour or food quality blindly. Review the operational causes behind the percentage before making changes.
This term is one of hundreds covered in depth across OCS courses, learning paths, and 1-on-1 coaching with Chef Eric.
