Prime Cost Ratio for Restaurants

The prime cost ratio is an important metric for restaurant owners and managers. It measures your variable costs against your total sales and gives you insight into your profitability. The reason that this is an important metric is because the variable costs are the quickest to adjust. You can make a change and see an improvement the following week. Whereas fixed costs are usually less flexible.

The formula for this ratio is (Cost of Goods Sold + Cost of Labor) / Total Sales).

For the most part, you want you prime cost ratio to be between 50 to 60%. Once you get over 60% realizing a profit starts getting difficult. Once you get over 70%, you are in trouble.

You want to calculate your Prime Cost Ratio at least on a monthly basis, but preferably on a weekly basis. Then you want to compare it to previous months and watch it’s movement.

Below is a form to calculate your prime cost ratio.

Bauer Business Solutions can help you lower your prime cost ratio. Give us a call or send us a note to find out how we can help you improve your ratio and become more profitable.