The formula
Food cost is recipe cost at standard portions, including wastage. Labour cost is fully loaded kitchen + FOH payroll as a percentage of revenue — not gross salary, but salary + ESI + EPF + bonus provision + gratuity provision.
Prime cost ceilings by format
| Format | Food cost target | Labour cost target | Prime cost ceiling |
|---|---|---|---|
| QSR | 28-32% | 16-20% | 48-52% |
| Cafe | 30-34% | 16-22% | 50-54% |
| Casual dining | 30-34% | 18-25% | 52-58% |
| Fine dining | 32-38% | 28-35% | 62-70% |
| Cloud kitchen | 28-32% | 12-18% | 42-48% |
These are ceilings, not targets. A well-run Pune QSR at 46% prime cost has room for rent and profit. A casual dining at 62% prime cost is structurally loss-making unless rent is near zero.
Why prime cost matters more than food cost alone
Owners obsess over food cost and treat labour as fixed. It isn't. When covers drop 20% in monsoon, labour cost % rises even if headcount stays flat. A restaurant at 32% food cost and 28% labour cost (60% prime) looks fine on the food cost line and bleeds on the labour line. Prime cost catches both.
When prime cost breaches the ceiling
- Split the breach — is it food, labour, or both? A 4-point food breach needs recipe and vendor work. A 4-point labour breach needs roster redesign.
- Check revenue denominator — prime cost % rises when revenue falls. A 55% prime at ₹4L monthly revenue may be 50% at ₹5L with the same roster.
- Audit the top 5 dishes — 80% of food cost variance sits in 5 SKUs. Reprice or reformulate before cutting labour.
- Roster to throughput — match kitchen headcount to peak covers, not average. Two part-time stewards at peak beat one full-time at flat volume.
Prime cost vs contribution margin
Prime cost excludes rent, utilities, aggregator commission, packaging, and marketing. A cloud kitchen at 46% prime cost with 24% aggregator commission has only 30% left for fixed costs — often not enough. Always model prime cost and channel-specific variable costs before signing a lease.