Prime cost: your two biggest costs in one number
Prime cost is what you spend on food, drink and staff, divided by your sales. It tells you whether the week was a good one before the rent has even been paid.
Prime cost is what your food and your people cost together
Every owner knows their sales, and most know roughly what is left in the bank at the end of the month. What happens in between is often a blur. Prime cost brings it into focus by putting the two biggest cost lines of almost any hospitality business side by side: what you buy to sell, and what you pay the people who prepare and serve it.
The sum is short. Add the cost of the food and drink you sold to all your labour costs, then divide by your sales excluding VAT. What remains is the share of each euro still available for rent, energy, insurance, marketing, your bookkeeper and your own income.
Why together rather than apart? Because the two affect each other. A dish made from cheap ingredients that takes a lot of handwork looks fine on your food cost and poor on your rota. Only when you look at both in a single number can you see which choice actually helps your business. Working out the purchasing side alone is covered in the article on your food cost percentage. This one brings the staff in as well.
| Belongs in | Stays out |
|---|---|
| Food and drink you buy | Rent and service charges |
| Packaging for takeaway and delivery | Energy, water and internet |
| Gross pay of everyone who works for you | Marketing and your website |
| Holiday pay, employer premiums and pension | Insurance, bookkeeper and depreciation |
| Freelancers and agencies you hire in | Platform commission and payment fees |
| An hourly rate for your own work | Interest and bank charges |
Always work with sales excluding VAT: 9 percent VAT on food and soft drinks, 21 percent on alcohol. That money is not yours. The costs that are not in the table come back in your profit margin and in the overview of where your money goes.
How to work out the food and drink side
The purchasing side is everything you bought to sell, but only the part you actually sold or threw away. That is why the sum works with stock: stock at the start, plus the week's purchases, minus stock at the end. What is still in the fridge is not a cost of this week.
Two things that skew your purchasing figure
- Staff meals. Book them as purchasing or as labour, but pick one side and stick to it.
- Food thrown away or given away. A failed dish or a dessert on the house was bought and not sold, so it sits in your purchasing. Keep a note of it in a notebook, otherwise you only see that purchasing is too high and not why.
Book your invoices into your accounts as they arrive and the purchasing figure is ready at the end of the week. Which other figures to follow each month is in the article on restaurant bookkeeping.
What an employee really costs in the Netherlands
This is where the Netherlands differs from the advice you find online, most of which comes from abroad. The wage tax and national insurance contributions you withhold come out of your employee's gross pay. You pay them over, but they are no extra cost to you. What does come on top is below.
Gross pay under the cao
A restaurant, café, cafetaria, lunchroom or catering business falls under the Horeca collective agreement (cao). KHN says the cao has been declared generally binding, so it also applies to employers who are not members. If you are unsure, ask KHN or your accountant.
The cao works with a year of 1,976 hours, an average of 38 a week for a full-time job. According to the KHN pay table, the base wage of a skilled worker (vakkracht) aged 20 or over runs from €14.99 to €24.98 an hour on 1 July 2026, depending on the job group. The statutory minimum hourly wage for people aged 21 and over is €14.99 on the same date, according to the Dutch government. A skilled worker aged 19 gets 90 percent of the base wage, one aged 18 gets 80 percent.
The cao runs until 31 December 2026, so a new pay table may apply from January 2027. The cao text has no fixed evening or weekend supplement. For public holidays and overtime it provides compensation: hour for hour in time off, and failing that a 50 percent supplement (public holidays) or the normal hourly wage (overtime).
What comes on top of gross pay
You carry everything below on top of the payslip. The percentages are the 2026 ones, from the tables of the Dutch Tax Administration (Belastingdienst), the Horeca cao and KHN.
| Item | Level in 2026 | What to watch |
|---|---|---|
| Holiday pay | 8% of wages | Paid out by June at the latest. Set it aside every week. |
| Holiday hours | 190 hours a year in a full-time job | You pay for hours in which nobody works. |
| Unemployment premium (AWf) | 2.74% or 7.74% | Depends on the contract, see the next part. |
| Disability premium (Aof) | 6.27% for a small employer, plus a 0.50% surcharge for childcare | Small means a premium-wage bill up to €1,082,500. |
| Return-to-work fund (Whk) | Sector rate for small employers; for the Horeca algemeen sector 0.88% plus 0.89% | Your rate is on the Tax Administration's notice. |
| Health insurance levy (Zvw) | 6.10% employer levy | On pay up to €79,409 per employee per year. |
| Pension (PH&C) | 16.8% plus 0.34%, of which you as employer pay half | Compulsory for hospitality employers, from age 18. |
| Sickness | 70% paid by law, topped up to 95% in the first year under the cao on conditions | Plus the replacement you roster. |
| Development budget | At least 2% of the wage bill under the cao | A new business need not set it up until a full calendar year has passed. |
The employee-insurance premiums and the Zvw levy are worked out on premium wage, which includes holiday pay. Add the percentages up and you get 17.4 percent for a permanent contract (2.74 plus 6.27 plus 0.50 plus 1.77 plus 6.10) and 22.4 percent for a flexible one. Pension comes on top. In the worked example further down, a permanent employee therefore costs more than a third above gross pay. That is the amount that belongs in your prime cost, not the hourly rate from the job advert.
Permanent, fixed-term or on-call: what the contract changes in euros
The type of contract decides which unemployment premium you pay. The Tax Administration applies the low AWf premium of 2.74 percent when three things are true: the contract is open-ended, it is in writing, and it is not an on-call contract. If one is missing, the high premium of 7.74 percent applies. The gap is five percentage points of premium wage, so €50 per €1,000 of pay.
When is a contract an on-call contract?
According to the Tax Administration and the Horeca cao, a contract is an on-call agreement if the amount of work is not fixed as one number of hours per period of a month at most (or per year, with pay spread evenly), or if the employee has no right to pay when they do not work. A fixed number of hours per week or month is therefore not an on-call contract, even if the days and times change. Only with zero-hours stand-ins, as the cao calls them, do you not have to pay when there is no work.
What else you need to know
- Under 21. For employees under 21 the low premium applies even without a permanent contract, as long as you pay no more than 48 hours per four-week period or 52 hours per calendar month. It also applies to BBL apprentices with a practice agreement.
- A permanent contract with few hours. If someone's contract is for 30 hours a week on average or less and you pay more than 30 percent more hours than the contract states in a calendar year, you correct the low premium to the high one afterwards. If you structurally roster more, change the contract.
- On-call workers in the cao. The notice for a call is 24 hours. If you withdraw or change a call within 24 hours, you pay the hours anyway. After every twelve months you offer, within a month, a fixed number of hours, at least their twelve-month average.
- Holiday for on-call workers. The cao allows you to pay out the build-up of holiday hours (10.64 percent of the hourly wage) and holiday pay (8.85 percent) with the wage straight away. Include those percentages in the hourly cost.
What does that mean for your prime cost? A flexible hour is not automatically cheaper than a permanent one. You do not pay for hours when it is quiet, but you pay more premium per hour and you pay the holiday upfront. Hours you need every week belong in a permanent contract. Flex is for peaks you cannot predict. Using flex for work that returns every Friday means paying the high premium for predictable work.
Your own hours count too
If you run a sole proprietorship (eenmanszaak), you pay yourself no wage. What you draw is private and what is left after costs is your profit. As a result your hours appear nowhere in labour cost, even if you spend sixty hours a week in the business. Your prime cost then looks better than reality.
So put an hourly rate on your own hours. Take what it would cost to have someone else do the same work, everything included, with the on-costs from the previous part. Count the hours in the kitchen, on the pass, on the phone and at the supplier. Your bookkeeping does not change: this is a calculation rule next to your figures. If your partner or a child helps without pay, count those hours the same way and ask your accountant how it works for tax.
With a limited company (bv) it works differently. You must pay yourself a customary wage (gebruikelijk loon). According to the Tax Administration's 2026 payroll handbook, that is the highest of three amounts: 100 percent of the pay in the most comparable employment, the pay of your best-paid employee and €58,000, with exceptions for start-ups and loss-making companies. That wage does appear in your labour cost.
One week worked out in euros
An example with rounded, invented figures. A business with a small dining room and takeaway turns over €10,000 a week excluding VAT. Some of the hours come from permanent staff, some from on-call workers.
Purchasing
At the start of the week there is €3,400 of stock. During the week €2,750 of food, drink and packaging arrives. On Monday morning the owner counts €3,250. The week's purchasing is therefore 3,400 plus 2,750 minus 3,250, which is €2,900.
Labour cost
Permanent staff work 90 paid hours at an average of €17.00 an hour. On-call workers work 50 hours at €15.00. We use the 2026 percentages from this article, and assume the pension fund charges premium on the full wage and that the Whk premium applies to all pay. In your business it may come out lower.
| Item | Permanent staff | On-call workers |
|---|---|---|
| Hours | 90 | 50 |
| Gross pay | €1,530 | €750 |
| Holiday hours, paid out with the wage | Already in the paid hours | €80 |
| Holiday pay | €122 | €66 |
| Employer premiums (17.4% or 22.4% of premium wage) | €287 | €201 |
| Pension, employer share | €142 | €77 |
| Total | €2,081 | €1,174 |
| Per paid hour | €23.12 | €23.48 |
Together that is €3,255 of labour cost. Look at the bottom line: on-call workers on a lower hourly wage cost about the same per paid hour as permanent staff, because their holiday is paid out and their unemployment premium is higher. With permanent staff, the 90 paid hours are also not all hours in which someone works, because some are holiday or sickness.
All together
| Amount | Share of sales | |
|---|---|---|
| Sales excluding VAT | €10,000 | 100% |
| Purchasing of food, drink and packaging | €2,900 | 29% |
| Labour cost | €3,255 | 33% |
| Prime cost | €6,155 | 62% |
| Own hours: 40 hours at €25, all in | €1,000 | 10% |
| Prime cost including own hours | €7,155 | 72% |
| Left for rent, energy, marketing and profit | €2,845 | 28% |
Without your own hours the business stands at 62 percent, with them at 72. In the second case 28 cents of every euro are left for rent, energy, insurance, marketing, the bookkeeper and your own return. Whether that is enough depends on what those other costs are.
What a good number looks like
No single number fits every business. American restaurant-management books and courses have for years given a prime cost of around sixty percent of sales as a reference point, lower for quick service and higher for fine dining. That is an American rule of thumb, not research and not a standard. In America gratuities carry part of the wage, and taxes and rents differ, so the same number lands differently here.
A Dutch benchmark that can be backed up for your type of business does not exist. A bar with a lot of drinks, a takeaway and a table-service restaurant each have a different balance between purchasing and labour. Your best yardstick is your own business, and your accountant can tell you roughly where you stand against other hospitality clients.
- Work out the last twelve weeks, week by week.
- Put the best and the worst week side by side and find out why they differed.
- Pick as your target what you reach in your good weeks, not the average.
- Set that number next to what your other costs demand, so you can see what is left.
With a target, a deviation means something straight away. Say you budget 62 percent and a month comes in at 68. Split the number. If the gap is in purchasing, look at prices, portions and food thrown away. If it is in labour, look at the rota, extra hours and cover. A lower number is not always better: get it by cutting quality or your people and you pay it back later.
The rota: staff against real demand
Labour is the line you can change fastest, and also the one most planned by gut feeling. Most businesses roster the way they did last month, not the way demand actually runs. Overtime, phoning round at the last minute and too many people on a quiet Tuesday are the result.
- From your till or ordering site, pull sales per day and per hour for the last twelve weeks.
- Put next to it how many people were on. Where sales per employee are low, you have too many on. Where you have queues, too few.
- Set a minimum crew for each part of the day and an extension for busy spells. Roster your permanent core for what you are sure of and top up the peaks with flex.
How to get hourly figures out of your till is in the article on reading your numbers. The cao helps with planning: within the 1,976-hour year you may roster more than 38 hours a week in busy weeks and fewer in quiet ones. Extra hours and overtime are settled within three months in time off, otherwise you pay them out at the normal hourly wage. The rota must be published at least three weeks ahead.
Teach people more than one position. Someone who both takes orders and packs them means you do not need two people for that at a quiet moment. Look at the phone too: every order that comes in that way costs minutes of someone who is then not at the pass. Measure it for a week and convert it with the hourly cost from the table above. What an ordering system can do here is in the comparison of ordering systems.
What to do on Monday
It comes down to habit: one fixed day, one file, the same calculation. The Tax Administration's premiums and the cao pay table change on 1 January and 1 July, so update your percentages then.
Common questions
- How often should I work out my prime cost?
- Every week. A month is too long to correct, because by the time you see the result the deviation has already been paid. Also look at the row of weeks each month, to see whether a deviation was a one-off or a trend.
- How do I count staff I hire in through an agency or as freelancers?
- Count the invoice amount excluding VAT as labour, next to the pay of your own people. With a temp agency, the mark-up is already in the rate. Set that rate beside what an employee of your own costs per hour and you see what the flexibility costs you. If a freelancer works structurally under your direction and in your rota, check the Tax Administration's rules on false self-employment.
- Do I have to count my own hours if I pay myself no wage?
- For your prime cost, yes, as a calculation rule beside your bookkeeping. Put an hourly rate on your hours that a replacement would cost. With a limited company a customary wage for yourself is compulsory and it is in your labour cost anyway. How high it must be, you discuss with your accountant.
- What do I do if my prime cost is too high?
- Split it into purchasing and labour first, because the fix differs. If it is purchasing, look at prices, portions, food thrown away and your menu. If it is labour, look at the rota against real demand, extra hours and your flexible contracts. Change one thing at a time, so you know what worked.
- Is a lower prime cost always better?
- No. A low prime cost that comes from smaller portions, cheaper quality or too few people on the rota costs you guests and staff. The goal is not the lowest number but the one at which your business runs well and enough is left for your other costs and your own income.
