Gross margin vs. markup
Also called: margin vs markup · markup
Gross margin is profit divided by selling price. Markup is profit divided by cost. A 3× markup on a $4 plate gives a $12 price and a 67% margin — but a 67% markup gives $6.68. Treating the two as interchangeable is one of the most expensive arithmetic errors on a menu.
Margin
Margin % = (Price − Cost) ÷ Price × 100
Markup
Markup % = (Price − Cost) ÷ Cost × 100
Converting between them
Price = Cost ÷ (1 − target margin)
This is the one to memorise. To hit a 70% margin on a $4.20 plate: 4.20 ÷ 0.30 = $14.00.
| Target margin | Equivalent markup | Price on a $4.00 plate |
|---|---|---|
| 60% | 150% | $10.00 |
| 65% | 186% | $11.43 |
| 70% | 233% | $13.33 |
| 72% | 257% | $14.29 |
| 75% | 300% | $16.00 |
| 80% | 400% | $20.00 |
Which one should a restaurant use?
Margin. Every other number on a restaurant P&L — food cost percentage, prime cost, labor percentage — is expressed as a share of sales, so working in margin keeps the whole page on one scale. Markup is a purchasing-and-retail convention that mostly creates confusion in a kitchen.
Why does the multiplier rule of thumb work?
"Multiply cost by 3" is a 67% margin, and "multiply by 4" is 75%. They're fine as a sanity check at the whiteboard, and wrong as a pricing policy — they ignore the dish's contribution margin, what the market bears, and where the dish sits on the menu.
Run the numbers
Menu price calculator
The guide that works it through
How to Price a Menu Item: Markup vs. Margin
The formula for pricing a dish from plate cost and target margin, the markup/margin confusion that underprices menus, and the three adjustments before a price goes on the menu.
Related terms
Food cost percentage
The share of a dish's menu price consumed by the ingredients on the plate.
Menu price
The price a dish is sold at — set from plate cost, target margin, and what the dish is worth in the room.
Contribution margin
The dollars a dish contributes to overhead and profit after its ingredient cost — menu price minus plate cost.