Food cost percentage vs gross margin
Food cost percentage and gross margin percentage describe the same relationship from opposite sides. Use whichever your team thinks in naturally.
Food cost % and gross margin % describe the same relationship from opposite sides.
Food cost % = cost divided by price
A lower number means more profit.
Gross margin % = (price minus cost) divided by price
A higher number means more profit.
The two always add to 100%. A dish at 30% food cost carries a 70% gross margin, and one at 42% food cost carries 58%. If your two figures do not add to 100, one of them was measured against a different price.
The same dish, both ways
A dish costs $3.00 and sells for $9.00.
- Food cost %: $3.00 divided by $9.00 = 33.3%
- Gross margin %: ($9.00 minus $3.00) divided by $9.00 = 66.7%
Two numbers, one fact: $6.00 of every $9.00 sale is left after the food.
The real trap is markup, not margin
Margin is measured against the price. Markup is measured against the cost. They are not the same number and confusing them is the most common pricing error in a kitchen.
Markup % = (price minus cost) divided by cost x 100
The same $3.00 dish selling at $9.00 carries a 66.7% margin and a 200% markup. An owner who hears "we run a 200% markup" and books it as 200% margin is overstating what the dish leaves by a factor of three.
Restaurants traditionally speak in food cost. Retail and packaged goods businesses speak in margin. Use whichever your team already thinks in, and be explicit when you switch.
Frequently asked questions
- What is the difference between food cost and gross margin?
- They describe the same relationship from opposite sides. Food cost % is cost divided by price; gross margin % is price minus cost, divided by price. The two always add to 100%, so a 30% food cost is the same dish as a 70% gross margin.
- Which figure should I set my targets in?
- Whichever your team already thinks in. They describe the same relationship from opposite sides, so neither is more accurate, and a target expressed in the wrong dialect gets quietly ignored.
- Can a dish have a good margin and still be a bad dish?
- Yes. Margin is a percentage, and percentages do not pay rent. A dish at 80% margin selling twice a week contributes less than one at 60% margin selling forty times.
- Does a discount change the margin or the food cost?
- Both, because both are measured against the price and the price moved. Ten percent off a $9.00 dish leaves $8.10, which turns a 33.3% food cost into 37.0% and a 66.7% margin into 63.0%.
One cost and one price gives you margin, markup and food cost side by side.
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