Food cost and gross margin: how to know what you really earn on a dish
Knowing that a burger costs €3.95 to prepare is useful. The figure starts to matter when you compare it with the selling price.
By
Javier Porras3 min read
If you don't yet have cost per portion, do the step-by-step recipe costing first. Here we start from Carlos's burger: €3.95 cost and €14.50 selling price including VAT.
Start with the price excluding VAT
Suppose you sell the burger for €14.50, VAT included. First, strip out the VAT:
That is the net revenue you should run the calculations on.
How to calculate food cost
Food cost shows what percentage of net sales goes to paying for the dish's ingredients:
That means roughly 30% of net sales goes to ingredients. Is that good or bad? We can't answer yet. Because a percentage on its own doesn't tell the whole story.
How to calculate gross margin
The burger leaves a gross margin of €9.23 per unit sold. But be careful: those €9.23 are not yet clean profit. From that come wages, social security, rent, electricity, gas, admin, insurance, software, maintenance, cleaning products, bank fees, breakages and the rest of the business costs.
Recipe costing doesn't tell you everything you earn, but it does tell you how much each dish contributes towards paying for the rest of the business. And without that figure, you're making decisions in the dark.
Price incl. VAT
14,50 €
Price excl. VAT
13,18 €
Cost per portion
3,95 €
Food cost
≈30 %
Gross margin
9,23 €
Don't turn 28% food cost into a religion
In hospitality, target percentages are used to guide pricing. For example, if the dish costs €3.95 and you want a 28% food cost:
You could set the price at €15.50, €15.90 or another figure that fits your strategy. But the formula result is not a divine order carved in stone. You should also weigh:
- Food cost
- Margin in euros
- Sales volume
- Prep time
- Waste generated
- Operational difficulty
- Positioning
- Price the guest will accept
A dish with 32% food cost can be very attractive if it sells well, leaves a solid margin in euros and is simple to produce. Another with 20% food cost can be unappealing if it barely sells or slows the service. The key is building a balanced, profitable menu. Because percentages matter. But the euros each sale leaves matter too.
With food cost and margin clear, the next step is checking whether the kitchen respects the paper: theoretical vs actual cost. And if you want to use those figures to decide what stays on the menu, continue with how to design a more profitable menu.
Want to start controlling what each dish really costs?
You have two options now.
Option 1
Start free with our recipe-costing spreadsheet
We prepared a simple template so you can start calculating dish cost, review margins, and stop pricing by eye.
You can open the spreadsheet in view-only mode to see how it works.
If you want a fully free editable copy, get in touch and we will send it so you can use it in your business.
Option 2
Do it more easily with Tipi
If you do not want to rely on spreadsheets or update every price by hand, you can do it directly in Tipi.
Centralise recipes, recipe costings, purchases, delivery notes and supplier prices to know what each dish costs and spot increases that are eating your margin.
You can keep calculating by eye and hope the numbers add up.
Or you can start today knowing how much you really earn every time a dish leaves the kitchen.