How to work out the selling price of a dish.
The margin formula, a calculator for your dishes and drinks, why multiplying by 3 isn't a 300% profit and what a €2.50 caña really leaves you.
Book a free demo5.0+100 Google reviewsIn this guide
How to work out a selling price, in short
The selling price comes from the cost of a portion and the margin you want on the price before VAT. First you work out the price before VAT, then you add VAT to get the menu price.
The three sums
Price before VAT = cost ÷ (1 − margin)
Menu price = price before VAT × (1 + VAT)
Margin = (price before VAT − cost) ÷ price before VAT
In the sum, the margin goes in as a decimal: 70% is 0.70. And the cost is the whole portion's, including what's lost in preparation: if you don't know what a dish costs you, start with its recipe costing.
An example
A risotto costs you €4.50 per portion and you want a 70% margin. Price before VAT: 4.50 ÷ 0.30 = €15. With 10% VAT, €16.50 on the menu. Each risotto leaves you €10.50 to pay wages, rent and electricity, and whatever is left over is your profit.
A risotto
- Cost per portion
- 4.50
- Margin
- 70%
- Price before VAT
- 15.00
- VAT (10%)
- 1.50
Menu price€16.50
Margin and selling price calculator
Choose what you want to know: what to charge for a dish to get the margin you're after, or what a dish already on your menu leaves you. It works the same for dishes, drinks and set menus.
Work out your price
With the cost of one portion, before VAT, and your menu's VAT rate.
Examples:
- Menu price
- €16.50
- Price before VAT
- €15.00
- You keep
- €10.50
- Multiplier
- ×3.33
Cost before VAT. You deduct the VAT on what you buy in your VAT return, so it isn't part of what the dish costs you.
Costs don't stand still. If rice and cheese go up and the risotto portion goes from €4.50 to €5.70, the same dish at €16.50 leaves 62% instead of 70%, without anyone touching the menu.
Margin and multiplier are not the same thing
Many kitchens set prices by multiplying the cost: "times three" or "three and a bit". It's a quick rule, but the number you get is not the margin. Multiplying the cost by 3 leaves a 67% margin, not 300%; multiplying it by 3.3 leaves 70%.
From one to the other
Margin = 1 − 1 ÷ multiplier
Multiplier = 1 ÷ (1 − margin)
| Multiplier | Margin | Food cost | Markup on cost |
|---|---|---|---|
| ×2 | 50% | 50% | 100% |
| ×2.5 | 60% | 40% | 150% |
| ×3 | 67% | 33% | 200% |
| ×3.3 | 70% | 30% | 230% |
| ×4 | 75% | 25% | 300% |
All on the price before VAT. "Markup on cost" is what you earn relative to what it costs you: at ×3 you earn twice the cost.
Food cost is the flip side of margin: the share of the price before VAT that goes on ingredients. A 70% margin is a 30% food cost. Both figures say the same thing; what you can't do is mix either of them up with the multiplier.
Watch the short: Margin and multiplier are not the same thingMargin is worked out before VAT
The VAT you charge isn't yours: you pay it over to the tax office. That's why margin is calculated on the price before VAT, and the cost goes in without VAT too.
In a Spanish bar or restaurant, food and drink served for consumption on the spot carry 10% VAT: it's the reduced rate in article 91 of the Spanish VAT Act, which makes no distinction between drinks, so a caña or a glass of wine is also at 10%. To take the VAT off a menu price, divide by 1.10.
The costliest mistake
Working out the margin on the price including VAT. A €2.50 caña that costs €0.72 seems to leave €1.78 and 71%, but it actually leaves €1.55 and 68%: 23 cents less on every caña, the VAT.
What a €2.50 caña really leaves you
From the price of a caña, the small draught beer every Spanish bar serves, you lose the VAT and what it costs to serve it. With the figures from our channel's short, €2.50 leaves you €1.55:
- 10% VAT: €0.23
- Beer: €0.55
- Gas and line cleaning: €0.05
- Glass and dishwasher: €0.04
- Foam poured away: €0.08
That's €0.72 of cost: a 68% margin on the price before VAT and a 32% food cost. But it isn't your profit: those €1.55 also have to cover whoever pulls it, the rent and the electricity.
How to cut it
- Adjust the pressure: if the tap pours too much foam, every caña sends beer down the drain.
- Teach the pour: have the whole team serve the caña the same way, with just the right head and no topping up afterwards.
- Count the foam in the cost: if it isn't in the recipe costing, the margin you see is higher than the real one.
Watch the short: A €2.50 caña: what it leaves youHow Food&Service does it
In Food&Service you don't work out each dish's margin by hand: it comes from its recipe costing and what you pay on your invoices, and it updates by itself when the purchase price changes.
- Cost, profit and food costEvery dish with a recipe costing has all three figures on its page. "What it leaves you" is the menu price before VAT minus what it costs, including what's lost in preparation.
- Costs from your invoicesEach product's price comes from the invoices you approve in Expense Control: its average cost, the last purchase and whether that purchase was out of line with your average.
- A warning above 36%On the menu, each dish's food cost turns red when it goes over 36%, so you look at it before it shows up in the till.
- What the menu says and what you soldEach dish's Profitability tab shows what you should make at today's prices and what you actually made over the last 7, 30 or 90 days.
- One price per menuIf a dish has one price on the main menu, another on the terrace and another for delivery, you see the margin of each: it can do well in the dining room and lose money on delivery.
- The dishes that carry the businessIn Analysis, your dishes ranked by what each portion leaves you: the ones for the first page of the menu and the ones that are a lot of work for little return.
Frequently asked questions.
Another question? Write to us
How do you work out the selling price of a dish?
Divide the portion cost by 1 minus the margin you want, then add VAT. With a cost of €4.50 and a 70% margin: 4.50 ÷ 0.30 = €15 before VAT, and €16.50 on the menu with 10% VAT.
What's the difference between margin and multiplier?
The multiplier is how many times the cost fits into the price before VAT; the margin is the share of that price you keep. Multiplying by 3 is a 67% margin, and multiplying by 3.3, a 70% margin. To convert: margin = 1 − 1 ÷ multiplier.
Is margin calculated with or without VAT?
Without. The VAT you charge goes to the tax office, so it isn't yours. If you work out the margin on the price including VAT, it comes out higher than it is: a €2.50 caña seems to leave 71% and actually leaves 68%.
What VAT applies to food and drink in a bar in Spain?
10% when they're served for consumption on the spot, alcoholic drinks included: it's the reduced rate for restaurant services and the supply of food and drink for immediate consumption, in article 91.Uno.2.2.º of Spain's VAT Act (Ley 37/1992).
What is food cost?
It's the share of the price before VAT that goes on ingredients: the portion cost divided by the price before VAT. It's the flip side of margin: a 30% food cost is a 70% margin.
What margin should I put on a dish?
There's no fixed figure: it depends on the dish and the venue. As a rough guide, food cost usually sits between 25% and 35% of the price before VAT, which is a margin of 65% to 75%. Look at how much it leaves in euros too: a coffee with a big margin leaves little per cup, and a steak with a smaller margin leaves more per plate.
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