How do you calculate the margin on a menu item?
Gross margin is the share of the menu price left after the direct cost of making the dish. Subtract the dish cost from the menu price, divide by the menu price, and express it as a percentage.
Gross margin % = ((menu price − dish cost) ÷ menu price) × 100
Margin percentage and cash profit are different questions
A side salad at 85% margin might make $4. A steak at 55% margin might make $16. Percentage tells you how efficient the dish is; cash profit tells you what it pays into the till. Look at both before you cut anything.
The dishes worth fixing are the ones that are weak on both counts and still take up kitchen time.
Fix the dish before you cut it
Before removing a low-margin favourite, test three levers with the what-if tool: a smaller portion of the expensive component, a cheaper garnish, or a modest price increase. Often a $1 change to the menu price fixes the problem entirely.
Worked example
A pasta dish on the menu at $17.50:
- Fresh pasta, 180 g
- $1.35
- Prawns, 90 g
- $3.60
- Cream, garlic, herbs
- $1.10
- Parmesan and garnish
- $0.75
- Total dish cost
- $6.80
$17.50 − $6.80 = $10.70 profit per plate before overhead, a 61.1% margin and a 38.9% direct cost.
Frequently asked questions
What is a good margin for a menu item?
Targets vary widely by format. A quick-service kitchen with low labour can live with a different number than a full-service restaurant with front-of-house staff. What matters more than a universal target is whether your combined margin across the menu covers your fixed costs at your real volume.
Should drinks be in the same calculation?
Calculate them separately. Drinks usually carry much higher margins and will hide problems in the food if you blend them together.