Pricing a menu is one of the most consequential decisions an operator makes, and most people do it by feel. The result is dishes that look profitable on the blackboard but bleed money at the month-end close. This page gives you the actual arithmetic: GP%, food cost %, the mark-up multiple, a fully worked dish example, and the levers to pull when numbers drift.
The maths is not complicated. The discipline of applying it consistently is.
The short answer: GP%, food cost % and the mark-up multiple
Three numbers describe the profitability of any dish or drinks line, and they are all related. Gross profit percentage (GP%) is the share of the ex-VAT selling price left after the cost of ingredients. Food cost percentage is the share consumed by ingredients. The mark-up multiple is the ratio of selling price to ingredient cost. They all describe the same relationship from a different angle:
- GP% + food cost % = 100% (of the ex-VAT selling price)
- Mark-up multiple = selling price / ingredient cost
- A dish with a 30% food cost has a 70% GP% and a mark-up multiple of 3.33
GP% benchmarks are illustrative planning tools, not official figures. The right target for your business depends on your rent, your labour model, your covers and your sales mix. Use these numbers as a starting point for your own model, not as a guarantee of viability.
Gross profit vs food cost percentage: the same coin, two sides
GP% and food cost % measure the same dish from opposite ends. If you know one, you can derive the other by subtracting from 100. Operators often use food cost % internally (because it is the cost they control) and GP% externally (because accountants and management accounts express it that way).
Both percentages must always be calculated on the ex-VAT selling price. The menu price a customer pays includes VAT that you collect on behalf of HMRC. That VAT is not your income. A dish priced at £16.80 on the menu (with 20% VAT) has an ex-VAT price of £14.00. Your cost and margin calculations must use £14.00, not £16.80.
Calculating GP% on the VAT-inclusive menu price is one of the most common errors in hospitality cost reporting, and it overstates your apparent margin by several percentage points.
The formulas
Four formulas cover every menu-pricing calculation:
- GP% = (ex-VAT selling price minus ingredient cost) / ex-VAT selling price x 100
- Food cost % = ingredient cost / ex-VAT selling price x 100
- Target selling price (ex-VAT) = ingredient cost / target food cost % (as a decimal)
- Mark-up multiple = ex-VAT selling price / ingredient cost
For the worked example below, keep these in mind and verify each step yourself before putting numbers into your menu or management accounts.
Worked example: pricing one dish from recipe cost to menu price
The figures below are illustrative. Ingredient costs are approximate and stated as examples to show the method; your actual supplier prices will differ. The point is the arithmetic structure, not the specific numbers.
Dish: pan-fried salmon fillet with salad garnish (illustrative)
| Ingredient | Quantity | Illustrative unit cost | Portion cost |
|---|---|---|---|
| Salmon fillet | 180g | £15.50/kg | £2.80 |
| Butter and oil | 15g | variable | £0.15 |
| Lemon, herbs, seasoning | per portion | variable | £0.25 |
| Side salad garnish | per portion | variable | £0.60 |
| Waste allowance (5%) | applied to total | n/a | £0.40 |
| Total portion cost | £4.20 |
Step 1: choose a target food cost %. This example assumes 30%, meaning you want ingredients to consume 30p of every £1 of ex-VAT revenue. This is an illustrative planning assumption, not a recommended target.
Step 2: calculate the required ex-VAT selling price.
Target price = £4.20 / 0.30 = £14.00 ex-VAT
Step 3: add VAT for the menu price.
This dish is eaten in a restaurant, so it is a catering supply and standard-rated at 20%. Menu price = £14.00 x 1.20 = £16.80
Step 4: verify the GP%.
GP = £14.00 minus £4.20 = £9.80
GP% = £9.80 / £14.00 x 100 = 70%
Food cost % = £4.20 / £14.00 x 100 = 30%
Mark-up multiple = £14.00 / £4.20 = 3.33x
Check: 70% + 30% = 100%. The arithmetic is internally consistent. Always perform this check on your own numbers before committing them to a menu.
Target GP% by trade: where the numbers usually land and why this is a range, not a rule
The table below shows illustrative planning ranges that operators commonly use when building a financial model. These are not official benchmarks, not HMRC figures, and not guaranteed to be achievable at your site. They are a starting point for a model you must calibrate to your own costs.
| Trade type | Illustrative food GP% range | Illustrative drinks GP% range | Key assumption |
|---|---|---|---|
| Food-led restaurant (illustrative) | 60% to 72% | 65% to 75% | Assumes moderate portion size, supplier pricing and controlled waste |
| Pub with kitchen (illustrative) | 55% to 68% | 55% to 65% draught | Wet sales mix and draught duty rate materially affect blended GP |
| Takeaway / fast casual (illustrative) | 55% to 70% | 60% to 75% | Lower labour per cover can allow lower GP% on food; packaging adds cost |
| Cafe / coffee shop (illustrative) | 60% to 75% | 70% to 80% on hot drinks | High hot-drinks GP can offset lower food margins; rent per cover matters |
The ranges are wide because the right number for your business depends on your rent (as a share of revenue), your labour model (as a share of revenue) and your covers throughput. A site paying £60,000 a year in rent needs a different GP% to break even than one paying £20,000. The GP% is only the first line; the P&L does not stop there.
For a ready-reckoner, the table below shows how food cost %, GP% and the mark-up multiple relate at different cost levels, all as illustrative planning figures:
| Food cost % | GP% | Mark-up multiple | Example: £1 ingredient cost sells for... |
|---|---|---|---|
| 25% | 75% | 4.00x | £4.00 ex-VAT |
| 30% | 70% | 3.33x | £3.33 ex-VAT |
| 35% | 65% | 2.86x | £2.86 ex-VAT |
| 40% | 60% | 2.50x | £2.50 ex-VAT |
See also: restaurants and food-led operators and pubs and bars for trade-specific service context.
The levers when GP% slips
When your GP% falls without a change in menu prices, one or more of four things has happened:
1. Portion sizes have drifted upward. Kitchen portioning is rarely static. Scales get ignored, recipes get misremembered, and generous chefs give away margin one extra spoonful at a time. Weigh a random sample of dishes each week and compare against the recipe spec. A 10% portion overshoot on a dish that represents 30% of your food sales is a significant margin drag.
2. Purchase prices have risen without menu adjustment. Supplier invoices arrive weekly. Menu reprints happen quarterly at best. The gap between rising input costs and a static menu price erodes food cost % silently. Build a quarterly menu review into the calendar and flag any ingredient that has risen more than 10% since the last review.
3. Wastage has increased. Over-ordering, poor stock rotation, prep waste and plate waste all increase effective cost per portion served. A dish that costs £4.20 to make at zero waste costs more in practice once spoilage is included. The waste allowance in your recipe costing should reflect your actual operation, not a theoretical minimum.
4. Sales mix has shifted toward lower-margin items. Even if every dish hits its individual GP% target, blended GP% across the menu depends on how many of each dish you sell. A menu change that boosts sales of the lowest-margin items will pull the overall number down. Track mix as well as individual dish performance.
Why VAT and menu price interact
All your GP% calculations must use the ex-VAT selling price. The VAT element on a standard-rated supply is not your revenue; it flows through to HMRC. Getting this wrong inflates apparent margins and produces incorrect pricing decisions.
The VAT rate that applies depends on the type of supply:
- Anything eaten on your premises is a catering supply and is standard-rated at 20%, whether hot or cold. A cold sandwich eaten at a table in your cafe is standard-rated. (VAT Notice 709/1)
- Hot takeaway food is standard-rated at 20%. Hot food is determined by whether it was intentionally heated for consumption, heated to order, kept hot after cooking, supplied in heat-retentive packaging, or advertised as a hot supply. Any one of these tests makes it standard-rated. (VAT Notice 709/1)
- Cold takeaway food is mostly zero-rated, but with carve-outs for confectionery, crisps and savoury snacks, soft drinks and alcohol, all of which remain standard-rated regardless of context. (VAT Notice 701/14)
- Alcohol is always standard-rated at 20%, in every context, whether takeaway, eat-in or packaged. (VAT Notice 701/14)
If your operation spans multiple supply types (for example, a cafe serving eat-in food and cold packaged drinks to take away), you need to track the VAT rate per line, not apply a single blended rate to everything. This is covered in more detail on the hospitality VAT returns and schemes page.
Note: VAT registration is compulsory once rolling 12-month taxable turnover exceeds £90,000. If you are not yet registered, your pricing model will change at the point you register; plan for this threshold in advance.
Wet vs dry: how draught duty feeds drinks GP
Drinks GP% calculations for a pub or bar cannot use a single duty rate. The rate that applies depends on whether the product is sold from a qualifying draught container or packaged.
Under HMRC draught relief, qualifying draught products at 3.5% to below 8.5% ABV sold from containers of at least 20 litres attract a duty rate of £19.45 per litre of pure alcohol for beer, wine, spirits and other fermented products, or £8.95 per litre for still cider and qualifying sparkling cider. The equivalent packaged rate for beer at 3.5% to 8.4% ABV is £22.58 per litre of pure alcohol. Products below 1.2% ABV carry zero duty.
What this means in practice: a keg product carrying the draught rate produces a materially different cost-of-goods number than a bottled or canned equivalent at the same ABV. If your GP% model for wet sales uses the packaged rate on draught products, you are overstating your cost and understating your actual margin on those lines. The reverse error (applying the draught rate to packaged lines you stock in bottles) understates cost.
The detailed drinks GP walkthrough, including how to model a round at different ABV and container types, is in the draught duty relief and drinks GP post.
From dish maths to the P&L: where GP% meets labour and rent
GP% is the top line of your cost structure, not the bottom. A restaurant hitting 70% food GP% on all dishes is not necessarily profitable. Labour, rent and rates, utilities, insurance and financing costs all sit below gross profit in the P&L. The difference between GP% and net margin is often where operators get a shock.
The simplified structure looks like this:
- Revenue (ex-VAT): what customers pay, less the VAT element
- Minus cost of goods sold (ingredients, duty, packaging): gives you gross profit
- Minus labour costs (wages, employer NIC at 15% above the secondary threshold of £5,000 per year, holiday pay): gives you gross profit after labour
- Minus occupancy costs (rent, business rates, service charge): working toward site EBITDA
- Minus other overheads: net profit before tax
Gross profit and net profit are distinct. A menu that hits its GP% target but runs a 45% labour-to-revenue ratio still loses money. The GP% calculation in this post covers the ingredient cost layer only. Do not conflate it with overall profitability.
From April 2026, the National Living Wage is £12.71 per hour for workers aged 21 and over. Labour cost is not fixed; it depends on cover count, rota design and staff mix. A staff cost and rota margin calculator can help model the labour line alongside GP%.
When to get the model built for you
Manual recipe costing works for a single site with a stable menu. It gets harder when you have multiple sites, a frequently changing seasonal menu, or when you want to reconcile theoretical GP% against what the EPOS system actually reports. The gap between your theoretical food cost (what the recipes predict) and your actual food cost (what the P&L shows) is a useful management number in its own right. A large gap usually means portion drift, waste, theft or supplier price changes that have not been reflected in the model.
Management accounts that are built around your trade, not a generic template, can track GP% by sales line (food vs wet vs packaged), flag cost variances each period, and give you the numbers to act on rather than numbers to file. See the restaurants page for more detail on how that works in practice.