Markup vs margin: the difference, with examples

The formulas

One dish, two percentages

Take a dish that costs 40 to make and sells for 100, in any currency. The profit is 60. As a share of the cost, 60 ÷ 40 × 100 = 150% markup. As a share of the price, 60 ÷ 100 × 100 = 60% margin. Both numbers describe the same 60 of profit.

Markup has no ceiling: a 300% markup is perfectly possible. Margin can never reach 100%, because the profit can never be bigger than the price itself.

Markup and margin conversion table

The mistake that costs money

The common slip is adding a 30% markup and believing you have a 30% margin. On a cost of 100, a 30% markup gives a price of 130. The profit of 30 is only 30 ÷ 130 × 100 = 23.1% of that price. To keep 30% of the price as profit you need a 42.9% markup, which means a price of 100 ÷ 0.7 = 142.86.

It works the other way too: someone quoting a 50% margin is charging double the cost, which is a 100% markup. When a supplier, a partner or a price list says "30%", ask which one they mean.

Worked example: one dish at four markups

Take a dish whose ingredients cost 900 a portion. Here is what different markups do to its price and margin.

Want a 60% margin? Divide by what is left after it: 900 ÷ (1 − 0.6) = 2,250, which is the same as a 150% markup.

Shortcuts worth remembering

• Selling at 2 times the cost is a 100% markup and a 50% margin, so the cost is 50% of the price.
• Selling at 3 times the cost is a 200% markup and a 66.7% margin, so the cost is 33.3% of the price.
• Selling at 4 times the cost is a 300% markup and a 75% margin, so the cost is 25% of the price.

Those last figures are the food-cost percentages when the cost is food alone. A kitchen aiming for 30% food cost is selling at about 3.3 times the food cost.

A higher margin is not always more profit

Margin is a share, and you cannot pay bills with a share. Compare two dishes. Dish A costs 300 and sells for 1,000: a 70% margin and 700 of profit a plate. Dish B costs 1,500 and sells for 3,000: only a 50% margin, but 1,500 of profit a plate.

If they sell in similar numbers, Dish B earns more, even though its percentage looks worse. Use percentages to compare and to spot dishes that have drifted, and cash profit per plate, times how many you sell, to decide what earns its place on the menu.

How margin relates to food-cost percentage

When cost means food cost only, margin and food-cost percentage are two halves of the same price: margin = 100% − food-cost %. A 30% food cost is a 70% gross margin, which is a 233.3% markup on the food. What food-cost percentage should you aim for? covers choosing that target.

Which one should you use?

• Use markup when you build a price up from a cost. It is the quickest sum.
• Use margin when you talk about profit. It tells you how much of every sale you keep, and it is how gross profit is usually shown in accounts.
• Whichever you use, say which it is. "30%" on its own can be read either way, and the difference is real money.

Food cost or full cost?

Everything above works whatever you count as cost. Measured against food cost alone, markup and margin look generous; measured against the full cost per portion (ingredients, waste, labour and packaging) they show what you really keep. Know which cost a figure is based on before you compare it with anything. How to price a menu item puts both to work on one dish.