How to calculate the margin of a recipe?

Margin calculation is an essential indicator of the profitability of your revenue and allows you to determine the profit it generates.

Published on 02/16/2021Sébastien Vassaux

Margin calculation is an essential indicator of the profitability of your revenue and allows you to determine the profit it generates.

What is the margin? 

The gross margin takes into account the selling price excluding VAT of your recipe and the purchase cost excluding VAT of the ingredients that compose it. It is calculated as follows: 

Gross margin = (Selling price excluding VAT - Purchase cost excluding VAT) / Selling price excluding VAT

The higher the gross margin, the more profitable your recipe and the more money you make. 

What information do I need to fill in? 

The gross margin calculation is performed automatically by our solution. However, for this calculation to be correct, you must complete: 

  • the purchase prices of your items excluding VAT
  • the selling prices of your recipes including VAT
  • VAT applied to switch to the sales price excluding VAT

What changes the margin of your recipe? 

Any change in the selling price of your recipe and / or any change that would affect the purchase costs of the ingredients that make up your recipe may change the margin thereof.

To improve gross margin, you can:

1. Increase the selling price of your recipe

2. Reduce the cost of purchasing your ingredients:

  • Change supplier or better negotiate with them
  • Substitute costly ingredients by cheaper ones
  • Change quantities in favour of cheaper ingredients