Knowledge
Margin vs markup: why 25 % is not 25 %
Margin and markup are often confused – at a cost. Definitions, conversion formulas, a conversion table, and how both relate to food cost percentage and cost factor.
- Published on
- Updated on
- By
- Marcel Philipp Goraus
In short: Margin is profit as a share of the price. Markup is profit as a share of the cost. Because the price is larger than the cost, the margin is always smaller than the markup – a 25 % markup gives only a 20 % margin.
The definitions
- Markup (%) = (price − cost) ÷ cost × 100
- Margin (%) = (price − cost) ÷ price × 100
An example: a dish costs €4.00 and sells for €5.00 net. The €1.00 profit is a 25 % markup on the cost, but only a 20 % margin on the price.
Converting
- Margin (%) = markup ÷ (100 + markup) × 100
- Markup (%) = margin ÷ (100 − margin) × 100
For a price with a given margin, divide the cost by (1 − margin ÷ 100). For a 25 % margin, that is dividing by 0.75 – a 33.3 % markup.
Conversion table
| Markup on cost | Margin on price |
|---|---|
| 10 % | 9.1 % |
| 20 % | 16.7 % |
| 25 % | 20.0 % |
| 33.3 % | 25.0 % |
| 50 % | 33.3 % |
| 100 % | 50.0 % |
| 150 % | 60.0 % |
| 200 % | 66.7 % |
| 300 % | 75.0 % |
And the cost factor?
Kitchens often work with the food cost percentage and the cost factor. They describe the same thing from another direction: a cost factor of 4 means the net price is four times the food cost. That is a 300 % markup on food cost, a food cost percentage of 25 % and a gross margin – the margin over food cost – of 75 %. How food cost and gross profit are calculated is shown in Calculate food cost.
Why confusing them is expensive
Aiming for a 25 % margin but adding 25 % to the cost charges too little: in the example above, each dish is €0.33 short – at €4.00 cost, a 25 % margin needs €5.33, not €5.00. Over many dishes or a large catering job, that adds up.
Do the numbers yourself
The free selling price calculator and catering calculator work with margin and show the matching markup next to it. In CulinaryCube, you set a target margin or a markup, and the two are kept apart. See costing in CulinaryCube