Gross Profit Margin

Definition:
Gross Profit Margin is the percentage of a menu item’s selling price that remains after subtracting the cost of ingredients. It reflects the profit made on each item before accounting for labor, rent, or other overhead costs.

Formula:
Gross Profit Margin (%) = ((Selling Price – Ingredient Cost) / Selling Price) × 100

In Context:
Gross profit margin is one of the clearest indicators of how profitable an item is at the point of sale. It’s often used alongside Pour Cost and Target Cost % to evaluate pricing strategy. In Spec, margin data is calculated automatically for each item and displayed in real time across menus, making it easy to optimize pricing or flag underperformers.

Example:
A drink that costs $2.50 to make and sells for $10.00 has a gross profit margin of:
((10 - 2.5) / 10) × 100 = 75%

Pro Tip:
Gross profit margin gives you a raw view of profitability — but context matters. A high-margin item might not be your most profitable if it doesn’t sell. Use this metric alongside Menu Engineering strategies to prioritize items that deliver both profit and volume.

Related Terms:

• Pour Cost

• Target Profit Margin

• Target Cost %

• Recipe Costing

• Cost per Serving