Target Profit Margin
Definition:
Target Profit Margin is the percentage of a menu item’s selling price that you aim to keep as profit after covering ingredient costs. It’s a forward-looking metric used to set prices that meet your financial goals.
Formula:
Menu Price = Ingredient Cost / (1 - Target Profit Margin)
In Context:
While Markup and Target Cost % are common in the bar industry, some operators — especially those with financial backgrounds or investors — prefer to think in terms of profit margin. It’s particularly useful when justifying pricing decisions at the ownership or executive level.
Spec allows users to set pricing logic based on a target margin. For example, if your drink costs $3.00 and your goal is a 75% profit margin:$3.00 / (1 - 0.75) = $12.00
That ensures 75% of the sale price is retained as profit.
Pro Tip:
Use Target Profit Margin for investor reporting, program-wide margin planning, or when aligning menu strategy with broader business KPIs. Spec gives you the flexibility to toggle between pricing modes for what suits your operation best.
Example:
Setting a target profit margin of 80% is equivalent to a Pour Cost of 20%. Different language, same math — but sometimes the framing matters when presenting to finance teams or owners.
Related Terms: