Start with a clearly defined portion cost
Assume a café menu item costs £3.20 per sold portion, including ingredients and all the other direct costs chosen for this example. Any allowance for unsold portions is already included, so no further waste adjustment is needed.
Costs exclude recoverable purchase VAT and include non-recoverable VAT. The example explicitly assumes 20% sales VAT for the arithmetic; it does not classify the item for tax purposes. The 60% figures below are illustrative, not recommended targets.
Keep the same cost scope throughout. Comparing an ingredients-only margin with a margin that also includes packaging would mix two different measures.
What adding a 60% markup actually produces
Markup measures gross profit relative to cost. A 60% markup on £3.20 adds £1.92, giving a selling price before VAT of £5.12.
Gross profit = £5.12 − £3.20 = £1.92. Markup = £1.92 ÷ £3.20 × 100 = 60%. GP margin = £1.92 ÷ £5.12 × 100 = 37.5%.
With the assumed 20% VAT, the exact customer-price calculation is £5.12 × 1.20 = £6.144. A real menu needs a penny price, which should be checked again after rounding.
The 60% markup therefore gives 37.5% GP margin before penny rounding. The percentages differ because they divide the same gross profit by different amounts.
What a 60% GP margin requires instead
A 60% GP margin leaves 40% of the sale before VAT to cover the entered cost. Divide the £3.20 cost by 0.40 rather than multiplying it by 1.60.
Target customer price = cost ÷ (1 − GP percentage ÷ 100) × (1 + VAT percentage ÷ 100).
Here, £3.20 ÷ 0.40 = £8.00 before VAT. Applying the assumed 20% VAT gives a £9.60 customer price.
Gross profit = £8.00 − £3.20 = £4.80. GP margin = £4.80 ÷ £8.00 × 100 = 60%. Markup = £4.80 ÷ £3.20 × 100 = 150%.
That explains why entering a markup percentage into a target-GP field can produce an unexpected price. A 60% margin and a 60% markup answer different pricing questions.
Translate an old recipe-sheet percentage
For positive costs and sales, convert markup to GP margin using: margin percentage = markup percentage ÷ (100 + markup percentage) × 100.
A 50% markup gives approximately 33.33% margin; 100% markup gives 50% margin; 150% markup gives 60% margin; and 200% markup gives approximately 66.67% margin. These are mathematical equivalents, not industry benchmarks.
If an old sheet simply says “percentage”, inspect its formula. Multiplying cost by 1 plus a percentage applies markup. Dividing cost by 1 minus a percentage targets margin. Label the column explicitly before relying on it for a price review.
Check the price customers will actually pay
Open GP Calculator UK at / and choose Find selling price. Enter cost 3.20, target GP 60 and the assumed VAT rate 20 to reproduce £9.60.
Then choose Check my GP when testing a different final menu price. At £9.50, net sale is £9.50 ÷ 1.20 = £7.916667. Gross profit is approximately £4.716667 and GP margin is approximately 59.58%. Lowering the price by ten pence moves the margin below the illustrative 60% target.
Use unrounded intermediate figures and round for display at the end. Compare both GP pounds and GP percentage, then consider the remaining expenses and customer response. Gross profit is not net or take-home profit, and a calculated price does not predict demand. The input explanations at /#guide provide more help.
Keep VAT decisions separate from percentage conversions
For these calculations, net sale = gross customer price ÷ (1 + VAT percentage ÷ 100). Calculate gross profit by subtracting the entered cost from that net sale; divide gross profit by net sale for margin, or by cost for markup.
Use the VAT treatment applicable to your actual sale. HMRC’s catering and takeaway guidance explains the relevant distinctions, and its business-expense guidance explains purchase-VAT recovery conditions. Neither this guide nor the calculator automatically classifies food.
If you are not adding VAT, enter 0 for VAT added and include non-recoverable purchase VAT in costs. This guide provides pricing arithmetic, not personalised tax advice.
Sources
Try the tools
Try your own figures
Use the free GP calculator to check selling prices, compare margins and save menu items on your device. Gross profit is before remaining business expenses.
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