Three percentages, two denominators
The words margin and markup are often mixed in everyday conversation. Before comparing a percentage, always check the value used as its denominator.
Gross margin percentage
(Excluding-tax menu price − ingredient cost) ÷ menu price × 100
It shows the share of sales left after ingredients. Toby presents this simply as margin.
Markup percentage
(Excluding-tax menu price − ingredient cost) ÷ ingredient cost × 100
It compares gross profit with cost. It may exceed 100% and cannot be compared directly with gross margin percentage.
Food cost percentage
Ingredient cost ÷ excluding-tax menu price × 100
It shows the share of sales absorbed by ingredients. On the same excluding-tax basis, food cost and gross margin percentage add up to 100%.
Terms the whole team can actually use
In a food court, the same calculation may need to be understood by a director, manager, chef or the person updating a price from an invoice. Sophisticated vocabulary does not protect the decision; a stable definition does.
Toby therefore gives priority to margin measured against the sale price and the chosen target. Ingredient cost, the margin amount and food cost remain visible to explain the result. This prevents every user from having to remember the hidden denominator behind a percentage.
Example verified with the Toby engine
For an ingredient cost of €3.20 and an excluding-tax menu price of €12:
- margin amount: €8.80;
- margin shown in Toby: 73.3%;
- markup: 275%;
- food cost: 26.7%.
The 73.3% and 275% figures describe the same €8.80 result with different denominators. Mixing them can make the same product appear far more or less successful than it is.
The useful figure for a pricing decision
Toby uses a target margin measured against the menu price. This directly answers: “what share of my price remains after ingredients?” Food cost supplies the complementary view.
Markup may still be useful in another management report, provided it is named clearly and never mixed with the other two percentages.
What all three figures exclude
They do not deduct labour, rent, energy, commissions or other overheads. They describe the ingredient economics of one product, not the restaurant’s net profit.