Business Tip of the Week: How to Calculate Gross Margin (And Why It Matters)
If you run a small business — whether it’s a café, bagel shop, or retail concept — knowing your gross margin is essential. It’s not just a financial metric; it’s a critical restaurant profit margin calculation that helps you set prices, scale your business, and stay ahead of rising costs.
Whether you're operating a breakfast café, building a franchise food concept, or managing a quick-serve restaurant, understanding how to calculate gross profit could be the difference between growth and guesswork.
What Is Gross Margin?
Gross margin is the percentage of revenue you keep after accounting for your cost of goods sold (COGS). It's one of the most important small business KPIs and a go-to tool in any restaurant financial dashboard.
Why Gross Margin Matters for Food Businesses
Helps you set profitable menu pricing
Allows you to track product-level profitability
Supports smarter food cost management
Crucial for evaluating the health of your café or bagel shop
Makes expansion decisions (like opening a second location) more data-driven
How to Calculate Gross Margin for a Café or Bakery
Use this simple formula:
Gross Margin (%) = (Revenue – Cost of Goods Sold) ÷ Revenue × 100
Example:
You sell a bagel for $2.00 and it costs $0.70 to make (ingredients, packaging, portion control):
($2.00 – $0.70) ÷ $2.00 × 100 = 65% Gross Margin
That means you’re keeping 65% of each sale before covering rent, wages, and other overhead. This is considered a healthy gross margin for a bakery or café.
Pro Tips for Maximizing Gross Margin
Keep a target margin by product (e.g., 65–70% for bagels, 60%+ for specialty coffee drinks)
Use your POS system to track ingredient costs and make real-time decisions
Watch for portion creep, which silently erodes your margins
Train staff on food cost awareness
Use inventory management software to reduce waste and overordering
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Final Thought
If you're looking to grow your business, open an Xpress-style location, or start franchising, mastering your gross margin strategy is step one. Know your numbers, protect your profits, and price with confidence — because a well-run food business is built on both passion and precision.
