Your margin excluding VAT shows what you actually earn per dish. Most restaurant owners calculate with VAT-inclusive prices, creating an inflated profit picture.
While most restaurant owners celebrate healthy margins on paper, they're often looking at inflated numbers that include VAT. The tax you collect from customers goes straight to the government, not your pocket. Your real profitability becomes clear only when you calculate margins excluding VAT.
Why calculate excluding VAT?
VAT collected from customers must be remitted to tax authorities. It's not your revenue. Accurate margin calculations always exclude VAT to reflect actual earnings.
⚠️ Note:
Dutch restaurants pay 9% VAT on food items. Menu prices include this tax. You must deduct VAT before calculating margins.
The formula for margin excluding VAT
Two calculation methods exist:
- Gross margin: (Selling price - Cost of goods) / Selling price × 100
- Net margin: (Selling price - All costs) / Selling price × 100
Both formulas require selling prices excluding VAT.
💡 Example gross margin:
Steak priced at €32.00 including 9% VAT:
- Selling price excl. VAT: €32.00 / 1.09 = €29.36
- Ingredient costs: €10.50
- Gross margin: (€29.36 - €10.50) / €29.36 × 100 = 64.2%
Using €32.00 would show 67.2% - dangerously optimistic!
Converting VAT correctly
Restaurant food carries 9% VAT. Converting inclusive to exclusive prices:
Selling price excl. VAT = Menu price / 1.09
💡 Example VAT calculation:
- Pasta €18.50 incl. VAT → €18.50 / 1.09 = €16.97 excl. VAT
- Fish €28.00 incl. VAT → €28.00 / 1.09 = €25.69 excl. VAT
- Dessert €8.50 incl. VAT → €8.50 / 1.09 = €7.80 excl. VAT
Gross vs. net margin
The distinction lies in which costs you include:
- Gross margin: deducts ingredient costs only
- Net margin: deducts all expenses (labor, rent, utilities, etc.)
Gross margin works for daily operations management. Net margin reveals true profitability. After managing kitchen operations for nearly a decade, I've seen too many operators focus solely on gross margins while hemorrhaging money on operational costs.
💡 Example net margin:
Same steak at €29.36 excl. VAT:
- Ingredients: €10.50
- Labor (30 min at €18/hour): €9.00
- Other expenses (rent, utilities): €4.00
- Total costs: €23.50
Net margin: (€29.36 - €23.50) / €29.36 × 100 = 20.0%
Common mistakes
These errors frequently occur in margin calculations:
- Using VAT-inclusive prices (inflates margins artificially)
- Treating VAT as restaurant income
- Excluding garnishes, counting main ingredients only
- Ignoring trimming waste in ingredient costing
⚠️ Note:
A 70% margin looks impressive, but calculated with VAT it's actually 64%. That's thousands of euros in overestimated annual profit.
Comparing margins with benchmarks
Typical gross margins across hospitality segments:
- Fine dining: 65-72%
- Casual dining: 65-72%
- Bistro/brasserie: 68-75%
- Pizzeria: 70-80%
- Café food: 65-75%
These serve as guidelines. Your margins may vary based on location, concept, or clientele.
How do you calculate margin excluding VAT? (step by step)
Convert menu price to excluding VAT
Divide the price on your menu by 1.09 (for 9% VAT). For example: €28.00 / 1.09 = €25.69 excluding VAT. This is your actual selling price.
Add up all costs
For gross margin: ingredient costs only. For net margin: also staff, rent and other costs per dish. Don't forget garnish and trimming loss.
Apply the margin formula
Calculate: (Selling price excl. VAT - Costs) / Selling price excl. VAT × 100. This gives you your actual margin percentage without VAT distortion.
✨ Pro tip
Audit your top 8 revenue-generating dishes every 6 weeks for margin accuracy. These items typically drive 75% of your profit, so small improvements here create massive bottom-line impact.
Calculate this yourself?
In the KitchenNmbrs app you can do this in just a few clicks. 7 days free, no credit card.
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Frequently asked questions
Should I always calculate excluding VAT for margins?
Absolutely. VAT belongs to tax authorities, not your revenue stream. Excluding VAT reveals actual earnings per dish.
What if I sell alcoholic beverages?
Alcohol carries 21% VAT in the Netherlands. Calculate using: price / 1.21 for VAT-exclusive pricing.
Is a 65% gross margin good for a restaurant?
That's standard for most restaurant types. Remember though - this is gross margin. After all expenses, you'll typically retain 5-15% net profit.
How do I handle mixed plates with different VAT rates?
Split the dish cost proportionally. If a burger costs €15 (food at 9% VAT) plus €3 beer (21% VAT), calculate each component separately then combine.
What if my supplier prices change mid-month?
Recalculate margins immediately for affected dishes. Even a 50-cent ingredient increase can drop your margin by 2-3 percentage points.
Should I calculate margins on combo meals differently?
Yes, break down each component separately. A €22 combo might include a €16 main dish and €6 drink, each with different cost structures and margins.
📚 Sources consulted
- EU Verordening 852/2004 — Levensmiddelenhygiëne (2004) — Official source
- EU Verordening 853/2004 — Hygiënevoorschriften voor levensmiddelen van dierlijke oorsprong (2004) — Official source
- EU Verordening 1169/2011 — Voedselinformatie aan consumenten (2011) — Official source
- NVWA — Hygiënecode voor de horeca (2024) — Official source
- NVWA — Allergenen in voedsel (2024) — Official source
- Codex Alimentarius — International Food Standards (2024) — Official source
- FSA — Safer food, better business (HACCP) (2024) — Official source
- BVL — Lebensmittelhygiene (HACCP) (2024) — Official source
- Warenwetbesluit Bereiding en behandeling van levensmiddelen (2024) — Official source
- WHO — Foodborne diseases estimates (2024) — Official source
Food Standards Agency (FSA) — https://www.food.gov.uk
The HACCP standards shown in this application are for informational purposes only. KitchenNmbrs does not guarantee that displayed values are current or complete. Always consult the FSA or your local authority for the latest regulations.
Written by
Jeffrey Smit
Founder & CEO of KitchenNmbrs
Jeffrey Smit built KitchenNmbrs from 8 years of hands-on experience as kitchen manager at 1NUL8 Group in Rotterdam. His mission: give every restaurant owner control over food cost.
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