# How to Calculate the Margin of a Recipe?

Margin calculation is an essential indicator of the profitability of your revenue and allows you to determine the profit it generates.

Published on 04/13/2022Sébastien Vassaux

Margin calculation is an essential indicator of the profitability of your revenue and allows you to determine the profit it generates.

## What is margin?

The gross margin takes into account the selling price excluding VAT of your recipe and the purchase cost excluding VAT of the ingredients that compose it.

• It is calculated as follows:
Gross margin = (Selling price excluding tax - Purchase cost excluding tax) / Selling price excluding tax

The higher the gross margin, the more your recipe is profitable and earns you money.

• Melba also displays the multiplier coefficient:
Coefficient = Selling price excluding tax / Purchase cost excluding tax

## What information should be provided?

The gross margin calculation is performed automatically by our solution. However, for this calculation to be correct, you must complete:

• the purchase prices of your items excluding VAT
• the selling prices of your recipes including tax
• the VAT applied to switch to the selling price excluding VAT

## What impacts the margin of a recipe?

Any change in the selling price of your recipe and/or any change that would affect the purchase costs of the ingredients that make up your recipe can modify the margin of this one.

To improve gross margin:

1. Increase the selling price of the recipe

2. Reduce the cost of purchasing ingredients:

• By changing supplier
• By substituting one or more ingredients
• By changing the quantities of your ingredients