Multiply Your Cost Price by 4.29 and You've Got Your Selling Price inc VAT at 72% GP
What do you multiply your cost price by to hit your GP?
For 72% GP, it's 4.29.
A product that costs you £1.29 needs to sell at £5.53, VAT included. One sum, and the menu price is done.
Work it back to check:
£5.53 ÷ 1.2 = £4.61 ex VAT
£4.61 - £1.29 = £3.32 cash profit
£3.32 ÷ £4.61 = 72% GP
That number you multiply by is called the factor. Every GP target has one. This post explains how it's worked out, gives you the full table from 50% to 75%, and covers the one mistake that catches people out.
Related reading:
Selling Price Calculator · Drinks GP Calculator · Gross Profit & Where Profit Goes: Common Questions
How the Factor Is Worked Out
The factor does two jobs in one number. It sets the price for your GP, and it adds the VAT.
Step 1: What's left for the cost?
If you want 72% GP, the cost can only be 28% of the selling price ex VAT. 100 - 72 = 28.
So the ex VAT price is the cost divided by 28%:
£1.29 ÷ 0.28 = £4.61 ex VAT
Step 2: Add the VAT
VAT is 20%, so multiply by 1.2:
£4.61 × 1.2 = £5.53 inc VAT
Step 3: Put both steps into one number
Dividing by 0.28 and multiplying by 1.2 is the same as multiplying by 1.2 ÷ 0.28. Written with whole numbers, that's 120 ÷ 28.
120 ÷ 28 = 4.29. That's the factor.
The formula for any target:
Factor = 120 ÷ (100 - your target GP%)
72% GP: 120 ÷ 28 = 4.29
65% GP: 120 ÷ 35 = 3.43
60% GP: 120 ÷ 40 = 3.00
What each number means, at 72% GP:
100 is the full price of the item, before VAT.
120 is the full price plus 20% VAT.
28 is the cost element: the 28% of the price that's left once you've taken your 72% GP.
So 120 ÷ 28 tells you how many times the cost fits into the full price with VAT on top.
That's why the answer comes out as the price on the menu.
The Full Factor Table
Every target from 50% to 75%, with the menu price for a product costing £1.29.
The prices are worked from the full factor, not the rounded one shown. If you multiply by the rounded factor, the odd price may come out a penny different. It's the same answer for pricing purposes.
Two Rules for Using It
1. Use the cost price ex VAT. That's what you actually pay per portion, measure or bottle, before VAT. Use a cost that already includes VAT and the factor counts the VAT twice.
2. It only works while VAT is 20%. The 120 is 100 plus 20% VAT. If the rate ever changes, change the 120 to match.
The Mistake That Catches People Out
Adding 72% on top of the cost is not 72% GP.
£1.29 + 72% = £2.22 ex VAT
£2.22 - £1.29 = £0.93 cash profit
£0.93 ÷ £2.22 = 42% GP
That's mark-up, not margin. Price it that way and you've given away 30 points of GP before the first one is sold.
The factor works from margin, so the GP you aim for is the GP you get.
The Percentage Isn't the Whole Story
The factor tells you the price for a target. It doesn't tell you whether that price will sell. Obviously, check it against what your customers will pay, and look at the cash each product makes, not just the percentage. A lower GP on a higher-priced product can still put more cash in the till.
You can't bank a percentage!
Price It Right First Time
I'm David Holden. I've spent 30 years working across hospitality audit and operations, helping hotels, pubs, restaurants and bars identify where profit is being lost and put practical controls in place to stop it.
Add 72% to a £1.29 cost and you make 42% GP. Multiply by the factor and you make 72%. If you're not sure which way your prices were set, send me your price list and costs, and I'll show you where the gaps are. Click the button below...
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