Cost Ratio Calculator
Enter revenue (the selling price) and cost to get the cost ratio. You can also enter a price and a target cost ratio to find the most the cost can be. Gross profit and profit margin are shown too.
How the cost ratio is calculated
The cost ratio is the share of revenue that goes to cost.
- Cost ratio = cost ÷ revenue × 100
For example, with revenue (the selling price) of 1,000 and a cost of 300, the cost ratio is 300 ÷ 1,000 × 100 = 30.00%. The gross profit, which is revenue minus cost, is 700. The amounts have no currency: use the one you work in, with up to 2 decimal places.
Cost ratio and profit margin
Revenue is split into cost and gross profit, so for the same revenue and cost, the cost ratio and the profit margin add up to 100%.
- Cost ratio + profit margin = 100%
- A cost ratio of 30% means a profit margin of 70%, and 40% means 60%.
If you know one, you get the other by subtracting from 100. Because the percentages on screen are rounded to 2 decimal places, the two can occasionally add up to 100.01% instead. For how the margin is defined, and how it differs from the markup (profit as a percentage of cost), see the Profit Margin Calculator.
Finding the highest cost for a target cost ratio
In menu and product costing, you often set the target first, such as "keep the cost ratio at 30%". The most the cost can be is then:
- Highest cost = selling price × target cost ratio ÷ 100 (anything below 0.01 is rounded down)
With a price of 1,000.00 and a target of 30%, the cost can be up to 300.00. With a price of 9.80 and a target of 30%, it is 9.80 × 0.3 = 2.94.
Because anything below 0.01 is rounded down, making the item at the highest cost keeps the cost ratio at or below the target. With a price of 10.00 and a target of 33.33%, the exact figure is 3.333, and 3.33 is shown. Switch to "Highest cost" in the calculator above to use this.
Examples
| Revenue | Cost | Gross profit | Cost ratio | Profit margin |
|---|---|---|---|---|
| 1,000.00 | 300.00 | 700.00 | 30.00% | 70.00% |
| 9.80 | 2.94 | 6.86 | 30.00% | 70.00% |
| 1,000.00 | 1,200.00 | −200.00 | 120.00% | −20.00% |
The third row is a loss: the cost is higher than the revenue, so the cost ratio is above 100% and the margin is negative.
Things to know
- Enter revenue and cost as amounts of 0 or more, up to 9,999,999,999.99, with up to 2 decimal places. Thousands separators such as 1,234.50 are accepted; use a period as the decimal separator.
- Percentages are rounded to 2 decimal places.
- If the cost is higher than the revenue, the cost ratio is above 100% and "Loss" is shown.
- If the revenue is 0, the cost ratio cannot be calculated.
- The highest cost is 0 when the price is 0 or the target is 0%.
- Enter revenue and cost both before tax (or both after tax) so that tax does not distort the comparison.
- The result is a guide. Check your books for figures used in accounting or tax filings.
Frequently asked questions
What is a good cost ratio?
It depends on the industry, the product and the business, so this page gives no figure. Compare with your own past figures and with published figures for the same kind of business.
What happens to the profit margin when the cost ratio goes down?
At the same selling price, the margin rises by as much as the cost ratio falls. If the cost ratio goes from 30% to 25%, the margin goes from 70% to 75%.
What if the highest cost is not a round number?
Anything below 0.01 is rounded down. Making the item at the rounded-down cost keeps the cost ratio from going over the target; rounding up could put it slightly over.
What should be counted as cost?
That depends on the business. For a restaurant it is often mainly the ingredients, but where to draw the line differs from one business to another. Use the same scope every time you compare.