Margin and markup calculator

Margin vs markup

Both start from the same profit: the selling price minus the cost. Margin divides that profit by the selling price; markup divides it by the cost.

The margin here is the gross profit margin, sometimes called GP margin: the profit on the item itself, before rent, wages and other overheads. Net profit margin takes those off too, so it needs your whole business's figures.

• Margin = (price − cost) ÷ price. R100 cost, R150 price: R50 ÷ R150 = 33.3%.
• Markup = (price − cost) ÷ cost. The same sale: R50 ÷ R100 = 50%.
• Margin to markup: markup = margin ÷ (1 − margin). 30% ÷ 0.7 = 42.9%.
• Markup to margin: margin = markup ÷ (1 + markup). 50% ÷ 1.5 = 33.3%.

For a profit, the margin is always the smaller number, and it can never reach 100%: that would need a cost of zero.

How to price for a target margin

1. Start from the cost of one item, excluding VAT.
2. Divide it by 1 minus your target margin: for a 30% margin, divide by 0.7.
3. If you're registered for VAT, add 15% to the result for the price your customer pays.

Example: a R100 cost at a 30% margin: R100 ÷ 0.7 = R142.86 excluding VAT. Including VAT: R142.86 × 1.15 = R164.29. Check: (R142.86 − R100) ÷ R142.86 = 30%.

Adding 30% to the cost gives a 30% markup instead: R130, a 23.1% margin.

Margin and VAT

Work out margin on prices excluding VAT. If you're VAT-registered, the VAT you charge goes to SARS, less the VAT you paid your suppliers (SARS VAT 404, important principle 3), so neither is part of your profit.

• Both amounts including VAT: the percentage comes out the same, but the profit in rand is 15% too high. R115 and R172.50 look like a R57.50 profit; it's R50.
• A cost excluding VAT against a price including VAT: the margin comes out too high. R100 against R172.50 looks like 42%; it's 33.3%.

Tick My amounts include VAT above and the calculator takes VAT off both amounts first, then shows the selling price with and without VAT. If you're not registered for VAT, you don't charge it, so leave the box unticked and type what you paid.

Common mistakes

• Adding the margin to the cost. R100 + 30% = R130 is a 23.1% margin, not 30%. For 30%, divide by 0.7 instead.
• Dividing by the wrong number. Profit ÷ price is margin; profit ÷ cost is markup. Say which one you mean when you quote a percentage.
• Leaving VAT in. A margin on a price including VAT looks better than it is. See Margin and VAT above.
• Averaging margins across products. One product sells for R10 at a 50% margin, another for R100 at 10%. The average of the two is 30%, but together they make R15 on R110: 13.6%. Add your products above to see the blended margin.
• Aiming for 100% or more. A margin can't reach 100%. If you want to double the cost, that's a 100% markup, which is a 50% margin.