Work out what to charge for a product from its cost, using either a target profit margin or a markup, with VAT or sales tax added.
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Margin vs markup
Markup is profit as a share of cost. Margin is profit as a share of the selling price. They’re easy to confuse, and mixing them up is one of the most common pricing mistakes.
| Markup | Equals margin |
|---|---|
| 25% | 20% |
| 50% | 33.3% |
| 100% | 50% |
| 150% | 60% |
| 200% | 66.7% |
Worked examples
40% margin on a £12 product
Price before VAT = £12 ÷ (1 − 0.40) = £20. Add 20% VAT: £24.00. Profit is £8 per unit.
50% markup on the same product
£12 × 1.5 = £18 before VAT, £21.60 with VAT. Profit is £6, which is only a 33.3% margin.
Other things to price in
- Payment and marketplace fees, typically 3% to 15% of the price.
- Returns, damaged stock and discounts.
- Your time, and a share of overheads like rent and software.
Frequently asked questions
How do I price a product from cost?
For a target margin, divide cost by (1 − margin). For a markup, multiply cost by (1 + markup).
What is the difference between margin and markup?
Markup compares profit with cost; margin compares profit with the selling price. A 100% markup is a 50% margin.
Should I include VAT in my margin?
No. Work out margin on the price before VAT, because the VAT you collect is paid to HMRC.
What margin should I aim for?
It depends on your industry. Retail products often need gross margins of 40% to 60% to cover overheads and still make a profit.
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