Selling price, markup, and margin.
Selling price (GST-exclusive)
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Gross margin
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Profit per unit
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Two words that wreck pricing when confused
Markup and margin describe the same profit from two different angles, and mixing them up is one of the most expensive mistakes a small business makes. Markup is your profit measured against what the item cost you. Margin is the same profit measured against what you sold it for. Because the selling price is always larger than the cost, the margin percentage is always smaller than the markup percentage on the same product. Quote a tradesperson a 30 percent markup and they earn less than if you had meant a 30 percent margin. This calculator turns a cost and a markup into a selling price, then shows the true margin so you price with your eyes open.
The formula, step by step
The tool takes your cost per unit and adds the markup percentage to find the selling price: price equals cost multiplied by one plus the markup. Profit per unit is simply price minus cost. Margin is that profit divided by the selling price. So a 100 percent markup doubles your cost to set the price, but that is only a 50 percent margin, because half the sale price is profit and half is cost. The figures are GST-exclusive, which is the right way to think about pricing internally before you add GST for the shelf.
A $50 cost at 50 percent markup
Take an item that costs you $50 and you apply a 50 percent markup. The selling price is $50 times 1.5, which is $75. Your profit per unit is $25. But the margin is $25 divided by $75, which is 33.3 percent, not 50. That gap between the 50 percent markup and the 33.3 percent margin is the exact trap: a business owner who thinks they are making a 50 percent margin on this product is actually keeping a third of the sale, and would under-price badly if they tried to hit a real 50 percent margin using markup maths.
| Step | Value |
|---|---|
| Cost per unit | $50 |
| Markup applied | 50 percent |
| Selling price (GST-exclusive) | $75 |
| Profit per unit | $25 |
| Gross margin | 33.3 percent |
Where GST and the registration threshold fit
The prices here are GST-exclusive on purpose, because GST is not your money, it is collected for Inland Revenue. If you are GST-registered, you add 15 percent on top of the selling price to get the retail price your customer pays, then hand that 15 percent on at filing time. In the example, the $75 GST-exclusive price becomes $86.25 with GST added. You must register for GST once your turnover passes $60,000 in any twelve-month period, and many businesses register voluntarily below that to claim GST back on their costs. Either way, keep your markup and margin maths on the GST-exclusive numbers, or you will double-count the tax and misread your real profit.
Who this helps, and the margin you actually keep
This is for retailers, tradespeople, makers, and anyone setting prices who needs to translate between how suppliers quote (often markup) and how accountants and lenders talk (almost always margin). A practical warning: gross margin is not profit you keep. It only covers the direct cost of the goods. Out of that margin you still pay rent, wages, marketing, and the rest, and then income tax on what survives, at your personal or company rate, with the company rate at 28 percent. New Zealand has no separate sales tax beyond GST and no general capital gains tax, so the markup and margin you set here flow into your ordinary taxable profit. Price for a margin that comfortably covers overheads with room to spare, not just one that beats the cost of the item.
How do I convert a target margin back into a markup?
Use markup equals margin divided by one minus the margin. To hit a 40 percent margin, the markup is 0.4 divided by 0.6, which is about 66.7 percent. So on a $50 cost you would price at roughly $83.35 to keep a true 40 percent margin. Working backwards like this stops you setting a markup that quietly delivers a thinner margin than you intended.
Should I mark up on the GST-inclusive or GST-exclusive cost?
Always the GST-exclusive cost, assuming you are registered and can claim the GST on your purchases back. Marking up a GST-inclusive cost inflates your price and confuses your margin, because you would be earning a margin on tax you are going to reclaim anyway. Strip GST out of both cost and price, do the maths, then add GST once at the end.