Set a VAT-inclusive selling price from cost and target margin, showing the VAT and net margin.
VAT-inclusive price
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Net price
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VAT
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Profit
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Pricing backwards from the margin you need
Most small traders price by feel and then wonder why the bank balance does not match the markups. This calculator does it properly. You give it your cost price and the gross margin you want to earn, and it works back to the VAT-exclusive net price that delivers that margin, adds 15 percent VAT to get the shelf price a customer pays, and shows the profit you actually keep on each sale. It separates three numbers that traders routinely muddle: the net price, the VAT, and the profit.
The reason this matters is that VAT and margin pull in different directions. Margin is about your profit on the net price. VAT is money you collect for SARS, the South African Revenue Service, on top. Confuse the two and you either undercharge and erode your margin, or you bake VAT into your profit thinking and overstate how well the business is doing.
The gross-margin formula, then VAT on top
Gross margin is profit as a percentage of the selling price, not of cost, which is the part people get wrong. To hit a target margin, the net price is your cost divided by one minus the margin. A 40 percent margin means cost divided by 0.6. Only after that net price is set does VAT enter, at the 15 percent rate this calculator applies, lifting the net price to the inclusive price the customer sees. Your profit is the net price minus the cost, and crucially the VAT is not part of your profit at all. Confirm the 15 percent rate with SARS, though the order of operations, margin first then VAT, does not change.
A R600 cost at a 40 percent margin
Suppose an item costs you R600 and you want a 40 percent gross margin. Net price is R600 divided by 0.6, which is R1,000. VAT at 15 percent on R1,000 is R150, so the shelf price is R1,150. Your profit is R1,000 minus R600, which is R400, and that R400 is 40 percent of the R1,000 net price, confirming the margin. The R150 of VAT is not yours; it is collected on behalf of SARS. Note that if you instead enter the tool's default R100 cost at 40 percent, it displays a rounded R192 inclusive price, since it works in whole rand.
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Margin versus markup, the costly confusion
A 40 percent margin is not a 40 percent markup. Markup is profit over cost; margin is profit over selling price. A 40 percent markup on R600 gives a net price of only R840 and a margin of about 29 percent, far less than you intended. The calculator uses the margin definition, dividing by one minus the margin, which is why the net price comes out higher than a naive markup. Get this wrong on a whole catalogue and you can quietly run thousands of rand under your target profit. If you think in markup, convert it first or you will undercharge.
Who should price this way
Any VAT-registered retailer, wholesaler, or service business that needs a defensible shelf price rather than a guess. The practical tip is to set your margin target on the net price and treat VAT purely as a pass-through you remit, so your profit thinking stays clean. The classic mistake is celebrating the inclusive price as revenue: R1,150 came in, but R150 is earmarked for SARS and only R1,000 is yours to cover cost and profit. If you are not yet registered, remember the VAT line falls away until you cross the threshold, at which point your shelf prices step up by 15 percent.
Should I quote the inclusive or the exclusive price?
To consumers, advertise the VAT-inclusive price, since that is what they pay and price-display rules expect it. To VAT-registered business customers, the exclusive price is the meaningful figure because they reclaim the VAT. Decide based on who buys from you, and be consistent so customers can compare like with like.
Does a higher VAT rate eat into my margin?
No, not directly, because VAT sits on top of your net price rather than coming out of it. A rate change alters the shelf price the customer pays, not your profit on the net price. The indirect risk is that a higher inclusive price can soften demand, so a rate rise can hurt volume even though your per-unit margin is untouched.