- Gross profit per unit
- £4.00
- Gross margin
- 40.0%
- Markup
- 66.7%
- Price for 40% margin
- £10.00
Formulas: gross profit is price minus cost. Margin = profit ÷ price. Markup = profit ÷ cost. Price for a target margin = cost ÷ (1 minus margin). Use prices excluding VAT.
Margin and markup are not the same
Margin is profit as a share of the selling price. Markup is profit as a share of the cost. A product that costs £6 and sells for £10 makes £4 profit: a 40% margin and a 66.7% markup. Mixing the two up is a frequent cause of underpricing, because a 40% markup gives only a 28.6% margin.
Use prices excluding VAT. VAT collected on a sale is owed to HMRC and is not part of the profit; the VAT calculator separates it.
Pricing for a target margin
To reach a margin, divide the cost by one minus the margin. For a 40% margin on a £6 cost, the price is £6 divided by 0.6, which is £10. Adding 40% to the cost would give £8.40, a margin of only 28.6%.
Tracking margins across a shop
Margins change as costs move. Aevornix POS values stock at weighted average cost, so reports reflect what stock actually cost, and exports management reports to PDF, CSV and Excel. Offline POS software explains how it keeps running without the internet.
Frequently asked questions
What is a good gross margin?
It depends on the sector and the product. Compare against your own costs, overheads and the prices customers accept rather than a single target.
Can margin be more than 100%?
No. Margin is profit divided by price, so it stays below 100%. Markup has no upper limit.
Should I include VAT?
No. Work with prices excluding VAT for both cost and selling price.
