A practical, step-by-step approach
Step 1
Start with the sale price excluding applicable consumption tax
Where a selling price includes GST or VAT, the tax portion is not business revenue. Keep the tax treatment consistent before comparing costs and prices. Tax rules vary, so use the correct settings for your location.
Try this: In the Pricing & Profit calculator, choose your region and whether the price is tax-inclusive or tax-exclusive.
Step 2
Add the direct costs of that sale
Product cost, materials, job-specific labour, shipping subsidies, packaging and payment or marketplace fees all affect what remains from a sale. Calculate from the actual costs of delivering the item or service.
Try this: Enter the direct cost, then expand the detailed cost fields to include the extra expenses that apply to your business.
Step 3
Understand margin and markup with a simple example
Suppose a sale earns $100 excluding tax and costs $60, with no other fees. The $40 contribution is a 40% margin on revenue, but a 66.7% markup on the $60 cost. Using a 40% markup instead would produce a different selling price.
Try this: Margin = contribution ÷ net sales revenue. Markup = contribution ÷ entered costs. Check which measure a supplier or customer is discussing.
Step 4
Test a discount or a target margin
A discount lowers contribution faster than many owners expect. You may need considerably more unit sales to earn the same total contribution, especially when fixed per-sale fees stay unchanged.
Try this: Use the tool's Discount or Target margin scenario to test the new price before you announce a promotion.
Step 5
Include overhead and evaluate break-even
Rent, insurance, software and other wider costs still need to be paid even when every sale has positive contribution. Allocate monthly overhead across expected sales to estimate what remains before income tax.
Try this: Enter monthly overhead and expected monthly volume in Fully Loaded Profit, then check the break-even estimate.
Important limitation
This guide and the free calculator are for pricing decisions, not legal, accounting or tax advice. Figures are estimates based on the costs you enter; formal tax and accounting decisions need appropriate professional review.
Common questions
What is the difference between profit margin and markup?
Margin is the share of net sales revenue remaining after the entered costs; markup compares the remaining amount with the entered costs. They produce different percentages for the same sale.
Should profit margin be calculated before or after GST?
For a business collecting GST or VAT, use sales revenue excluding that consumption tax when comparing operating performance. The tool has editable country and tax settings; confirm formal treatment with an adviser.
How do I calculate a selling price for a 30% margin?
With a single direct-cost number and no fees or tax complications, divide the cost by (1 - 0.30). Real prices may also need to allow for fees, tax and overhead. Use a target-margin scenario when those costs apply.
Does positive gross margin mean my business is profitable?
No. Positive contribution can still be too small to cover rent, software, insurance, owner labour and other overheads. Assess both per-sale contribution and business-wide costs.
MadLabz Pricing & Profit
Free browser-based pricing calculator for margin, markup, tax, fees, discounts, target margins and estimated break-even, with a printable report.
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