🇬🇧 UK Margin Calculator

UK margin calculator

The goal of our margin calculator is to let you work out your revenue (how much you will list/sell the product for), profit margin (the amount of profit generated from selling the product), markup (the difference between the selling price of the product and cost of the item) and profit (the money earned from the sale of the product) based on the cost of the item.

If you're VAT registered, you can also include or exclude the value-added tax in the revenue to give you a more accurate picture of your tax liability and profit. By default, the VAT rate is 20% and you can adjust it according to your tax rate.

Let's take following the conditions as an example:

• a seller is VAT-registered with a 20% tax rate
• tax is excluded in the list price
• cost of the item is £10
• the seller wants to obtain a 60% profit margin

The profit, including tax, is £15 but excluding tax, the profit is only £10.83. This is by no means your net profit as the calculator doesn't take into account your marketing spend, shipping and other costs.

If tax is included from the revenue, the profit (include tax) is £10.83 and the profit (exclude tax) is £7.36.

Formulas & in-depth explainations

We will explore in-depth the definition of each term (in layman's terms) plus the formulas used to derive the actual calculated results. It is important to note that all calculations are based on the cost of the item.

Revenue

Also known as the list price or sold price, revenue is the amount you sell your product for. If you need to charge VAT, it will be included in the revenue.

If you don't charge VAT, the formula is:
Revenue = Cost + Profit

If you charge VAT, the formula is:
Revenue = Cost + Profit + VAT

Margin

Margin is the amount of profit generated from selling the product. Hence, it is more commonly known as the profit margin.

A healthy profit margin is very important in any business, not just ecommerce. According to a study done in 2014, the average ecommerce gross margin is 40% but each niche is unique and it is not uncommon for an ecommerce business to have a gross margin of only 20%.

As a rule of thumb, it is better to have a higher margin as you will have more money to put into your pocket, marketing, research and other areas.

For non-VAT, the formula is:
Margin = Profit / Revenue (in percentage)

For VAT registered businesses, the formula is:
Margin = Profit / (Revenue + VAT) (in percentage)

Markup

Markup is the ratio of profit to cost. Markup is often confused with the profit margin as they use similar inputs. Following is quoted directly from Investopedia:
Both profit margin and markup use revenue and costs as part of their calculations. The main difference between the two is that profit margin refers to sales minus the cost of goods sold while markup to the amount by which the cost of a good is increased in order to get to the final selling price.

Here is another excellent article (plus a awesome infographic) from the software, Patriot.

Following formula is for both VAT and non-VAT calculations:
Markup = Profit / Cost (in percentage)

Profit

This is the money you gained from selling the product after subtracting the cost. It is important to understand that profit is not a good indicator of the health of your business.

For example, store A earns $10 per sale while store B earns $100 per sale. On first glance, store B is 10 times more profitable than store A. But an average order at store A is $30 while an average store B's order is $1000. More capital is needed to operated store B and thus there is more risk involved. As such, profit margin and markup are better indicators.

The forumla for non-VAT:
Profit = Revenue - Cost

The formula for VAT:
Profit = Revenue - Cost - VAT

VAT

The standard rate for VAT is 20% but there are reduced rates of 5% for some products such as sanitary products, energy-saving measures and children’s car seats. There is even a zero rate, reserved for food, newspaper, books, etc. Lastly, some products are exempted and no tax needs to be paid or recorded. Please refer to HMRC's VAT guide for more details.

There is also a temporary VAT cut for hospitality and hotels due to the current outbreak. Refer to this HMRC page for more information.

Following is the formula for VAT excludes from revenue:
VAT = Revenue * (VAT rate / 100)

Following is the formula for VAT includes in revenue:
VAT = Revenue / ((VAT rate / 100) + 1) * (VAT rate / 100)

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