How are selling price and profit margin calculated?
How are profit margin, commission and VAT taken into account from cost to selling price? A simple explanation.
The most common mistake when setting prices is confusing adding a percentage to cost with profit margin. They don't give the same result.
Difference between adding a percentage to cost and profit margin
Profit margin shows what percentage of the selling price is profit. To sell a product that costs 100 TRY at a 20% margin, the price must be 100 ÷ (1 − 0.20) = 125 TRY. If you add 20% on top of cost you get 120 TRY; in that case the real margin is about 16.7%.
Add commissions and extra costs
If sales-related costs such as marketplace commission, payment commission or shipping are a percentage of the price, they enter the formula as follows: Selling price = Cost ÷ (1 − profit margin − commission rate).
VAT
The calculations above are for amounts excluding VAT. For the price shown to the customer, the current VAT rate applicable to the product is added. Verify the rate from the legislation or your accountant.
To try the calculation yourself, use the price and profit margin tool on our Calculators page.
This article is for general information. We recommend consulting the relevant specialist for legal, financial or technical decisions.
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