Pricing and margins

Percentages need a stated base

A percentage on its own means nothing until you know what it is a percentage of. Markup is measured against your cost. Margin is measured against the customer’s price. VAT is measured against the net price. Three different denominators, and every one of them produces a different number from the same transaction.

When a supplier, a marketplace and an accountant all say “thirty percent”, they are rarely describing the same amount of money. The markup and margin calculator converts in both directions and shows the selling price each base produces.

Price first, discount second

A 20% discount does not cost you 20% of your margin — it costs you 20% of the price, which comes entirely out of the profit. On a product carrying a 40% margin, a 20% discount removes half the profit. On one carrying 25%, it wipes out four fifths of it.

This is why the break-even figures in our marketplace calculators matter more than the headline margin: they tell you how much room a promotion actually has. On narrow margins the volume needed to make a discount pay for itself becomes unrealistic fast, which is what what a discount really costs works through.

Cost is not what the supplier invoiced

Pricing from the purchase price is the most common way to build a margin that does not exist. The number to price from is what a unit costs sitting on your shelf, ready to sell.

That includes inbound freight and its share of duty, allocated per unit rather than treated as a lump. It includes packaging, the payment processor’s percentage and fixed fee, and any per-unit handling you pay someone else to do. On imported goods it includes the currency spread between the rate you assumed and the rate you actually got.

Each of these is small enough to feel like a rounding error and they are routinely five to fifteen percent in total. A range priced at a nominal 35% margin on invoice cost can be running at 22% in reality, which is a different business — and one with far less room for the discount someone will inevitably propose.

Rounding, and the drift it hides

Shelf prices end in tidy figures for good reasons, and tax does not respect them. Price a product to a target margin and the gross figure lands on something like €23.68; round it to €23.99 and you have quietly gained margin, round it to €22.99 and you have quietly lost some.

The direction of rounding matters more than it looks, because it compounds with volume and because it differs by market. The same nominal price rounded to a psychological point in euros, złoty and Swedish kronor produces three different net revenues once each country’s VAT is stripped out.

The workable habit is to round the gross price for the customer, then calculate backwards to see what net revenue and margin that rounding actually left you — rather than rounding the net figure and letting the gross land wherever tax puts it. That step is what the VAT calculator is for: it moves between net and gross at any EU rate, so you can see what the tidy shelf price left behind.

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