Margin, markup and GP
Margin calculator. Most of them are American. This one has GST in it.
Enter any two of cost, sell price, margin, profit or markup and the rest fill in. GST comes off before anything is worked out, payment fees come off after, and you can see what your margin looks like against the ATO's published benchmarks for your industry.
Enter any two. The rest fill in. GST is taken off before anything is worked out.
Enter any two figures above. Cost and sell price is the usual pair, but cost and margin works just as well if you are pricing something new.
How to calculate profit margin
Take the cost off the sell price to get your profit, then divide that by the sell price. That is it. The two places it goes wrong in Australia are dividing by the wrong number, and using a price with GST still in it.
The profit margin formula
(Sell price − cost) ÷ sell price × 100 = margin %
Both figures ex GST. On a $100 sale that cost you $40 the margin is 60%. If that $100 is what the customer pays and you are registered for GST, the real sell price is $90.91, the profit is $50.91, and the margin is 56% - because $9.09 of what they handed over was never yours.
Gross margin, operating margin, net margin
People say "profit margin" for three different numbers, and they get further apart the further down you go. The calculator on this page works out the first one, which is the one you can act on when you are setting a price.
| Margin | What comes off | What it tells you |
|---|---|---|
| Gross margin | Cost of the goods or the job only | Whether the price is right |
| Operating margin | Plus rent, wages, everything to keep the doors open | Whether the business works at this size |
| Net margin | Plus interest, depreciation and tax | What actually reaches the bottom line |
Gross margin is a pricing decision you can make this afternoon. Operating and net margin need a full profit and loss, which is why this page stops at the first one and says "before rent, wages and everything else" rather than pretending otherwise.
How to work out a price from a margin
This is the question people actually have, and it is the one the formula above does not answer. You do not add the margin to the cost - you divide.
Cost ÷ (1 − margin) = sell price
A $1,000 cost at a 30% margin sells for $1,000 ÷ 0.7 = $1,428.57 ex GST. Adding 30% to the cost gives $1,300, which is a 23.1% margin, and that gap is the single most expensive arithmetic mistake in Australian small business. The calculator above catches it as you type.
What is a good profit margin?
There is no single answer, but there is a published normal one, and it is further down this page. The ATO publishes the cost of sales range it expects for around a hundred industries, and one minus that range is a gross margin range - so a coffee shop turning over $250,001 to $600,000 sits at roughly 59% to 65%, and a bottle shop nowhere near it. Comparing yourself to a number from an American blog post is how a perfectly healthy business talks itself into a price rise it cannot make stick.
Markup to margin, and back
These are the two numbers people mix up, and mixing them up always costs money in the same direction: you charge less than you meant to. Markup is measured against what you paid. Margin is measured against what you charged. The same dollars, a different denominator, and markup is always the bigger-looking figure.
| Markup | You get this margin |
|---|---|
| 10% | 9.1% |
| 15% | 13% |
| 20% | 16.7% |
| 25% | 20% |
| 30% | 23.1% |
| 33.3% | 25% |
| 40% | 28.6% |
| 50% | 33.3% |
| 60% | 37.5% |
| 75% | 42.9% |
| 100% | 50% |
| 150% | 60% |
| 200% | 66.7% |
| Margin | Add this markup |
|---|---|
| 10% | 11.1% |
| 15% | 17.6% |
| 20% | 25% |
| 25% | 33.3% |
| 30% | 42.9% |
| 33.3% | 50% |
| 40% | 66.7% |
| 50% | 100% |
| 60% | 150% |
| 70% | 233.3% |
What gross margin is normal in your industry
The ATO publishes, for around a hundred small business industries, the range of cost of sales it expects at a given turnover. Cost of sales as a share of turnover is the other side of gross margin, so the same figures say what margin is usual. Below are the 53 industries that carry a cost of sales line, at their middle turnover band. Service businesses are absent because they have no cost of sales, and inventing a typical margin for a trade the ATO never published one for would be making it up.
This is what is usual, not what you should aim for. Sitting outside the range is not a rule broken - plenty of sound businesses do, for a season or by operating differently. What it does mean is that you are more likely to be asked to explain.
| Industry | Turnover | Typical gross margin |
|---|---|---|
| Automotive electrical services | $250,001 - $750,000 | 57% to 67% |
| Bakeries and hot bread shops | $400,001 - $750,000 | 61% to 66% |
| Book retailing | $250,001 - $750,000 | 43% to 55% |
| Bottle shops and liquor retailing | $500,001 - $2,000,000 | 23% to 31% |
| Cake shops and patisseries | $300,001 - $600,000 | 65% to 70% |
| Catering services | $200,001 - $600,000 | 59% to 68% |
| Chicken shops | $250,001 - $575,000 | 51% to 59% |
| Clothing retailing | $250,001 - $500,000 | 42% to 54% |
| Coffee shops | $250,001 - $600,000 | 59% to 65% |
| Computer retailing | $200,001 - $600,000 | 44% to 57% |
| Confectionery retailing | More than $250,000 | 47% to 57% |
| Craft shops | More than $150,000 | 47% to 62% |
| Delicatessen | $250,001 - $500,000 | 44% to 54% |
| Discount and variety stores | $250,001 - $600,000 | 48% to 53% |
| Electrical and electronic product retailing | $750,001 - $2,000,000 | 33% to 46% |
| Entertainment media retailing | More than $350,000 | 44% to 61% |
| Fish and chips shops | $250,001 - $500,000 | 49% to 55% |
| Fish and seafood retailing - fresh | $500,001 - $1,000,000 | 33% to 43% |
| Floor covering retailing | $800,001 - $2,000,000 | 40% to 52% |
| Florists | $300,001 - $600,000 | 50% to 57% |
| Footwear retailing | $180,001 - $600,000 | 41% to 49% |
| Fruit and vegetable retailing | $450,001 - $1,100,000 | 27% to 35% |
| Fuel retailing | $500,001 - $2,000,000 | 19% to 33% |
| Furniture retailing | $500,001 - $1,000,000 | 43% to 53% |
| Garden supplies retailing | $250,001 - $750,000 | 47% to 61% |
| Gift stores | $150,001 - $600,000 | 45% to 54% |
| Grocery retailing and convenience stores | $300,001 - $950,000 | 27% to 36% |
| Hardware and building supplies retailing | $400,001 - $1,000,000 | 34% to 45% |
| Health food retailing | $400,001 - $600,000 | 36% to 45% |
| Homewares retailing | $250,001 - $900,000 | 44% to 53% |
| Ice cream retailing | $275,001 - $475,000 | 66% to 72% |
| Kebab shops | $170,001 - $300,000 | 53% to 59% |
| Lawn mower retailing | $550,001 - $1,450,000 | 36% to 41% |
| Manchester and other textile goods retailing | $150,001 - $500,000 | 46% to 58% |
| Meat and poultry retailing - fresh | $450,001 - $850,000 | 32% to 40% |
| Motor vehicle parts and batteries retailing | $400,001 - $1,250,000 | 38% to 50% |
| Motor vehicle retail - new and used car | $500,001 - $1,500,000 | 18% to 33% |
| Musical instruments retail | $285,001 - $765,000 | 37% to 49% |
| Newsagents | $500,001 - $1,000,000 | 38% to 53% |
| Pets and pet supply retailing | $250,001 - $750,000 | 45% to 61% |
| Pharmacy | $1,500,001 - $3,500,000 | 33% to 37% |
| Picture framing retailing | $140,001 - $260,000 | 67% to 75% |
| Pizza shops - takeaway | $150,001 - $600,000 | 56% to 62% |
| Printing | $200,001 - $500,000 | 57% to 70% |
| Pubs, taverns and bars | $750,001 - $2,500,000 | 59% to 67% |
| Restaurants | $500,001 - $2,000,000 | 62% to 68% |
| Sports, camping and fishing retailing | $250,001 - $750,000 | 37% to 47% |
| Stationery goods retailing | $250,001 - $750,000 | 43% to 53% |
| Takeaway food services | $200,001 - $600,000 | 57% to 64% |
| Tobacco retailing | $700,001 - $1,500,000 | 14% to 22% |
| Toy and game retailing | $150,001 - $550,000 | 35% to 49% |
| Tyre retailing | $1,000,001 - $2,500,000 | 35% to 42% |
| Watch and jewellery retailing | $250,001 - $750,000 | 50% to 63% |
Derived from the Australian Taxation Office small business benchmarks, key ratios for the 2023-24 income year, published under CC BY 2.5 AU via data.gov.au. Gross margin is stated as one minus the published cost of sales ratio. Every industry has more than one turnover band - the benchmark pages carry all of them.
Questions people ask
How do I work out margin from cost and sell price?
Take the cost off the sell price to get your gross profit, then divide that by the sell price. A $40 item sold for $100 makes $60, and $60 divided by $100 is a 60% margin. The step almost everybody misses in Australia is doing it on the GST-exclusive price: if that $100 is what the customer pays, $9.09 of it is GST you are collecting for the ATO, so the real sell price is $90.91 and the margin is 56%, not 60%.
What is the difference between margin and markup?
Margin is the share of the sell price you keep. Markup is what you added on top of cost. They are the same dollars measured against different numbers, so markup always looks like the bigger figure. Add 30% to a $1,000 cost and you sell at $1,300, which is a 23.1% margin. If you wanted a 30% margin you needed to add 42.9%, and sell at $1,428.57. On one job that is $172 you thought you had made and did not.
Do I calculate margin on the GST inclusive or exclusive price?
Exclusive, if you are registered for GST. The GST in a price is not your money, it is the ATO's, and the GST on what you buy comes back to you as a credit, so neither belongs in a margin. Use ex-GST on both sides. The one case where it changes is a business not registered for GST: you do not charge it and you cannot claim it back, so an inc-GST supplier invoice is simply what the thing cost you.
How do I convert markup to margin?
Margin equals markup divided by one plus markup. A 50% markup is a 33.3% margin, a 100% markup is a 50% margin. Going the other way, markup equals margin divided by one minus margin, so a 40% margin needs a 66.7% markup. The table on this page runs the common ones, and the calculator converts between them as you type.
What is GP and how do I calculate it?
GP is gross profit, and in hospitality, pharmacy and retail people usually mean GP percentage, which is the same thing as gross margin: sales less cost of goods, divided by sales, on ex-GST figures. A pub talks about wet GP on drinks and dry GP on food. It is the same sum as margin, which is why this calculator labels the field Margin (GP) rather than making you pick.
What is a good gross margin for a cafe or a retail shop in Australia?
There is no single good number, but there is a published normal one. The ATO's small business benchmarks give, for around a hundred industries, the cost of sales range it expects at a given turnover, and one minus that range is a gross margin range. Coffee shops turning over $250,000 to $600,000, for instance, sit at a gross margin of roughly 59% to 65%. Pick your industry in the calculator and it will show you the range and where you land in it. Sitting outside it is not a rule broken, it is one of the things that prompts a closer look.
Should I include super and workers comp in my hourly rate?
If you are pricing a job around what you pay someone, yes, or the margin is fiction. An hour on site costs the base rate plus superannuation, workers compensation, leave, and the hours nobody bills. The Labour panel in the calculator adds a single on-costs percentage on top of the base rate for exactly this, starting at 25%. It is a starting point rather than a published rate, because workers compensation is set by industry and payroll tax depends on your wages bill and your state.
If I discount by 10%, how much more do I need to sell?
More than most people expect, because the discount comes out of profit rather than out of price. On a 56% margin, taking 10% off cuts profit per sale by about 18%, so you need to sell around 22% more to make the same money. On a thin margin it is brutal: at 20% margin a 10% discount halves your profit and you need to sell twice as much. The calculator works it out on your own numbers, including where you stop making anything at all.
This works out what a price does. What it cannot see is the rest of your business - the overheads under the gross margin, whether the mix is right, and what the numbers say about where the money is actually going. LINK Books set the reporting up so you can see it monthly, and LINK Advisors read it with you.
General information only. It does not take your circumstances into account and it is not tax or financial advice - tax matters are handled by LINK's registered tax agents and financial advice by our licensed advisers. Payment fee rates are the providers' published standard rates and vary with your plan and card mix. Nothing you type here is stored or sent anywhere.