Margin calculation: margin rate, markup rate and selling price

Commercial margin measures the difference between the purchase cost of a product and its selling price. Margin rate and markup rate are often confused, even though they use different calculation bases.

The Bethemesh margin calculator brings these indicators together and can also determine a selling price from a target margin rate.

For direct VAT conversions, use the VAT calculator or read VAT calculation: net, VAT and gross formulas.

Margin calculation formulas

Gross commercial margin is calculated using amounts excluding tax:

Margin = Selling price excl. tax − Purchase price excl. tax

For a product purchased for €80 excl. tax and sold for €120 excl. tax, the margin is €40.

Margin rate is:

Margin rate = Margin / Purchase price excl. tax × 100

In this example: 40 / 80 × 100 = 50%.

Markup rate is:

Markup rate = Margin / Selling price excl. tax × 100

That gives: 40 / 120 × 100 = 33.33%.

Margin rate or markup rate: what is the difference?

Both indicators use the same margin but answer different questions.

The margin rate compares the margin with the purchase cost. It shows how much margin is generated relative to the amount spent to acquire the product.

The markup rate measures the share of margin within the selling price excluding tax. A 30% markup rate means that 30% of the selling price excluding tax corresponds to gross margin.

Confusing the two can lead to a selling price that is different from the intended target.

Can the margin rate exceed 100%?

Yes. A margin rate of 100% means the margin is equal to the purchase price excluding tax.

A product purchased for €50 excl. tax and sold for €100 excl. tax generates a €50 margin, or a 100% margin rate. If it is sold for €110 excl. tax, the margin becomes €60 and the margin rate 120%.

The markup rate, on the other hand, remains below 100% as long as the purchase price is positive and the selling price is higher than the cost.

Set a selling price from a target margin rate

When the purchase price is known and you want to reach a specific margin rate:

Selling price excl. tax = Purchase price excl. tax × (1 + Margin rate / 100)

With a purchase price of €80 excl. tax and a 50% target:

80 × 1.50 = €120 excl. tax

With 20% VAT, the corresponding price including tax is:

120 × 1.20 = €144 incl. tax

How do you calculate the multiplier coefficient?

In this tool, the multiplier coefficient is:

Multiplier coefficient = Selling price incl. tax / Purchase price excl. tax

In the previous example:

144 / 80 = 1.80

It provides a quick way to move from a purchase price excluding tax to a selling price including tax when the same margin and VAT conditions are used.

Is VAT included in the margin calculation?

The commercial margin presented here is calculated excluding tax. VAT collected on a sale is therefore not added to the margin.

The VAT rate is still useful to convert the selling price excluding tax into the final price including tax and to calculate the multiplier coefficient.

Commercial margin and profitability are not the same thing

A positive commercial margin does not necessarily mean that a business is profitable.

The gross margin calculated here does not deduct all other expenses: salaries, rent, transport, marketing, commissions, banking fees, energy and other operating costs can reduce the final profit.

The calculator therefore analyzes commercial margin on a sale, not the company’s net profit.

Key points

Margin rate compares margin with purchase price, while markup rate compares margin with selling price. This difference in denominator explains why the percentages are not identical.