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Business money

Pricing, profit & business money

The core money questions of any business are surprisingly easy to get wrong: margin confused with markup, break-even calculated on the wrong contribution, VAT added when it should be removed. Pilot answers each with the explicit formula so the number is defensible.

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Problems this solves

  • You need margin and markup from cost and price.
  • You need the break-even volume that covers fixed costs.
  • You need to add or remove VAT/GST at any rate.
  • You need a quick, correct answer to a pricing or percentage question.

Questions you can ask Pilot

What is my margin if I buy at 8 and sell at 22?
How many units must I sell to break even on $20,000 fixed costs?
Remove 20% VAT from a £120 gross price.
What price gives me a 40% margin on a $15 cost?

How Pilot works this out

Margin is profit ÷ price; markup is profit ÷ cost. Pilot reports both from a single cost-and-price pair so the two are never confused.

Break-even is fixed costs ÷ contribution per unit, where contribution is price minus variable cost. If price does not exceed variable cost, Pilot says break-even is impossible rather than returning a misleading number.

VAT/GST is applied as a single rate to the whole amount, in add or remove mode. Removing VAT divides by one plus the rate; adding multiplies. The net, tax and gross are all shown.

The variables that matter

Cost & price
The pair that drives margin and markup.
Fixed & variable cost
Fixed costs are recovered by unit contribution.
VAT/GST rate
The single rate applied to the amount.
Mode
Whether to add tax to a net figure or remove it from a gross one.

Worked examples

“Buy at 8, sell at 22”

Gross profit 14, margin ~63.6%, markup 175% — Pilot shows both so the terms are never mixed up.

“Remove 20% VAT from 120”

Net 100, VAT 20, gross 120 — the correct reverse calculation, not simply 120 minus 20%.

Common mistakes

  • Treating markup and margin as the same thing.
  • Removing VAT by subtracting the rate instead of dividing by one plus the rate.
  • Calculating break-even on price rather than on contribution per unit.

Limitations

  • • Single-rate VAT only; mixed-rate baskets need per-line treatment.
  • • Break-even assumes a constant price and variable cost.
  • • Tax rules and rates vary by jurisdiction and product.

Verify before relying on this

  • • Confirm the correct VAT/GST rate for the goods and country.
  • • Check that fixed and variable costs are classified correctly.
  • • Decide whether margin should be gross or net for your purpose.

Official source categories

National tax authority — Authoritative for VAT/GST rates and rules.
Your management accounts — For the correct cost classification.

Frequently asked questions

What is the difference between margin and markup?

Margin is profit as a share of the selling price; markup is profit as a share of cost. The same profit gives a lower margin than markup. Pilot always shows both.

How do I correctly remove VAT?

Divide the gross amount by one plus the rate. For 20% VAT, net = gross ÷ 1.20. Subtracting 20% of the gross overstates the tax.