Pricing a product for sale

mloc

Registered User
Messages
90
I am making up a pricing calculator for goods I sell. I want to figure out my margin (Income) after all costs are deducted from sales.
Vat is confusing me.
Say my sales price is 12.30 and includes 2.30 vat
Net sales price is therefore 10.00

Say my cost price is 9.00 and includes 1.68 vat
Net cost price is therefore 7.32

It looks like my income is 10.00 - 7.32 = 2.68
however, I have a vat cost of 2.30-1.68 = .62
**My true income looks like it is 2.68 - .62 = 2.06

**Is this correct and if so, how do I capture this vat 'cost' in my pricing calculator?
 
In working out both your income and costs, you should essentially ignore VAT. All you are doing is collecting it on the sales side and reclaiming it on the purchasing side: all you are is an (unpaid) collection agent for Revenue, so it's neither a sale nor cost item.

In the example you give, your cost/unit is 7.32 and your sales revenue/unit is 10.00. Your gross margin is 10.00 minus 7.32 minus any other direct cost of sales items (delivery, packaging?).

In terms of pricing, it depends on whether you're selling to a business or retail. Businesses will always look at the net price, consumers the price inclusive of VAT.
 
Last edited:
In working out both your income and costs, you should essentially ignore VAT. All you are doing is collecting it on the sales side and reclaiming it on the purchasing side: all you are is an (unpaid) collection agent for Revenue, so its neither a sale or cost item.

Very succinctly explained. And this really is the key to understanding VAT.
 
Very clear explanation from newtothis.
I do hope the OP is operating on a higher margin that stated in the example though.
 
Back
Top