# Business Margins



## milo (27 Feb 2009)

I would like to know what kind of margins to expect on selling products in the retail trade.

If I buy x at €50 (net) and Sell for €100 (Retail) I have a 50% margin.
From what I know in a similar market the margin is 30% meaning I would sell at €71.43. After you pay Vat on this it leaves very little 

Any one any info on typical margins to expect in a business, Should vat be after you have got the margin factored in?


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## Graham_07 (27 Feb 2009)

Margins in retail vary so hugely it is impossible to give any kind of expectation. 

You need to account for VAT at both ends to get a true margin. 

e.g. 

Buy at €50 incl VAT 21.5% = 41.15 net
Mark up by 100% on cost and get s/p
Sell at €100 incl VAT 21.5%  = 82.30 net
Margin                                 41.15 net
Margin %                              50

If you want a 30% margin you need to mark up cost ex VAT by 44% then add VAT to marked-up amount. ( that gives 30.55555% )

There are no typical margins . However certain business have expected margins. e.g. pubs should be at least 50%+ .


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## rabbit (27 Feb 2009)

milo said:


> Should vat be after you have got the margin factored in?


 
In my experience ( but I do not claim to be an expert ) the margin the trade talks about includes vat...it sounds better that way.   However different industries may vary.   Most wholesalers I know talk in terms of "mark-up" rather than margin eg if the mark-up is 33%....and you buy something for say ten euro ex vat ( wholesale prices are usually ex vat...you would aim to sell it for 13.30 ( if the mark-up is 33%) plus vat , total 16.20 ( assuming the item is subject to the top rate of vat ).

Small items tend to have bigger mark ups than large items. eg higher mark up on a bulb for a car rather than on a car itself. 
In general many things fashion driven eg clothes tend to have higher margins / mark ups than things which may not be obsolete at the end of the season. However there are lots of variables in each trade...who one buys from...or import direct...what the competition is ....bulk discounts from supplier ....overheads incurred in sale of each item etc.


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## milo (27 Feb 2009)

am I correct in saying that Margin should exclude Vat.

So to achieve a 50% margin is originally 

€50 net Retail sale price €100 including vat. = €82.30 
Eguals a net margin of 39.25%

But how do I factor Vat into the equation.
17.70 Vat on Retail
10.75 vat on Purchases

€6.95 Vat Paid

I really appreciate you coming back to me on this.


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## rabbit (27 Feb 2009)

milo said:


> am I correct in saying that Margin should exclude Vat.
> 
> .


 
Gross margin includes the vat on the profit..which must be paid to the Revenue Comm.

Net margin is the money you are left with as (gross) profit, after paying vat.

That is my understanding of it anyway.


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## Graham_07 (27 Feb 2009)

OK, if I read it correctly you're going from 50+VAT cost to €100 incl VAT retail, yes ?

If so then
Net Cost 50       VAT 10.75  Pay supplier            60.75
Net Sale 82.30   VAT 17.70  Customer pays you 100.00
You end up with 82.30-50= 32.30
Revenue get 17.70-10.75=   6.95

The 32.30 represents a mark up of 32.30/50 64.60% and a GP (margin) of 32.30/82.30 =39.25%. 

Hope this clears things.


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## Diddles (27 Feb 2009)

I like to keep it simple like myself.

ingore vat.
buy at €50
you want a 40% margin so divide €50 by 0.6.=€83.33
Then add the vat so multiply 83.33 x 121.5% is a retail price 'on the hook' of €101.25.Simple

Total profit of €33.33


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## milo (2 Mar 2009)

Hi dddles,

Do you not make more profit, as vat on sales - vat on purchases will mean you get slightly more? 17.92 - 10.75 = €7.17 actual vat paid.


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