Costing and markup
Markup is the profit as a percentage of the cost price; gross margin is the same profit as a percentage of the selling price. Work out the selling price both ways, see the contribution margin in kroner, and add VAT last.
Your numbers
What the item or job costs you — excluding VAT.
More options: VAT, Discount, Quantity
VAT rate
Danish VAT is 25 % of the price excluding VAT — Danish VAT Act (LBK no. 209 of 27/02/2024) § 33.
Taken off the selling price. See what it does to the gross margin.
Answer
Selling price excl. VAT
1,000.00DKK
Check: 25 % markup is only 20 % gross margin. If you wanted 25 % gross margin, the selling price must be DKK 1,066.67.
Contribution margin
200.00DKK
Selling price incl. VAT
1,250.00DKK
Markup (of cost price)
25%
Gross margin (of selling price)
20%
Hereof VAT
250.00DKK
How to work it out
- 1800 · (1 + 25/100) = 1,000.00 DKKThe markup is a percentage OF THE COST PRICE — so the cost price is multiplied up.
- 2Contribution margin = 1,000.00 − 800.00 = 200.00 DKKThe contribution margin is what is left to pay fixed costs and profit.
- 3Markup = 200.00 / 800.00 · 100 = 25 %
- 4Coverage degree = 200.00 / 1,000.00 · 100 = 20 %
- 51,000.00 · 1.25 = 1,250.00 DKK including VATVAT is added last, on top of the finished selling price.
The formula
selling price = cost price · (1 + markup/100)
Markup is the profit as a percentage of the cost price.
selling price = cost price / (1 − CM/100)
Gross margin (DG) is the profit as a percentage of the selling price.
contribution = selling price − cost price
The contribution margin (DB) in kroner.
CM = markup / (100 + markup) · 100 · markup = CM / (100 − CM) · 100
price incl. VAT = selling price · (1 + VAT/100)
Danish VAT is 25 % of the price excluding VAT — Danish VAT Act (LBK no. 209 of 27/02/2024) § 33.
Keep calculating
Calculators from the education programmes that work out the same topic in more detail.
- Contribution margin and margin ratio
What is the contribution margin, gross margin and markup on the item?
- Contribution margin and margin ratio
What is the contribution margin and gross margin on the item?
- Markup and contribution margin ratio
What is my profit, markup percentage and gross margin on the item?
- Selling price from desired contribution ratio
What must the item cost to give the gross margin I want?
- Costing factor and backward costing
What is the most I can pay the supplier for the item when I know the selling price and the gross margin I want?
- Break-even turnover
What is the break-even revenue?
- VAT and quotation price
What will the price be including VAT and after discount?
- Freelance hourly rate and project price
What should my hourly rate be, and what does a project of X hours cost including VAT?
In depth: more numbers and “what if”
What if the customer gets a discount?
| Discount | Selling price excl. VAT | Contribution margin | Coverage degree |
|---|---|---|---|
| 0 % | 1,000.00 DKK | 200.00 DKK | 20 % |
| 5 % | 950.00 DKK | 150.00 DKK | 15.8 % |
| 10 % | 900.00 DKK | 100.00 DKK | 11.1 % |
| 15 % | 850.00 DKK | 50.00 DKK | 5.9 % |
| 20 % | 800.00 DKK | 0.00 DKK | 0 % |
Markup and gross margin side by side
| Markup | Coverage degree |
|---|---|
| 10 % | 9.09 % |
| 20 % | 16.67 % |
| 25 % | 20 % |
| 33.33 % | 25 % |
| 50 % | 33.33 % |
| 100 % | 50 % |
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