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Module 4 · Pricing and unit economics

Margin, markup and the price you set

Understand the two percentages that describe a price, and stop confusing them.

Objective
Calculate margin and markup correctly, convert between them, and set a working price before VAT.
You will complete
A pricing model with your working price, margin and markup.
Time
16 min to read, about 30 min of practical work
Builds on
The alternatives, and a first price

Learn

Two percentages describe the same price, and confusing them is one of the most expensive arithmetic mistakes in small business. This lesson makes the difference permanent, and uses it to set a working price.

Same profit, two different percentages

Buy something for $10 and sell it for $13. The profit is $3. Markup expresses that profit as a share of cost: 3 ÷ 10 = 30%. Margin expresses it as a share of price: 3 ÷ 13 ≈ 23%. Both are correct. They answer different questions.

Markup is how suppliers and many shopkeepers think: "I put 30% on top." Margin is how accountants and lenders think: "What share of every sale is left?" When someone tells you to "work on 30%", always ask which one they mean.

Converting between them

To hit a target margin, divide the cost by (1 − margin). A 30% margin on a $10 cost needs a price of 10 ÷ 0.7 ≈ $14.29, not $13. The difference looks small on one item. Across a year of sales it can be the difference between a profit and a loss.

A useful habit: whenever you set a price, write down both percentages. If they are very far apart, your markup is high and your margin is healthy; if the margin is thin, the next lesson will show how quickly per-sale costs eat what is left.

Price before VAT

Work with prices before VAT. If your business is registered for VAT, the tax is added on top of your price, collected from the customer and paid to the Ministry of Finance; it is not your income. Treating a VAT-inclusive price as revenue overstates your margin by the whole amount of the tax.

Common mistakes

  • Applying a "30%" markup when a 30% margin was intended — or the reverse.
  • Calculating margin on cost instead of on price.
  • Treating VAT collected as part of your revenue.
  • Setting a price without writing down both percentages.

In Lebanon

  • Lebanon’s standard VAT rate is 11%. For a VAT-registered business, 11% is added on top of the price before VAT and passed to the Ministry of Finance. Whether you must register is covered in Module 6.

    Officially verifiedStandard VAT rate — Law 64 of 26 October 2017

Decision rule. If your margin is thin before any per-sale costs, treat it as a warning: the next lesson will subtract fees, delivery and packaging, and a thin margin rarely survives them.

See it worked

Worked example

Pricing to a target margin

Illustrative. A product costs $10 and the owner wants a 30% margin.

Inputs

Selling price, before VAT$14.29
Cost of one unit$10

Result

Gross profit per unitUS$4.29
Margin — profit over price30.0%
Markup — profit over cost42.9%

A $14.29 price gives a 30% margin and a markup of almost 43%. Pricing at $13 — "30% on top" — would have given a margin of only about 23%.

Your business

Set your working price. Your first test price and unit cost are loaded from Module 1.

Enrol to save your answers to your business file.

Margin and markup

Gross profit per unit
US$3.00
Margin — profit over price
23.1%
Markup — profit over cost
30.0%

Margin and markup describe the same price. When someone quotes a percentage, ask which one they mean.

Try any figures. Enrol to save your results.
Saved to your business file: Pricing model

Your working price with its margin, markup and VAT treatment. The contribution lesson reads it automatically.

Check your understanding

3 questions. Pass mark 70%.

  1. 1. A unit costs $20. What price gives a 25% margin, in dollars? Round to two decimals.
  2. 2. Cost $50, price $75. Which statement is correct?

  3. You are VAT-registered and charge a customer $111, of which $11 is VAT.

    3. What is your revenue from this sale?

Checkpoint

Before you move on, confirm that:
CriterionStrongNeeds workYour rating
CalculationBoth percentages correct and labelled.Only one percentage, or unlabelled.
VAT treatmentDecided and recorded.Unclear whether prices include VAT.
Enrol to record your checkpoint.

Sources and review

Lesson content last reviewed 20 September 2026. Educational guidance, not legal, tax or financial advice.

Complete this lesson

The next lesson subtracts every per-sale cost from this price to find your contribution — the number break-even is built on.

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