Given cost, target gross margin, and sales tax rate, compute the pre-tax price, tax amount, tax-inclusive price, and profit.
Input Data
Results
At a glance:Gross margin is the profit expressed as a percentage of the pre-tax selling price; sales tax is an additional percentage charged on that price.
Formula
priceExTax = cost / (1 - marginPct%)
taxAmount = priceExTax × taxPct%
priceIncTax = priceExTax + taxAmount
profit = priceExTax - cost
$$P_{ex} = \dfrac{\text{Cost}}{1 - m}, \quad \text{Tax} = P_{ex} \times t$$$$P_{inc} = P_{ex} + \text{Tax}, \quad \text{Profit} = P_{ex} - \text{Cost}$$How to Use
- Enter the cost per item.
- Enter your target gross margin percentage.
- Enter the applicable sales tax rate.
- Review the pre-tax price, tax amount, tax-inclusive price, and profit.
FAQ
What is the difference between margin and markup?
Both describe profit, but with different denominators. Margin = profit ÷ selling price (price is the denominator); markup = profit ÷ cost (cost is the denominator). For the same deal — cost HK$100, price HK$166.67, profit HK$66.67 — the margin is HK$66.67 ÷ HK$166.67 ≈ 40%, while the markup is HK$66.67 ÷ HK$100 ≈ 66.67%. The markup figure is therefore usually larger. Mixing them up causes serious pricing errors: if a boss wants '40% profit' meaning a 40% margin but you use cost × 1.4 (a 40% markup), the actual margin is only about 28.6%. This calculator uses the margin basis; if you think in markup, use the Margin & Markup Calculator instead.
Is sales tax added to the price or deducted from profit, and does Hong Kong have sales tax?
Sales tax is charged on top of the price and borne by the final consumer, not deducted from the merchant's profit. The merchant collects the tax from the customer at checkout and remits it to the tax authority — it is never the merchant's revenue or profit. So profit here is simply pre-tax price minus cost and is unrelated to the tax; the tax only affects the final tax-inclusive price the customer pays. As for Hong Kong: it has no general sales tax, GST or VAT on most goods and services (only specific items like tobacco, alcohol and fuel carry separate duties), so a local merchant can set the tax rate to 0 and the calculator becomes a pure gross-margin pricer.
Why is the price derived as 'cost ÷ (1 − margin)' rather than 'cost × (1 + margin)'?
Because margin's denominator is the price, not the cost, so you must divide — this is the most common pricing trap. A 40% target margin means profit should be 40% of the price, i.e. cost should be 60% of the price (1 − 40%). Since cost is known, price = cost ÷ 0.6. With cost HK$100, price = 100 ÷ 0.6 ≈ HK$166.67, giving a profit of HK$66.67 that is exactly 40% of the price. If you wrongly use cost × 1.4 = HK$140, that is a 40% markup, whose margin is only (140 − 100) ÷ 140 ≈ 28.6%, far short of the target. Whenever your goal is a margin, use division.
Should sales tax be counted inside the gross margin, and why do pre-tax vs tax-inclusive prices matter?
The key idea: sales tax should NOT be counted inside the margin; margin must be based on the pre-tax price. Sales tax is money the merchant collects on behalf of the government and later remits — it was never the merchant's revenue or profit, just a pass-through. So when measuring how much you actually earn (margin, profit), you exclude that tax and look only at pre-tax price minus cost. Imagine a wrong example: cost HK$100, tax-inclusive price HK$180, someone thinks margin = (180 − 100) ÷ 180 ≈ 44% and feels great, but HK$13.33 of that HK$180 is tax to be remitted, so the real pre-tax price is HK$166.67 and the true margin is 40%. Mistaking that inflated 44% could lead you to cut prices and push the real margin into danger. Price from cost and target margin (pre-tax), then add tax separately at checkout, and judge customer acceptance on the tax-inclusive total — keep 'what I earn' (pre-tax) and 'what the customer pays' (tax-inclusive) separate.
What is a reasonable gross margin by industry, and is a high margin always profitable?
There is no single standard; 'reasonable' varies by industry, and a high margin does not equal real profit. Margin levels depend on cost structure and added value: retail/wholesale tend to be low (single digits to ~20%) because they earn the resale spread on volume; F&B has moderate margins due to high food costs; software, digital content, licensing and professional services with near-zero marginal cost can be very high. Compare only within your own industry. Crucially, gross margin only deducts the direct cost of goods (COGS) — not rent, utilities, wages, marketing, platform commissions, shipping, returns, interest or tax. So you can have a pretty 60% margin yet a thin or negative net profit after operating costs. When setting a target margin here, leave enough room for those downstream costs, or the book figure may look fine while the business actually loses money.
References
Content review: Calculatorism Finance Team. Results are for reference only; please refer to the relevant authorities for the official figures.