Calculating the selling price: formula, coefficient and examples
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Do your selling prices truly meet your margin targets?
Schedule a meetingLearn about our MPS pricing solutionThe selling price is calculated starting from the pre-tax purchase cost: pre-tax selling price = pre-tax purchase cost ÷ (1 − target markup rate) , or pre-tax purchase cost × multiplier. VAT is then added to obtain the final price including VAT, without ever going below the resale-below-cost threshold.
The Essentials in 6 Questions
Transforming a purchase cost into a displayed price that generates the targeted margin.
Pricing teams, purchasing teams, category managers, retailers.
With each new supplier listing , there is an increase in supplier costs or a change in strategy.
By reference , then adjusted by store, channel or area.
Guarantee the margin while remaining consistent with the market.
Purchase cost excluding tax ÷ (1 − markup rate) , then VAT.
The 3 formulas for calculating a selling price
Depending on the target margin from which we start, three formulas give the same result.
| You are leaving from | Formula for the pre-tax selling price |
|---|---|
| A target markup rate (margin on selling price) | Purchase cost excluding tax ÷ (1 − markup rate) |
| A target margin rate (margin on purchase cost) | Purchase cost excluding VAT × (1 + margin rate) |
| A multiplier coefficient | Purchase cost excluding VAT × coefficient |
| The price excluding VAT, to obtain the price including VAT | Selling price excluding VAT × (1 + VAT rate) |
In retail, objectives are most often set in terms of markup rate : this is therefore the primary formula used on a daily basis. The gross margin rate relative to the selling price is based on the same logic.
Example of calculating the selling price, step by step
A product purchased for €10 excluding VAT, with a target markup rate of 30% and VAT at 20%, is displayed at €17.14 including VAT.
of selling price excluding tax: 10 ÷ (1 − 0.30).
unit margin, i.e. 30% of the price excluding tax (and 42.9% of the purchase cost).
Price including VAT: 14.29 × 1.20.
The corresponding multiplier coefficient is 1.43 (14.29 ÷ 10).
Incorrectly applying a 30% markup to the purchase cost would result in a markup of €13 excluding VAT: a loss of €1.29 in margin on each unit sold. This is the most common confusion between markup and margin rates .
From the calculated price to the displayed price
The price derived from the formula is only a starting point: three constraints correct it before the label.
- The market : a price significantly higher than competitors for a comparable product drives customers away. Analyzing competitor pricing reveals where to align with the competition and where to maintain your profit margin.
- Price thresholds : €17.14 will often become €16.99 or €17.49, depending on the psychological pricing strategy and the effect on the margin.
- The law : resale at a loss is prohibited, and for food products the threshold for resale at a loss is increased by 10%, a measure extended until April 15, 2028 by law no. 2025-337 of April 14, 2025 ( Deloitte Avocats ).
On a large scale, these trade-offs are encoded in pricing rules: this is the purpose of pricing in retail .
The 3 common mistakes in calculating the selling price
Incorrect cost basis, incorrect rate, or VAT omitted in the rounding.
- Calculate based on the supplier's catalogue price : the correct basis is the actual purchase price, after discounts and benefits have been deducted.
- Applying a margin rate instead of a markup rate : the price obtained is too low and the actual margin is lower than the target.
- Rounding the price including tax without recalculating the margin : going from €17.14 to €16.99 including tax costs €0.13 margin excluding tax per unit.
Frequently Asked Questions
Short answers to the most frequently asked questions about calculating the selling price.
How do you calculate a selling price?
To calculate a selling price, we start with the purchase cost (excluding VAT) and the target margin: selling price (excluding VAT) = purchase cost (excluding VAT) ÷ (1 − markup rate). For a product purchased for €10 (excluding VAT) with a target markup rate of 30%, we obtain €14.29 (excluding VAT), then €17.14 (including VAT) with a 20% VAT rate. This calculated price is then adjusted to the market, psychological thresholds, and the break-even point. Be careful with the base rate: applying 30% to the purchase cost would give €13 (excluding VAT) and an actual margin lower than the target.
What is the formula for the selling price excluding VAT?
The formula for calculating the pre-tax selling price depends on the target margin. Starting with a markup rate: pre-tax selling price = pre-tax purchase cost ÷ (1 − markup rate). Starting with a margin rate, fixed on the cost: pre-tax selling price = pre-tax purchase cost × (1 + margin rate). Starting with a multiplier: pre-tax selling price = pre-tax purchase cost × multiplier. All three formulas yield the same result if the rates are consistent; in retail, the first is the most commonly used, as targets are set based on the markup rate .
How do you calculate a selling price using a coefficient?
To calculate a selling price using a markup, the purchase price (excluding VAT) is multiplied by that markup: a product purchased for €10 (excluding VAT) with a markup of 1.43 sells for €14.30 (excluding VAT). The markup is the ratio between the selling price and the purchase price; it is equal to 1 ÷ (1 − markup rate). A markup of 1.43 therefore corresponds to approximately 30%, and a markup of 2 to 50%. The markup is useful for applying a uniform rule to an entire product range, but it is better managed by category than across the entire catalog.
How to convert a pre-tax selling price to a price including tax?
To convert a pre-tax (HT) price to a post-tax (TTC) price, multiply the pre-tax price by (1 + VAT rate): × 1.20 for a 20% VAT rate, × 1.055 for a 5.5% VAT rate (on most food products), and × 1.10 for a 10% VAT rate. Conversely, pre-tax price = post-tax price ÷ (1 + VAT rate). Example: €14.29 HT becomes €17.14 post-tax at 20%. If the post-tax price is then rounded down to €16.99, the pre-tax margin must be recalculated: rounding results in a loss of approximately €0.13 HT per unit.
Is it possible to sell below the purchase price?
No, you cannot sell below the purchase price: selling at a loss is prohibited in France, except in cases specifically defined by law, such as sales, clearance sales, or perishable goods at risk of spoilage. The threshold is calculated based on the actual purchase price, after deducting discounts and supplier benefits, plus taxes and transportation costs. For food products, this threshold is increased by an additional 10%, a measure extended until April 15, 2028, by Law No. 2025-337. Therefore, any price calculation must verify this minimum threshold before publication.
What is the difference between the selling price and the recommended retail price?
The selling price is the one freely set by the distributor; the recommended retail price, or MSRP (manufacturer's suggested retail price), is simply a recommendation from the supplier. The distributor is never obligated to follow it: they can sell at a higher or lower price, and a supplier who imposes a minimum price would be subject to penalties for anti-competitive practices. The recommended price remains a useful benchmark for positioning oneself. For legal details, see MSRP and recommended retail price .
Key Takeaways
- Selling price excluding tax = purchase cost excluding tax ÷ (1 − markup rate) .
- Always start from the actual purchase price and specify the basis for the rate.
- The calculated price is then adjusted to the market , price thresholds and the resale-below-cost threshold .
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In France, a suggested retail price (SRP) is never legally binding on the retailer: the retailer remains free to sell at a higher or lower price without risking penalties from the supplier. What the law prohibits is the imposition of a minimum price, a practice that has cost several major corporations hundreds of millions of euros in fines in recent years.
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