How to Calculate Discounts, GST/VAT and Profit Margin

Everyday money questions mostly come down to percentages. A few formulas cover discounts, tax and profit.

Discounts

Sale price = original price × (1 − discount ÷ 100). A 20 percent discount on 80 gives 80 × 0.8 = 64. Be careful with stacked discounts: 20 percent off followed by another 10 percent off is not 30 percent off; it is 28 percent (0.8 × 0.9 = 0.72). The Discount Calculator handles this for you, and the Percentage Calculator covers other percentage questions such as "what percent is 30 of 120?".

GST and VAT

• Adding tax: price including tax = price × (1 + rate ÷ 100). With 18 percent tax, 100 becomes 118.
• Removing tax: price excluding tax = price ÷ (1 + rate ÷ 100). From 118 you get back to 100. A common mistake is to subtract 18 percent of 118, which gives the wrong answer.

Use the GST / VAT Calculator for either direction, UK VAT Calculator for UK rates, and Reverse Sales Tax Calculator when you only know the final price.

Margin versus markup

These sound alike but are different:

• Markup = (selling price − cost) ÷ cost. A product costing 60 and sold at 100 has a 66.7 percent markup.
• Margin = (selling price − cost) ÷ selling price. The same product has a 40 percent margin.

Mixing them up leads to underpricing. The Profit Margin & Markup calculator shows both, and the Break-even Calculator tells you how many units you must sell to cover fixed costs.

Splitting bills

For restaurants and shared costs, Tip & Bill Split divides the total and adds a tip.

Check your rounding

Round only at the end of a calculation. Rounding each step can leave you a few cents off, which matters on invoices.

Calculators give estimates based on the numbers you enter. For decisions about loans, taxes or investments, confirm the figures with your lender or a qualified adviser.

Frequently asked questions

Why does removing 18 percent tax not match subtracting 18 percent?

The tax was calculated on the pre-tax price, not on the total. To go back, divide the total by 1.18.

Which is better to quote, margin or markup?

Both are useful, but be clear which you mean. Margin is the share of the selling price that is profit; markup is profit relative to cost.

What is a break-even point?

The number of units you must sell so that revenue equals fixed plus variable costs. Beyond it you make a profit.

Do these calculators handle currencies?

The percentage maths is the same for any currency. For conversion between currencies use a currency converter with current rates.

Key takeaways

• Stacked discounts multiply, they do not add.
• Divide by 1 plus the rate to remove tax.
• Do not confuse margin and markup.