What Should Go Into the Calculation?

A product's profit margin calculation should include all costs directly tied to making the product.

It's also always worth including your own hourly pay, so you don't accidentally end up in a situation as an entrepreneur where there's really nothing left at the end of the day. Including your own pay helps you assess whether making the product is actually worthwhile for you.

Production Costs

A product's production costs include your own hourly pay and the costs of any subcontractors involved in making the product.

Example: If your own hourly pay is €40 and you make the parts for one piece of jewelry in fifteen minutes, your labor is worth €10 per piece. If you also pay a subcontractor €1.50 to assemble the piece into its finished form, the final production cost comes to €11.50 per product.

Other Costs

A product can also carry other costs you might want to include. For example, the shipping costs for the jewelry materials you order and the cost of purchasing tools are expenses directly tied to making the product and sourcing the materials used in it. These costs are one-off and are spread across multiple products.

Example: You ordered supplies and paid €12 for shipping. You make 120 pieces of jewelry from the materials you ordered. That works out to €0.10 in shipping cost per product, which you enter in the "Other Costs" field.

Are You Giving Discounts?

The amount you actually take home (and your profit margin) changes if you give discounts on your product. Our calculator takes this into account. With the calculator, it's easy to test how different discount percentages affect your margin and to find out whether selling the product at a discount still makes sense for you.

Include VAT or Not?

If your business is registered for VAT, use the calculator with prices excluding VAT. Enter your product's sale price, material costs, and all other costs into the calculator without VAT. Since VAT isn't income or an expense for the business itself, the amounts should be handled without VAT in the margin calculation. This gives you an accurate picture of your margin once VAT has been accounted for.

If your business isn't registered for VAT, use prices including tax in the calculator. If you plan to grow your business and expect to register for VAT later, you can already plan your prices with this in mind. In that case, use the calculator with prices excluding tax.