Calculating in the margin

Margin or markup

You work out markup on your cost price: if something costs €100 and you add 30%, you charge €130.

You work out margin on your selling price: of that €130, €30 is profit, and that is 23% of 130. You thought you were earning 30%, it is 23%.

If you really want a 30% margin, you divide the cost price by 0.70: 100 divided by 0.70 is €142.86. The higher the percentage, the bigger the difference. At a 50% margin you have to double the cost price, which is a 100% markup.

Why your hourly rate is higher than you think

An employee gets paid during holidays, on public holidays and when ill. You don’t. Those days have to be paid for by the hours you do bill.

Even on the days you work, you can’t bill everything. Making quotes, sending invoices, fetching materials, driving and answering emails: often a quarter of your time or more.

Of what you charge, the VAT goes to the state first. Then you pay your costs. On what is left you pay social security contributions and taxes. Only then do you have your net income.

That’s why Marge calculates backwards: from what you want to take home to what you need to charge. The percentages for social security contributions and taxes are estimates. Your accountant knows the right ones for your situation.

VAT is not income

VAT comes on top of your price. Your customer pays it to you, and you pass it on. So always work out your prices excluding VAT, and only add the VAT at the end.

If you fall under the small business VAT exemption scheme, you don’t charge VAT. You also can’t reclaim the VAT on your own purchases: for you, that is a cost. Whether the scheme applies to you and is worthwhile, you discuss with your accountant.

What your accountant will ask

Bring these figures along, or copy the tally roll as text and email it over. Then the conversation is about your prices instead of your receipts.

1. Main job or side business, and since when you’ve been self-employed.
2. Your expected turnover and profit for this year and the next.
3. Your fixed costs per month and what you want to invest.
4. Whether you fall under the VAT exemption scheme, or want to.
5. Which VAT rate applies to what you sell.
6. How much you set aside for social security contributions and taxes, and whether you make advance payments.