Copying a neighbour’s price can put you above the market or below your cost: you know neither their purchase terms, rent nor objective. A robust price starts with documented cost, becomes a target tax-exclusive price, then meets VAT, likely discount and customer response.
Build the price in seven layers
- Current complete unit cost.
- Attributable loss, time or charges.
- Named margin target and denominator.
- Theoretical price excluding VAT.
- Maximum sustainable discount.
- Validated applicable VAT.
- Rounded tax-inclusive price and volume test.
1. Choose the right cost before the formula
For a product, start with purchase net of commercial reductions and add inbound freight, customs, handling and attributable normal cost. For prepared food, use recipe and yield. For a service, value productive time and capacity, not salary alone. Date the cost: exact margin on an old supplier price is fictional.
| Activity | Cost base | Watch |
|---|---|---|
| Retail | Landed purchase | Freight, customs, breakage |
| Restaurant | Recipe/portion | Yield, waste, packaging |
| Service | Productive hour | Non-billable time |
| Marketplace | Cost plus commission | Returns and promotion |
Decide whether purchase VAT is recoverable before including it. Recoverable tax is not the same cost as tax ultimately borne.
2. Calculate the tax-exclusive price using the right target
Cost MAD 100 excluding VAT. For 30% margin on sales, price = 100 ÷ (1 − 0.30) = MAD 142.86. For 30% markup on cost, price = 100 × 1.30 = MAD 130. The targets are not equivalent.
| Objective | Formula | Price excl. VAT |
|---|---|---|
| 30% on cost | 100 × 1.30 | 130.00 |
| 30% on sales | 100 ÷ 0.70 | 142.86 |
| Fixed margin 45 | 100 + 45 | 145.00 |
Add VAT at the validated rate afterwards to obtain the customer price, once. Do not treat an illustration as a tax rate; the rate depends on the supply and facts.
3. Test net price, not only the ticket
If target is MAD 142.86 but a habitual 10% promotion applies, net price becomes 128.57 and sales margin falls. Calculate approved floor and discount rules. Then run a small market test: units, total margin, basket, returns and perception.
- Set target excluding VAT.
- Simulate combined discount and coupon.
- Simulate channel commission.
- Add VAT and choose final rounding.
- Check display and till consistency.
- Test for a defined period.
- Compare units and total margin.
- Document the final decision.
A psychological MAD 149 tax-inclusive price can move margin by points. Work back from chosen final price to the real tax-exclusive amount instead of rounding mentally.
A competitor’s price is not your cost
Use it as a market test, not formula. Where your sustainable price is too high, change purchasing, offer, format, channel or model instead of hiding loss.
4. Govern price changes
BelloPOS can deploy approved prices, promotion periods and discount limits. Separate proposal, approval and deployment. Keep old price, effective date, cost source and reason so before/after sales can be explained.
- Purchasing: updates cost
- Finance: calculates floor
- Commercial: tests customer value
- Management: approves exceptions
- BelloPOS: deploys and measures
Monitor negative prices, stacked discounts, VAT rates and differences across shelf, menu, delivery and checkout. The formula is useless if the wrong price reaches the customer.
Mistakes to avoid
- Starting with stale cost.
- Confusing sales margin and cost markup.
- Adding VAT twice.
- Omitting discounts and commission.
- Rounding without recalculation.
- Changing price without date or approval.
Frequently asked questions
How do I target 30% margin on sales?
Divide cost by 1 − 30%, or 0.70, on a consistent tax-exclusive base.
When is VAT added?
After building the tax-exclusive price and validating the applicable rate. Do not add it twice where already in the base.
How should discounts be handled?
Simulate them on the real price and set a floor or approval that protects contribution.
Must I match competitors?
Compare value and market, but first test whether the price covers your own cost and objective.
Does BelloPOS choose the price?
No. It applies and measures approved rules; cost, tax, positioning and risk remain human decisions.
What to take away
A sustainable price connects current cost, a correctly named target, validated VAT, real discount, final rounding and market response.
Sources
The figures and rules quoted above come from these pages, read on the date given in the article.
Test three real products
Recalculate cost, net price after discount and total margin sold before changing the whole catalogue.
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