To calculate wholesale markup, subtract your unit cost from your selling price, divide the difference by the unit cost and multiply by 100. The important part is choosing comparable figures: a VAT-inclusive retail price and a VAT-exclusive buying price do not give a like-for-like comparison.
This guide is for boutique owners pricing clothing for resale. It separates markup, gross margin and the amount left after selling costs, with a worked example you can adapt. All prices, fees and quantities below are illustrative, not current Catwalk product prices, platform charges or recommended retail prices.
Markup and margin use different denominators
Use C for the cost of one saleable unit and S for its selling price, on the VAT basis explained below.
- Markup percentage = (S − C) ÷ C × 100. This measures the amount added relative to cost.
- Gross margin percentage = (S − C) ÷ S × 100. This measures gross profit relative to sales revenue.
- Selling price from a markup = C × (1 + markup ÷ 100).
- Selling price from a target gross margin = C ÷ (1 − margin ÷ 100). This formula requires a target below 100%.
For example, a £10 cost and a £20 selling price give £10 gross profit: a 100% markup but a 50% gross margin. A 50% markup on the same cost gives a £15 selling price and a gross margin of approximately 33.3%. Neither figure is net profit.
Define your cost basis consistently. Here, cost includes the garment and its allocated inbound delivery cost. Customer packaging, outbound delivery and payment charges are shown separately, so they are not deducted twice.
Put VAT on a consistent basis first
The UK standard VAT rate is currently 20%; other rates and exemptions exist, so check the treatment of your goods rather than assuming every item is standard-rated.[2]
- If you are VAT registered and can fully reclaim the relevant purchase VAT: compare sales excluding output VAT with costs excluding recoverable input VAT. Reclaiming VAT depends on the rules and supporting records, including valid VAT invoices.[9]
- If you are not VAT registered: do not add a VAT charge to your customer’s bill. For ordinary retail planning, include supplier VAT that you cannot recover in your costs, and use the amount you charge the customer as sales revenue.[3][9]
- If you use the Flat Rate Scheme or cannot fully reclaim VAT: do not copy the fully recoverable-VAT example without adjustment. Under the Flat Rate Scheme, purchase VAT generally cannot be reclaimed, apart from certain capital assets over £2,000.[5]
For a price including VAT at 20%, divide by 1.2 to find the VAT-exclusive amount. To add VAT at that rate, multiply the VAT-exclusive amount by 1.2.[3] Thus £30 including VAT represents £25 before VAT and £5 VAT; subtracting 20% from £30 would give the wrong result.
Ask your accountant how to treat your own VAT scheme, non-recoverable costs and accounting classifications. This is a pricing worksheet, not individual tax advice. Keep cash-flow planning separate too: the amount paid to a supplier and the timing of a VAT reclaim are not the same thing as your unit-cost calculation.
Build a cost for the unit you actually sell
- Confirm the selling unit. Record whether your supplier’s price buys a piece, a pack or a complete set. If you resell a set intact, cost the set rather than treating its components as separate sales.
- Allocate inbound costs. In a simple illustration, £12 inbound delivery spread equally across 24 similar garments adds £0.50 each. If an order mixes very different items, choose a reasonable allocation method and record it.
- List selling costs separately. Check your own payment and marketplace fee schedules, packaging, any delivery you fund and other costs tied to a sale. Record whether a percentage fee is charged on the VAT-inclusive payment, delivery charges or another amount.
- Keep evidence. Save the supplier invoice, product URL, quantities, VAT basis and the date of your calculation. Check the current product information when you reorder.
Use our minimum-order and pack guide for the quantity checks before you build your pricing sheet. Do not confuse a pack price with the cost of one garment.
Worked example: a £30 retail sale
Illustration only: assume a VAT-registered retailer using ordinary VAT accounting, fully recoverable relevant input VAT and a standard-rated sale. All cost amounts below are after any recoverable VAT. There is no extra delivery payment from the customer.
- Garment cost: £10.00.
- Allocated inbound delivery: £0.50.
- Unit cost C: £10.00 + £0.50 = £10.50.
- Customer price including VAT: £30.00.
- Sales revenue S excluding VAT: £30.00 ÷ 1.2 = £25.00.
- Gross profit: £25.00 − £10.50 = £14.50.
- Markup: £14.50 ÷ £10.50 × 100 = approximately 138.1%.
- Gross margin: £14.50 ÷ £25.00 × 100 = 58%.
Now suppose the payment charge is 3% of the £30 customer payment (£0.90), customer packaging is £0.50 and outbound delivery costs £3.00. The amount left is:
£14.50 − £0.90 − £0.50 − £3.00 = £10.10.
That £10.10 is contribution after the listed selling costs, not net profit. It still has to contribute towards costs not included here, such as rent, wages, software, marketing, returns and stock losses. The assumed 3% is only a calculation input; replace it with your actual fee structure, including fixed charges where relevant.
Check a markdown before you offer it
Using the same illustration, a 20% discount reduces the customer price from £30 to £24 including VAT. Sales revenue is then £20, gross profit is £9.50 and gross margin is 47.5%.
At the illustrative 3% payment charge, the fee becomes £0.72. With packaging and delivery unchanged, contribution becomes £20 − £10.50 − £0.72 − £0.50 − £3.00 = £5.28. Compare that with £10.10 at full price before deciding whether a discount fits your plan.
Do not apply a universal returns or markdown percentage and assume it describes your boutique. Use your own records where available. For new lines, write down a clearly labelled scenario and revisit it when you have actual sales and return costs. Keep unsold stock visible in your cash plan rather than assuming every purchased unit becomes a full-price sale.
Work backwards from a target, then test the price
If the illustrative £10.50 unit cost needs a 60% gross margin, the required selling price before VAT is £10.50 ÷ 0.40 = £26.25. At the assumed 20% VAT rate, the customer price is £31.50.
This is a calculation, not a recommendation or a guarantee that customers will pay £31.50. Check the product, your customers’ price expectations, comparable offers and your selling costs. If you round or change the price, calculate the resulting margin again. A higher asking price does not by itself establish a more profitable range.
Copy this boutique pricing worksheet
Create one row per sellable item or set in your own spreadsheet, using these columns:
- Product reference, colour, supplier URL and review date.
- Piece, pack or set basis; quantity purchased and units available for resale.
- VAT status, rate and recoverable/non-recoverable purchase VAT.
- Unit buying cost and allocated inbound delivery.
- Proposed customer price and sales revenue on the correct VAT basis.
- Gross profit, markup percentage and gross margin percentage.
- Payment/platform charges, customer packaging and outbound delivery.
- Contribution after those selling costs.
- Discount scenario and its revised contribution.
- Other costs, unresolved assumptions and decision: proceed, revise or hold.
Review the sheet when costs, fees or selling prices change, and compare the plan with actual results. When browsing Catwalk’s New In collection, bring shortlisted styles back to this worksheet rather than choosing a multiplier from a generic industry table.
Sources
[3] GOV.UK: charging VAT and calculating VAT-inclusive prices