How to price your products and services in South Africa: margin, markup, VAT and break-even
A price is right when it covers your costs, includes Value-Added Tax (VAT) if you are registered, and still leaves the profit you need. Most owners set prices by adding a percentage to cost, which quietly gives them less profit than they think.
In short
- Markup and margin are not the same. A 30% markup on cost gives a gross margin of about 23%, not 30%.
- To earn a target gross margin, divide your cost by one minus that margin. For a R50 cost and a 30% margin, the price before VAT is R71.43.
- If you are registered for VAT, your price before VAT is what you keep. Add 15% for the shelf price, and never treat the VAT as income.
- For services, start from the income you need and the hours you can really bill, not from what competitors charge.
- Check every price against break-even: how many sales you need each month before you make a profit.
Start with your real cost
Price starts with cost, and cost is more than what you paid the supplier.
- Direct cost: the materials, stock or subcontractors that go into one sale.
- Overheads: rent, wages, software, insurance and vehicles, which you pay whether you sell or not.
- Cost of selling: card fees, delivery, commissions and discounts.
Leave out a cost and the price is wrong before you start. A common gap is your own time. If you work in the business, your price needs to pay you for it.
Margin is not markup
Markup is the percentage you add to cost. Margin is the share of the price you keep. They give different answers.
| Cost | Markup added | Price before VAT | Gross profit | Gross margin |
|---|---|---|---|---|
| R50.00 | 30% | R65.00 | R15.00 | 23.1% |
| R50.00 | 42.9% | R71.43 | R21.43 | 30.0% |
If you want a 30% gross margin, do not add 30% to cost. Use this instead:
Price before VAT = cost ÷ (1 − target margin). For a R50 cost and a 30% margin, that is R50 ÷ 0.70 = R71.43.
Add VAT the right way
If you are registered for VAT, the 15% belongs to the South African Revenue Service (SARS), not to you. Set your price before VAT first, then add VAT for the shelf price: R71.43 becomes R82.14. If you are below the registration threshold and not registered, you cannot charge VAT, so your price before VAT is your price. The VAT threshold changed on 1 April 2026, so check where you stand before you build prices around VAT.
A worked break-even
Suppose your fixed costs are R30,000 a month and you sell the product above at R71.43 before VAT.
- Each sale contributes R71.43 minus R50.00 direct cost, which is R21.43.
- Break-even is R30,000 ÷ R21.43, or about 1,400 units a month.
If you cannot realistically sell 1,400 a month, the price is too low, the cost is too high, or the business is too small for that overhead. A price is only right once you have run this number.
Pricing a service
Services sell time, so price starts with income and hours.
- Add up what you need to earn each month, plus your overheads. For example, R40,000 for yourself plus R20,000 of overheads is R60,000.
- Count the hours you can really bill. Admin, quotes, travel and gaps mean it is usually far below a full working month. Say 100 billable hours.
- Divide. R60,000 ÷ 100 hours is R600 an hour before VAT.
Then test it. If the market will not pay that, you need lower costs, more billable hours or a different offer, not a lower hourly rate.
Cost-plus, competitor or value?
- Cost-plus protects your margin but ignores what customers will pay.
- Competitor pricing is a useful check, but it copies someone else's costs.
- Value pricing charges for the result the customer gets. It works best when you can point to the money you save or make them.
Use cost-plus to set your floor, competitors to see the range, and value to decide where in that range you sit.
What to do now
- List the true cost of your top five products or services, including overheads and your own time.
- Recalculate each price with the margin formula and compare it with what you charge today.
- Separate VAT from your price if you are registered, and check your books treat it as money owed to SARS.
- Run break-even for each product, or for the business as a whole.
- Test one price rise on your least price-sensitive customers before you change everything.
- Review prices twice a year, and whenever your costs move.
Frequently asked questions
What is a good profit margin?
It depends on the industry, so compare with your own past months and with businesses like yours. The more useful test is whether your margin covers your overheads and leaves the profit you need.
Should I show prices with or without VAT?
Consumers expect prices with VAT. Business customers often want to see the price before VAT and the VAT separately. Either way, your accounts should record the VAT apart from your income.
How often should I raise prices?
Review them at least twice a year. Small, regular rises are easier for customers to accept than a large rise after a long gap.
Sources and further reading
- Value-Added Tax, South African Revenue Service
- VAT registration in South Africa: the new R2.3 million threshold, TBL Accounting
This article is general information for South African businesses. It is not tax, legal or financial advice, and it reflects the rules and figures at the date shown above. Tax rules change, so confirm the current position before you act. TBL's practitioners are registered tax practitioners.