How to Set a Selling Price That Survives GST and Discounts
Adding 25% to cost doesn't give you a 25% margin — and a 10% discount can quietly take 40% of your profit per unit. A step-by-step pricing example with GST, discounts and break-even.
By BizToolsIndia Editorial Team · Published · 4 min read
Key takeaways
- Price from margin, not markup: price = cost ÷ (1 − margin). A 25% markup gives only a 20% margin.
- Work out your price before GST, then add GST on top. GST is collected for the government, not profit.
- A 10% discount on a 25% margin product cuts the margin to about 16.6% — and raises break-even volume by two-thirds.
- If you plan to discount, build it into the list price from the start.
Step 1: price from margin, not markup
Say a product costs you ₹400 (purchase plus packing and inward freight) and you want a 25% profit margin. Many sellers add 25% to cost and price it at ₹500. But margin is profit as a share of the selling price: ₹100 ÷ ₹500 = 20%, not 25%.
Selling price = Cost ÷ (1 − Target margin)
= 400 ÷ (1 − 0.25) = ₹533.33
| Method | Price before GST | Profit | Margin |
|---|---|---|---|
| 25% markup on cost | ₹500.00 | ₹100.00 | 20.0% |
| 25% target margin | ₹533.33 | ₹133.33 | 25.0% |
The Profit Margin Calculator and Markup Calculator convert between the two. For the concepts, read how to calculate profit margin.
Step 2: add GST on top
If you are GST-registered, the ₹533.33 is your taxable value. At 18% GST, the customer pays ₹533.33 + ₹96.00 = ₹629.33, which you might round to a list price of ₹629. The ₹96 is passed on to the government (after input tax credit), so it must never be counted as revenue or profit.
Note
Step 3: see what a discount really costs
Now offer 10% off the ₹629 list price. The customer pays ₹566.10, of which the taxable value is ₹566.10 ÷ 1.18 = ₹479.75. Your cost is still ₹400.
| No discount | 10% discount | |
|---|---|---|
| Customer pays | ₹629.00 | ₹566.10 |
| Taxable value (your revenue) | ₹533.05 | ₹479.75 |
| Profit per unit | ₹133.05 | ₹79.75 |
| Margin | 25.0% | 16.6% |
A 10% discount took away 40% of the profit per unit. That is the effect sellers most often underestimate. The Discount Calculator and GST Discount Calculator show the final price and the tax after a discount.
Step 4: check break-even
Suppose your monthly fixed costs — rent, salaries, software — are ₹50,000. Each sale contributes its profit per unit towards them:
| Contribution per unit | Units to break even each month | |
|---|---|---|
| Full price (₹533.33 before GST) | ₹133.33 | 375 |
| After 10% discount | ₹79.75 | 627 |
To earn the same profit with a permanent 10% discount, you need to sell about two-thirds more units. Try your own figures in the Break-even Calculator, and see the full method in our break-even analysis guide.
Step 5: build discounts into the list price
If you regularly run 10% offers, set the list price so the discounted price still meets your margin:
Price before GST needed after discount = 400 ÷ (1 − 0.25) = ₹533.33
List price before GST = 533.33 ÷ (1 − 0.10) = ₹592.59
List price with 18% GST = 592.59 × 1.18 ≈ ₹699
At ₹699, a 10% discount brings the customer price to ₹629.10 and your margin stays at about 25%. Whether the market accepts ₹699 is a separate question — but at least you are making that decision knowingly.
A pricing checklist
- Include every direct cost per unit: purchase, packing, inward freight, payment gateway or marketplace fees.
- Set a target margin, then price with cost ÷ (1 − margin).
- Add GST on top of the taxable value; never count GST as income.
- Test your planned discounts and marketplace commissions on the margin before launching them.
- Check break-even units against realistic monthly sales.
Frequently asked questions
What is the difference between margin and markup?
Markup is profit as a percentage of cost; margin is profit as a percentage of selling price. ₹100 profit on a ₹400 cost is a 25% markup but a 20% margin.
Should profit margin be calculated before or after GST?
Before GST. GST collected on sales is owed to the government (after input tax credit), so margins should use the taxable value.
How do I price to keep my margin after a discount?
Work out the price you need after the discount, then divide by (1 − discount rate) to get the list price, and add GST.