Setting Prices When GST Is a Factor
How it works
For GST-registered businesses, the 10% GST has a direct impact on profit margins. If you sell a product for $110 inc-GST, you don't keep $110 — you keep $100 and remit $10 to the ATO. Your pricing strategy needs to account for this, especially when competing against businesses that aren't GST-registered (and therefore don't charge GST).
There are two main approaches. Passing on GST means adding 10% to your desired ex-GST price — your customer pays the GST, and your margin stays the same. This is standard practice in B2B transactions because the buyer claims the GST back anyway. Absorbing GST means keeping the same sticker price but accepting a lower margin — you're effectively paying the GST out of your revenue. This sometimes happens in B2C markets where customers are price-sensitive and compare final (inc-GST) prices.
Understanding the difference between margin and markup is critical for pricing correctly. Margin is profit as a percentage of selling price. Markup is profit as a percentage of cost. A 30% markup on a $70 item gives a selling price of $91 (profit of $21). But the margin on that sale is only 23.1% ($21 ÷ $91). When GST is added, the inc-GST price is $100.10 but you still only keep $21 profit — now just 21% of the customer's total spend. Confusing margin and markup when setting prices is one of the most common errors small businesses make.
When to use this calculator
- You're setting prices for a new product or service and want to ensure your target margin holds after GST
- You need to decide whether to absorb GST or pass it on to customers and want to see the impact on your profit
- You're a B2C business trying to match a competitor's inc-GST price and want to know if the margin is viable
- You want to convert between margin and markup and see how each changes once GST is applied
- You're switching from being non-GST-registered to registered and need to reprice your entire catalogue
Key concepts
- Margin vs markup
- Margin = profit ÷ selling price. Markup = profit ÷ cost price. They describe the same profit but as a percentage of different bases. A 50% markup ($100 cost → $150 sell) is a 33.3% margin ($50 ÷ $150). When calculating GST-inclusive prices, always clarify which measure you're using — getting them confused means either underpricing (losing money) or overpricing (losing customers).
- Absorb vs pass on
- Passing on GST: you add 10% to your price. A $100 item becomes $110 inc-GST, you keep $100. Absorbing GST: you keep the $100 sticker price but remit $9.09 as GST, keeping only $90.91. Your effective revenue drops by 9.1%. Absorption eats margin directly, so it only makes sense when customer price sensitivity outweighs the margin loss.
- Break-even price
- The minimum selling price (ex-GST) at which you cover your costs with zero profit. If your cost is $65, your break-even price is $65 ex-GST ($71.50 inc-GST). Any price above this generates profit; any price below means you're selling at a loss. Factor in overhead (rent, wages, insurance) to get your true break-even — not just the unit cost of goods.
- Price anchoring with GST
- In B2C markets, consumers respond to round inc-GST prices ($99, $149, $199). Working backwards: if you want a shelf price of $99 inc-GST, your ex-GST revenue is $90.00, and the GST is $9.00. Your margin depends on your cost — if the item costs you $55, your margin is 38.9% of ex-GST revenue. This calculator lets you work backwards from any target price.
Worked example — Repricing a product after GST registration
Lisa sells handmade candles online. She recently crossed the $75,000 GST turnover threshold and is now GST-registered. Her best-selling candle costs $18.00 to make and she currently sells it for $45.00.
Before GST registration:
| Detail | Amount |
|---|---|
| Selling price | $45.00 |
| Cost of goods | $18.00 |
| Profit | $27.00 |
| Margin | 60.0% |
Option 1 — Pass on GST (add 10%):
| Detail | Amount |
|---|---|
| Ex-GST price | $45.00 |
| GST (10%) | $4.50 |
| Inc-GST price | $49.50 |
| Profit | $27.00 |
| Margin | 60.0% |
Lisa keeps her full $27.00 profit, but the customer now pays $49.50 instead of $45.00.
Option 2 — Absorb GST (keep $45 sticker price):
| Detail | Amount |
|---|---|
| Inc-GST price | $45.00 |
| GST (remitted to ATO) | $4.09 |
| Ex-GST revenue | $40.91 |
| Profit | $22.91 |
| Margin | 56.0% |
Lisa's profit drops from $27.00 to $22.91 — a $4.09 hit per candle — but her customers see the same price.
Option 3 — Split the difference (round to $47):
| Detail | Amount |
|---|---|
| Inc-GST price | $47.00 |
| GST | $4.27 |
| Ex-GST revenue | $42.73 |
| Profit | $24.73 |
| Margin | 57.9% |
Lisa raises the price by $2 instead of $4.50. She absorbs part of the GST but keeps most of her margin. This middle-ground approach is common for consumer-facing businesses entering the GST system.