Why is a 50% markup not the same as a 50% margin?

Because they use different denominators. 50% markup on $10 cost = $15 sell. Margin = (15−10)/15 = 33.3%. To achieve a 50% margin, you need a 100% markup: $10 cost → $20 sell → (20−10)/20 = 50% margin.

Are PBS medicines subject to GST?

No. In Australia, PBS (Pharmaceutical Benefits Scheme) listed medicines are exempt from GST. Most OTC (over-the-counter) medicines are also GST-free as they are classified as health goods. Some pharmacy products (cosmetics, vitamins with non-therapeutic claims, general health products) do attract GST — check the ATO GST food and health concessions.

What is a reasonable markup for compounded preparations?

Compounded preparations typically require markups of 100–200% on direct materials cost due to the significant time, compliance, and infrastructure costs involved. The Guild of Pharmacists and PSA provide benchmarking data for members.

Pharmacy Markup & Margin — Free Pharmacy Calculator

🎯

A patient asks why their compounded preparation costs more than the chemist down the road. You need to explain — and check — your pricing before the conversation goes anywhere.

Pharmacy Markup & Margin

Business

Calculation mode

Cost price ($)

Selling price ($)

Markup % = (Profit ÷ Cost) × 100 Margin % = (Profit ÷ Sell) × 100 Example: Cost $8.50, Sell $14.95 → Profit $6.45
Markup = 75.9% · Margin = 43.1%
Margin is always lower than markup for the same product.

Reference: ATO — GST for Business · Pharmacy Guild of Australia

⚕️ Clinical safety: 🇦🇺 Verify with facility drug formulary and senior clinician · Meets AHPRA/ACSQHC standards

1 What this calculator does

Calculates retail price from cost and markup percentage, gross margin percentage from selling price and cost, and shows the relationship between markup (on cost) and margin (on selling price). Covers both OTC and dispensed product pricing.

2 Formula & professional reasoning

Retail price = Cost × (1 + Markup%/100)
Gross margin% = (Selling price − Cost) ÷ Selling price × 100
Markup% = (Selling price − Cost) ÷ Cost × 100

Markup and margin are frequently confused. Markup is calculated on the cost (what you pay); margin is calculated on the selling price (what the customer pays). A 25% markup produces an 80% sell/cost ratio, which is a 20% gross margin — not 25%. Understanding both is essential for sustainable pharmacy pricing, as wages, rent and professional services must be funded from the gross margin, not the markup percentage.

3 Worked examples

⚠️ Illustrative example only — not clinical or professional instruction.

Basic

OTC product pricing

Given: Cost: $8.50 · Markup: 35%

Working: Retail = $8.50 × 1.35

Answer: Retail price: $11.48 · Margin: 25.9%

💡 Round to $11.49 or $11.99 for retail presentation. At 35% markup, gross margin is only 26%.

Standard

Compounded cream — what does margin look like?

Given: Cost: $22 · Retail price: $45

Working: Markup: (45−22) ÷ 22 × 100 = 104.5% · Margin: (45−22) ÷ 45 × 100 = 51.1%

Answer: Markup: 104.5% on cost · Margin: 51.1%

💡 Compounding requires high markup to cover pharmacist time, equipment, quality assurance and compliance costs — a 50%+ margin is often needed.

Advanced

Target margin for sustainability

Given: Required margin: 40% · Product cost: $15

Working: Retail = Cost ÷ (1 − Margin%) = 15 ÷ 0.60

Answer: Minimum retail price: $25.00

💡 Working backwards from required margin: divide cost by (1 − desired margin). This is the minimum viable price.

4 Sanity check

Markup vs margin confusion

25% markup ≠ 25% margin

25% markup on $10 = $12.50 sell, which is 20% margin. Always check which basis you're using.

Pharmacy OTC benchmark margins

Typical OTC: 30–45% margin

Front-of-store products: 35–50% margin is common. Dispensary margins are regulated by PBS.

PBS dispensed product margin

Set by government pricing — not a free market

Dispensary margin on PBS items is fixed. Professional dispensing fees are separate.

Minimum viable margin

Must cover: COGS + wages + rent + utilities + professional costs + profit

Margins below ~30% for most pharmacies do not cover operating costs.

5 Common errors

Error	Cause	Consequence	Fix
Confusing markup% with margin%	Using the terms interchangeably	Retail price too low — margin appears healthy but profit is not	Markup is on COST. Margin is on SELLING PRICE. For a sustainable price, calculate required margin first then derive selling price.
Not including GST where applicable	Forgetting GST on non-prescription items	GST shortfall on tax return	Most pharmacy OTC products attract GST. PBS-listed medicines are GST-exempt. Apply 10% GST on top of retail price for applicable products.
Setting price below cost + overhead	Competing on price without costing	Selling at a loss	Calculate full cost: product cost + proportion of hourly pharmacist time + packaging + quality assurance. Never price below total cost.
Not accounting for returns and wastage	Pricing based on 100% sell-through	Effective margin lower than calculated	For perishable or slow-moving products, build a wastage allowance into the markup percentage