Margin on Cost vs Revenue: Australian Developer Guide

One development project produces two profit percentages, and they are both correct. A four-townhouse infill site that returns $360,000 on a $1,800,000 spend is making 20 per cent if you measure profit against cost, and roughly 16.7 per cent if you measure the same profit against the $2,160,000 in sales. Same deal, same dollars, two headline numbers. The gap is not an accounting trick. It is the difference between Margin on Cost and Margin on Revenue, and not knowing which one you are quoting (or which one your lender is using) is one of the quieter ways an Australian developer talks past a financier, a joint venture (JV) partner, or their own feasibility.

This guide is written for the developer trying to work out which number actually matters for their deal. It covers what each metric measures, the conversion maths that links them, which one Australian banks and valuers tend to assess, a terminology trap that catches developers reading overseas content, how Goods and Services Tax (GST) and state-based costs move the result, and the mistakes that make a marginal deal look bankable. Numerical benchmarks are hedged throughout, because lender appetite, build costs and end values move with the market, and a margin that reads as comfortable in one cycle may read as thin in the next.

The two metrics, defined for a developer

Both metrics start from the same place: development profit, which is the money left after every cost of delivering the project is subtracted from what the finished product sells for. The profit figure does not change. What changes is the denominator you divide it by.

Margin on Cost (also called Profit on Cost, development margin, or return on cost) divides development profit by Total Development Cost (TDC). It answers the question a developer and their financier usually care about most: for every dollar put into this project, how much profit comes back? Australian developer educators describe this plainly as “your profit as a percentage of your total cost”, and it is the figure most Australian feasibilities lead with.

Margin on Revenue (also called Profit on Revenue, or in some quarters Profit on Gross Realisation Value) divides the same development profit by Gross Realisation Value (GRV), the total sales the completed project is expected to produce. It answers a different question: of every dollar of sales, how much ends up as profit?

Because Gross Realisation Value (GRV) is always larger than Total Development Cost (TDC) on a viable project (the sales have to exceed the costs for there to be a profit at all), Margin on Revenue will always read lower than Margin on Cost for the same deal. That is not a sign one is more conservative or more honest than the other. It is arithmetic. The two are simply different views of one profit figure, and each is useful for a different purpose.

A quick worked version, using clean numbers:

• Gross Realisation Value (GRV): $2,160,000
• Total Development Cost (TDC): $1,800,000
• Development profit: $360,000
• Margin on Cost: $360,000 ÷ $1,800,000 = 20.0 per cent
• Margin on Revenue: $360,000 ÷ $2,160,000 = 16.67 per cent

The same project, presented two ways. A developer who quotes “20 per cent” to one party and “16.7 per cent” to another is not contradicting themselves, but they had better know which audience expects which.

The conversion maths that links them

The relationship between the two metrics is fixed, which means you can move between them without rebuilding the feasibility. If you know one, you know the other.

Starting from Margin on Cost, the conversion to Margin on Revenue is:

Margin on Revenue = Margin on Cost ÷ (1 + Margin on Cost)

Going the other way, from Margin on Revenue back to Margin on Cost:

Margin on Cost = Margin on Revenue ÷ (1 − Margin on Revenue)

The logic is straightforward once you see it. Revenue equals cost plus profit, so dividing profit by revenue is the same as dividing it by cost plus that same profit. The extra term in the denominator is what pulls the revenue figure below the cost figure every time.

The table below shows the pairs across the range an Australian residential developer is most likely to be working in. It is worth committing the middle rows to memory, because they come up constantly in conversation with financiers and partners.

Two pairs in that table do most of the work in practice. A project at 20 per cent on cost sits at 16.7 per cent on revenue, and a project at 25 per cent on cost sits at 20 per cent on revenue. Those two lines explain most of the confusion that arises when an Australian developer reads a “you need 20 per cent” rule of thumb without checking which denominator the rule assumes. More on that shortly.

Which metric Australian lenders actually use

For most Australian development finance, the metric that decides the deal is expressed against cost, not revenue. Lenders and brokers tend to frame the question as the residual margin left in the project after every dollar of Total Development Cost (TDC) is paid out of Gross Realisation Value (GRV). One Australian brokerage sets out the assessor’s view directly: a development finance approval rests on three numbers, gross realisation value, total development cost, and the residual margin between them, with that residual margin “typically targeted around 15 to 20 percent of cost, indicative and varies by lender.”

That residual margin is the lender’s buffer. It is what absorbs a cost overrun, a slower sales run, or a softer end value before the lender’s own position is at risk, which is why it is tested on conservative inputs rather than best-case ones. Australian developer education tends to land in a similar band. The often-quoted view is that a 16 to 20 per cent margin on cost is the working range, that around 16 per cent is a conservative minimum a bank might expect on a commercial development facility, and that comfort with a financier tends to rise as the margin approaches 20 per cent. On larger subdivisions and apartment projects, banks may lift that expectation to 20 to 25 per cent on cost, reflecting the longer timeline and higher delivery risk.

A few features of how Australian lenders read the number are worth a developer holding in mind:

• The end value is read net, and independently. Lenders typically take Gross Realisation Value (GRV) net of Goods and Services Tax (GST) and selling costs, and from an independent valuation rather than an agent’s appraisal. The gap between an optimistic appraisal and a formal valuation is one of the most common places a margin quietly disappears.
• The cost base is verified. Lenders generally want Total Development Cost (TDC) supported by a Quantity Surveyor (QS) report rather than the builder’s quote alone, with land, construction, professional fees, council contributions, interest during the build, contingency and selling costs all in the line. Files commonly stall because two or three of those cost lines are missing, which inflates the apparent margin.
• The facility is capped two ways. Lenders typically size the loan against both Total Development Cost (TDC) and Gross Realisation Value (GRV), whichever bites first, which is where Loan to Cost Ratio (LTC) and Loan to Value Ratio (LVR) come in. A strong margin on cost does not help if the loan still breaches the cap on end value.
• Equity matters alongside margin. A project can show a healthy margin on paper and still struggle if the developer has very little of their own cash committed ahead of the lender’s funds. Some Australian lenders refer to that committed equity informally as “hurt money.”

The practical takeaway is that when an Australian developer is preparing a file, the headline figure to lead with is usually the margin on cost, because that is the number sitting at the centre of the assessor’s three-number test. Margin on revenue has its place, covered below, but it is rarely the figure a domestic financier reaches for first. For the full picture of how lenders size and stage a facility, the property development finance guide covers the funding side in depth.

The Gross Development Value (GDV) trap: why overseas content misleads Australian developers

Here is where a lot of the confusion originates. A great deal of the property development content an Australian developer finds online is written for the United Kingdom market, and the United Kingdom convention is different in two ways that matter.

First, the terminology. United Kingdom material talks about Gross Development Value (GDV) where Australian practice talks about Gross Realisation Value (GRV). The two terms describe the same thing, the total end value of the completed project, but the labels differ by market. An Australian developer who picks up a United Kingdom feasibility template will see “Gross Development Value (GDV)” and should read it as their own Gross Realisation Value (GRV).

Second, and more importantly, the headline metric differs. United Kingdom development finance commentary frequently leads with profit on Gross Development Value (GDV), not profit on cost. A widely cited United Kingdom view is that a profit on cost between 15 and 25 per cent is a healthy benchmark, but United Kingdom lender conversations and appraisals often quote the profit-on-Gross-Development-Value figure, and developer profit calculators built for that market report both profit on cost and profit on Gross Development Value (GDV) side by side, with rules of thumb such as “aim for 20 per cent on Gross Development Value” circulating widely.

Now stack the two conventions together and the trap becomes obvious. A United Kingdom rule of thumb of “20 per cent on Gross Development Value” is, in Australian cost terms, a margin on cost of 25 per cent. An Australian developer who reads that overseas rule, mentally swaps Gross Development Value (GDV) for Gross Realisation Value (GRV), and then presents “20 per cent margin” to an Australian bank that is assessing margin on cost, is quoting a number that is materially weaker than the rule they think they are meeting. The reverse error is just as common: an Australian developer hits 20 per cent on cost, reads a piece of United Kingdom content saying 20 per cent is the target, and assumes they are at benchmark when on the United Kingdom’s own preferred denominator they are sitting nearer 16.7 per cent.

The fix is simple discipline. Always state the denominator out loud. “20 per cent” means nothing on its own. “20 per cent on cost” or “16.7 per cent on revenue” means something. When you import a spreadsheet, a calculator or a rule of thumb from outside Australia, check which denominator it assumes before you trust the percentage it spits out. Tools built for the local market, including Feasly’s feasibility platform, report margin on both cost and revenue side by side and run sensitivity analysis across the inputs, precisely so the denominator question never has to be guessed at.

When each metric is the right one to use

Neither metric is superior. Each answers a question the other cannot answer cleanly, and an experienced developer reaches for whichever one fits the conversation.

Where Margin on Cost earns its keep

Margin on Cost is the workhorse for anything to do with capital deployed and risk taken. Use it when:

• Talking to lenders. As covered above, the residual margin on Total Development Cost (TDC) is the figure most Australian financiers assess. Lead your file with it.
• Setting an internal hurdle. Most developers set a minimum acceptable margin on cost below which they will not proceed, because it maps directly to the return on the money and effort going in. It is the cleanest single test of whether a deal is worth doing.
• Working backwards to a land price. This is where margin on cost does its most valuable work. In a residual land value calculation, the developer fixes the margin they require, then solves for the maximum they can pay for the site. Raise the required margin and the land price you can justify falls. Lower it and you can bid more, at the cost of a thinner buffer. The residual land value guide walks through that calculation in full, and the relationship is direct: margin on cost is the dial you turn to protect yourself on acquisition.

Where Margin on Revenue earns its keep

Margin on Revenue is the better lens when the conversation is about sales, exposure to price movement, or quick comparison. Use it when:

• Stress-testing against a price fall. Margin on revenue makes the sensitivity to end values intuitive, because it is already expressed against sales. If your margin on revenue is 12 per cent and you model a 10 per cent fall in prices, you can see at a glance how little headroom is left. Running that test properly is the subject of the sensitivity analysis guide.
• Comparing very different projects quickly. Because it is bounded between zero and 100 per cent and is not distorted by how heavily a project is geared, margin on revenue can be a cleaner first-pass comparison across schemes of different sizes and structures.
• Communicating with non-finance partners. A money partner or landowner who is not steeped in development maths often finds “profit is X per cent of sales” more intuitive than a return on a cost base they were not party to. It is a presentation choice, and a legitimate one, as long as the denominator is stated.

The honest answer for most Australian deals is to quote both. Lead with margin on cost because that is what your financier assesses, and carry margin on revenue alongside it for the sales-risk conversation. A feasibility that shows only one number is hiding the other from whoever reads it.

How Goods and Services Tax (GST) changes the picture

Goods and Services Tax (GST) sits underneath both metrics, and getting it wrong is one of the faster ways to produce a margin that looks real and is not. The core discipline is consistency: profit, Total Development Cost (TDC) and Gross Realisation Value (GRV) all have to be measured on the same Goods and Services Tax (GST) basis, and the figure that flows into the margin should be net of Goods and Services Tax (GST).

In practice this means the Gross Realisation Value (GRV) used in the margin is the sales revenue after the Goods and Services Tax (GST) the developer remits has been stripped out, which is exactly how lenders read it. For most new residential sales the developer is liable for Goods and Services Tax (GST) on the sale, and the amount remitted depends on whether the margin scheme applies. The margin scheme can reduce the Goods and Services Tax (GST) payable on a sale by calculating it on the margin between the sale price and an eligible acquisition value rather than on the full sale price, which directly increases the net Gross Realisation Value (GRV) and therefore the development profit. The Australian Taxation Office (ATO) sets out how the margin scheme works, and the detail of when it is available and how it is calculated is covered in the Goods and Services Tax (GST) margin scheme guide. Where eligibility for the margin scheme rests on a valuation of the land, that valuation generally has to meet the Australian Taxation Office’s margin scheme valuation requirements, so the value feeding the calculation cannot simply be assumed.

The reason this matters for the cost-versus-revenue question is that a Goods and Services Tax (GST) error tends to hit the revenue line hardest, and the two metrics react differently. Overstate net Gross Realisation Value (GRV) by leaving Goods and Services Tax (GST) in, and both margins inflate, but the revenue-based figure carries the distortion straight into the denominator that lenders and partners scrutinise on sales risk. The safe habit is to build the feasibility ex-Goods and Services Tax (GST) throughout, apply the margin scheme where it is available, and confirm that the Gross Realisation Value (GRV) feeding the margin is the net figure a valuer would use.

How state-by-state costs move the cost denominator

The metric itself does not change across the eight states and territories. A margin on cost is a margin on cost in Perth or Hobart. What changes is the size of the Total Development Cost (TDC) denominator, because several of the costs that sit inside it are set at the state or territory level. Two projects with identical build costs and identical end values can show different margins on cost purely because they sit in different jurisdictions.

The largest of these moving parts is transfer duty on the land acquisition, still commonly called stamp duty, which is levied by each state and territory at its own rates and on its own thresholds. Duty on a development site can run into a meaningful percentage of the land price, and because it lands in Total Development Cost (TDC), a higher-duty jurisdiction produces a larger denominator and, all else equal, a slightly lower margin on cost. Rates and thresholds change with state budgets, so the figure should always be checked against the current schedule for the relevant jurisdiction rather than assumed.

A few of the other state-driven inputs that feed the cost base:

• Developer contributions and infrastructure charges. These vary widely by council and state and can be a substantial line on a larger project, directly enlarging Total Development Cost (TDC).
• Land tax during the holding period. Carried as a holding cost from acquisition through to completion, assessed under each state or territory’s own land tax regime.
• Foreign acquirer duty surcharges and absentee surcharges. Where they apply, these state-level surcharges add to the acquisition cost and therefore the denominator.

The practical implication is that benchmarking a margin on cost against a national rule of thumb without adjusting for the jurisdiction can mislead. A 19 per cent margin in a low-duty, low-contribution location may be a stronger deal than a 20 per cent margin in a high-duty, high-contribution one, because the buffer is sitting on a leaner cost base. Modelling the acquisition costs accurately for the specific state is part of getting the denominator right, and Feasly calculates transfer duty across all eight states and territories inside the feasibility, so the margin reflects the real cost of the jurisdiction the site actually sits in rather than a national average. For the build-cost side of the denominator, a Quantity Surveyor (QS) report is what most lenders will want standing behind the construction line.

How valuers treat the margin

The margin a developer requires is not only an internal hurdle. It also appears, from the other side, inside the valuation of a development site. When a valuer assesses a site by the residual or hypothetical development approach, they work backwards from the projected end value, deduct the costs of delivering the project, and deduct an allowance for the developer’s profit and risk before arriving at the residual land value. That profit and risk allowance is, in effect, a required margin, and it is usually expressed as a percentage of either Total Development Cost (TDC) including interest or of the end value.

The Australian Taxation Office (ATO), in its guidance on valuation issues for the margin scheme, notes that in a hypothetical development valuation the anticipated profit and risk margins are determined after weighing the risk of the specific project, and that these allowances need to reflect realistic expectations rather than being set, as the Australian Taxation Office (ATO) puts it, “well below what could reasonably be expected.” The same guidance stresses that all development costs must be included, that interest rates used should reflect open-market rates (the Australian Taxation Office (ATO) points to the Reserve Bank of Australia (RBA) cash rate as a reference), and that where pre-sales exist they define the Gross Realisation Value (GRV) rather than an assumed market movement. The same principle runs through the Australian Taxation Office’s broader guidance on market valuation for tax purposes, which expects supportable, market-based assumptions rather than convenient ones.

Valuation work in Australia is carried out against the standards of the Australian Property Institute (API), whose defined terms cover concepts such as Market Value and Highest and Best Use that frame how the end value and the development scenario are assessed, and whose guidance on valuation approaches and methods sets out how the residual or hypothetical development approach is applied in practice. The broader point for a developer is that the margin sitting inside a valuer’s residual calculation, and the margin sitting inside the developer’s own feasibility, are the same lever viewed from two seats. A valuer who applies a higher profit and risk allowance arrives at a lower land value, which is exactly the residual relationship a developer experiences when they raise their own required margin and find the price they can pay for the site falls.

A worked comparison, end to end

Take a small apartment project to see both metrics behave across a realistic feasibility, and to see what happens when the deal comes under pressure.

Assume the following, all figures ex-Goods and Services Tax (GST) and indicative only:

• Gross Realisation Value (GRV), net of Goods and Services Tax (GST) and selling costs: $12,000,000
• Total Development Cost (TDC), including land, construction, professional fees, contributions, finance and contingency: $10,000,000
• Development profit: $2,000,000

On those numbers:

• Margin on Cost: $2,000,000 ÷ $10,000,000 = 20.0 per cent
• Margin on Revenue: $2,000,000 ÷ $12,000,000 = 16.7 per cent

This is a deal an Australian bank would likely view as sitting at the workable end of the residential range on cost, though on a larger apartment project some financiers may want it nearer the 22 to 25 per cent on cost band given the delivery risk and timeline.

Now stress it. Suppose the end values soften by 8 per cent, a common sensitivity case, and costs run 4 per cent over budget:

• Revised Gross Realisation Value (GRV): $11,040,000
• Revised Total Development Cost (TDC): $10,400,000
• Revised development profit: $640,000
• Revised Margin on Cost: $640,000 ÷ $10,400,000 = 6.2 per cent
• Revised Margin on Revenue: $640,000 ÷ $11,040,000 = 5.8 per cent

A modest move in two inputs has cut the margin to roughly a third of where it started. That sensitivity is exactly why lenders test the margin on conservative inputs and why a developer should never present a single best-case percentage without showing what a realistic downside does to it. The headline 20 per cent on cost was real, but it was also fragile, and the margin on revenue lens made the thinness of the post-stress buffer easy to read. Running this kind of two-variable stress test systematically, rather than eyeballing it, is the core of disciplined feasibility work.

Common mistakes that flatter the margin

A margin can be technically calculated correctly and still mislead, usually because something has been left out of a denominator or mixed across bases. The recurring errors worth checking for:

• Mixing Goods and Services Tax (GST) bases. Net Gross Realisation Value (GRV) measured against a Total Development Cost (TDC) that still carries Goods and Services Tax (GST) in some lines, or the reverse. Build the whole feasibility on one consistent basis.
• Leaving costs out of Total Development Cost (TDC). Finance costs, holding costs, selling costs and contingency are the lines most often dropped, and each omission inflates the margin. Australian lenders expect a full cost build with contingency and interest in the line, which is why a missing-cost feasibility tends to stall at assessment.
• Confusing gross and net profit. Margin should run off development profit after all costs, not a gross figure before finance and selling costs.
• Importing an overseas denominator. As covered above, reading a Gross Development Value (GDV) rule of thumb as if it were a Gross Realisation Value (GRV) margin, or quoting profit on cost when the other party expects profit on revenue.
• Using an agent’s appraisal as Gross Realisation Value (GRV). Lenders use an independent valuation net of Goods and Services Tax (GST) and selling costs. An optimistic appraisal is where margins quietly evaporate between the developer’s spreadsheet and the lender’s file.
• Quoting a single best-case number. A margin without a downside case attached tells the reader nothing about how much room the project has before it stops working.

Frequently asked questions

What is margin on cost in property development? Margin on Cost, also called Profit on Cost or development margin, is development profit divided by Total Development Cost (TDC), expressed as a percentage. It measures the return generated for every dollar put into delivering the project, and it is the figure most Australian lenders and feasibilities lead with.

What is margin on revenue? Margin on Revenue is the same development profit divided by Gross Realisation Value (GRV), the total sales the finished project is expected to produce. It measures how much of each sales dollar ends up as profit, and it always reads lower than margin on cost for the same deal.

Is 20 per cent on cost the same as 20 per cent on revenue? No. A project at 20 per cent on cost sits at about 16.7 per cent on revenue. To hit 20 per cent on revenue, a project needs roughly 25 per cent on cost. Confusing the two is a common error when reading overseas content that quotes profit on Gross Development Value (GDV).

Which margin do Australian lenders use? Australian development financiers generally assess the residual margin on Total Development Cost (TDC), typically looking for something in the order of 15 to 20 per cent on cost for standard residential projects and sometimes 20 to 25 per cent on larger or apartment projects, though appetite is indicative and varies by lender and project.

How do I convert between the two? Margin on Revenue equals Margin on Cost divided by (1 plus Margin on Cost). Margin on Cost equals Margin on Revenue divided by (1 minus Margin on Revenue). The two are fixed views of one profit figure, so you can move between them without rebuilding the feasibility.

A note for developers working across the Tasman

The same two metrics travel to New Zealand, but the inputs underneath them differ in ways that move the cost denominator. New Zealand follows the United Kingdom habit of saying Gross Development Value (GDV) rather than Gross Realisation Value (GRV), so the terminology trap reappears in reverse for an Australian developer looking at a New Zealand deal. There is no transfer duty (stamp duty) on land in New Zealand, which strips a meaningful line out of Total Development Cost (TDC) compared with an equivalent Australian project, and Goods and Services Tax (GST) runs at 15 per cent with no margin scheme equivalent, so the netting of the end value works differently. New Zealand financiers still assess the residual method in much the same way, working backwards from end value through costs to a profit and risk allowance before arriving at a land value. The metric is the same lever, the denominator is built from different parts.

The bottom line

Margin on Cost and Margin on Revenue are not rival numbers, they are two readings of the same profit, and a developer who understands the relationship can move between them fluently and quote whichever one the conversation calls for. For Australian development finance, lead with margin on cost, because that is the residual margin on Total Development Cost (TDC) that domestic lenders assess. Carry margin on revenue alongside it for the sales-risk and partner conversations. Above all, state the denominator every time, keep the Goods and Services Tax (GST) basis consistent, build the full cost line, and never trust a single best-case percentage that has not been stress-tested. The percentage is only as honest as the numbers underneath it.