Quick answer: Buying at 75 and selling at 100 is a 25% profit margin but a 33.33% markup; to earn a 25% margin on a cost of 75 you must sell at 100.
How it's calculated
Margin is profit as a share of the selling price: (price − cost) ÷ price. Markup is profit as a share of the cost: (price − cost) ÷ cost. The same sale always has a smaller margin than markup.
To hit a target margin, price = cost ÷ (1 − margin): a 25% margin on 75 is 75 ÷ 0.75 = 100. Adding 25% to the cost (a 25% markup) gives only 93.75, a 20% margin, which is a common pricing mistake.
Work without VAT: add the Saudi VAT or UAE VAT on top of the price afterwards. For a price cut, see the discount calculator.
Worked examples
- Cost 75, price 100: margin 25%, markup 33.33%
- Cost 75, 25% target margin: 75 ÷ (1 − 0.25) = 100
- Cost 75, 40% markup: 75 × 1.40 = 105, margin 28.57%
Markup and the margin it gives
| Markup | Margin |
|---|---|
| 20% | 16.67% |
| 25% | 20% |
| 33.33% | 25% |
| 50% | 33.33% |
| 100% | 50% |
Frequently asked questions
What is the difference between margin and markup?
Both measure the same profit. Margin divides it by the selling price, markup by the cost. A 50% markup is a 33.33% margin.
Is gross margin the same?
Gross margin uses the cost of goods sold, as here. Net margin also subtracts operating costs like rent and salaries.
Can margin be over 100%?
No: profit cannot exceed the price. Markup can be any size; a 200% markup is a 66.67% margin.
How do I convert margin to markup?
Markup = margin ÷ (1 − margin). A 25% margin is 0.25 ÷ 0.75 = 33.33% markup.
How should VAT be treated?
Work with prices before VAT. VAT collected belongs to the tax authority, so including it would overstate your margin.
What costs go into cost per unit?
At the least, the purchase price plus shipping and duties. Rent and salaries are usually left out of gross margin but still need covering.