Profit margin vs markup

What does this tool calculate?

Many traders and accountants confuse two numbers: the markup on cost (how much you add on top of what you paid for the item) and the profit margin (how much you earn from each riyal you sell). The tool converts between them in three cases, depending on what you know:

1. Cost and markup: gives you the selling price and the real margin.
2. Cost and the margin you want: gives you the selling price and the markup needed (reverse pricing).
3. Cost and selling price: gives you the margin, the markup and the profit per unit, and clearly shows a loss if the price is below cost.

You can add VAT to see the price before and after VAT, a discount you are considering to see your margin after it, and the number of units to see total profit. The whole calculation happens inside your browser.

A 30% margin does not mean adding 30% to cost

Markup is calculated on cost, and margin is calculated on the selling price. The selling price is higher than cost, so the margin is always smaller than the markup for the same item.

• An item costing 100 SAR with a 30% markup: its price is 100 × 1.30 = 130 SAR and your profit is 30 SAR, but your margin is only 30 ÷ 130 = 23.08%.
• To really earn 30% of the selling price: the price is 100 ÷ (1 − 0.30) = 142.86 SAR, i.e. a markup of 0.30 ÷ 0.70 = 42.86%.

The difference between 130 and 142.86 SAR on each unit is what is lost when a 30% margin is requested and the seller adds 30% to cost.

The formulas

• Selling price from markup = cost × (1 + markup), and margin = markup ÷ (1 + markup).
• Selling price from margin = cost ÷ (1 − margin), and markup = margin ÷ (1 − margin).
• From the selling price: profit per unit = price − cost, margin = profit ÷ price, and markup = profit ÷ cost.
• VAT: price including VAT = price × (1 + 15%), and price before VAT = price including VAT ÷ (1 + 15%). Margin and markup are calculated on the price before VAT, because VAT is collected from the customer and paid to ZATCA.
• After a discount: price = selling price × (1 − discount), and margin = (price after discount − cost) ÷ price after discount.

A 100% margin is impossible: it would mean cost is zero. Markup, however, can exceed 100% (a 100% markup = double the cost = a 50% margin).

Quick conversion table (cost of 100 SAR)

The tool shows this table with your own cost, and highlights the rate you entered if it is one of them.

Example: a VAT-inclusive price and a discount

A VAT-registered trader sells an item for 115 SAR including VAT, and it costs 80 SAR without VAT:

• The price before VAT is 115 ÷ 1.15 = 100 SAR, and the VAT is 15 SAR.
• The profit per unit is 100 − 80 = 20 SAR, the margin 20 ÷ 100 = 20%, and the markup 20 ÷ 80 = 25%.

Another business has an item costing 100 SAR and sells it with a 25% markup (price 125 SAR, margin 20%): a 10% discount makes the price 125 × 0.90 = 112.50 SAR and the profit 12.50 SAR, so the margin falls from 20% to 11.11%. A 20% discount makes the price 100 SAR, which is the cost: no profit at all. The whole discount comes out of your profit, so a discount equal to your margin wipes it out.

If the cost were 60 SAR and the required margin 40%: the price is 60 ÷ 0.60 = 100 SAR before VAT and 115 including it, and the markup is 66.67%. With a 10% discount and 300 units sold: the price after discount is 90 SAR (103.50 including VAT), the profit per unit 30 SAR, the margin 33.33%, sales 27,000 SAR before VAT, and total profit 300 × 30 = 9,000 SAR.

If your price is below cost

Choose “Cost and selling price” and enter your price: if it is below cost, the tool doesn't stop you but shows the loss clearly. An item costing 120 SAR sold for 100 SAR: the loss is 20 SAR per unit, i.e. 20% of the selling price. This is useful for seeing the effect of clearance offers, or for spotting an item that is being sold below its cost without you noticing.

Frequently asked questions

Content last reviewed: 2026-11-04