Key takeaways
- Markup is profit divided by cost; margin is profit divided by selling price.
- The same price gives a bigger markup percentage than margin percentage: 50% markup is only 33.3% margin.
- To hit a target margin, divide the cost by (1 − margin).
- Calculate margins on prices before VAT.
On this page
Two ways to describe the same profit
A product costs AED 60 and sells for AED 100, so the profit is AED 40. Expressed as a share of the cost, that is a 66.7% markup. Expressed as a share of the selling price, it is a 40% margin. Both are correct; they just use different bases.
- Markup = (price − cost) ÷ cost
- Margin = (price − cost) ÷ price
Why mixing them up costs money
Suppose you want a 40% margin and add 40% to the cost instead: 60 × 1.4 = 84. Your margin is then only (84 − 60) ÷ 84 = 28.6%. On AED 500,000 of sales that is about AED 57,000 less gross profit than planned.
Conversion table
| Markup | Margin |
|---|---|
| 10% | 9.1% |
| 20% | 16.7% |
| 25% | 20% |
| 33.3% | 25% |
| 50% | 33.3% |
| 66.7% | 40% |
| 100% | 50% |
| 150% | 60% |
| 200% | 66.7% |
Formulas to convert: margin = markup ÷ (1 + markup); markup = margin ÷ (1 − margin).
Pricing for a target margin
Divide the cost by (1 − target margin). For a 35% margin on a cost of AED 130: 130 ÷ 0.65 = AED 200. The profit margin calculator does this instantly and shows the matching markup.
Watch out for discounts and VAT
- A 20% discount on a product with a 40% margin cuts the margin to 25% (price 80, profit 20). Check promotions with the discount calculator.
- Work out margins on prices excluding VAT; the VAT you collect belongs to the tax authority. Use the VAT calculator to remove it from VAT-inclusive prices.
Sources
- Xero: Margin vs markupxero.com
- Corporate Finance Institute: Markupcorporatefinanceinstitute.com
Fact-checked against the sources above. We test every tool we mention. Editorial policy.
