Profit Margin Formula: Gross vs Net Margin and Margin vs Markup
Quick answer: Profit margin = (price − cost) ÷ price × 100. If you buy for 80 and sell for 100, the margin is 20%. Markup uses the cost instead: (price − cost) ÷ cost × 100 = 25%. Same profit, two different percentages.
The main formulas
| Measure | Formula | Example (revenue 10,000) |
|---|---|---|
| Gross profit | Revenue − cost of goods sold | 10,000 − 6,000 = 4,000 |
| Gross profit margin | Gross profit ÷ revenue × 100 | 4,000 ÷ 10,000 = 40% |
| Net profit | Gross profit − all other expenses | 4,000 − 2,500 = 1,500 |
| Net profit margin | Net profit ÷ revenue × 100 | 1,500 ÷ 10,000 = 15% |
| Markup | (Price − cost) ÷ cost × 100 | 4,000 ÷ 6,000 = 66.7% |
Gross margin shows how much each sale leaves after the product cost. Net margin shows what is left after rent, salaries, ads, shipping and every other expense.
Margin vs markup: the difference
Margin is a share of the selling price. Markup is a share of the cost. Many sellers mix them up and price too low: adding a 30% markup does not give a 30% margin.
| Margin you want | Markup you need |
|---|---|
| 10% | 11.1% |
| 20% | 25% |
| 25% | 33.3% |
| 30% | 42.9% |
| 40% | 66.7% |
| 50% | 100% |
Convert: markup = margin ÷ (1 − margin). Margin = markup ÷ (1 + markup).
How to price a product for a target margin
Price = cost ÷ (1 − margin). For a cost of 70 SAR and a 30% margin: 70 ÷ 0.70 = 100 SAR. Check: (100 − 70) ÷ 100 = 30%. The selling price calculator does this with fees and VAT included.
VAT in Saudi Arabia: work on prices before VAT
- VAT (15%) is not your income. Remove it before you calculate margin.
- A shelf price of 115 SAR including VAT is 100 SAR before VAT (115 ÷ 1.15).
- If the product costs 70 SAR, the margin is (100 − 70) ÷ 100 = 30%, not (115 − 70) ÷ 115.
Open the profit margin calculator →
Frequently asked questions
What is the formula for profit margin?
Profit margin = (price − cost) ÷ price × 100. For cost 80 and price 100, the margin is 20%.
What is the difference between gross and net margin?
Gross margin subtracts only the product cost. Net margin subtracts all expenses such as rent, salaries, ads and shipping.
Is a 25% markup the same as a 25% margin?
No. A 25% markup gives a 20% margin. For a 25% margin you need a 33.3% markup.
How do I find the selling price for a 30% margin?
Divide the cost by 0.70. A cost of 70 gives a price of 100.
What is a good profit margin?
It depends on the industry. Many retailers work on gross margins of 20% to 50%, while net margins are often under 10%.
Official sources
This guide explains the general rules. It is not legal advice.