The margin describes the difference between the selling price and the cost to make the product. Or as defined in accounting the revenue minus the cost. This allows for the gross margin to be identified. This margin obviously signifies a key metric given that it illustrates the profit the company makes from selling a good or service.
There are different types of margins besides gross margin that are used in different settings, for instance, there is the markup margin and operating margin. The markup margin is determined by subtracting the cost of goods sold from the selling price. The operating margin expresses what percentage of each sale a company keeps after accounting for all costs associated with making that sale.
In all, margins are helpful metrics and are useful to determine whether or not costs need to be cut to make a profit, or if the price you sell it at could be higher. Knowing what your gross margin, markup margin, or operating margin is, is helpful in making the best business decision for your company.
How is margin calculated?
Margin is calculated by subtracting the cost of goods sold from the revenue generated by sales. The resulting figure represents the profit earned on each sale.
What are some examples of margins?
Examples of margins include gross margin, operating margin, and net margin. Gross margin measures the amount of money left after deducting all costs associated with producing and selling a product or service, while operating margin takes into account all expenses related to running a business such as salaries, rent, and taxes. Net margin measures total profits after all expenses have been taken into account.
Fun Fact:
"The average gross margin for businesses in the retail industry is 27.7% (U.S. Census Bureau, 2017)."