What to know about the commercial margin?

There are several things to consider when you want to run a business well. Among these, profit is what is most important. It is for this reason that the margin, its rate and that of the brand should not be neglected. These are taxes that apply to products and goods sold and purchased, in order to participate in the profitability of the company. Thus, the good management of your business requires knowledge of their definition and usefulness. Zoom on what the margin is, its rate and that of the brand.

Margin

Definition

In any commercial enterprise, there is always a difference between the buying price and the selling price of a product. This is a cost that does not take into account state taxes. This quantitative difference is called the margin. It is she who allows your structure to make profits.

Formula

To calculate the sales margin of a product, simply apply the following formula: Gross selling price — Gross purchase price. The result of this operation is expressed in euros.

Interpretation

The result of the calculation of the commercial margin corresponds to the situation of the profitability of the company. The higher it is, the more profit you will make. But when the margin is down, then your business and the goods sold are no longer beneficial.

The margin rate

Definition

The markup of a product represents the profit that the company earns on its purchase price. Indeed, the trader must make profitable at all levels of his activity to increase profits.

Formula

Knowing the margin rate amounts to making the fraction between the commercial margin and the purchase cost of the goods. Its result is also expressed in euros. The formula can also be written as: (gross selling price – gross purchase price)/purchase price.

Interpretation

The margin rate of a trading company indicates the latter’s ability to obtain low purchase prices for its products. Since they come from a supplier, this rate expresses the negotiation with the supplier. It is also commercial profitability. To know if the latter is better, it is necessary to make a comparison with the rate of other competing companies.

The mark rate

Definition

Like the margin rate, that of the mark expresses the profits at the level of the selling price of a product or merchandise. So, in running a business, markup should also be a priority.

Formula

The markup of a product represents the ratio between the commercial margin and the cost of sale excluding tax. Starting from the definition of the margin, the formula becomes: (Selling price excluding tax – Purchase price excluding tax)/Selling price excluding tax. The result of this calculation is expressed in euros.

Interpretation

The usefulness of the markup rate is to know whether the company has achieved its commercial profitability objective through the tax-free selling price of its products. If this is not the case, she will have to review the cost of her goods. A small comparison with the other competitors might help to better assess the difference.