How to calculate the trade margin

The calculation of the trade margin is one of the basic skills of any seller. The ability to sell at a good price ultimately means making a good profit. That is why you need to know how to correctly calculate the trade margin before you plunge into the trade with your head.

Instruction manual

1

Markup is one of the structural elements of the price. Its economic meaning is quite simple: with an average sales volume, the margin should be enough to cover all the costs of the seller and make him a certain profit. In different sectors of the economy, as well as at different levels of the chain from producer to consumer, there are different margins due to the specifics of each type of business. Even the sale of the same product at different stages of its movement is subject to different margins. The simplest example of this is the wholesale and retail sale of food. According to established practice, the wholesale margin on products is generally 10%, and for the retail buyer in the store it is already about 25%.

2

In practice, trading margins can be calculated in at least two ways: in absolute and relative terms. To calculate the margin in absolute terms, determine the margin through the formula: "sale price minus purchase price." Thus, knowing both quantities, you can easily get the amount of the trade margin.

3

In relative terms, the trade margin should be calculated according to another formula: "sale price divided by the purchase price, minus one." The resulting number should be converted to percent. This formula is applicable to any trade and partially applicable to determine margins in production, if the sum of the purchase means the raw material cost of the final product.

margin formula