Margin

The margin is the amount between the buy price and the sell rate price. The difference between the two prices. In the best case, it is positive, so it covers all the costs and still has some left over.

The margin is the difference between the net purchase price and the net sell rate price. This is the amount for which we sell the goods for more than what we bought them for. This margin is what we end up with. This covers our costs and, in the best case, makes a profit. 

It is very important not to confuse margin with profits, although it is often used colloquially. The margin is the sell rate price minus the buy price. We still have to pay a lot of things from this difference. We have to make the whole company work. We have to pay wages and overhead. Where appropriate, we have to pack, store and deliver the goods. But there are also a thousand other things that we spend on. 

What remains after deducting the costs is the earnings before taxes. After paying taxes, the after-tax profit or loss, P&L remains from the latter. This is the benefit that we can decide what to do with it. For example, we can put this profit into in retained earnings reserves, or we can take it out as a as dividend, or we can spend it on investment. 

During the listed calculations, we are always talking about positive numbers. This means that by the time everything and everyone has been paid, the profit or loss, P&L will be positive in the end. But unfortunately this is not legal. Even the positive margin can be completely taken away by the costs. In this case, there is no profit. 

What is the appropriate margin? There is no uniform recipe for this. The size of the margin depends on the activity of our company, the size of the company, the skills of competitors, and on marketing. In addition, a number of other aspects determine what a good number is. 

If we set the margin too small, we end up making less than we could. True, if this is sustainable, the advantage is that we can acquire large markets over time. If the margin is higher than the market average, it is worthwhile and necessary to give something extra for which customers are willing to pay. Such a plus could be, for example, some extra service: night opening hours, home delivery or other convenient or emotional things. 

If none of these are true, we will simply be more expensive than our competitors. Customers notice this sooner or later and leave as soon as possible. That is why it is worth considering the results of market survey in addition to our own operating costs when determining the margin during business planning for pricing.