Posted in Marketing and Strategy Terms, Total Reads: 303
When businesses buy a product and act as an intermediary for the final customer they sell to them at a higher price. The difference between the amounts that they paid for the product and they charge from their customers is defined as margin. The businesses can be of distributor or a retailer.
Businesses use margin as a parameter for considering their profitability. Higher their margins are higher is their profitability. Higher margin also signifies high level of business stability because with higher margin the ability of the business to pay for unexpected liability is also high. Also with high level of margins businesses can respond well to their competitors in the market. The margin have a very important role to play in a business. The most important function of margin is to assist in the calculation of funding that needs to be dedicated to introduce a product in the market. If a business’ margin are not enough to cover the cost of storing the products, advertising then either the business’ selling price needs to be increased or its marketing budget needs to be cut.
Therefore, a business’ margin directly affects the kind of marketing it can do and makes it presence feel in the market. Margin in marketing helps small businesses to figure out which products may prove expensive and which products they should stock for sale. In long run, the marketing margins for competitive markets should be greater than cost of marketing. Marketing margin is different from profit margin in the sense that marketing margin is the difference between cost incurred by the seller and the price he charges to his customer while profit margin is the percentage of final sales price that comes to the seller as a profit. However, marketing margin also have limitations. Marketing margin can’t be accounted for effects on future growth of the business and also the margin for businesses is time intensive and sensitive for particular respondents.