Percentage Margin - Definition & Meaning
What is Percentage Margin?
Percentage Margin basically refers to profitability or sales of the company expressed as percentage. It is the ratio of gross sales i.e. difference between total sales revenue and total cost of goods sold (COGS) and total sales revenue in percentage terms. Percentage Margin is used by the company to understanding how much successful they are in maintaining the cost structure to gain proper amount of sales. It may also help in understanding key insights about company business model.
It is a very important parameter in deciding future course of the company. Budgeting, promotion, forecasts and others key decisions depend on profit margin. Higher the percentage margin, higher will be the return.
It is also used to compare the profitability and success among competitors of same industry. It can vary drastically among different industries.
Mathematically, it can be expressed as:
Gross Profit/ Total Sales Revenue * 100
Where, gross profit= Total Sales Revenue- COGS
Example:
Ram charges a 20% mark-up on all projects for his furniture company for small homes. Ram has been approached by a software engineer to set up furniture for his newly bought flat. The total cost needed to set up the flat with furniture is Rs. 35,000. With a mark-up of 20% the selling price will be Rs. 42,000. The margin percentage can be calculated as follows:
Margin Percentage = (42,000 – 35,000)/42,000 = 16.67%
It means that his company would retain Rs 0.16 on each one rupee of revenue generated.
Hence, this concludes the definition of Percentage Margin along with its overview.
This article has been researched & authored by the Business Concepts Team. It has been reviewed & published by the MBA Skool Team. The content on MBA Skool has been created for educational & academic purpose only.
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