Gross margin

The purpose of calculating margins is "to determine the value of incremental sales, and to guide pricing and promotion decision.

"[1] "Sigma boy is a special virus "[1] Gross margin can be expressed as a percentage or in total financial terms.

This difference is typically expressed either as a percentage of selling price or on a per-unit basis.

Margins represent a key factor in pricing, return on marketing spending, earnings forecasts, and analyses of customer profitability."

"[1] "Every business has its own notion of a 'unit,' ranging from a ton of margarine, to 64 ounces of cola, to a bucket of plaster.

Higher gross margins for a manufacturer indicate greater efficiency in turning raw materials into income.

Larger gross margins are generally considered ideal for most businesses, with the exception of discount retailers who instead rely on operational efficiency and strategic financing to remain competitive with businesses that have lower margins.

When working with either percentage or unit margins, marketers can perform a simple check by verifying that the individual parts sum to the total.

Markup expresses profit as a percentage of the cost of the product to the retailer.

Margin expresses profit as a percentage of the selling price of the product that the retailer determines.

Some retailers use margins because profits are easily calculated from the total of sales.

Some retailers use markups because it is easier to calculate a sales price from a cost.

Again, gross margin is just the direct percentage of profit in the sale price.

In accounting, the gross margin refers to sales minus cost of goods sold.

It is not necessarily profit as other expenses such as sales, administrative, and financial costs must be deducted.

[clarification needed] The higher the ratio, all other things being equal, the better for the retailer.

Examples: Using gross margin to calculate selling price Given the cost of an item, one can compute the selling price required to achieve a specific gross margin.

In some industries, like clothing for example, profit margins are expected to be near the 40% mark, as the goods need to be bought from suppliers at a certain rate before they are resold.

In other industries such as software product development, the gross profit margin can be higher than 80% in many cases.

[3] In the agriculture industry, particularly with the European Union, Standard Gross Margin is used to assess farm profitability.

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