What is margin?
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Margin (or gross profit margin) shows the revenue you make after paying the Cost of Goods Sold. Basically, your margin is the difference between what you earned and how much you spent to earn it.
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To calculate profit margin, start with your gross profit, which is the difference between revenue and COGS. Then, find the percentage of the revenue that is the gross profit. To find this, divide your gross profit by revenue. Multiply the total by 100 and voila—you have your margin percentage.
Let’s put the margin meaning into a margin calculation formula:
Margin= [(Revenue – COGS) / Revenue] X 100
OR
Margin= (Gross Profit / Revenue) X 100
The margin formula measures how much of every dollar in revenue, you keep after paying expenses.
The greater the margin, the greater the percentage of revenue you keep when you make a sale.
Let’s look at an example of how to calculate margin.
Let's say you sell widgets for $200 each. Each widget costs you $150 to make. What’s your margin?
To start, plug the numbers into the margin formula:
Margin= [($200 – $150) / $200] X 100
First, find your gross profit by subtracting your COGS ($150) from your revenue ($200). This gets you $50 ($200 – $150). Then, divide that total ($50) by your revenue ($200) to get 0.25. Multiply 0.25 by 100 to turn it into a percentage (25%).
Margin= 25%
The margin is 25%, meaning you keep 25% of your total revenue. You spend the other 75% of your revenue on producing the widget.
Pro Tip: Use our margin vs. markup chart to find quick conversions for markups and margins.
Try this calculator tool for more details: Margin Calculator
Adding your Product Margin In ArcSite
You can set your global margin % for all your products in ArcSite from within the web application for your account. Access the Estimating Screen on the ArcSite User Site.
You'll find this setting option within the Takeoff & Estimate section of your Advanced Settings:
You can also set your minimum gross margin percentage so that you and your team get notified if the pricing of a product is adjusted to be below your minimum.
Setting your overall margin.
You can also price at the product level with your applied margin or de-select the margin at the product level.
Now you can test your new pricing for accuracy and view a proposal.
Why do margins and markups matter?
Know the difference between a markup and a margin to set goals. If you know how much profit you want to make, you can set your prices accordingly using the margin tool here in ArcSite.
If you don’t know your margins and markups, you might not know how to price correctly. This could cause you to miss out on revenue. Or, you might be asking for an amount many potential customers are not willing to pay.
Check your margins and pricing often to be sure you’re always calculating the correct price for your customers.