4.1. Gross margin:
When we talk about gross margin we generally refer to the gross profit made after deducting all production costs, including labor, marketing and customer acquisition costs , and materials.
4.1. The commercial margin:
For its part, the commercial margin focuses only on the america cell phone number list difference between the selling price and the purchase cost of the goods sold, without taking into account other production costs or direct or indirect expenses.
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Calculating the markup rate
Markup rate is another metric related to sales margin, which expresses the margin as a percentage of the purchase price instead of sales revenue:
Markup rate =
(Sales margin/Purchase cost) × 100
How to analyze the commercial margin?
Analyzing the trade margin involves examining the different factors that can influence its variation.
Financial and sales managers must monitor, among other things:
fluctuations in the cost of purchasing goods (purchase price + transport and costs)
sales price changes
variations in the quantity of sales.
It is advisable to identify high margin products (like cash cow products in the BCG matrix) and low margin products to adjust both sales and sourcing strategies.
How to calculate the selling price based on the commercial margin?
To set a selling price that ensures a desired commercial margin, the following formula can be used:
Selling Price = Purchase Cost + (Purchase Cost × Desired Sales Margin/100)
This formula makes it possible to define competitive prices while ensuring the profitability of the company.
The 9 techniques to significantly improve the commercial margin
Here are several techniques that organizations can use to improve their sales margin:
8.1. Increase sales volumes
It seems simple and yet...
By increasing sales volume, companies can take advantage of economies of scale and reduce the unit cost of producing or purchasing each product. Doing this often requires investments in marketing and sales promotion (advertising).
8.2. Practice Yield Management
Yield management consists of adjusting prices in real time according to demand and availability. This approach, widely used in car rentals, hotels, leisure and vacations (plane, train, etc.) allows you to optimize profitability by maximizing the income generated by each sale.
8.3. Increase prices (or reduce quantities)
A price increase can improve the sales margin, provided that demand remains stable. It is important to monitor consumers' price sensitivity to avoid a drop in sales volumes.
Conversely, to avoid increasing prices and scaring away consumers, manufacturers and restaurateurs reduce quantities. This phenomenon, called "reduction" or "shrinkflation", allows companies to remain competitive despite inflation and maintain commercial margins.
8.4. Focus on “cash cow” products.
Cash cow products, in the BCG matrix, are products with high profitability and low operating costs. Focusing on sales of these products can significantly improve the overall sales margin.