Calculation of the profit margin coefficient
Posted: Sun Jan 12, 2025 8:05 am
Sometimes known as profitability or yield, measuring a business's profit margin helps compare the profitability of several product lines and optimize product mix.
This coefficient is calculated according to the following equation:
Contribution Margin Ratio = Contribution Margin per item sold / Unit Price
This indicator is measured as a share of the price or as a percentage (the resulting value must be multiplied by 100%).
Let's look at a specific example.
The product range of a company germany phone data specializing in wood processing includes various product groups. The most profitable segment is the sale of wood fiber boards and oriented strand boards. These products have different costs, prices and turnover. In order to analyze the comparison between these two types of products, it is necessary to calculate the profit margin. Here are the details:
For the first type of plates:
the profit from each unit of production is 500 rubles;
The price per piece is 2000 rubles.
The profit margin is 25%
Calculation of the profit margin coefficient
Source: shutterstock.com
For the second type of plates:
the cost of one piece is 3000 rubles;
the cost of specific variable costs is 900 rubles per piece;
The company sells 50 units of goods monthly.
Marginal profit is defined as the difference between the price per unit of goods and the sum of specific variable costs; in this case, for oriented strand boards, this value of marginal profit is 2,100 rubles.
Marginal Profit Ratio: 2100/3000 = 0.7 or 70%.
After conducting an analysis, we can conclude that the sale of this type of slabs is more profitable and lucrative than the sale of other products, so it is recommended to actively promote this type of product.
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Alexander Kuleshov
Alexander Kuleshov
General Director of Sales Generator LLC
Read more posts on my personal blog:
Over the past 7 years, we have conducted over 23,000 comprehensive website audits and I have learned that all of us as leaders need clear and working algorithms for our marketing and sales.
Today we will share with you the 5 most valuable documents that we have developed for our clients.
Download for free and implement today:
How to find out the 5 key marketing metrics in your company?
Step-by-step calculation template with fields where you can insert your data
How to make a KPI for a sales manager based on his work results?
Current template for calculating sales manager KPI
9 Examples of Universal Selling Commercial Proposals
Upgrade your CPs to close more deals
Cold Lead Processing Script Template
A checklist of ready-made questions for engaging cold clients
This coefficient is calculated according to the following equation:
Contribution Margin Ratio = Contribution Margin per item sold / Unit Price
This indicator is measured as a share of the price or as a percentage (the resulting value must be multiplied by 100%).
Let's look at a specific example.
The product range of a company germany phone data specializing in wood processing includes various product groups. The most profitable segment is the sale of wood fiber boards and oriented strand boards. These products have different costs, prices and turnover. In order to analyze the comparison between these two types of products, it is necessary to calculate the profit margin. Here are the details:
For the first type of plates:
the profit from each unit of production is 500 rubles;
The price per piece is 2000 rubles.
The profit margin is 25%
Calculation of the profit margin coefficient
Source: shutterstock.com
For the second type of plates:
the cost of one piece is 3000 rubles;
the cost of specific variable costs is 900 rubles per piece;
The company sells 50 units of goods monthly.
Marginal profit is defined as the difference between the price per unit of goods and the sum of specific variable costs; in this case, for oriented strand boards, this value of marginal profit is 2,100 rubles.
Marginal Profit Ratio: 2100/3000 = 0.7 or 70%.
After conducting an analysis, we can conclude that the sale of this type of slabs is more profitable and lucrative than the sale of other products, so it is recommended to actively promote this type of product.
Increase Profits by 200%: Download 5 Powerful Tools for Free
Alexander Kuleshov
Alexander Kuleshov
General Director of Sales Generator LLC
Read more posts on my personal blog:
Over the past 7 years, we have conducted over 23,000 comprehensive website audits and I have learned that all of us as leaders need clear and working algorithms for our marketing and sales.
Today we will share with you the 5 most valuable documents that we have developed for our clients.
Download for free and implement today:
How to find out the 5 key marketing metrics in your company?
Step-by-step calculation template with fields where you can insert your data
How to make a KPI for a sales manager based on his work results?
Current template for calculating sales manager KPI
9 Examples of Universal Selling Commercial Proposals
Upgrade your CPs to close more deals
Cold Lead Processing Script Template
A checklist of ready-made questions for engaging cold clients