It is not always easy to determine the commercial margin when starting our activity. This is a crucial point, to properly define its commercial margin and achieve profitability.
In this article, you will understand what is the trade margin?
How can we calculate it?
What is the trade margin rate?
How to follow the sales margin?
The commercial margin: what is it?
The commercial margin is the difference between the cost of purchasing goods such as customs, packaging, transport, etc. and their selling price.
The commercial margin mainly concerns trading activities where the company buys and resells the same product without transformation.
The calculation of the commercial margin allows the company to have a positioning compared to its competitors. The commercial margin is also an indicator that is monitored over time to see its evolution and take the necessary decisions.
In a trading company, the commercial margin is also an indicator of comparison between several products.
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How can the sales margin be calculated?
The trading margin can be calculated by subtracting the purchase cost of goods sold from the sales of goods made during a given period.
Commercial margin = Turnover (excluding tax) – purchase cost of goods (excluding tax) – inventory changes
- The cost of purchase = Purchase price of goods + Other costs related to the purchase (transport, customs fees, packaging, etc.)
- Stock change = End of period stock value – Beginning of period stock value.
Definition of the commercial margin rate
The commercial margin rate is a ratio calculated by dividing the commercial margin by the purchase cost, it is expressed as a percentage.
Trade margin rate = trade margin / purchase cost.
The margin rate varies from one sector to another. It represents a good tool for comparison and benchmarking in its sector with its competitors.
How can we track the sales margin?
For a good monitoring of the commercial margin, it is first necessary to set objectives. Thus, the achieved margin can be compared to the target and its level in previous periods. The integration of the sales margin rate into the company's dashboards is necessary for effective monitoring.
It is necessary to interpret the evolution of the margin rate with the pricing policy of the company and the actions undertaken for the promotion of the product.
It should be noted that the legislation prohibits selling at a loss. Therefore, the trade margin cannot in principle be negative
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