Sales Margin Calculator
What is a sales margin?
The term “sales margin” is used to refer to the profit side of a sale. It is the amount of money we made by making a sale, hence it is the difference between the money received for the sale and the money invested in the sale.
This metric is mainly used to determine the profitability of each individual sale, not the whole business venture, offering a more detailed look at the individual contents of the whole business’s profits.
To find a particular sales margin of a sale, we observe the difference between the revenue (the total money received for the sale), and the costs, which can consist of a variety of items, such as costs of procuring the product, material costs, shipping, handling, taxes, fees, employee salaries, commissions, and many more, all depending on the type of business the sale takes place in.
Counting a sales margin of a sale
The sales margin can be expressed as a total value, or as a percentage.
In order to use our formulae and calculate the sales margin, we need to establish which variables will be necessary to know beforehand.
| Term | Definition |
|---|---|
| Total Revenue | This is the total amount of money received for the sale of a particular item. If there are multiple payments, additional payments, or some extra fees imposed on the sale that belong to the owner, they are all accounted for here. We will label it TR in our formulae. |
| Total Cost | This is the total amount of money spent on facilitating the sale and creating or procuring the item/service that is being sold. All costs associated with making the sale, or any additional fees imposed on the seller, such as taxes, discounts, etc. need to be accounted for in this variable. We will label it TC in our formulae. |
The first formula will show us how to calculate the sales margin (SM) as a total value of money.
SM = TR - TC
The second formula will demonstrate how to calculate the sales margin as a percentage of the
SM = \frac{(TR-TC)}{TR} * 100Worked-out example
Henry is running a small car sales business.
He just sold a car for $12,400.
He bought the car for $8,000 from the previous owner.
It cost him another $500 to fix the car so it could be sold.
His other expenses are $800 and then he also has to give 2% of the sale price to his employee as a commission.
What was his sales margin on this sale?
SALES MARGIN AS AN ABSOLUTE AMOUNT
First, we add up his total costs. They consist of the purchasing cost of $8,000, the fixing costs of $500, his other expenses of $800, and the margin of 12,400×0.02 = $248.
TC = 8,000+500+800+248 \\= \$9,548.
We now have all the values to substitute into the formula.
SM = TR - TC \\= 12,400 - 9,548 = \$2,852.
SALES MARGIN AS A PERCENTAGE
We can use the value of SM to substitute for TR-TC and get the following.
SM = \frac{(TR-TC)}{TR} * 100SM = \frac{2,852}{12,400} * 100= 0.23*100 = 23\%.
Hence, his sales margin was $2,852, or 23%.
