Sales Dictionary
Margin
Definition
The difference between the selling price of a product and the cost of production.
Deep Dive
Margin, in a business context, refers to the difference between the selling price of a product or service and its cost. It is a critical profitability metric, often expressed as a percentage, indicating how much profit a company makes from each sale after deducting the direct costs associated with producing or acquiring that item. There are various types of margin, with gross margin being the most common, calculated as revenue minus the Cost of Goods Sold (COGS).
Examples & Use Cases
- 1A retail store sells a jacket for $100 that cost them $50 to purchase from the supplier, resulting in a gross margin of $50 or 50%.
- 2A SaaS company boasts a high gross margin (e.g., 80%) because its variable cost to serve an additional customer (e.g., server usage) is very low compared to its subscription price.
- 3An online course creator earns a 75% margin on their digital product, as the initial creation cost is high but subsequent sales have minimal additional costs.
Related Terms
Mark-upProfitabilityCost of Goods Sold (COGS)