Margin %, also known as profit margin, is a financial metric that represents the percentage of revenue that a business keeps as profit after deducting all costs.
How to calculate margin %
Margin % = (Revenue – Cost of Goods Sold) / Revenue x 100
The cost of goods sold (COGS) includes all expenses related to producing or acquiring the products or services sold, such as materials, labor, and overhead costs.
How to use net profit and what does it tell you
Margin % is an essential metric for businesses because it indicates how much profit is being generated from each sale. A high margin % means that the business is generating more profit per sale, which can indicate that its pricing strategy is effective and that its production costs are being managed efficiently.
In the context of marketing, margin % can be used to make informed decisions about pricing strategies and marketing investments. For example, your business has a low margin % on a particular product, you may need to adjust your pricing and marketing strategies or explore ways to reduce the COGS to improve profitability.
Similarly, a low margin % may not be generating enough revenue to justify the cost, and the business may need to reassess the campaign’s effectiveness and adjust its marketing strategy. By tracking margin % over time, businesses can make data-driven decisions about how to allocate resources and optimize their marketing and sales efforts to achieve their revenue and growth targets.