Margin in practice – how does it shape trade?

Margin is the difference between the selling price of a product and its purchase or production cost. In trade, it serves as a profitability indicator that allows you to assess how much a company earns from the sale of a particular product. It allows companies to plan their pricing policy, control costs and increase operational efficiency.

In practice, the trade margin determines the profit from a transaction as a percentage, while the retail margin focuses on sales to the end customer. From a business strategy perspective, understanding both concepts allows you to optimise your offering and respond better to market changes.

For those who are thinking about working in sales and wondering how to become a salesperson, it is essential to understand how margins are calculated and how they affect product profitability. The ability to analyse thoroughly allows you to make informed pricing decisions, negotiate terms with suppliers and effectively manage your offering in a shop or point of sale.

Many people ask themselves: how to calculate margins? Just use the following formula:

Margin (%) = (Selling price – Product cost) ÷ Selling price × 100%

For example, if a product costs £50 and we sell it for £100, the margin is:

(100 – 50) ÷ 100 × 100% = 50%

It is important to remember that the calculation method may vary depending on business needs. Trading companies often also use gross and net margin ratios, which take into account additional operating and logistics costs.

When calculating the selling price, all elements that affect the final income of the company must be taken into account. This includes direct costs, such as the purchase of materials and employee salaries, as well as indirect costs, including marketing activities, distribution, premises rental and utility charges.

Operating expenses, including storage, personnel services and product shipping, are also important. Only after all these costs have been covered can the expected profit that goes to the entrepreneur be determined.

There are several basic types of margins in trade:

• trade margin – defines the profit at the wholesale level, i.e. the difference between the purchase price and the selling price to the next link in the supply chain,
• retail margin – applies to sales to the end customer and is often higher than the trade margin because it includes additional operating, marketing and logistics costs,
• gross and net margin – the gross margin shows the profit before operating costs, while the net margin is a profitability indicator after deducting all expenses.

The amount of profit generated from the sale of a product is not constant and can vary significantly depending on the industry, brand reputation or current market situation, including inflation. In sectors such as fashion and cosmetics, margins are often higher, reaching 50-70%, while in the electronics industry, the profit from a single sale can range from 2-20%.

What should the margin be in retail? It depends on many factors – primarily the type of product, sales channel and market position of the company. In the FMCG industry, margins are often lower due to high competition and fast product turnover.
For companies, the commission strategy is one of the main tools for managing profitability. Proper margin planning allows you to maintain competitive prices while ensuring an optimal financial structure for the company.

Knowledge of the principles of margin calculation and its types is essential in the daily work of sales, finance and logistics departments. Examples of practical applications include:

• planning product prices and promotions,
• controlling purchase and transport costs,
• analysing the profitability of individual product categories,
• setting minimum and maximum price levels for wholesalers and retailers.

Companies regularly monitor margins to forecast financial results and respond to market changes. This makes it possible to maintain financial stability and plan investments.

Understanding margins is also important for those planning a career in commerce. Knowledge of industry terms and the ability to calculate product profitability are often required in job offers in sales, marketing and finance departments.

In companies such as Foodcom, which offer a variety of positions in sales and distribution, knowledge of margins is fundamental to effective product management. Working at Foodcom allows you to apply this knowledge in real market conditions, teaching you price planning, customer negotiation and cost optimisation.

It is also a good idea to keep an eye on job offers that allow you to develop your skills in margin analysis, financial reporting and participation in pricing policy decision-making processes. Such knowledge is particularly valuable for those planning a career in sales and product management.

If your goal is to develop in the retail industry and gain practical knowledge in real market conditions, it is a good idea to learn about the mechanisms of margin – its calculation, types and impact on pricing strategy and product profitability.

Conscious management of this indicator not only allows you to maintain the competitiveness of your company, but also to plan sales growth, optimise costs and make decisions that have a real impact on financial results.