# Profit margin

The profit margin ( English profit margin ) is an economic indicator that statements about the profitability of companies makes.

## General

The definition of the profit margin is inconsistent because it depends on the selected reference values how the profit margin is determined. These are based in particular on the economic sector , so that industry-specific peculiarities must be taken into account. In general, the profit margin should provide insight into the earnings situation . The profit margin in the value chain concept of Michael Porter results in his book Competitive Advantage (1985), according to the difference between the total value of the value-added activities ( market price ) and the total cost . According to Porter's terminology, the profit margin is the “value” ( sales revenue ) minus costs and is therefore an absolute value . Common reference values ​​are earnings before interest and taxes ( EBIT ), EBITDA or the net sales price minus cost .

## calculation

The starting point for the absolute representation is the gross sales price:

   Brutto-Verkaufserlös
- Rabatte/Boni/Skonti
- Umsatzsteuer
= Netto-Verkaufserlös
- Einstandspreis
= Brutto-Gewinnspanne
- Selbstkosten
= Netto-Gewinnspanne


In the trade, the goods are not processed further , so that the value of the goods is a suitable basis for calculation. A distinction must be made between the gross profit margin and the net profit margin . The difference between the value of goods in sales (net sales revenue) and the value of goods in purchase ( cost price ) is the gross profit margin and is the key figure in retail. For net profit margin are also cost ( personnel costs , occupancy costs , storage costs , depreciation and amortization ) to be considered.

More meaningful than these absolute figures is the proportion of this profit margin in the net sales price or in the cost of goods sold:

${\ displaystyle {\ text {Profit margin}} = {\ frac {({\ text {Net sales revenue}} - {\ text {Costs}})} {\ text {Net sales revenue}}} \ cdot 100 \, \%}$
${\ displaystyle {\ text {Profit margin}} = {\ frac {({\ text {Net sales revenue}} - {\ text {Costs}})} {\ text {Costs}}} \ cdot 100 \, \% }$

The higher the percentage profit margin of a company , the more favorable its profitability is to be classified.

## meaning

The entrepreneur is interested in the profit margin in internal price calculation and the competition in company comparisons . For example, the gross profit margin for merchandise in German retail has been just over 30% for many years and generally reached 31% in 2014, while it was specifically 28.8% for beverages.