The product margin signifies the profit margin of a particular product. If a company produces varied products, it is crucial to calculate the product margins of the various products to determine which product is bringing in the most revenue compared to their cost of production.
Significance of product margin for eCommerce retailers
The product margin helps businesses identify which of their products are the front runners in generating profit. Individual numbers such as revenue or expenditure don’t give a clear idea about the profitability of the company. The product margin of a product shows what is behind these numbers and how profitable a company is.
How to calculate product margin
Product margin = [Selling price of a product (SP) - Cost price of a product (CP)] / CP of a product x 100
For example, if a shoe company sells a pair of shoes for $100 and it costs the business $60 to manufacture it, the product margin would be $100 - $60 = $40, divided by $100 and multiplied by 100. The product margin is ($ 40 / $ 100) x 100 = 40%.