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Marketing Essentials
2021
Professor Steven Litt
@StrategySteven
Ready to be a Marketing professional?
Understanding Margin
©2021 Steven Litt . All rights reserved. May not be scanned, copied, duplicated or posted publicly to a website in a whole or in part.
Who needs to anticipate Margin?
You do! For
• Business analysts
• Sales professionals
• Marketing Professionals
• Entrepreneurs
• Researchers
©2020 Steven Litt . All rights reserved. May not be scanned, copied, duplicated or posted publicly to a website in a whole or in part.
‘Margin’: the commonly used metric of profit
potential.
Margin is how much a channel partner ‘makes’ on
each product, to help cover their ‘overall’ costs (staff,
rent, heat, property tax, maintenance, cleaning,
advertising, regulatory,…)
©2020 Steven Litt . All rights reserved. May not be scanned, copied, duplicated or posted publicly to a website in a whole or in part.
‘Margin’: Related Expressions include:
‘Pure Margin’
or
‘Penny Profit’
this simply refers to:
Price They Sell At – Price They Buy At
eg If a Channel partner buys an item at $1.05, resells
it at $1.50,
then Penny Profit is $0.45/unit
©2020 Steven Litt . All rights reserved. May not be scanned, copied, duplicated or posted publicly to a website in a whole or in part.
‘Margin’ is a percent!
It’s a commonly used metric of profit potential; it is
the % of a sales price is left to a partner to cover
their cost
[100 x (Price They Sell At – Price They Buy At )] / Price They Sell At
Eg If a wholesaler buys a Manufacturer Item at $1.05 and resells it to Retailer at
$1.50 then they’re taking a Margin of 30% margin
[100 x ($1.50 - $1.05)] / $1.50 =
[100 x $0.45] / $1.50 =
30.0% Margin
Manufacturer Item is sold to Wholesaler for $1.05 and resold by that wholesaler (to
a retailer) for $1.50
©2020 Steven Litt . All rights reserved. May not be scanned, copied, duplicated or posted publicly to a website in a whole or in part.
For ‘Retail Margin’, use the same formula!
[100 x (Price They Sell At – Price They Buy At )] / Price They Sell At
Q. a Boutique Retailer wants a minimum of 80% margin
on a item they buy at $1.50. Will a MSRP of $9.99 give
them their ‘threshold margin’?
The Retail Margin =
[100 x ($9.99 - $1.50)] / $9.99 =
[100 x $8.49] / 9.99 =
85.0% Margin
A. Yes a $9.99 price yields more than a threshold margin.
©2020 Steven Litt . All rights reserved. May not be scanned, copied, duplicated or posted publicly to a website in a whole or in part.
Caution: some old references still refer to ‘MarkUp’;
an obsolete expression/metric that is seen to be
irrelevant and even offensive by channel partners!
Beware The difference between Markup and Margin.
MarKUP uses the INCOMING price as denominator (ie markup/incoming price)
MarGIN uses the INCOMING price as denominator (ie margin/outgoing price)
Step Cost (in) Markup
Resulting/
Outgoing Price
Markup
%
Margin
%
Mfr vto Dist #1 $ 2.50 $ 0.90 $ 3.40 36.0% 26.5%
Dist #1 to Retailer $ 3.40 $ 1.60 $ 5.00 47.1% 32.0%
Retailer to Consumer $ 5.00 $ 2.50 $ 7.50 50.0% 33.3%
Consumer buys at $ 7.50
©2020 Steven Litt . All rights reserved. May not be scanned, copied, duplicated or posted publicly to a website in a whole or in part.
SOURCES
• Steven Litt, StrategySteven.com accessed January 24,
2021 strategysteven.com
• Cover photo courtesy of Mandy S Photography
• Special thanks to Mr. Jim Tremeer, store manager
at United Cooperatives of Ontario, Sutton, who in
1977 patiently taught me Margin calculation. The
lessons helped me countless times; I’ve the
relayed them to thousands of others for decades.
You ‘paid it forward’; I hope in some way I’ve
emulated your amazing example.
©2020 Steven Litt . All rights reserved. May not be scanned, copied, duplicated or posted publicly to a website in a whole or in part.

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Understanding Margin litt2021

  • 1. Marketing Essentials 2021 Professor Steven Litt @StrategySteven Ready to be a Marketing professional? Understanding Margin ©2021 Steven Litt . All rights reserved. May not be scanned, copied, duplicated or posted publicly to a website in a whole or in part.
  • 2. Who needs to anticipate Margin? You do! For • Business analysts • Sales professionals • Marketing Professionals • Entrepreneurs • Researchers ©2020 Steven Litt . All rights reserved. May not be scanned, copied, duplicated or posted publicly to a website in a whole or in part.
  • 3. ‘Margin’: the commonly used metric of profit potential. Margin is how much a channel partner ‘makes’ on each product, to help cover their ‘overall’ costs (staff, rent, heat, property tax, maintenance, cleaning, advertising, regulatory,…) ©2020 Steven Litt . All rights reserved. May not be scanned, copied, duplicated or posted publicly to a website in a whole or in part.
  • 4. ‘Margin’: Related Expressions include: ‘Pure Margin’ or ‘Penny Profit’ this simply refers to: Price They Sell At – Price They Buy At eg If a Channel partner buys an item at $1.05, resells it at $1.50, then Penny Profit is $0.45/unit ©2020 Steven Litt . All rights reserved. May not be scanned, copied, duplicated or posted publicly to a website in a whole or in part.
  • 5. ‘Margin’ is a percent! It’s a commonly used metric of profit potential; it is the % of a sales price is left to a partner to cover their cost [100 x (Price They Sell At – Price They Buy At )] / Price They Sell At Eg If a wholesaler buys a Manufacturer Item at $1.05 and resells it to Retailer at $1.50 then they’re taking a Margin of 30% margin [100 x ($1.50 - $1.05)] / $1.50 = [100 x $0.45] / $1.50 = 30.0% Margin Manufacturer Item is sold to Wholesaler for $1.05 and resold by that wholesaler (to a retailer) for $1.50 ©2020 Steven Litt . All rights reserved. May not be scanned, copied, duplicated or posted publicly to a website in a whole or in part.
  • 6. For ‘Retail Margin’, use the same formula! [100 x (Price They Sell At – Price They Buy At )] / Price They Sell At Q. a Boutique Retailer wants a minimum of 80% margin on a item they buy at $1.50. Will a MSRP of $9.99 give them their ‘threshold margin’? The Retail Margin = [100 x ($9.99 - $1.50)] / $9.99 = [100 x $8.49] / 9.99 = 85.0% Margin A. Yes a $9.99 price yields more than a threshold margin. ©2020 Steven Litt . All rights reserved. May not be scanned, copied, duplicated or posted publicly to a website in a whole or in part.
  • 7. Caution: some old references still refer to ‘MarkUp’; an obsolete expression/metric that is seen to be irrelevant and even offensive by channel partners! Beware The difference between Markup and Margin. MarKUP uses the INCOMING price as denominator (ie markup/incoming price) MarGIN uses the INCOMING price as denominator (ie margin/outgoing price) Step Cost (in) Markup Resulting/ Outgoing Price Markup % Margin % Mfr vto Dist #1 $ 2.50 $ 0.90 $ 3.40 36.0% 26.5% Dist #1 to Retailer $ 3.40 $ 1.60 $ 5.00 47.1% 32.0% Retailer to Consumer $ 5.00 $ 2.50 $ 7.50 50.0% 33.3% Consumer buys at $ 7.50 ©2020 Steven Litt . All rights reserved. May not be scanned, copied, duplicated or posted publicly to a website in a whole or in part.
  • 8. SOURCES • Steven Litt, StrategySteven.com accessed January 24, 2021 strategysteven.com • Cover photo courtesy of Mandy S Photography • Special thanks to Mr. Jim Tremeer, store manager at United Cooperatives of Ontario, Sutton, who in 1977 patiently taught me Margin calculation. The lessons helped me countless times; I’ve the relayed them to thousands of others for decades. You ‘paid it forward’; I hope in some way I’ve emulated your amazing example. ©2020 Steven Litt . All rights reserved. May not be scanned, copied, duplicated or posted publicly to a website in a whole or in part.