Business Analytics · Intermediate level

Intermediate level · Module 1: Sales, Margin and Pricing Analytics · Lesson 2 of 3

Margin and Product Profitability

Look beyond sales to the profit each product and customer actually brings.

In this lesson you will

  • Calculate gross margin by product
  • Identify profitable and unprofitable segments

Key concepts

gross marginmargin percentagecontributionprofitability ranking

The lesson

Gross margin is sales minus the cost of goods sold; margin percentage divides that by sales. A product selling 1,000,000 SSP at a 10% margin earns less than one selling 400,000 SSP at 30%.

Rank products and customers by margin, not only sales. Some large customers demand discounts and credit that leave little profit.

Use the ranking to guide attention: protect high-margin lines, review pricing or costs on low-margin ones.

Step by step

  1. Calculate margin and margin percentage by product.
  2. Rank by sales and by margin.
  3. Compare the two rankings.
  4. Flag products to review.

Practice activity

Produce a product profitability table for the distributor.

Expected result: A table showing which products earn the most margin, with products to review.

Check your understanding

  1. How is margin percentage calculated?

    Show answer

    (Sales − cost of goods sold) ÷ sales.

  2. Why rank by margin as well as sales?

    Show answer

    High sales can hide low profit.

Taught live by an instructor — online or in person. Free course lessons are for self-study and do not lead to a certificate — see registration options.