The fundamental objective for any company or any entrepreneur is the “maximization” of the “profit” (P), given by the difference between the “total revenue” (RT) and earned the “total cost” (CT) supported: for the realization of this purpose, it is necessary to determine the “quantity production” (q) that equalizes the “marginal cost” (the change in the “CT” to change the “level of production”) and the “marginal revenue” (the change in the “RT” for each change of “q”). Get precise extent of the “profit margins” (MP) is quite simple, even for those who could not or would not study “economy” to get more realistic results, the data of the business activities to be taken into consideration must be related to same period of time (a month, a quarter, a semester, a year).

profit-margin-ratio

If you want to find the “MP unit” (MPU), you should refer to the individual “goods / services” offered by the company considered in this case, you have to make the difference between what you have incurred for the production of a “q” the “product” that you are considering and its “price per unit of sale” (p). The “MPU” can also be expressed in percentage (%) and to do so it should be divided by “p” and multiply the value obtained for “100”.

If you want to find the “total MP” ( MPtot ) of a particular “product”, you have to follow this path: calculate the value of “RT” is achieved, which is found by multiplying “p” of “goods / services” considered for ” q “produced and sold the same; remove what you have incurred for the production of items purchased by customers and so you will have your” gain “(G) determined the” CT “by adding the” fixed costs (such as staff salaries , rents, insurance, permits, depreciation of property, plant and equipment, the costs of advertising and search &development; etc.) and “variable costs (including commissions, transportation costs and the price of raw materials and direct labor ); make the difference between “G” and “CT”. Even in this case, the “MPtot” can be formulated as a percentage (%), by multiplying by “100”, and dividing the value obtained for “RT”.

Consider the company “X” that deals with “goods” for the health and well-being: if a water purification plant cost “€ 3,500” and to make it happen were spent “€ 1,900”, the “MPU” will be equal to “€ 1,600” or “45.71%” [(€ 1,600 / € 3,500) * 100] if, in a month, they sell “80” of these machines and the “CT” amounts to “€ 60,000 , “the” MPtot “is” € 68,000 “[(80 * € 3,500) – (80 * 1.900) – 60.000 €] or the” 24% “[(€ 68,000 / € 280,000) * 100].