What is the average profit margin?

The average profit margin is one that is observed in a certain time frame. It can also be calculated from the production conditions as a profitable range per unit. Total production and marketing costs are evenly distributed into all units and deducted from total income. This number is then divided by the total volume of units produced to achieve an average profit range per unit. To achieve this, they would first calculate the profit range for each year. For example, sales for a year would be deducted from expenses for this year to achieve annual profits. This would be repeated for two to five years. All annual profit margins would then be added up and divided by five to determine the average profit margin. The time frames for profitable margins that are compared against each other should coincide. For example, if profitable margins for soft drinks are compared with refreshments for the previous two years, calculations should include data that starts in the same month and ends in the same month.

Calculation of the average profit margin per unit is a little more detailed. It includes taking into account all costs that can be attributed to the production and sale of a specific product line. For example, advertising costs, promotional costs and production costs, including salaries and wages, would be added separately for soft drinks and refreshments. The costs of common advertising are usually divided evenly between the product lines.

Once all costs are total and credited to a specific product line, they are divided by the number of units. For instances, total production costs of soft drinks can be equal to $ 100 (USD). The total cost of advertising can equal $ 50. With these costs, total non -alcoholic beverages could be equal to 200 units.

In this case, the average production costs per unit would be $ 0.50 per unit. The average cost of advertising would be 0,$ 25 per unit. If non -alcoholic beverages were sold for $ 1.50 per unit, the average profit margin per unit would a total of $ 0.75. There is a positive profit range in this example, but negative margins or losses are possible.