Enter the sale price and the COGS (cost of goods sold) into the calculator to determine the retail margin percentage.
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Retail Margin Formula
The following formula is used to calculate a retail margin:
RM = (SP - COGS) / SP * 100
- Where RM is the retail margin (%)
- SP is the sale price ($)
- COGS is the cost of goods sold ($)
To calculate a retail margin subtract the cost of goods sold from the sale price, then divide by the sale price. Multiply by 100 to express as a percentage.
Retail Margin Definition
What is a retail margin? A retail margin is a ratio of the net profit to the sale price of an item, typically presented as a percentage.
The term retail margin is specifically used when analyzing things that are retail businesses or operations.
How to calculate a retail margin?
- First, determine the sale price of the item.
For this example, the sale price of the item is $100.00.
- Next, determine the cost of goods sold.
This is the cost it took to produce or acquire the item. In this problem, the COGS was $50.00.
- Finally, calculate the retail margin.
Using the formula, the retail margin is found to be (100-50) / 50 *100 = 50%.
About Retail Margin
What are typical retail margins? In retail, margins can be quite low sometimes as there is high competition, however, the average retail margins usually range between 50-55%.
Why are retail margins low? In general retail margins can be much lower than in other industries.
One of the main reasons for this is that there is high competition. This is competition between smaller stores and larger stores.
For example, companies like Walmart have such large economies of scale that they can acquire products for 50% cheaper or more than a small niche store.
If they happen to offer one of the products that a single store does, that small store will need to reduce their price to compete or at least be in a similar ballpark in terms of price.