Do you know how profit margin is calculated? There are two ways (formulae) to calculate the profit margin and please let me know in comment box which one you like the most.
Suppose the MRP of a product is given and salesman comes to your store and say we are giving 10% margin then which formula you use it to calculate the profit margin on that product?
Formula 1 – Calculate the Margin using MRP
Suppose the MRP of a toothpaste is 50 rupees and you are getting it at 45rs. So, what will be the profit margin using this formula??
Profit = [ (MRP-Landing Price)/MRP] x 100
Profit = [(50-45)/50]*100 = 10
Means, you are making 10% margin on that toothpaste.
Formula 2 – Calculate the margin using landing rate
Profit = [(Landing Rate - MRP)/Landing Rate] x 100
So, what will be the profit here? Let’s calculate.
Profit = [(45-50)/45]x100 = 11%
So, which formulae you take into consideration while calculating the profit margin??