How do I have a lower margin on higher numbers?
Hello everyone,
Why do I have a lower margin for larger numbers when I have more difference there?
For example, if I buy something for 10 euros and sell it again for 30 euros, I have a gross margin of 66.67% and a markup margin of 20 euros.
But if I now buy something for 40 euros and then sell it again for 110 euros, I suddenly have a gross margin of 63.64%, even though I have a markup margin of 70 euros.
How can this be?
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If B is the gross margin, A is the impact margin, E is the purchase price and V is the sales price, then you calculate B with
B=A/V or B=(V—E)/V.
If we look at the second equation, we can separate and get the break
B = (V – E) / V = V / V – E / V = 1 – E / V
The size B thus depends on the ratio “purchasing price : sales price”.
The bigger it is, the smaller the gross margin.
In the first example, the ratio is 1/3. The second is 4/11. Since 1/3 = 4/12 < 4/11, the gross margin in the second case is smaller, since the ratio E/V is greater there.
It is important that you do not think with the absolute values, but with the relatives.
Just because 70 € is greater than 10 €, it does not mean that the gross margin is larger, but only the impact margin.
You just have to make sure that the sales price is viewed relative to the purchase price.
In the second example, the purchase price is four times as large as in the first, but the sale price is only about 3.7 times as large. Therefore, the gross margin is smaller.
Oh, great. All right. Thank you.
If you sell it for 120 euros, you have the same gross margin at 80 euros Auschlagmarge.
The joke of percentages is that they put absolute figures in relation to each other.