If you are a small trading company that specializes in B2B trade, optimize the management of your business is crucial to its success. For this, it is essential to master all performance indicators, or KPIs, at your disposal. Among them, The brand rate and The margin rate Are metrics financiers keys to watch carefully. By integrating these KPIs into your management dashboard, you can better manage your business and ensure its good financial health.
But how do you precisely differentiate between these two indicators? How to avoid confusing them and how to calculate them effectively?
We give you all the information you need to understand in detail what margins, brand and margin rates represent. And we explain to you How to calculate them easily using our simulator specially designed.
Let's first recall the concept of margin before talking about brand rate or margin rate.
A margin is used to measure a company's ability to generate profits, or capital gains, on a sale. Key profitability indicators, gross margin and net margin will also provide a global vision of a company's competitiveness.
The trade margin is a key indicator for any company that wants to analyze its profitability by product.. It is defined asThe difference between the sales price excluding taxes (excluding taxes) and the purchase costs excluding taxes, highlighting the benefits made between the purchase and sale of a product, excluding taxes. It is therefore better to use this formula in case you want measure your commercial margin by product.
To effectively measure your commercial margin by product and optimize the profitability of your business, The calculation is as follows :
Commercial margin = sales price excluding tax — purchase costs excluding tax
By integrating this calculation method into your management system and by using appropriate accounting software, you will not only be able to monitor but also improve the commercial performance of your company. In this way, the trade margin becomes a reference rate to assess how effectively your business turns purchases into profits.
Gross margin, a crucial profitability indicator for any business, is defined as the difference between turnover (calculated by multiplying the sales price excluding taxes by the quantities sold) and the costs of buying products or services. It therefore reveals the gross profit made over a given period, serving as an essential tool when evaluating your financial performance, in particular when publishing your turnover or income statement.
The gross margin is calculated as follows:
Gross margin = turnover — purchase costs
For a small business specialized in buying and reselling whose products do not require processing, the The difference between gross margin and commercial margin is very often small because these two margins are alternately used to give a gross profitability figure. Their precise calculation, supported by adapted management and accounting software, allows companies to manage their commercial activity with more precision, thus optimizing the management of their costs and sales prices to maximize profitability.
The net margin corresponds to Gains made once taxes and expenses are deducted. It thus makes it possible to verify the good management of a company's expenses. Unlike the gross margin, which is based on turnover, the net margin is based on the profit generated. The calculation is therefore done as follows:
Net margin = (net profit/turnover) x 100
The net margin also allows Set the selling price by determining a break-even point: to do this, the margin must be set according to the charges and taxes to be paid and the selling price in order to generate a profit.
The margin coefficient, also called the multiplier coefficient, is a value that gives an indication of the relationship between the selling price and the purchase costs during a sale. It is calculated as follows:
Margin coefficient = sales price excluding tax/purchase costs excluding tax
Especially used in distribution, the objective of the margin coefficient is to determine your sales price excluding VAT from the purchase or cost prices in order to maintain your profitability. Less than 1, it tells you that you are selling below your break-even point. To meet your margin target, it must therefore be greater than 1.5 (i.e. a margin rate of 50%).
Note:
The purchase price refers to the price excluding VAT of goods purchased from your supplier. It is to be distinguished from purchase costs which result in the purchase price excluding VAT to which are added the purchase costs (transport, logistics, insurance...), the variation in stocks and commercial discounts.
For a trading company, we will actually talk about purchase costs.
For a production company, we will rather talk about production costs, which include the purchase price of raw materials, the cost of machines and labor.
For a service company, we will talk about cost costs, including service costs (commercial agents, communication and/or advertising, rental, documentation...).
Always expressed as a percentage, the brand rate corresponds to A company's gross or commercial margin in the selling price of an item (HT, i.e. without VAT or other taxes depending on the country). It can be interpreted by product category, by platform, by company, by sales channel, or by sector of activity. Depending on your strategy, actions may be taken to increase or decrease it. The higher it is, the better the profit will be made.
Brand rate = (commercial margin/sales price excluding taxes) x 100
The brand rate allowsassess the profitability of an item. It can therefore then be used to Adjust the selling price, since the company already knows the margin it wants to achieve.
The brand rate also allowsestimate the future performance of a business in a fair and appropriate manner. This rate will not only be monitored throughout the life of your business, but will also be compared with the average brand rate in the sector of activity or competitive products. Thus, you will be able to identify market trends, periods when selling prices will be too low, or when buying prices will be too high, in order to apply more appropriate selling prices.
Also expressed as a percentage, the margin rate corresponds to gross or commercial margin in the costs of buying an excluding tax item.
The higher the margin rate, the more profitable your business will be. This means that you will have more room to pay for any additional costs. Be careful though: a margin rate that is too high can reflect a high selling price that is disconnected from the competition, which can discourage your buyers.
Margin rate = (commercial margin/purchase cost excluding taxes) x 100
The margin rate will be particularly useful to be able to Negotiate the purchase price of goods from your suppliers.
The brand rate is the relationship between the margin and the selling price.
The margin rate is the relationship between the brand and the cost of purchase.
The brand rate takes into account the price of the goods sold, while the margin rate involves the costs of buying the goods.
Calculations must always be made using prices excluding tax (HT).
Example:
You are a distributor of shoe brands.
You buy your shoes €15 excluding tax per pair from your supplier. You resell each pair for €28 excluding VAT.
- The commercial or gross margin made on each sale will be €13;
- Your brand rate will be 46.43% (13/28 * 100 = 46.43);
- Your margin rate will be 86.67% (13/15 * 100 = 86.67).
Tracking brand and margin rates helps businesses adjust pricing strategies, control costs, and maximize profitability. A thorough understanding of these indicators makes it possible to identify opportunities to optimize sales prices and cost structures, thus contributing to better financial management.
Modern management and accounting software automates the calculation and monitoring of brand and margin rates, giving businesses powerful tools to analyze their profitability in real time. These solutions facilitate strategic decision-making, allowing rapid adaptation to market dynamics and more accurate management of commercial and production activities.
The margin rate is a strategic lever in defining sales prices. It helps businesses determine the optimal price that covers costs while generating an acceptable profit. By adjusting the selling price to reach a targeted margin rate, businesses can improve their competitiveness in the market while ensuring the profitability of their products or services.
