The average profit margin can be calculated over a period of time or per unit produced. To calculate the average profit margin over five years, calculate the profit margin for each year and divide the total by five. Costs are attributed to a specific product line and divided by the number of units to determine the average profit margin per unit.
An average profit margin is the one that is observed over a given period of time. It can also be calculated in terms of production volume as a profit margin per unit. Total manufacturing and marketing costs are spread equally across all units and subtracted from total revenue. This figure is then divided by the total volume of units produced to arrive at the average profit margin per unit.
Companies may want to calculate an average profit margin over the past five years. To achieve this, they would first need to calculate the profit margin for each year. For example, year 1’s sales would be subtracted from that year’s expenses to arrive at an annual profit margin. This would be repeated for years two to five. All of the yearly profit margins would then be added together and divided by five in order to determine the average profit margin.
You can also measure an average profit margin against different business units and industry averages. The times for the profit margins that are compared to each other should match. For example, if profit margins for soft drinks are compared to snacks for the last two years, the calculations should include data starting with the same month and ending with the same month.
Calculating an average profit margin per unit is a bit more detailed. It involves taking into account all costs that can be attributed to the production and sale of a particular product line. For example, advertising costs, promotional costs, and production costs, including wages and salaries, would be added separately for soft drinks and snacks. Common advertising costs are usually split evenly across affected product lines.
Once all costs are added up and attributed to a specific product line, they are divided by the number of units. For example, the total production costs for soft drinks can be $100 United States Dollars (USD). Total advertising costs can be as much as $50 USD. With these costs, the total soft drinks produced could be 200 units.
In this case, the average manufacturing cost per unit would be $0.50 USD per unit. Average advertising costs would be $0.25 USD per unit. If retail beverages sell for $1.50 USD per unit, the average profit margin per unit would be $0.75 USD. For this example, a positive profit margin exists, but negative margins or losses are possible.
Protect your devices with Threat Protection by NordVPN
