Margin

Margin is the difference between revenue and the associated cost of sales. There are several variations on the concept, which are:

  • Gross margin. This is revenues minus both the fixed and variable components of the cost of goods sold.
  • Contribution margin. This is revenues minus all variable expenses.
  • Operating margin. This is revenues minus the cost of goods sold and all operating expenses.
  • Profit margin. This is revenues minus all expenses, including financing and non-recurring expenses.

These margins are closely followed, since even a small decline in any of them can be a precursor to ongoing losses.