Gross margin is a term used in business that refers to how profitable a business is. Basically, the gross margin per unit is how much money the business expects to keep from the sale of a unit once all the costs of producing the unit is taken into account. A unit is one product that a business produces for sale. Gross margin is generally express as a percentage, which means per 100 units. However, gross margin per unit is an expression of just how much profit is gained from selling one unit.
- Skill level:
- Moderately Easy
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Determine the costs of producing each unit. Add up the costs of producing the units and divide by the number of units. For example, if it costs £4,550 in labour and £1,950 in parts to make 1,000 units, then it would look like this: ($7,000 + £1,950) / 1,000 = £6,500/1,000 = £6. So, Unit X costs £6 to make.
Determine the price per unit. If the units are packaged and sold together as multiple units, take the price of the package and divide by the number of units in the package. For example, if Unit X is sold in packages of 10 for £97, then it would look like this: £97 / 10 = £9.
Take the cost of the unit in Step 1 and subtract it from the price of the unit in Step 2 to calculate the gross margin per unit. For example, the margin of Unit X would look like this: £9 - £6 = £3.
Tips and warnings
- Gross margin is normally represented as a percentage, unlike gross margin per unit. To determine the gross margin, take the gross margin per unit, divide by the price per unit and multiply by 100 to get a percentage. For example, the gross margin for Unit X would be: £3 / £9 * 100 = .33 * 100 = 33 per cent.
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