Advance

Margin is the difference between the purchase price and the selling price of a product or service. It is used as a measure of profitability and is often expressed in kroner or percentage. Margin provides insight into how much a business makes on a product or service and is important for evaluating pricing strategy.

Example of advance payment

If an item is purchased for 400 kroner and sold for 800 kroner, the profit is 400 kroner or 100 %.

How is profit calculated?

• Advance in kroner:
  The profit margin in kroner is calculated by subtracting the cost of goods (purchase price and any additional charges such as shipping) from the selling price:
  
  Margin (kr) = Selling price – Cost of goods sold
  
• Advance in percentage:
  The markup in percentage shows how much of the purchase price the markup constitutes:
  
  Advance (%) = (Advance / Purchase Price) x 100

The meaning of advance

A low markup means that the purchase price constitutes a large part of the selling price, which results in low profits. A high markup means lower costs in relation to the selling price, which results in higher profits.

Margin in kroner can also be called contribution margin or gross profit. When the margin is calculated as a percentage, it will always be higher than the gross profit, as the margin percentage is calculated based on the purchase price, while the gross profit is based on the selling price.