Chris, you gotta be kidding. Just 'cause you can measure something,
doesn't mean you should, or can glean useful information from the
numbers. Witness the Mass. Dept. of Education fiasco, discussed here
recently.
1) the margin, expressed as a percent of the resale price or simply
as the difference (sale price - cost), is the ratio or difference of two
fairly large numbers. Tread lightly until you understand how each
component moves. And where each comes from.
2) Your definition has an upper limit of 100% (0r 1.00, as you
express it.) Unless you sell something that someone else pays you to
take away, it can't go over a ratio of 1.00. If the ratio was (sale
price - production cost)/prod. cost, you could get over 100%, but you
didn't say that.
3) margins on grocery products are traditionally low, while margins
on retail cameras and furniture are traditionally high (as much as 100%
by my definition). to merge these together dismisses the dramatic
differences in the products, markets, and distribution. I would ask
what earthly use any summary would have to anyone.
4) How do you estimate, much less compute, product cost? For
software, development time/labor may be sunk, or not, depending on how
they want to account it. For steel, product development is not usually
attached to the product at all. But it is also a very few % of the
total sales. Back to point 1 above.
suggest you focus by industry, or by product line (broadly).
suggest you look at the pieces that make up the gross margin, again by
industry type.
Chris wrote:
> I have a question that was never directly addressed in any of my business
> text books. Please excuse my lack of knowledge in this area; as I just need
> a push in the right direction.
>
> My current job requires me to analyze margins from the sales of various
> products and provide an average for each during the quarter. I am using a
> very large sample of all product sales by month. (Margin, i.e. not markup.
> For those not familiar, markup is what a business does to receive Margin.
> Margin is a measure of profitability. A typical calculation for margin is,
> (Unit Resale Price - Unit Cost) / Unit Resale Price ).
>
> An example of the data is:
>
> Product Margin
> ProdX .35
> ProdX .64
> ProdX .30
> ProdB .22
> ProdB .27
> ProdC .64
> ProdC .35
> ProdX 1.12
> ProdX .04
> ProdX .57
>
> Assuming a normal distribution, what method should I use to calculate my
> averages? Should I simply take the sample mean? Should I remove anomalies
> like 112% margins? Should I calculate upper and lower control limits and
> place my data into a normal curve?
>
> Thank you for your help.
> -Chris
>
>
>
>
>
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>
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