How to count a company's margin?


I have an internet site. I don't sell anything and the current revenue is from ads. There are other, smaller revenue streams, but lets just focus on ads.

Does the concept of a "margin" even apply to this sort of a company? How do I know my margin?


asked May 10 '11 at 13:35
1,821 points

3 Answers


I'm assuming you are referring to profit margin.

Yes, profit margin applies to all businesses. It is basically a measure of your profit.

From Wikipedia :

Profit margin, net margin, net profit margin or net profit ratio all refer to a measure of profitability. It is calculated by finding the net profit as a percentage of the revenue.

Profit Margin = Earnings before Interest and Tax / Revenue
answered May 10 '11 at 14:22
Zuly Gonzalez
9,194 points


In your case... you've probably got two kinds of margin that are useful for you to be tracking - overall profit margin as Zuly mentioned, and the 'product margin'. Profit margin is simple - it's what is left over after you have deducted total expenses (less tax/interest) from your revenue.

For you the product margin is one that focuses on a particular class of revenue, e.g. for your adverts, each one will have direct costs associated with them - the costs of putting them onto the website and the costs of managing them (but not the cost of running the website). It is a more detailed appraisal of how much each revenue class is contributing to the overall profit margin.

Many businesses will track product margin to make sure they are still getting the best deals from their suppliers, optimum ad placement etc. Then overall as a measure of how well the business is doing - take into account all the general costs like running the website and your salary - then you're into profit margin territory.

Marginal cost while not mentioned in your question is another concept that is useful to know in business - the marginal cost is how much it costs to put another one of X onto your website. The lower the marginal cost, the more efficient and scalable your business is. As an example if it takes a developer 2 hours to put a single advert onto your website, every time you need to put an advert on, then your marginal cost is very high and needs addressing.

answered May 10 '11 at 18:02
2,333 points


Gross Margin: Gross margin = (Revenue - Cost of goods sold) / Revenue[2]
Or, in absolute terms: Gross margin = net sales - cost of goods sold + annual sales return

All businesses sell something. If your revenue is from ads -- then you are selling ads. You may have outsources the sales and customer service to a PPC provider like Adwords, but you are selling ads.

Your customer's are advertisers. They are buying access to prospective customers. Your product is prospective customers. The cost of development and maintaining the systems that delivery your product to the customer are your cost of good. Since you use a website to aggregate and present your product to the customer -- the costs associated with the website are the costs of good.

Gross margin = net sales - cost of goods sold + annual sales return
Gross margin = (Ad revenue) - (Cost of your website) + (total annual ad revenue)

answered May 11 '11 at 03:14
Joseph Barisonzi
12,141 points

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