ShmoopTube

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Finance a la shmoop what are margins well these are Marge

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Inns..but they have nothing to do with what we're talking about here the term [Marge Inn hotels]

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margin refers to various definitions of profit but a margin isn't a number it's

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a fraction indicating what it costs a seller to sell something your profit [Man selling whoopie cushions]

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after selling a $2.00 whoopee cushion that costs you 50 cents to make is a

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buck 50 so your profit margin was 75 percent that's a buck 50 over 2 bucks

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got it all right another like if a store sells [Little girl laying on her bed]

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a Betsey cries herself to sleep doll for a dollar and that doll cost the

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store 60 cents you know to buy the thing from the factory in China then it's

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gross profit margin on the doll is 40% and you'd say that the product had gross

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profit of 40 cents on that unit but these figures don't include the cost of [Man picking up a doll for his daughter]

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hiring the employees to sell the dolls, nor the rent or the insurance on the

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building nor the electric bill to run the lights nor the security guard who

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stands outside and falls asleep against the building on a nightly basis so on [security guard falling asleep]

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your typical income statement you've got revenues got expenses of the actual doll

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then gross profit ie gross margin their see, then there's operating profit ie

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and operating margin and then there's net profit the bottom line got it

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after taxes all right well say a starbucks sells [man walking into a starbucks store]

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10,000 cups of brain blaster bolivian coffees for seven bucks each it produces

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70 grand of revenue in a month the coffee itself plus the barista minimum

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wages electricity and other basics cost them 45 grand in that same month well

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their gross profit is 25 grand and their gross margin is 25 over 70 or about 36 [gross profit and gross margin of starbucks store]

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percent they then have franchise fees and advertising and legal costs and

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insurance for the hot splls that burn people in their stores and that cost [man spilling coffee on his lap while driving]

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them another 10 grand a month after that 10 grand they have 15 grand in operating

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profits and their operating margin is 15 over 70 or about 21 percent

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then they pay taxes on that 15 grand of segment of five grand so they have net

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profits of ten thousand bucks or net margin of ten over seventy which is err

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14% ish - all right why do we call these things margins well it's actually a good

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way to remember what they are margins are so named because back in the day of [person writing on a piece of paper]

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paper and pen people used to write all their income costs and expenses on a

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line and then jot down their profit margin in the where was it oh yeah the

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margin yeah we like the Simpsons explanation better will make you feel [Man approaches the desk of the Marge Inn hotel]

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like you're home sweet homey

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