In the world of business, making a profit is like finding the key to success. The most important factor in achieving this is the concept of the "Sales Margin." No matter how big or small a company is or what industry it’s in, every successful business depends on this essential financial measure to keep running smoothly and stay competitive.
Defining Sales Margin
The sales margin, also known as the "profit margin," is essential to a successful business. It shows how much profit is made from each sale, a crucial factor that can determine a company's financial stability. Every sale, whether of goods or services, is tied to this metric. It considers various costs like production, pricing, employee wages, and advertising. Ultimately, it measures profitability and guides decisions about offering products or services.
The Crucial Equation
The formula for calculating the sales margin is simple but significant. It’s the difference between the selling price of a product or service and the total cost involved. In a fast-paced business world where profit is key, calculating this margin accurately and on time is more important than ever. It serves as a guide for businesses to achieve success and helps prevent losses or errors.
Odoo 18: Transforming Sales Margin Management
In today’s digital age, ERP software has become a valuable tool for businesses, with Odoo 18 standing out as a breakthrough in sales margin management. This innovative software streamlines margin calculations, helping to ensure financial stability while also enabling more informed and strategic sales decisions.
The Role of Sales Managers
In today’s business environment, sales managers are crucial in steering a company’s success. With the ability to calculate margins, they can present customers with precise pricing. By understanding margin data, sales managers can offer attractive discounts and promotions, boosting customer satisfaction and loyalty.
Activating the Margins Feature
For businesses offering a range of products and services to customers in various locations, managing margins can be difficult. Transportation costs, for example, can significantly impact the final profit margin. Odoo ERP offers a solution by helping you navigate these complexities, providing a unified system to effectively manage sales margins and control profits.
However, it is essential to activate the ‘Margins’ feature. This can be done by redirecting to the ‘Settings’ window of the Odoo 18 Sales module. Enable the ‘Margin’ option under the ‘Pricing’ section, as shown in the screenshot below.
After enabling this feature, you'll be able to include margin calculations in your orders. Be sure to save your settings to activate the feature in Odoo 18 Sales.
Calculating Sales Margins for Orders
The foundation of managing sales margins is to prioritize your business's growth. Calculating the sales margin relies on careful summation of various cost elements, including manufacturing expenses, material costs, advertising expenditures, and more. The formula for margin calculation is simple: it’s the sales price of a product or service minus the total production costs. Setting accurate product prices is essential for profitability, as even minor errors can result in significant financial losses.
Practical Implementation in Odoo 18
For the marginal analysis of the product, First, we need to know the product and its cost and sales price. By navigating to the “Products” menu under the “Products” tab, we can create or use any existing product for the analysis.
Here, you’ll find a kanban view of created products, as shown in the screenshot below
In the top right corner of the window, click the "New" button to create a new product or select an existing one. From the product view, you can either see the sales price and cost or set the prices accordingly.
The sales margin can be determined by subtracting the total cost of all products in the sales order from their corresponding sales prices. Then, sales margin equals Sales price - Cost price (Sales Margin = Sales price - Cost price). In the case of the product, the Dates, the cost is $300, and the Sales price is $500. Therefore, Sales margin =$ 500 - $300 = $ 200.
In Odoo 18, Calculating margins becomes easier. By creating a sales order, you can easily establish the margin for your products. For that, we need to navigate to the ‘Orders’ menu within the ‘Orders’ tab.
In this section, you’ll find a comprehensive list of created sales orders, each providing vital information such as order numbers, customer names, order dates, and additional details, as illustrated in the screenshot below.
The ‘Kanban’ view provides a card-style display of your sales orders, showing key details such as total price, customer names, order IDs, and more.
Next, you can create a new sales order by clicking the ‘New’ button on the top left corner.
Add the product that you want to the sale order line. While adding that product, you can see a new field named “Margin” visible at the bottom of the sales order, as shown below.
Also, you can see the product-wise margin and margin percentage by enabling the optional fields as given below.
Margin calculation when pricelist is applied
To calculate the margin with an applied pricelist, start by configuring a pricelist for your product. To do this, navigate to the Pricelist menu under Products.
In the window, click the "New" button to create a new price list.
Enter a name for your pricelist, and to create a new pricelist rule, click on "Add a line," as shown in the screenshot below.
In the popup window, configure the price list according to your preferences. In this example, the rule is set to apply only to products with a minimum quantity of 2 and includes a 10% discount based on the sales price.
After saving the pricelist, return to the sales order, select the newly created pricelist, and adjust the quantity according to the pricelist rule. Once you've made these changes, click on "Update Prices" to refresh the product price and margin.
When the price is updated, a note appears in the chatter confirming the price update. You can also view the margin for the selected product, along with the discount and discount percentage applied. Initially, the product price was 500 with a cost of 300, making the total amount 1000 for a quantity of two. After applying the price list, a 10% discount is applied, reducing the total by 100. Prior to the price list update, the margin for a single product was 200. With the pricelist update, the discount amount is deducted from the total margin. At the bottom, the total margin and margin percentage are displayed.
Thus, when the pricelist is applied, the margin will be calculated based on the pricelist computed sales price to the cost price of the product. This is how the margin works when a price list is applied to a sales order. After confirming the sales order, the sales order state changed from “Quotation” state to “Sales Order” state.
The Power of Automatic Margin Calculation
In Odoo 18, after setting the margin parameters, the system automatically calculates the margin for each product. This smooth process keeps you constantly informed of your profit margins and provides real-time financial insights for better strategic decisions. The transparent and dynamic margin calculation helps to simplify and enhance your business operations significantly.
A Look at Sales Order Analysis
Odoo 18 also provides a powerful sales order analysis feature, allowing you to assess your business's performance efficiently. To view a graphical representation of your sales orders, select the ‘Orders’ menu and click on the ‘Graph’ view. Similarly, you can switch to a pivot view by selecting the Pivot view icon. By clicking on the ‘Measures’ tab, you’ll find the ‘Margin’ option, which allows you to filter results by customer, as illustrated in the screenshot below.
The 'X-axis' presents customer information, while the 'Y-axis' shows the total margin for each customer. This feature enables you to evaluate margin rates per customer, offering valuable insights into your business’s financial well-being.
Conclusion
In today’s digital era, effectively managing sales margins is no longer just a competitive edge, it’s essential for long-term business success. To learn more about setting sales margins in Odoo, check out our previous blog. Odoo 18 has simplified what was once a complex task, making margin calculations easy, accessible, and automatic. By closely monitoring profit margins, businesses can confidently adapt to the changing commercial landscape, ensuring growth and profitability for the future.
To read more about How to Identify the Margin from Sales Orders using Odoo 17, refer to our blog How to Identify the Margin from Sales Orders using Odoo 17.