A simple and effective means to show that injuries increases costs and reduces profits is to show exactly how much profit is lost with the indirect (uninsured) costs of an injury and then how much additional sales are needed to make up for the lost profit. To determine the amount of lost profit, the profit margin must be known.

 

PROFIT & PROFIT MARGIN

The safety professional must know the average profit margin of the company, that is, how much profit is there for a unit of sales. When the profit margin is 1% then, for every $100.00 of sales, the profit is $1.00 ($100.00 x .01 = $1.00) or for sales of $1,000.00 and a profit margin is 1% then, the profit is $10.00 ($1000.00 x .01 = $10.00). The profit margin, or simply referred to as the margin, is usually known by the sales group to determine if the sale will be profitable enough to agree to. The profit margin may vary by product line or service provided. If the profit margin is not known, the average can be determined by knowing the amount of profit that is made on an annual basis and dividing it by the amount of annual sales. For $1,000,000.00 in annual sales and the annual profit was $100,000.00, the profit margin is 10% (annual profit/annual sales = profit margin or $100,000.00/$1,000,000.00 = 0.1 or 10%). The profit and sales figures do not have to be annual they can be based on per project or per division or per product.

 

Formulas related to Profit Margin:

Profit Margin = Profit/Sales

     Example: 1% Profit Margin = $1.00 Profit/$100.00 in Sales

Sales = Profit/Profit Margin

     Example: $100.00 in Sales = $1.00 Profit/1% Profit Margin

Profit = Profit Margin x Sales

    Example: $1.00 of Profit = 1% Profit Margin x $100.00 in Sales