What constitutes the difference between retail price and cost of goods sold?

The difference between retail price and cost of goods sold is referred to as the retail margin. Retail margin represents the amount of money a retailer retains after covering the cost of the goods they sell, which is essential for calculating profitability.

When setting prices, retailers must ensure that the retail price exceeds the cost of goods sold to generate a margin that can cover operating expenses, provide for profit, and support overall business sustainability. The retail margin is typically expressed as a percentage of the retail price and helps businesses assess their pricing strategies and performance.

This concept is fundamental in retail analysis because it directly impacts decisions relating to inventory management, pricing strategies, and financial forecasting. By understanding retail margin, retailers can make informed choices to enhance their profitability while remaining competitive in the market.