Margin Erosion

When the amount of profit a business earns from selling a product or service decreases due to rising costs or falling sale prices.

An example of margin erosion occurring in a fuel distribution business:

A propane distribution firm sells a future delivery of 1,000 gallons of propane to one of their customers at a price of $2/gallon.  That firm desires a margin of $1/gallon and that can be achieved at current market prices.  However, three months in the future propane costs increase by $.30/gallon and the distributor’s margin has dropped 30%.