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Margin Erosion

03/04/2024/by JD Buss

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%.

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