How to calculate deal margin
Deal margin brings profitability into deal-level thinking, which is often dominated by revenue alone. A deal is only as good as the profit it produces, and heavy discounting or high cost to serve can gut it.
Measuring margin per deal helps reps and leaders prioritize profitable business and see when chasing a large but low-margin deal is not worth the effort or the discount.
- (Rev - costs) / rev The formula
- Per deal Profit, not just size
- Discounts hurt margin A key driver
Short answer
Deal margin is the profitability of an individual deal. Subtract the deal's costs, discounts, delivery, and cost to serve, from its revenue, then divide by revenue and multiply by 100. If a 100,000 dollar deal carries 40,000 dollars of cost, deal margin is 60 percent. A large deal at thin margin can be worth less than a smaller high-margin one.
Step by step
Take the deal revenue
Use the actual deal revenue after discounts, since discounts directly reduce margin.
Sum the deal costs
Add the costs attributable to the deal: cost to serve, delivery or implementation, and any deal-specific expenses.
Compute the margin
Deal margin equals (deal revenue minus deal costs) divided by deal revenue, times 100.
Compare across deals
Rank deals by margin, not just revenue. A smaller high-margin deal can contribute more profit than a larger discounted one.
Worked example
A deal lists at 120,000 dollars but closes at a 25 percent discount, so revenue is 90,000 dollars. Delivery and cost to serve total 36,000 dollars.
Deal margin = (90,000 minus 36,000) divided by 90,000 = 54,000 / 90,000 = 60 percent. A smaller 70,000 dollar deal with only 14,000 dollars of cost would have an 80 percent margin and produce 56,000 dollars of profit, more than the larger deal's 54,000 dollars.
How Ardovo handles it
Ardovo can surface deal margin alongside deal size, factoring discounts and cost to serve, so reps and leaders see profitability, not just revenue. Rook flags large deals whose margin is thin from heavy discounting, so you weigh them properly.
Frequently asked questions
What is the deal margin formula?
Deal revenue after discounts minus deal costs (cost to serve, delivery, deal-specific expenses), divided by deal revenue, times 100. It measures the profitability of an individual deal, not just its size.
Why does deal margin matter?
Because a deal is only as valuable as the profit it produces. A large deal at thin margin from heavy discounting can contribute less profit than a smaller high-margin one, which revenue alone would never reveal.
How do discounts affect deal margin?
Directly and heavily, since every point of discount comes straight off revenue and therefore margin. A deeply discounted large deal can end up less profitable than a smaller deal sold near list price.