INTRODUCTION
Margins are included in all IMPLAN models and databases. Margins allow for purchases from retail and wholesale Industries to be appropriately allocated among the retailer, wholesaler, transporters, and producer of the product. This allows IMPLAN to correctly attribute the appropriate portion of the product’s sale price among all actors involved in bringing the product to the customer, also known as the Value Chain.
Margins are derived from the Bureau of Economic Analysis Input-Output tables. Read more about Margin Data Sources.
WHAT IS A MARGIN?
The Bureau of Economic Analysis (BEA) defines a margin as “the value of the wholesale and retail trade services provided in delivering commodities from producers' establishments to purchasers. A total Margin is calculated as sales receipts less the cost of the goods sold.” The sum of all Commodity Margins make up the Purchaser Price. Purchaser Price is the total amount paid by consumers (Industries and final users) for goods and services.
There are four components of a Commodity’s Value Chain that may be included in the Purchaser Price of the product:
- Retail Margin: The operational cost of the retail store. This is the portion of the cost that the retailer keeps to operate their store, which is used to pay their workers, pay taxes, and hopefully make a profit.
- Wholesale Margin: This is the portion of the total cost the wholesaler keeps for their operational expenses.
- Transportation Margins: This is the portion of the total cost the various transporters keep to move products from their production site to a distributor and from the distributor/wholesaler to the retailer.
- Cost of Product (in the Producer Price): The value of the product when it leaves the producer.
MARGINS IN ECONOMIC IMPACT ANALYSIS
Most Input-Output models, including IMPLAN’s U.S. models, record expenditures in Producer Prices. The Producer Price framework allocates expenditures to the Industries that produce the goods or services. Any Output or sales value used in an analysis that is in Purchaser Prices (prices paid by final consumers) needs to be converted to Producer Prices or allocated to the producing Industries. Margins enable the user to move from Producer to Purchaser Prices or vice-versa.
Below is an example to show how a purchase is allocated to the Margin components. Let’s say that a consumer purchases a t-shirt from a retail store. A portion of the sale price is retained by the retailer. Another portion goes to transportation costs, some may go to wholesale costs, and the remaining to the producing Industry that actually made the item. The individual Commodity Margin components can be broken out across the Value Chain as follows:
- Cost to produce t-shirt (Producer Price): $3
- Transportation costs: $3
- Wholesale costs: $2
- Retail markup: $2
The sum of each of these components would be equal to the Purchaser Price (what the consumer paid) of the the t-shirt:
- Purchaser Price of the t-shirt = cost to produce t-shirt + transportation costs + wholesale costs + retail markup = $10
If a user wanted to model this $10 t-shirt purchase as a Commodity Output Event in IMPLAN, they would need to specify that the $10 represents the Purchaser Price of the good, meaning that they want to apply Margins. Applying Margins to a Commodity Output Event would create Direct Effects in each of the local Industries that produce each component of the Value Chain for the Commodity sold. If Producer Price was specified for the Commodity Output Event, the entirety of the $10 purchase would be allocated to the Industries that create t-shirts, which would be overstating the impacts to t-shirt producers.
Note that not all Industries and Commodities have Margins. Industry Margins are only applicable when retail and wholesale Industries are being modeled directly. When Purchaser Price is specified for a retail or wholesale Industry, Margins will be applied so as to only capture the retail or wholesale Margin. The portion of the Event Value that is not captured in the retail or wholesale Margin will be treated as a Direct Effect Leakage.
Commodity Margins are only applicable when modeling the purchase of a Commodity that can be bought and sold via a wholesaler or retailer (i.e. a Marginable Commodity). When Purchaser Price is specified for a Marginable Commodity, the entirety of the Commodity’s Value Chain will be analyzed.
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Written November 8, 2024