Basis point

Also: bp, bps

A basis point is one hundredth of a percentage point, so a margin that rises by half a percentage point has risen 50 basis points. The unit separates a change in a ratio from a percentage change in that ratio, which is a different number. It is used for margins, cost ratios and interest rates, where a small movement in the ratio can mean a large amount of profit.

// IN PRACTICE

Margin targets for buying, sourcing and store costs are commonly set and tracked in basis points, because on a large sales base a small ratio movement is a large sum. Mixing points and percentages in the same discussion is the most frequent source of confusion.

// EXAMPLE

Pandora's gross margin of 80.5% against 79.3% includes 230 basis points from the one-off IEEPA tariff refund; excluding it, the company discloses a margin of 78.2%, 110 basis points lower.

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