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Define commercial margin - net return on sales. What is marginality? High margin products

Issues covered in the material:

What does business marginality mean?
How is it calculated
On the sale of what products you can build a business with high marginality

The origin of the word "margin" is French. Мarge translates as "advantage". Margin is understood as the difference between the cost of production and the price of its sale, that is, in fact, this is the amount at which the goods are priced. Obviously, an increase in margins leads to an increase in the company's profits and its success.

However, it is necessary to understand that it is not worth overcharging the product, since this is fraught with a decrease in the profitability of the business, since the demand for the overpriced product will fall, and with it the profit. Today we tell you about business marginality. Every entrepreneur needs to know this.

What is business marginality

In trade and on exchanges, the concept of marginality, or margin, has been used for a long time. It is believed that this is the difference between the sum of production costs, that is, its cost, and the final price at which these products are sold to consumers.

In addition, marginality is often understood as the profit received by the manufacturer from each unit of production, as well as the profitability ratio in percent, in the calculation of which the final cost of the product is taken as 100%.

The exchanges also use the concept of margin, meaning by it collateral or pledge of transactions, which allows to cover the risks of lending. Leveraged trading is called margin trading.

Financial management interprets business margins differently. This term is used at the junction of the meanings "stock" and "profit" and means the difference between the price of a product and the variable costs of its production. Simplified - this is a stock in price, which is used to generate profits and cover fixed costs. There is a term for such a margin - margin profit, in English - contribution margin.

For management accounting, gross margin is important, in the calculation of which profit and cost are attributed to the entire product sold, and not to a separate unit.

With an increase in stock (the difference between cost and price), the marginality of products increases. Accordingly, the efficiency of the business increases, all other things being equal.

Economic theory defines margin as a limit - a marginal product, a marginal utility. The ultimate product is additional item, produced by adding an additional unit of a factor of production - labor, capital. Marginal utility is the amount by which utility increases when an additional unit of good is consumed.

The modern economy is also not complete without a business margin indicator. The profitability ratio is necessarily calculated when analyzing commercial activities, as it allows you to understand how successful the business is. After all, the main indicator is not the cost of goods on store shelves or the amount of investment. If the profit from the sale of expensive products is barely enough to cover the costs, there can be no question of the success of the enterprise.

By the size of the margin, one can understand whether there is a prospect for this or that type of product, how long its production will allow the company to stay afloat, and whether it is worth developing this category at all.

Profitability must be assessed before launching a project by analyzing the margins of a business by industry. It is clear that it is pointless to engage in activities that are not profitable. However, even with a small projected margin, novice businessmen will have a very difficult time, there are too many risks. Their assessment when drawing up a business plan begins precisely with the calculation of marginality.

How to calculate business marginality: formulas, calculation example, analysis

In financial management and management accounting, margin is understood as the difference between the cost of a product for the final consumer and the cost of its production. Basically, this indicator is expressed as a percentage, but in our country, gross profit is often taken for marginality. And then it is calculated using the following formula:

Margin = TR - COGS,(1)

where TR is the sales revenue (Total Revenue);

COGS - Cost of Goods Sold.

Margin = TR - TR / (1 + tm) - VC,(2)

where tm - trade margin(trade markup);

VC - Variable Cost.

That is, trade organizations in the prime cost include the cost of purchasing products and other variable costs: COGS = TR / (1 + tm) + VC.

The formula for calculating business marginality as a share of margin in revenue (Gross Profit Margin in English) is as follows:

GPM = Margin / TR = (TR - COGS) / TR(3)

Calculation example. The CFO of the Metal for Metal production enterprise analyzes the activities for the period from 2014 to 2018. At first, the company saw an increase in revenue, in 2017 it decreased, and in 2018 it began to grow again.

The cost of the company's products consists of:

the cost of purchased raw materials and materials;
employee wages, taxes and other contributions;
the cost of paying for the services of contractors.

The growth in costs for raw materials and materials is proportional to the growth in revenue, and in 2018 the company was able to reduce the costs of raw materials and materials by 10% in physical terms.

The wages and cost of contractors' services changed insignificantly during the analyzed period.

Other costs were also taken into account: management, commercial and others. Other taxes were taken into account - paid not from profit, as well as income tax. Since the company does not own property, there is no depreciation.

After making the calculations, the CFO received the following analytical income statement for the period 2014–2018. (thousand roubles.):



Cost price
Raw materials and supplies
Remuneration of labor, personal income tax and contributions
Contractor services
Gross margin
Marginality
Administrative expenses
Business expenses
Other expenses / income
Other taxes
Profit before taxes
Return on sales
Income tax (20%)
Net profit

When calculating the gross margin, the formula (1) was used: the indicator was calculated as the difference between the revenue and the cost of the goods (the costs of its production - the purchase of raw materials and materials, the remuneration of workers and services of contractors). The marginality was determined by the formula (3).

Business marginality allows you to assess how efficiently the company operates. High marginality indicates efficient production. As a rule, they look at whether the indicator has increased or decreased in comparison with previous year, identify a trend over a particular period of time, compare it with the average values for the industry, with competitors.

Comparing margin with profitability of sales (calculated by operating profit or EBIT) allows you to understand how effective (more precisely, ineffective) indirect costs, on which the percentage of marginality is spent.

In the given example, the proportional increase in raw material costs and fixed costs for salary payments and payment for the services of contractors ensured good growth rates of revenue, and with it the business margin and margins. In 2017, there was a decline.

In 2018, the company introduced resource-saving technology and, as a result, reduced the costs of raw materials and materials by 10%, which achieved more significant growth in margins and gross margins compared to previous years.

It also follows from the data in the table that in 2017 there was a loss of 8% of marginality on indirect costs, and in 2018 it was lost 9.9% due to an increase in management and commercial costs, which can be explained by the need to actively promote products (which requires a lot of costs ) to increase sales.

Analyzing the marginality of a business in the context of goods, one can obtain valuable information: to understand how much income the company receives from the production and sale of each of the products.

In this case, the indicators are calculated in the same way - according to formulas (1) and (2), however, the total revenue and the total cost price in them are replaced by the revenue and cost price for each product.

Business marginality. How to calculate profit correctly?

How the business marginality depends on the markup on the product

Margin = ((selling price - cost price) / selling price) * 100%

It can be seen from the formula that the higher the margin indicator, the higher the margin of the product.

This explains the irresistible desire of retailers to increase sales of high-margin goods and, along with them, their profits.

Experts distinguish between several types of margin: exchange, credit, guarantee, support, trade. We will consider the latter - trading, which is also called market. Everyone understands that it is precisely the margin on products that allows any business to avoid losses, which not only covers costs, but also provides profits.

Often, manufacturers and traders mark up goods by 100, 200 and even 300% in an effort to get the highest possible profit. They take advantage of the fact that today in Russia there is no legally approved upper margin of the margin. This means that business representatives can make a mark-up on goods / services at their own discretion, focusing on their own needs and market demand.

Important! If you sell products at a too high price, not justified by quality, then there will definitely be no demand for it.

Before entering a new position into the assortment of a retail store, it is necessary to determine by calculation what markup for this product will allow obtaining the desired level of margin after covering all costs.

Consumers are always in the dark about the actual value of the purchased goods / services and the level of their markup. On average, the market margin is 20-30% of the cost of production. It also depends on the product category. In some cases, the markup reaches 1000%. It may seem surprising, but such products are also in demand.

An example is branded items. All over the world, people buy them at fabulous prices, and it is safe to say that it will always be so.

In general, all products can be classified into one or three categories:

They are available in most stores and are in great demand. However, precisely because of the high level of supply, manufacturers and sellers cannot rate them too much. Since they are purchased at a low cost, the margin is set to a small one - 10–20%. Products from this category sell very well and are quickly updated on store shelves. Selling low-margin products is profitable because of the good turnover. Getting a good profit in this case is possible with large sales volumes. Examples of low-margin goods are toys, goods for children, household chemicals, non-food products, etc. In the service sector, transportation is the lowest-margin.
Average margin products. This group includes goods with a higher mark-up. These include, for example, household appliances, building materials. The demand for such products is much lower than for consumer goods, and therefore there is not much supply. The value of the margin for this category of goods is 30-40% of the cost price.
High-margin products. They sell well here and now. This group is the most attractive to retailers. It includes new items, seasonal products, goods that are especially in demand on certain days of the year (for example, holidays), as well as consistently in high demand regardless of the season, economic situation in the country or the level of income of citizens.

Examples of high-margin products are Apple gadgets, branded items, jewelry, precious metal products, etc. These products are always in demand, and therefore manufacturers and traders are not afraid to cheat 100% on them.

The highest margin among services is catering. Moreover, the leaders in terms of margins are both small cafes and elite restaurants, in which a cup of coffee with a cost price of 40 rubles. can cost 400 rubles. and sometimes 1000 rubles.

Important! The amount of the margin depends on the cost of production. That is, the cheaper a product is for a retailer, the less margin it will receive from the sale.

The correct calculation of the minimum margin, which must be included in the price of the goods, requires the determination of the value:

average costs of delivery of goods to the store;
average cost of customer service, which includes wage the seller, the cost of maintaining the outlet;
advertising costs for one unit of products, as well as other costs.

Based on the figures received, it is calculated by what amount each specific product can be marked up.

Currently, retailers in Russia are trying to survive in a difficult economic situation and are constantly looking for products with high margins, the inclusion of which in the store's assortment will increase the average check and make the business more profitable.

Top 10 products with high margin for business

Beverages
Trade in drinks allows you to get good margins. Both retailers and catering establishments' owners are aware of this. So, for example, simple drinking water actually costs no more than 2 rubles. per liter, while the cost of bottled water in retail starts at an average of 30 rubles.

Imported water can even cost 100 rubles or more. For example, in the cities of resort significance (in the south of Russia or foreign) bottled water of some brands is sold for several hundred rubles per 5 liters. And, oddly enough, it is in demand among tourists.

Of course, sellers benefit from the sale of drinking water, because they mark it up by 100, 200 and even 500%. To quench their thirst, people buy water at fabulous prices, while its cost is actually very low.

A similar situation is in the field of catering. Cafes, canteens and restaurants set a margin on drinks that is several times higher than their actual value. Even the introduction of hot tea or coffee, cocktails or refreshing drinks into the assortment of a store allows businessmen to derive considerable profit from this, increasing the marginality of the business.
The flower business does not skimp on margins, it is "felt" by the wallets of both merchants and buyers. The prices for flowers are very high. For example, Ecuadorian roses, which are popular with Russians, are sold in Ecuador in terms of our currency, 30-50 kopecks apiece. In Russia, one such flower costs at least 100 rubles. Of course, the price includes transport costs for delivery, but still the amount of the margin is colossal.

The flower trade is profitable, especially in the days leading up to the holidays. If there is an opportunity to add flowers to the assortment of the outlet, this must be done. Such replenishment will allow you to consistently receive additional margin, and a good one, since now the margin is high for any flowers. But you need to take into account that first you need to find a reliable supplier who will supply guaranteed fresh flowers at a low wholesale price.
Handmade goods are very popular among the population of the whole world. Estimating their real cost is difficult, and therefore, when they are sold, the margin is set at the discretion of the manufacturer or intermediary. Products of the handmade category are handmade dolls, clothes, accessories, interior items, design and other little things made by hand.

Retailers believe that by adding exclusive handcrafted items to a store's assortment, they can generate significant and rapid revenue gains. The margins of such products are high, as is the demand, and the supply is still limited. However, the choice of such products should be approached competently.

The corresponding handmade products can be sold in any store: furniture, clothing, goods for children, accessories, gifts, etc. The sale of handmade products is currently making good profit. This is a high margin business.
The market value of goods from this group is also unreasonably overstated. Merchants charge huge mark-ups on holiday goods with the expectation that buyers will have nowhere to go and will still pay the requested amount. That's why Greeting Cards, which actually cost a few rubles, have a rather high retail price, reaching up to one hundred rubles. A similar situation with helium balloons: at a cost price of 10 rubles, they are sold for 150!

In this regard, many retailers replenish the assortment of their outlets with holiday goods in an effort to increase business margins. The sale of postcards, balloons, room decorations, wedding accessories, flags and other things allows you to get hundreds of thousands of rubles in profit. After all, the cost of such products is very small, and the selling price and demand are always high.
You can also increase the profitability of sales by organizing a department with jewelry, accessories, and bijouterie in the store. This category is high-margin. Entering it into the assortment as an accompanying one is relevant for shoe halls, clothing stores, underwear, small boutiques.
Of course, alcohol trade currently requires considerable expenses: obtaining a license, observing special rules for the sale of alcoholic beverages, registering with the Unified State Automated Information System and solving other related tasks. However, the marginality of alcohol is very high, so the costs of organizing trade are covered with interest.

For example, the average restaurant prices a good wine at least three times. In the store, of course, the markup is not so big, but an increase in price even by 100% allows you to get a good profit. Elite sorts of alcoholic beverages and aged wines are sold at a much higher mark-up. Therefore, liquor is the product with the highest margins and generates a stable high income for trading companies.
It may seem surprising, but nowadays sellers increasingly include loose tea and coffee in their assortment as more marginal. After all, these are delicious and aromatic drinks everyone loves, especially if they are of high quality. And those who are fond of tea ceremonies or are crazy about coffee are ready to buy elite varieties at fabulous prices.

For example, organizing the purchase of tea in his homeland - in China - and pricing it by 300%, you can get a good profit from sales.

Chinese tea is very popular among the population. Currently, not only specialized tea shops, but also departments are engaged in the sale of its elite varieties. sports nutrition and retail outlets. Such tea has a high marginality and, of course, contributes to the growth of the average check.
The inclusion of well-known brands of cosmetics in the store's assortment allows you to benefit: currently, the cost of cosmetics is generally no more than 20% of the retail price. And the remaining 80% is paid for beautiful packaging and reimbursement of advertising and marketing campaigns. However, the beautiful half of humanity - the main consumer of cosmetic products - is ready to give any money for goods produced by their favorite brands.

This also applies to perfumery. Perfume prices are much higher than their cost. If you start selling cosmetics and perfumery products as related products, then the average check will inevitably skyrocket and your profit will rise. It is important to introduce goods from this category in stores of women's clothing, accessories, industrial goods, etc., pharmacies.
Everyone knows that snack foods - snacks, sweets, popcorn - are popular with the population. But, in addition to this, they also have high margins. Therefore, selling such related products, especially in shopping and entertainment centers, is a sure way to increase the profitability of your business.

For example, organizing a point of sale for chewing marmalade, popcorn and other snacks near a cinema, in a city park of culture and recreation, near a water park, circus or children's playground allows you to reach a break-even point in a few months and start making a steady profit. Just imagine: the cost of dry corn, which is the raw material for popcorn, is at least ten times less than the price of the finished product!

Moreover, such a markup is completely unreasonable, since the costs of making popcorn are insignificant. But in some cinemas this delicacy is sold at a price of about a thousand rubles.

Likewise, with sweets - chewing marmalade, cotton candy, ice cream. They have a high margin and attract children, and therefore are always in demand, since parents love to pamper their children and do not spare money for various goodies. By installing a candy and gum rack in your baby store, you can quickly increase your business profitability.
Currently, the provision of services related to business to clients allows to derive additional benefits. The size of the margin here can be simply huge, and this does not affect the level of demand.

For example, a clothing store can customize purchased items for its customers, a furniture store can deliver and assemble furniture, a household appliance seller can repair, refill cartridges, install software at home, a flower shop can deliver bouquets, decorate rooms with flowers for the holidays, etc.

You just need to make your imagination work and come up with a service that accompanies the business, which will be in demand and have good margins. This will increase income, achieve its stability, and discover new sources of profit. Marketers and retailers agree that this niche is the most promising and profitable.

In general, experts recommend that trade representatives should not be led by their fears, but take risks by expanding the range of high-margin goods. If you first analyze the market and the activities of competitors, weigh the pros and cons, and replenish the store shelves with popular goods with a good margin, you can take your business to a new level.

However, difficulties still cannot be avoided. It is not easy to manage sales of high-margin products. In order not to suffer a fiasco, a businessman must promptly respond to market changes, fluctuations in demand, keep his finger on the pulse and try to satisfy the needs of consumers.

To calculate the specific margin (an indicator of the profitability of each individual unit of goods), it is necessary to divide the value of the gross margin by the number of units of production. Also, the specific margin is calculated as the difference between the cost of a product and the average cost of it:

Margin` = Margin / Q = P-AVC,

Q is the number of units of products sold;

AVC - Average Variable Cost (VC / Q).

Consider an example in which an individual entrepreneur produces two types of goods.

1. New product.

Analytical Profit and Loss Statement for 2014–2018 for a new product, (thousand rubles):


Sales, thousand units

Cost price
Raw materials and supplies
Remuneration of labor, personal income tax and contributions
Contractor services
Gross margin
Specific margin (RUB)
Marginality

The table shows that the efficiency of this product grows along with an increase in sales volume - the company reaches its design capacity, uses the services of third-party organizations.

2. A product produced for a relatively long time, for which they want to optimize the consumption of raw materials.

Analytical Profit and Loss Statement for 2014–2018 for the second product (thousand rubles):


Sales, thousand units

Cost price
Raw materials and supplies
Remuneration of labor, personal income tax and contributions
Contractor services
Gross margin
Specific margin (RUB)
Marginality

In 2018, the product began to be developed using a new technology, due to which it was possible to reduce the consumption of raw materials. However, sales in this period fell, and therefore the savings had less effect.

Margin shows the remainder of the item price after deducting costs. It should be enough to cover all costs and generate profits for the business. However, it is impossible to make management decisions based on this. It is necessary to calculate the minimum volume of production that will at least cover the costs.

You can determine such a volume by analyzing the break-even point. At a point with zero profit and loss, the profit margin and cost are equal. Knowing the amount of costs and the specific marginal profit (per unit of goods), you can easily calculate how much production needs to be produced in order to reach the break-even point.

Hello! In this article we will talk about margin.

Analysts look at different metrics to gauge a company's performance. Analyzing many numbers, they understand where there are some problems, what should be paid attention to, and what works as it should. One such indicator is margin. In this article I simple language I'll tell you about what margin is, what types it has and how this concept is interpreted in different niches.

What is margin in simple words

Margin is the difference between the purchase price and the selling price of any product. This difference can be absolute (in rubles, dollars) or relative (in percent).

The concept of margin is applied in areas related to the economy. Most often this word is used:

In ordinary trade;
In stock speculation;
When calculating banking transactions.

Different niches have their own margin rate. In trade, for example, it is 30%. In production, the figure is noticeably lower - 20%. In stock trading, in general, the indicator can range from 1 to 5%, depending on conditions.

How margin differs from profit and mark-up

Now about the differences in margin, profit and markup. Let's deal with the first two. Margin is the difference between the purchase price of an item and the selling price. You can also say that this is income. Profit is the result of all operations. A company may have several types of activities, from which the margin will be calculated, and the financial result, that is, profit or loss, will be one.

Now let's move on to the markup. Margin is the ratio of a product to the price for which we sold it. Margin is the ratio of income to the price of a product. The easiest way to understand this is with a formula. We bought a product for 100 rubles. After that they sold it for 200. Margin = 200/100 = 100%. Margin = (200-100) / 200 = 50%.

The mark-up on some products can be 200 or 300%. But the margin can never exceed 100%.

Types of margin

The term "margin" has several definitions. Let's take a closer look at each of them.

Gross margin

Gross margin is the difference between the company's variable costs and total income. Variable costs include raw materials, energy costs, salaries, and components.

This is one of the calculated indicators that are used to assess the effectiveness of the company's actions. By itself, the gross margin indicator practically does not provide information, since any organization still has fixed costs that do not depend on the number of products. And they also need to be taken into account. Therefore, gross margin is used only in conjunction with other performance indicators.

Gross margin covers the main costs of the company and generates profits for it.

Profit margin (net margin)

Profit margin- the ratio of revenue to net profit.

The indicator shows how much we get net income from each ruble of revenue. Profit margins are used to compare businesses in the same industries. If one company has a higher profit margin than another, then the former is using its resources more rationally.

Bank interest margin

Bank interest margin- the relationship between interest rates for and loans. If a credit institution receives its money abroad, and issues loans from us, then the interest margin is the difference between the lending rate in a foreign bank and the lending rate on a domestic loan.

Bank interest margin is one of the main indicators of the bank's performance. Most arrived credit institutions get it through loans. This means that the cheaper they get money and the more expensive they give it, the better they work.

Guarantee margin

Guarantee margin- the minimum amount of money in the investor's account so that he can trade.

Most traders who are engaged in speculation do not trade only with their own funds. They often borrow money from them in order to increase profits. This is called margin trading, or leveraged trading.

Another guarantee margin is the difference between the value of the collateral and the amount of the loan.

Banks are very fond of giving loans secured by something. But they not only deliberately underestimate the amount of collateral, but also issue a loan for less money. This is done in order to sell the collateral on the market as soon as possible and get the missing amount for the loan.

Solvency margin

Solvency margin- the ratio of the insurer's assets and its liabilities.

The indicator is used to calculate the performance of insurance companies. Insurer's assets - money received for insurance + company equity. Liabilities are the sum of all insurance contracts.

Front margin

Front margin- the difference between income and cost of goods.

The concept of front margin is used in trading when you need to calculate how much profit you will receive for each sale. In retail, the rate fluctuates between 10 and 40%, depending on the niche. In supermarkets - 30-35%, and in small stores - 20-28%.

Back margin

Back margin- all bonuses that a trading company receives from suppliers.

The following can be used as bonuses for the calculation:

Fines for non-compliance with the terms of the contract.
Charges for the sale of goods.
Marketing Campaign Fees.

By law, the amount of bonuses received by the store from suppliers cannot exceed 5% of the value of the goods supplied.

Free margin

Free margin- funds that the trader does not use to secure transactions and for which it is possible to trade.

Leveraged trading on exchanges is common. In order for the trader to pay the debt if he has problems with the rate, the broker chooses the “collateral amount” - the level of the asset, upon reaching which the trader goes into a minus on the personal account, all assets are sold, and the money is debited from the account.

To avoid this, traders set a stop line, upon reaching which the assets are sold. The stop line is usually 20-30% of the present value... And you don't need all the money in the account to secure this line. This means that the rest can also be traded. And this remaining money is called free margin.

Variation margin

Variation margin- This is the amount that the trader will receive from each change in the value of the futures on the exchange.

This is the main indicator of the change in the value of futures. If the variation margin is positive, it means that the trader, at the end of the trading session, made a profit, if it is negative, the loss, which the clearing company will write off from him.

Trading margin

Now let's talk about the most popular niches in which the term "Margin" is used. Let's start with trading.

What it is

Trading business margin- the ratio of the purchase price of the product to the selling price.

How to count

Margin = cost of goods x quantity of goods sold - cost of goods x quantity of goods.

And so for each product. Let's consider a concrete example:

We have 20 chairs, which we bought for 500 rubles. We sold 18 pieces for 750 rubles. Margin = 18x750-20x500 = 3500 rubles.

Why do you need

Trading margin is needed to calculate income and analyze trading efficiency. Each niche has an average margin. To compare how efficiently a store is performing, you need to determine the margin ratio. If it is below average, it means that something can be done better.

Banking margin

Banking margin- a broader concept. This is the difference between:

credit and deposit interest rates (bank interest margin);
credit rates for individual borrowers;
interest rates on active and passive operations.

To analyze the efficiency of the bank, the bank interest margin is used. The average level of BPM in the world economy is 3.2-4.6%. In Russia this figure is much higher - 6%.

Investment margin

The concept of margin is applied in two areas. First area:

Safety margin- the price level that the investor has chosen to buy shares.

Simply put, it is the percentage of the real value of the security at which you can buy it. Let's take an example:

You understand that the stock is actually worth $ 100. Your safety margin is 50%. As soon as the stock falls to $ 50 or less, you buy it.

Safety margin is a term coined by Benjamin Graham. Its investment policy is adhered to by the famous world investor Warren Buffett.

In the second meaning investment margin- the leverage the trader trades with. That is, a loan that a broker gives him to buy valuable papers... The margin can be 1 in 100 or even 1 in 1000. This is done so that a trader, even with a small capital, can make money at a minimal jump in value or currency.

Margin is an important indicator that can be used to assess the efficiency of an enterprise. The higher the margin level, the better.

The concepts of mark-up and margin, which many have heard, are often denoted by one concept - profit. V general outline certainly, they are similar, but still the difference between them is striking. In our article, we will understand these concepts in detail, so that these two concepts are not "combed the same size", and also figure out how to calculate the margin correctly.

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What's the difference between markup and margin?

Margin- This is the ratio between the price of a product on the market to the profit from its sale, the main income of the company after all expenses are deducted, measured as a percentage. Due to the peculiarities of the calculation, the margin cannot be equal to 100%.

Extra charge- This is the sum of the difference between the goods to its selling price, at which it is released to the buyer. The markup is aimed at covering the costs incurred by the seller or manufacturer in connection with the production, storage, sale and delivery of the goods. The margin is formed by the market, but is regulated by administrative methods.

For example, a product that was purchased for 100 rubles is sold for 150 rubles, in this case:

(150-100) / 150 = 0.33, in percentage terms 33.3% - margin;
(150-100) / 100 = 0.5, as a percentage of 50% - extra charge;

From these examples, it follows that the markup is just a markup to the cost of goods, and the margin is the total income that the company will receive after deducting all mandatory payments.

Differences between margin and mark-up:

Maximum permissible volume- the margin cannot be equal to 100%, but the margin can.
The essence... Margin reflects income after deducting necessary expenses, and a mark-up is an increase in the cost of an item.
Payment... The margin is calculated based on the income of the organization, and the markup is based on the cost of goods.
Ratio. If the markup is higher, then the margin will be higher, but the second indicator will always be lower.

Payment

The margin is calculated using the following formula:

OTs - CC = PE (margin);

Explanation of the indicators used in calculating the margin:

PE- margin (profit per unit of goods);
OTs
Joint venture- the cost of goods;

Formula for calculating margin or percentage of profit:

TO- profitability ratio as a percentage;
NS... - received income per unit of goods;
OTs- the cost of products for which they are sold to the buyer;

V modern economy and marketing, when it comes to margins, experts note the importance of taking into account the difference between the two indicators. These indicators are the profit margin on the sale and profit per unit of goods.

When it comes to margins, economists and marketers emphasize the importance of the difference between profit per unit of product and the overall rate of profit per sale. Margin is an important metric as it is a key factor in pricing, profitability of spending on marketing, and analysis of customer profitability and forecasting total profitability.

How to use a formula in Excel?

First, you need to create a document in Exc format.

An example of a calculation will be the price of an item of 110 rubles, while the cost of the item will be 80 rubles;

Markups are calculated using the formula:

H = (CPU - SS) / SS * 100

Gde:

H- extra charge;
Cpu- Selling price;
SS- the cost of goods;

Margins are calculated using the formula:

M = (CPU - SS) / CPU * 100;

M- margin;
Cpu- Selling price;
SS- cost price;

Let's start creating formulas for calculating the table.

Calculation of the margin

Select a cell in the table, click on it.

We write the sign corresponding to the formula without a space or activate the cells according to the following formula (follow the instructions):

= (price - cost price) / cost price * 100 (press ENTER);

If filled in correctly, the markup field should show the value 37.5.

Margin calculation

= (price - cost price) / price * 100 (press ENTER);

If you fill in the formula correctly, you should get 27.27.

When you receive an incomprehensible value, for example, 27, 272727…. It is necessary in the option "format of cells" in the function "number" to select the desired number of decimal places.

When making calculations, you should always choose the values: "financial, numerical or monetary". If other values are selected in the cell format, the calculation will not be performed or will be calculated incorrectly.

Gross Margin in Russia and Europe

The concept of gross margin in Russia is understood as the profit received by the organization from the sale of goods and those variable costs for its production, maintenance, sale and storage.

There is also a formula for calculating the gross margin.

It looks like this:

BP - Zper = gross margin

BP- the profit that the organization receives from the sale of goods;
Zper... - costs of production, maintenance, storage, sale and delivery of goods;

It is this indicator that is the main state of the enterprise at the time of calculation. The amount invested by the organization in production, for the so-called variable costs, shows the marginal gross income.

Gross margin, or in other words, margin, in Europe, is a percentage of total income enterprises from the sale of goods after all necessary expenses have been paid. The calculation of gross margin in Europe is calculated as a percentage.

Differences between exchange and margin in trading

To begin with, let's say what a concept like margin exists in different areas such as trading and exchange:

Trading margin- the concept is quite common in view of trading activities.
Exchange margin- a specific concept used exclusively on exchanges.

For many, these two concepts are completely identical.

But this is not the case, due to significant differences, such as:

the relationship between the price of a product on the market and profit - margin;
the ratio of the cost of goods initially and profit - margin;

The difference between the concepts of the price of a product and its cost, which is calculated using the formula: (product price - prime cost) / product price x 100% = margin is just what is widely used in economics.

When calculating according to this formula, absolutely any currencies can be used.

Use of settlements in exchange activities

When selling futures on an exchange, the concept of exchange margin is often used. The margin on the exchanges is the difference in price changes. After opening a position, the calculation of the margin begins.

In order to make it clearer, let's look at one example:

The cost of the futures that you purchased is 110,000 points on the RTS index. Literally in five minutes, the cost increased to 110100 points.

The total size of the variation margin was 110,000-110,100 = 100 points. If in rubles - your profit is 67 rubles. With an open position at the end of the session, the trading margin will move to accumulated income. The next day, everything will be repeated again in the same way.

So, to summarize, there are differences between these concepts. For a person without economic education and work in this direction, these concepts will be identical. And yet - now we know that this is not so.

To control the activities of the company, calculations are made different types margin, the indicator reflects how profitable the production of the product is. Below we will describe the formula for calculating marginality in various areas.

Margin (literal translation from French - difference, advantage) is the difference between cost and price. Often this term is replaced by the concept "". The concept of "margin" is used in industrial production, banking, exchange operations, trade. In the work of banks, the value determines the profitability / loss ratio of a financial transaction. Calculations are carried out to determine the gross and percentage.

To facilitate calculations, financiers use a margin ratio. It shows the profitability of the business, the success of the bank. In the financial industry, the indicator reflects the difference between loan and deposit rates. In order to raise deposit rates for clients, the bank raises lending rates. Otherwise, the bank will incur losses. The indicator is expressed in% and monetary terms. In banking, it can be 25% - the ratio of the loan amount to the collateral value. It can never be more than 100%.

There is a net margin calculation showing the profitability of a business. This is the net profit that remains after all expenses have been paid. The operating form is calculated as the share of operating profit in the firm's cash flow.

Banks' margin formula

To control the success of banks, profitability is calculated financial transactions... There are 4 types of indicators in the work of banks:

The credit value is determined as the difference between the amount specified in the credit agreement and actually received by the client.
The guarantee is the difference between the collateral and the loan amount issued to the client.
The net% form is the main indicator of the bank's activity. When calculating the value, all assets of the financial institution are taken into account. The value is calculated by the formula:

Net interest margin = (income - expenses) / assets

In banking terminology, margin also means a secured loan. Bankers distinguish between a simple loan and a margin loan. Unlike a simple loan, the margin is greater than the value of the collateral. The first one is given on collateral that secures the loan amount. In the second case, the amount of the collateral is less than the size of the loan or financial transaction. The standard share of the indicator is 25% of the loan amount.

In banking, margin is the difference in exchange rates,% rates, securities. The meaning of the bank's activities is to make a profit from the difference in indicators. The higher the value, the more profitable the banking operations.

Calculation of gross and percentage

There are gross and percentage margins. The gross metric reflects the performance of the company. It is formed on the basis of labor costs and the provision of services. The gross amount does not include funds for rent, staff salaries, utility costs.

Gross is the difference between profit and labor. Gross Margin shows the level of profit from. An organization is considered to be successful if the gross value is 50-60%.

Experts distinguish between the concept of gross margin for Russia and in Western countries.

Formula for calculating gross margin in Russia:

Gross Marginal Income = Revenue - Variable Cost

This is the margin profit that is used to settle financial transactions. Marginal income does not reflect the state of the organization, it shows the cost of paying fixed costs and generating income.

Or gross margin = revenue - total cost

In Europe, the indicator is calculated in%.

Interest margin is the relationship between costs and revenues. The value shows the share of costs in relation to profits.

Rules for calculating margin on video:

It is calculated as follows:

Interest margin = total cost / revenue
Or interest margin income = variable cost / revenue

For Russia, margin is income, for Europe it is a percentage indicator of activity.

How the margin is calculated as a percentage in the RF

To determine the margin in% expression, a calculation is made:

Margin = net profit / income x 100

If the value is 30%, this means that out of each ruble of income, 30 kopecks is net profit, and 70 kopecks are expenses of the enterprise. The calculation of the margin shows the profitability of the enterprise. This is an indicator of receiving income from financial investments. In fact, margin is profitability.

Margin ratio

The margin ratio is the ratio of gross profit to revenue. In percentage terms, these are the work of the organization. The larger the margin, the more efficiently the institution works, the more profit the organization receives. Development funds are calculated based on the margin ratio.

The margin ratio is used for enterprises that create several types of products. The calculation of the indicator determines the most profitable and unprofitable type of product. Based on the calculations, a decision is made to abandon unprofitable goods or changes in technology, increase or decrease the production of goods.

Calculating sales margin

Before a new product is introduced to the market, the profitability of the sale is calculated. To do this, the calculation of the optimal markup is made on the product that provides the expected profit. The calculation is done for a different period - month, quarter, year. On initial stage operational and monthly monitoring of profitability is carried out. After stabilization of production, calculations are carried out once a year.

Profit margin

Marginality takes into account the cost of production, excluding the costs associated with doing business. Profit takes into account the costs at all stages of the business. Therefore, the profit is less than the margin. As the margin grows, so does the profit. In relation to profit, margin is the profit divided by the market value of the product.

Income shows the final result of the organization's work, marginality forms the price. On its basis, they do:

calculations of marketing costs
analyze the flow of customers
calculate the level of income

Commercial activity implies making a profit. Margin is the most striking measure of a company's success.

Medium and high margin level

At the beginning of a new enterprise, part of the funds are allocated for the development of the organization. At this stage of work, the margin is lower than the statistical one. In some cases, the company operates at a loss. After bringing the enterprise to the planned level, the profit grows. The organization ceases to be unprofitable and becomes profitable.

Financiers distinguish between medium, small, large profitability. It is generally accepted that an enterprise is operating normally if the margin is at least 10%. This indicator is considered to be average. If the company's indicator is less than 10%, measures are taken to increase the level of profitability.

20 -25% is an indicator of good performance of the organization. This is a big margin. According to statistics, the average profitability of a successful enterprise is 11-20%.

Margin or trade margin

When the calculation of the margin is carried out in%, beginners confuse it with a mark-up. Margin is the ratio of the difference between the selling price and the cost price to the selling price. Markup is the ratio of the difference between the selling price and the cost price to the cost price. In monetary terms, these values are the same. They differ in percentage terms.

: the product was bought for 50 rubles, sold for 150. The profit is (150 - 50) / 50 = 2 x 100% = 200%.

Margin calculation: (150 - 50) / 150 = 0.66 x 100% = 66%.

A video about the difference between these two indicators:

Table 1. Differences between margin and mark-up.

From a market point of view, the amount of the markup is not limited by anything. Some countries have regulations on the amount of the premium.

Indicator analysis

By studying marginality, they get a complete picture of the organization's work. It shows how profitable / unprofitable the enterprise is. The indicator is used to determine and control:

profitability of work as a whole and of each project separately
the impact of employee remuneration on the profitability of the enterprise
the most profitable customers
increase or decrease in profitability
the most expensive projects
how much does each service cost

Profitability analysis allows you to timely respond to a decrease in profitability, increase the cost of services. If the need arises, they refuse unprofitable projects.

For an accurate picture, the quarterly figure is calculated. If the enterprise is working steadily, they are limited to annual calculations.

For the normal operation of any enterprise, the calculation and analysis of marginality is necessary at every stage. It allows you to respond in time to a decrease in profitability, form a development fund, and correctly set a markup for goods (services).

Write your question in the form below

Marginality is ... in simple words

The term "marginality" comes from english word"Margin" which means difference or advantage. Marginality is, in simple words, a kind of net profit in sales that remains after all the manipulations with the product.

The margin is expressed as a percentage and is calculated based on the cost of production and the price to the customer. It can be banking, investment, guaranteed, share and market. The latter option is used in sales.

The higher the markup, the greater the marginality will be. According to this criterion, all products are divided into high-margin, medium-margin and low-margin.

Products with high margin, medium and low

To understand which goods are more profitable to sell, you need to decide what belongs to low-, medium- and high-margin products.

Low margin products are not exclusive. You can buy them at any store.

This includes:

hygiene items;
household chemicals;
baby food;
animal feed;
toys;
rail transportation, etc.

This group of goods and services sells well, but the profit will be minimal. In relation to such products, a high mark-up cannot be made, since in this case no one will buy the goods.

The so-called second-order products belong to average-margin goods.

This includes:

cheeses;
seafood;
Construction Materials;
electronics;
Appliances;
gadgets, etc.

The mark-up on these products is much higher and can reach 50%. Such products are sold less frequently than bread or napkins, but they are also in high demand.

High-margin products are needed by people on special occasions. For example, this group includes the services of a wedding photographer, jewelry, branded items, luxury goods, etc. All this is rarely required by consumers, but pays off quickly. The point is the extra charge. It can reach almost any indicator (300, 500, 1000%)

TOP-5 products with high margin

You can name the TOP products with high margins:

Beverages. The prime cost of bottled water is 2-3 rubles, and the cost for a buyer in ordinary stores is at least 30 rubles. The margin in this niche sometimes reaches 500% or more.
Flowers. It is always profitable, not only in holidays... For example, the cost of some roses is no more than 50 kopecks, and the plant goes on sale at a price of more than 100 rubles.
Hand-mead. In this niche, the seller can “cheat” any price, and there are more and more handcrafted lovers every day.
Party accessories... The cost of balloons, postcards, gift wraps and other attributes is a penny, and the margin is colossal.
Bijouterie. The margin here reaches 300%.

Sales of elite alcohol, tea and coffee by weight, cosmetics, popcorn and related services for business are no less high.

Marginality and profitability: how they differ

The main difference between profitability and margin is that these concepts have different economic essence. The margin, although expressed as a percentage, reflects the entrepreneur's net profit.

The difference between marginality and profitability lies in the relativity of the second indicator. Fixed costs are not taken into account for calculating margin, which are necessarily used to calculate the profitability.