What is margin in simple words? What is marginality? Analysis and calculation of the indicator Margin management

The main rule of business activity is its profitability. That is, the produced product must be sold at a price that justifies the costs associated with its production and sale. In this regard, it is extremely important to take into account such an indicator as the marginality of goods, which shows the prospects of a particular business.

Marginality as a business indicator

Margin is an economic term that shows the difference between production costs (cost) and the price that a consumer is willing to pay for a product. Margin often means the profit received from each product sold and the profitability ratio. It is expressed as a percentage, and the final price of the product is 100%.

The profitability ratio is the main indicator of business success, so the margin is mandatory taken into account when analyzing business activities. After all, it doesn’t matter how much a product costs and how much money is invested in its creation if, in the end, profitability only partially or barely covers expenses.

By correctly calculating the margin, you can assess how promising it is to produce a product, how long it will bring profit, and whether it is necessary to work with it at all.

This means that unprofitable goods and products that bring little profit are not worth producing.

Formula for calculating margin

The methods for calculating margin differ because the term can mean both net profit and its ratio. But both methods are accurate in assessing the level of profitability of a new product, which allows you to make the right decision regarding its production.

• where M is margin;
• D – income;
• And – costs.

The marginality coefficient is calculated using another formula:

• where k is the marginality coefficient;
• P – profit from one unit of goods;
• P is the selling price of a unit of goods.

A coefficient exceeding 20% ​​is considered the minimum; a good indicator is a coefficient of 30-40%.

That is, the higher the numbers, the more profitable the product will be, which means the enterprise will quickly become profitable.

This formula is best used by enterprises planning to produce several types of products. The results will show which goods are worth producing and which ones should be abandoned, as well as determine the volume of production.

Gross margin

Profitability can be expressed in gross margin, but the European and Russian understanding of this term is different. Thus, in Russia, gross margin determines the amount of profit from goods sold, from which the costs of their creation, which are of a variable nature, are subtracted, that is, it shows how the company takes into account and covers costs.

In European economic theory Gross margin is calculated as a percentage of the profitability (after deducting the cost of production) that is obtained after the sale of the product.

The difference between the approaches is of fundamental importance - in Russia it is money, in Europe it is interest.

Hello, dear colleague! In today's article we will talk about such a well-known economic term as margin. Many novice entrepreneurs, as well as procurement participants, have no idea what it is and how it is calculated. This term has different meanings depending on the area in which it is used. Therefore, in this article we will look at the most common types of margin and dwell in detail on margin in trading, because It is this that is of greatest interest to suppliers participating in government and commercial tenders.

1. What is margin in simple words?

The term “margin” is most often found in areas such as trading, stock trading, insurance and banking. Depending on the field of activity in which this term is used, it may have its own specifics.

Margin(from the English Margin - difference, advantage) - the difference between the prices of goods, securities rates, interest rates and other indicators. Such a difference can be expressed both in absolute values ​​(for example, ruble, dollar, euro) and in percentages (%).

In simple words, margin in trade is the difference between the cost of a product (the cost of its manufacture or purchase price) and its final (selling) price. Those. this is a certain indicator of the effectiveness of the economic activity of a particular company or entrepreneur.

In this case, this is a relative value, which is expressed in % and is determined by the following formula:

M = P/D * 100%,

P is profit, which is determined by the formula:

P = selling price - cost

D - income (selling price).

In industry, the margin rate is 20% , and in trade – 30% .

However, I would like to note that the margin in our and Western understanding is very different. For European colleagues, it is the ratio of profit from the sale of a product to its selling price. For our calculations, we use net profit, namely (selling price - cost).

2. Types of margin

In this section of the article we will look at the most common types of margin. So let's get started...

2.1 Gross margin

Gross Margin Gross margin is the percentage of a company's total revenue that it retains after incurring direct costs associated with the production of its goods and services.

Gross margin is calculated using the following formula:

VM = (VP/OP) *100%,

VP is gross profit, which is defined as:

VP = OP - SS

OP - sales volume (revenue);
CC - cost of goods sold;

Thus, the higher the company’s VM indicator, the more funds the company saves for each ruble of sales to service its other expenses and obligations.

The ratio of VM to the amount of revenue from the sale of goods is called the gross margin ratio.

2.2 Profit margin

There is another concept that is similar to gross margin. This concept is profit margin . This indicator determines the profitability of sales, i.e. share of profit in the company's total revenue.

2.3 Variation margin

Variation margin - the amount paid/received by a bank or a participant in trading on an exchange in connection with a change in the monetary obligation for one position as a result of its adjustment by the market.

This term is used in exchange activities. In general, there are a lot of calculators for stock traders to calculate margin. You can easily find them on the Internet using this search query.

2.4 Net interest margin (bank interest margin)

Net interest margin - one of the key performance assessment indicators banking. NIM is defined as the ratio of the difference between interest (commission) income and interest (commission) expenses to the assets of a financial organization.

The formula for calculating net interest margin is as follows:

NPM = (DP - RP)/BP,

DP - interest (commission) income;
RP - interest (commission) expenses;
AD - income-generating assets.

Generally, NIM figures for financial institutions can be found in open sources. This indicator is very important for assessing the stability of a financial organization when opening an account with it.

2.5 Security margin

Guarantee Margin is the difference between the value of the collateral and the amount of the loan issued.

2.6 Credit margin

Credit margin - the difference between the estimated value of the goods and the amount of credit (loan) issued financial institution to purchase this product.

2.7 Bank margin

Bank margin (bank margin) is the difference between credit and deposit interest rates, credit rates for individual borrowers, or interest rates on active and passive transactions.

The BM indicator is influenced by the terms of loans issued, the shelf life of deposits (deposits), as well as interest on these loans or deposits.

2.8 Front and back margin

These two terms should be considered together because they are connected to each other

Front margin is the profit from the markup, and back margin is the profit received by the company from discounts, promotions and bonuses.

3. Margin and profit: what's the difference?

Some experts are inclined to believe that margin and profit are equivalent concepts. However, in practice these concepts differ from each other.

Margin is the difference between indicators, and profit is the final financial results. The profit calculation formula is given below:

Profit = B – SP – CI – UZ – PU + PP – VR + VD – PR + PD

B - revenue;
SP - cost of production;
CI - commercial costs;
LM - management costs;
PU - interest paid;
PP - interest received;
VR - unrealized expenses;
UD - unrealized income;
PR - other expenses;
PD - other income.

After this, income tax is charged on the resulting value. And after deducting this tax it turns out - net profit .

To summarize all of the above, we can say that when calculating the margin, only one type of cost is taken into account - variable costs, which are included in the cost of production. And when calculating profit, all expenses and income that the company incurs in the production of its products (or provision of services) are taken into account.

4. What is the difference between margin and markup?

Very often, margin is mistakenly confused with trading margin. Extra charge- the ratio of profit from the sale of a product to its cost. To avoid any more confusion, remember one simple rule:

Margin is the ratio of profit to price, and markup is the ratio of profit to cost.

Let's try to determine the difference using a specific example.

Suppose you purchased a product for 1000 rubles and sold it for 1500 rubles. Those. the size of the markup in our case was:

H = (1500-1000)/1000 * 100% = 50%

Now let's determine the margin size:

M = (1500-1000)/1500 * 100% = 33.3%

For clarity, the relationship between margin and markup indicators is shown in the table below:

Important point: The trading margin is very often more than 100% (200, 300, 500 and even 1000%), but the margin cannot exceed 100%.

In order to better understand the difference between these two concepts, I suggest you watch a short video:

5. Conclusion

As you can already understand, margin is an analytical tool for assessing the performance of a company (with the exception of stock trading). And before increasing production or introducing a new product or service to the market, it is necessary to estimate the initial value of the margin. If you increase the selling price of a product, but the margin does not increase, then this only means that the cost of its production is also increasing. And with such dynamics, there is a risk of being at a loss.

That's probably all. Hopefully, you now have the necessary understanding of what margin is and how it is calculated.

P.S.: If, after studying the above material, you still have questions, then ask them in the comments to this article. Be sure to like and share links to the article with your friends and colleagues on social networks.

One of the most commonly used terms in macroeconomics is margin. Translated from English word margin means “difference”. What exactly is this term called and what is it used for? We will try to talk about this as clearly as possible.

Introduction

If you turn to Wikipedia, you can find out that margin is the difference between the company’s revenue and the total cost of production. This indicator is absolute; it reflects the overall success of the company in its main and additional activities.

Margin is the difference between revenue and cost of goods

The absolute nature of this indicator allows it to be used only for internal statistics and analysis, so it is not possible to compare branches or companies by margin. To do this, you should use relative indicators, for example, profitability.

What is classic margin?

In micro/macroeconomics, gross profit is the profit that was received taking into account the full revenue and total costs of providing the service/creating the product. This term most closely matches the Russian term “total profit received from the sale of all kinds of services or finished goods.”

Note: The concept of marginal income denotes the difference from the revenue received by the enterprise to the total variable costs of providing a service or producing a product.

When the expression “margin” is used in the financial field, it usually means the difference in interest rates or various securities. Banks also use this concept- for them it means the difference between deposits and loans issued.

Let's look at what margin is in trading and what it depends on. In trade, this concept refers to the amount of interest that is added to the purchase price to make a profit. In any case, the result of the activities of all enterprises is to obtain the maximum margin or profit.

A high-margin product is a product for which there is always a consistently high demand and a small percentage of supply on the market. Each seller tries to sell products with high margins: they not only increase the average check, but also provide the largest profit. "Business. Ru" has compiled a list of the highest-margin products of 2019.

What you will learn about:

Products with high margins for business in 2019

Margin, in the simplest sense of the word, is a kind of synonym for the word “profit”, that is, the difference between the cost of a product and its selling price. It is the revenue received from its sale that is the “margin”.
Therefore, the higher the “margin” received for a product, the more high-margin it is.

That is why retailers all over the world today have the most important goal - to sell high-margin goods in large volumes, thereby increasing their profits.

Today there are several types of margin: exchange, credit, banking, guarantee, maintenance, trading. In our article we will talk specifically about trading (market) margin. We all know that a trading company can stay afloat only by marking up goods, which is necessary to make a profit.

The Business.Ru Retail program will help you calculate the marginality of not only a specific product, but also the entire store. It will also make it easy to automate workplace cashier, work with weighted goods, maintain warehouse records and sales analytics. Supports 54-FZ and EGAIS.

By “increasing” a trade markup on a product of one hundred, two hundred, and sometimes three hundred percent, each seller is chasing profit. What “stimulates” them in this process is that today in our country maximum size There is no margin established, which means any seller or owner of a service enterprise can set any margin depending on their needs and demand for the product.

Important! If the markup on your goods is prohibitively high, then simply no one will buy such things or products.

Introducing your range of products retail store new products, you must use calculations to determine the optimal level of markup to obtain the desired level of margin after covering all costs.

Buyers of goods and consumers of services will never know how much money they actually overpay for goods - we can only guess about it. On average, the margin level is 20–30% of the cost of a product or service, but for different categories of goods the margin can reach 1000%. And, despite this, they are actively bought.

This, for example, is the purchase of items from world-famous brands - consumers overpay hundreds of times the cost of these goods and, of course, will continue to do so.

In general, all products can be divided into three categories:

1. Low-margin goods. These types of goods are sold everywhere, the demand for them is quite high, but due to the fact that such things can be bought on every corner, you cannot put too much of a markup on them. The purchase price of these goods is quite low, which means that a margin of more than 10-20% is not established on them. But, at the same time, such products are the best-selling, which means they will quickly “leave” from store windows.

The profitability of selling low-margin goods lies in the fact that the benefit from them can be “removed” due to their good turnover, that is, “taken” by the number of goods sold. For example, low-margin goods include household chemicals, toys, children's products, non-food products, etc. As for the service sector, the most low level margins are noted in the field of transport transportation;

2. Medium-margin products. For such groups of goods, the markup is higher than for low-margin goods, and all because these are no longer everyday goods and there are significantly fewer offers on the market. This category includes household appliances; in some stores the margin is 30-40% of their cost, or, for example, building materials;

3. High-margin goods– these are goods that sell well “here and now”. They are the most coveted among retailers. These can be new items, “seasonal goods” or goods for which demand is high on certain days of the year, or goods for which demand is always consistently high, regardless of the time of year, the economic situation in the country and the income level of the population.

This includes Apple products, things famous brands and brands, jewelry and products from precious metals etc. There is always a demand for such goods, which means that 100% mark-up will not scare away customers!

As for the service sector, the absolute leader here, receiving the largest margin, is public catering enterprises. And this applies to both small cafes and elite restaurants, where a cup of coffee, the cost of which is no more than 40 rubles, can be sold for 400, or even a thousand rubles.

How to choose a profitable product to sell: ideas for business

Important! The cheaper the cost of a product at which the retailer purchased it for further resale, the lower the markup on it will be, and therefore the size of the margin.

You can automate the calculation of the cost of goods and trade margins by connecting

• add up the average cost of transportation costs spent on delivering goods to the store;
• the average cost of servicing a client, including the salary of the seller, the cost of maintaining a trading enterprise;
• funds invested in advertising one unit of goods, as well as other costs.

Based on these components, you will receive the amount of markup on your product, which can be set on the goods.

Today, in a difficult economic period for the country, many retailers are tormented by the question: what high-margin products should be introduced into the store’s assortment to increase the average check and obtain the greatest profit?

The online magazine “Business.ru” lists the top 10 high-margin goods that can be sold at the highest markup in 2019.

Top 10 product categories with the highest markups

Beverages

Imported copies can cost up to a hundred rubles or more. For example, in resort towns (on the Russian Black Sea coast or abroad), the cost of bottled water in a five-liter container can reach several hundred rubles. And still, tourists will buy drinking water at such “crazy” prices.

This is certainly beneficial for sellers - the markup on water here can reach 100, 200, or even 500 percent, and in fact it actual cost differs many times from the price presented in the store.

The same can be said about drinks in catering establishments. The price of drinks can be increased several times. Even just adding to your assortment grocery store hot tea or coffee, cocktails or refreshing drinks, you can “win” a decent amount of money and get a good margin.

Flowers

Selling flowers is always profitable, especially during the holidays. And, if you can competently and beautifully “introduce” the sale of flowers into the store’s assortment, then this will become a stable source of constant profit, since any flowers today are goods with a consistently high markup. The only problem lies in finding a reliable supplier who can deliver flowers at an attractive wholesale price for you.

Handmade

Today, exclusive handmade products are wildly popular all over the world. It is very difficult to estimate their cost, which means that when selling and reselling them, the seller is free to “inflate” any price. Hand-made products include dolls self made, hand-sewn clothes, accessories, beautifully designed interior items, original designer “things” and similar beautiful and stylish little things.

Retailers are confident that with the right approach, adding such exclusive hand-made items to the store’s product range, you can make a fortune in the shortest possible time. The margin level here is really high, demand is also high, and the supply market is still relatively calm.

This type of high-margin goods is suitable for various stores: from furniture stores to clothing stores, children's goods, accessories, etc. Handmade products are really profitable to sell to any retailer today.

You can automate the calculation of the cost of goods and trade margins by connecting

Accessories for the holiday

That is why many retailers are introducing these high-margin products into their store assortment: cards, balloons, room decorations, “caps,” as well as wedding accessories, posters, flags and much, much more. The cost of all these goods is a pittance, but the “margin” from their sale can reach hundreds and thousands of rubles. In addition, the demand for such products is always high.

Bijouterie

The markup on products made of colored plastic and glass - costume jewelry - can reach three hundred percent. Sometimes the cost of simple beads or accessories famous brands can reach the cost of jewelry made of gold or silver. In other words, it is through the sale of “penny” jewelry that you can get particularly large revenues in the store.

Expensive alcohol

And if, for example, in an average restaurant the cost of a bottle good wine at least triples, then even in a grocery store, if you “increase” the markup by 100%, you will get a good profit. For elite alcohol and rare wines, this is far from the limit - alcohol has been and remains the highest-margin product and brings net constant profit to those involved in its retail sale.

Have you opened a store, delivered goods, kept records and are thinking about automating its work? Pay attention to the commodity accounting program Business.Ru Retail. It will allow you to easily automate the cashier’s workplace, work with weighted goods, maintain warehouse records and sales analytics. It also supports 54-FZ and EGAIS.

Loose tea and coffee

For example, by purchasing teas directly from China and selling them in your store with a 300% increase in cost, you can definitely get significant benefits.

This high-margin product has long established itself, and today the most popular varieties of elite Chinese tea can be found on the shelves not only of tea shops, but even in sports stores in the sports nutrition departments and in retail grocery stores. Such a related product will in any case increase the average check in your store.

Cosmetics

The same goes for perfumes - their cost is much lower than market price. By making high-quality cosmetics or perfumes a related product in your store, you can increase the average check and receive consistently high profits. This option related products is also suitable for women's clothing stores, accessories, pharmacies, industrial goods stores and others.

Snacks and popcorn

The top ten products with the highest markups today certainly include such popular products as snacks, sweets, and popcorn. These options for related products are good for retail outlets located in shopping and entertainment centers. Also, these are generally really high-margin products.

For example, by opening even a small point selling chewing marmalade, which children love so much, popcorn and other snacks near a movie theater, in an amusement park, near a city water park, near children's playgrounds, you can recoup all costs in a matter of months.

Just imagine: the cost of raw materials for popcorn - dry corn kernels - is ten times lower than the cost of ready-made hot popcorn!

And even the minimal costs of its production do not justify the high prices for this type of product: in cinemas the price of a box of hot popcorn can reach a thousand rubles.

The same goes for other sweets, chewing marmalade, cotton candy, ice cream - these high-margin products are always loved and desired among children, and that is why parents are ready to “spend” a tidy sum for them.

By adding, for example, to the assortment of a children's goods store a stand with “related” products - candies and chewing marmalade - you will receive tangible benefits after a short time.

Accompanying services

For example, for a clothing store - these are clothing fitting services, for a furniture store - furniture collection and delivery services, for a store household appliances– repairing it, refilling cartridges, installing software at home, for a flower shop – bouquet delivery services, decorating premises with fresh flowers, etc.

You just have to use your imagination, come up with a high-margin related service for your business, and you can not only increase profits, but also make them stable, thereby diversifying your business and finding new ways to generate income. It is this “niche” that is recognized by marketers and retailers as the most promising and profitable.

In general, experts advise entrepreneurs in the retail sector not to be afraid to take risks and introduce high-margin products into the store’s assortment. With a competent approach, weighing all the pros and cons, analyzing the market and competitors, you can increase your profits.

But you shouldn’t think that everything is so rosy: today, even when selling high-margin goods in a store, certain difficulties may arise, which means that an entrepreneur must be able to quickly respond to all changes in demand and the market, monitor the situation and try to keep up with the demands of the population .

The concepts of markup and margin, which many have heard, are often denoted by one concept - profit. In general terms, of course, 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 with the same brush,” and we will also figure out how to correctly calculate the margin.

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What is the difference between markup and margin?

Margin 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, measured as a percentage, have been subtracted. Due to the calculation features, the margin cannot be equal to 100%.

Extra charge- this is the amount of the difference between the product and its selling price at which it is sold 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 goods. The size of the markup 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, as a percentage 33.3% – margin;
• (150-100)/100=0.5, as a percentage 50% – markup;

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

Differences between margin and markup:

1. Maximum permissible volume– the margin cannot be equal to 100%, but the markup can.
2. Essence. The margin reflects income after deducting necessary expenses, and the markup is an addition to the cost of the product.
3. Calculation. The margin is calculated based on the organization’s income, and the markup is calculated based on the cost of the goods.
4. Ratio. If the markup is higher, then the margin will be higher, but the second indicator will always be lower.

Calculation

Margin is calculated using the following formula:

OTs – SS = PE (margin);

Explanation of indicators used when calculating margin:

• PE– margin (profit per unit of goods);
• OC
• JV– cost of goods;

Formula for calculating margin or percentage of profitability:

• TO– profitability ratio as a percentage;
• P. – income received per unit of goods;
• OC– the cost of the product at which it is sold to the buyer;

In modern economics 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 profitability ratio from sales and profit per unit of goods.

When talking about margins, economists and marketers note the importance of the difference between profit per unit of goods and the overall profitability ratio for sales. Margin is an important indicator, as it is a key factor in pricing, the profitability of marketing spend, as well as analyzing client profitability and forecasting overall profitability.

How to use a formula in Excel?

First you need to create a document in Exc format.

An example of a calculation would be the price of a product at 110 rubles, while the cost of the product will be 80 rubles;

Markups are calculated using the formula:

N = (CP – SS)/SS*100

Gde:

• N– markup;
• CPU- Selling price;
• SS– cost of goods;

Margins are calculated using the formula:

M = (CP – SS)/CP*100;

• M– margin;
• CPU- Selling price;
• SS– cost;

Let's start creating formulas for calculations in the table.

Calculation of markup

Select a cell in the table and click on it.

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

• =(price – cost)/ cost * 100 (press ENTER);

If you fill out the markup field correctly, the value should be 37.5.

Margin calculation

• =(price – cost)/ price * 100 (press ENTER);

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

When receiving an unclear value, for example 27, 272727…. You need to select the required number of decimal places in the “cell format” option in the “number” function.

When making calculations, you must 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 refers to the profit earned by an organization from the sale of goods and the variable costs of its production, maintenance, sales and storage.

There is also a formula to calculate gross margin.

She looks like this:

VR – Zper = gross margin

• VR– the profit the organization receives from the sale of goods;
• Zper. – costs of production, maintenance, storage, sales and delivery of goods;

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

Gross margin, or margin in other words, in Europe, is a percentage of the total income of an enterprise from the sale of goods after paying all necessary expenses. Gross margin calculations in Europe are calculated as percentages.

Differences between exchange and margin in trading

To begin with, let’s say that such a concept as margin exists in different areas, such as trading and the stock exchange:

1. Margin in trading– a fairly common concept due to trading activities.
2. Exchange margin– a specific concept used exclusively on stock exchanges.

For many, these two concepts are completely identical.

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

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

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

When calculating using 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. Margin on exchanges is the difference in changes in quotes. After opening a position, margin calculation begins.

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 five minutes later the cost increased to 110,100 points.

The total size of the variation margin was 110000-110100=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 into the accumulated income. The next day everything will repeat again according to the same pattern.

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