The difference between the selling price and the cost price. Manufacturing margin

Margin (English margin - difference, advantage) is one of the types of profit, an absolute indicator of the functioning of an enterprise, reflecting the result of primary and additional activities.

Unlike relative indicators (for example, ), margin is necessary only for analyzing the internal situation in the organization, this indicator does not allow comparing several companies with each other. In general terms, margin reflects the difference between two economic or financial indicators.

What is margin

Margin in trading– this is a trade margin, a percentage added to the price to obtain the final result.

What mark-up and margin are in trading, as well as how they differ and what you should pay attention to when talking about them, is clearly explained in the video:

IN microeconomics margin(grossprofit - GP) - a type of profit that reflects difference between revenue and costs for manufactured products, work performed and services provided, or the difference between the price and the cost of a unit of goods. This type of profit coincides with the indicator “ profit from sales».

Also within economics of the company allocate marginal income(contribution margin - CM) is another type of profit that shows the difference between revenue and variable costs. This type of profit helps to draw conclusions about the share of variable costs in revenue.

IN financial sector under the term " margin» refers to the difference in interest rates, exchange rates and securities and interest rates. Almost all financial transactions are aimed at obtaining margin - additional profit from these differences.

For commercial banks margin– this is the difference between the interest on loans issued and deposits used. Margin and marginal income can be measured both in value terms and as a percentage (the ratio of variable costs to revenue).

On securities market under margin refers to collateral that can be left to obtain a loan, goods and other valuables. They are necessary for transactions on the securities market.

A margin loan differs from a traditional loan in that the collateral is only a portion of the loan amount or the proposed transaction amount. Typically the margin is up to 25% of the loan amount.

Margin also refers to the advance of cash provided when purchasing futures.

Gross and percentage margin

Another name for marginal income is the concept of “ gross margin"(grossprofit – GP). This indicator reflects the difference between revenue and total or variable costs. The indicator is necessary for analyzing profit taking into account cost.

Interest margin shows the ratio of total and variable costs to revenue (income). This type of profit reflects the share of costs in relation to revenue.

Revenue(TR– total revenue) – income, the product of the unit price and the volume of production and sales. Total costs (TC – totalcost) – cost price, consisting of all costing items (materials, electricity, wages, etc.).

Cost price are divided into two types of costs - fixed and variable.

TO fixed costs(FC – fixed cost) include those that do not change when capacity (production volume) changes, for example, depreciation, director’s salary, etc.

TO variable costs(VC – variable cost) include those that increase/decrease due to changes in production volumes, for example, the earnings of key workers, raw materials, supplies, etc.

Margin - calculation formula

Gross Margin

GP=TR-TC or CM=TR-VC

where GP is gross margin, CM is gross marginal income.

Interest margin calculated using the following formula:

GP=TC/TR orCM=VC/TR,

where GP is interest margin, CM is interest margin income.

where TR is revenue, P is the price of a unit of production in monetary terms, Q is the number of products sold in physical terms.

TC=FC+VC, VC=TC-FC

where TC is the total cost, FC is fixed costs, VC is variable costs.

Gross margin is calculated as the difference between income and costs, percentage margin is calculated as the ratio of costs to income.

After calculating the margin value, you can find contribution margin ratio, equal to the ratio of margin to revenue:

K md =GP/TR or K md =CM/TR,

where K md is the marginal income coefficient.

This indicator K md reflects the share of margin in the total revenue of the organization; it is also called rate of marginal income.

For industrial enterprises the margin rate is 20%, for retail enterprises – 30%. In general, the marginal income coefficient is equal to profitability of sales(by margin).

Video - profitability of sales, the difference between margin and markup:

Margin is one of the determining factors in pricing. Meanwhile, not every aspiring entrepreneur can explain the meaning of this word. Let's try to rectify the situation.

The concept of “margin” is used by specialists from all spheres of the economy. This is, as a rule, a relative value, which is an indicator. In trade, insurance, and banking, margin has its own specifics.

How to calculate margin

Economists understand margin as the difference between a product and its selling price. It serves as a reflection of the effectiveness of business activities, that is, an indicator of how successfully the company converts into.

Margin is a relative value expressed as a percentage. The margin calculation formula is as follows:

Profit/Revenue*100 = Margin

Let's give a simple example. It is known that the enterprise margin is 25%. From this we can conclude that every ruble of revenue brings the company 25 kopecks of profit. The remaining 75 kopecks relate to expenses.

What is gross margin

When assessing the profitability of a company, analysts pay attention to gross margin - one of the main indicators of a company's performance. Gross margin is determined by subtracting the cost of manufacturing a product from the revenue from its sale.

Knowing only the size of the gross margin, one cannot draw conclusions about the financial condition of the enterprise or evaluate a specific aspect of its activities. But using this indicator you can calculate other, no less important ones. In addition, gross margin, being an analytical indicator, gives an idea of ​​the company's efficiency. The formation of gross margin occurs through the production of goods or provision of services by the company's employees. It is based on work.

It is important to note that the formula for calculating gross margin takes into account income that does not result from the sale of goods or the provision of services. Non-operating income is the result of:

• writing off debts (receivables/creditors);
• measures to organize housing and communal services;
• provision of non-industrial services.

Once you know the gross margin, you can also know the net profit.

Gross margin also serves as the basis for the formation of development funds.

When talking about financial results, economists pay tribute to the profit margin, which is an indicator of the profitability of sales.

Profit Margin is the percentage of profit in the total capital or revenue of the enterprise.

Margin in banking

Analysis of the activities of banks and the sources of their profit involves the calculation of four margin options. Let's look at each of them:

1. 1. Banking margin, that is, the difference between loan and deposit rates.
2. 2. Credit margin, or the difference between the amount fixed in the contract and the amount actually issued to the client.
3. 3. Guarantee margin– the difference between the value of the collateral and the amount of the loan issued.
4. 4. Net interest margin (NIM)– one of the main indicators of the success of a banking institution. To calculate it, use the following formula:

   NIM = (Fees and Fees) / Assets
   When calculating the net interest margin, all assets without exception can be taken into account or only those that are currently in use (generating income).

Margin and trading margin: what is the difference

Oddly enough, not everyone sees the difference between these concepts. Therefore, one is often replaced by another. To understand the differences between them once and for all, let’s remember the formula for calculating margin:

Profit/Revenue*100 = Margin

(Sales price – Cost)/Revenue*100 = Margin

As for the formula for calculating the markup, it looks like this:

(Selling price – Cost)/Cost*100 = Trade margin

For clarity, let's give a simple example. The product is purchased by the company for 200 rubles and sold for 250.

So, here is what the margin will be in this case: (250 – 200)/250*100 = 20%.

But what will be the trade margin: (250 – 200)/200*100 = 25%.

The concept of margin is closely related to profitability. In a broad sense, margin is the difference between what is received and what is given. However, margin is not the only parameter used to determine efficiency. By calculating the margin, you can find out other important indicators of the enterprise’s economic activity.

In the vast majority of cases, a person who decides to become an entrepreneur does not have sufficient knowledge in the field of doing business. First you need to try to understand the essence of the main financial and economic terms. Most novice businessmen have no idea what margin is. This term has a fairly broad interpretation, that is, for each individual field of activity the meaning may be slightly different.

The term “margin” means the difference obtained after deducting the cost of goods from the selling price, interest rates from quotations established on exchanges. This concept is often found in the field of stock trading, as well as banking, trade and insurance. Each specific direction has characteristic nuances. The margin can be indicated in percentage or absolute values.

The term “margin” in trading is calculated using the following formula:

Margin=(Product cost-Cost price)/Product cost*100%

Each indicator necessary for the calculation taken into account in the formula can be presented in dollars, rubles and other absolute values.

In the course of analyzing the operation of an institution, the economist, who is an analyst, initially calculates the gross margin. This indicator represents the difference between the total revenue received from the sale of goods and the amount of additional costs. This type of spending also includes costs of a variable nature, which are directly dependent on the presented volumes of manufactured goods. Net profit, which became the basis for the formation of fixed assets, is in direct proportion to the size of the gross margin.

It is also necessary to remember that the term “margin” in modern economic theory differs from the same concept, but in Europe. Abroad, the margin is considered a percentage rate that determines the ratio of the profit received by the company to the sales of manufactured products at the selling price. This value is used to establish an assessment of the level of performance of a particular organization in the trade and economic spheres. On the territory of the Russian Federation, margin represents the net profit received from a transaction, namely profit minus costs, including cost.

Bank margin

In the activities of bankers, a frequently encountered concept is the credit margin, which is considered the difference obtained after deducting the contract amount of the product from the amount received by the borrower in actual hands. The loan agreement specifies each amount agreed upon in the transaction.

Bank profit directly depends on the volume of bank margin. To analyze the profitability of banking activities, an indicator such as “net interest margin” is suitable, calculated as the difference calculated between the capital and net interest income of a credit institution. The bank earns net interest income through lending and investing.

The term "guarantee margin" is considered when a bank provides a loan against collateral. This ratio is calculated by subtracting the loan amount from the price of the property pledged as collateral.

Margin and exchange activity

Variation margin is used to organize futures trading. Its name is explained by regular changes (variations). Margin calculation begins from the moment the position was opened.

For example, a futures contract was purchased, the cost of which was 150 thousand marks on the RTS index, after some time the price increased and amounted to 150.1 thousand. The variation margin in the situation under consideration will be equal to one hundred points or approximately sixty-seven rubles. Provided that no profit is taken and the position is kept open, after the end of the trading session the variation margin indicator will develop into the income accumulated over the time passed. Margin calculation starts anew every day.

To put it simply, margin will be equal to the profit or loss received from one position that was opened during one trading session. When a position remains open for several sessions, the total will be the sum of the margin figures for each individual day.

Differences from markup

The best known term is “trading margin”, which is found in many areas of activity. The distinctive, more complex concept of “exchange margin” can only be found on the exchange. However, many beginners are confused about the trading margin ratio, regardless of how often it is used. The main mistake is to equate the trading margin and trading margin.

It is quite easy to identify the differences between the two indicators. The term “margin” is defined as the ratio of the proceeds to the price established on the market. The markup is equal to the ratio of the profit received from the sale of products to the calculated cost.

Margin and profit

As mentioned above, the term “margin” is interpreted differently in the European Union countries and in Russia. On the territory of the Russian Federation, margin is a concept similar to the term, so there is no fundamental difference in calculating profit and margin. It is important to remember that we are talking about profit, but not about markup.

However, there are still differences between one indicator and another. The term “margin” is the most important analytical indicator used on stock exchanges and in banking. The amount of margin provided by the broker is of significant importance to the trader. When analyzing the income received, the margin can be compared with the retail trade markup.

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 increase in 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– sale price;
• SS– cost of goods;

Margins are calculated using the formula:

M = (CP – SS)/CP*100;

• M– margin;
• CPU– sale 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.

It 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.

The collection is intended for specialists of trading companies who want to effectively manage the company's areas. That is, to create profitable product categories that allow the company to develop, and not exist!

Return on sales- this is another indicator that is used when.

When introducing new products into the assortment, the company determines optimal level of trade margin for products that meet the desired level margin (gross sales margin).

In the future, the company develops sales targets (amount of sales, margin) for a certain period of time (month, quarter, year). Then the planned margin level is controlled using two types of analysis - and.

To determine the difference between margin and trade markup, I propose to consider the example of the price structure for certain company products, which is shown in Diagram 1 below.

The company purchases products for 75 USD. It costs 25 USD to deliver goods from the supplier to the company’s warehouse. The total purchase of goods and delivery costs amount to 100 USD. These two components are the cost components. With current pricing, the company earns 30 USD. gross profit. Gross profit plus cost determines the company's selling price of 130 USD.

Now let's see what the trade margin is for this product? Trade margin– this is the ratio of gross profit to cost, that is, in our case, 30 USD. gross profit is divided by 100 USD. production costs. This way we understand how much we have marked up the cost.

Next, let's move on to the concept of margin (aka gross return on sales). Gross return on sales in our case – 23%. How is return on sales determined? Gross profit (30 cu) is divided by the selling price of the company (130 cu). That is margin is the ratio of gross profit to the company's selling price. Margin shows how much dirty, gross profit we earned from the sale amount.

As you can see, the difference between markup and margin is that gross profit, in the first case, is divided by cost. In the second case, the case with margin, it is on the company’s selling price.

It is worth saying that a markup is usually applied when pricing. That is, management or the financial department can tell the manager responsible for the product (purchasing manager) what the markup on the product should be. Extra charge is a pricing tool. With the help of trade margins, sales prices are formed.

But on the other hand there is profitability, sales profitability(margin). This indicator is usually used when analyzing a company - when determining. This indicator is mostly used by the finance department. It is the financial department that determines the level of profitability of sales that the company should have optimally so that the company can develop normally in the future.

It is worth saying that the ultimate goal of the finance department is to determine the company's net profit. Financiers know a more detailed breakdown of costs that are included in gross profit. As you know, gross profit consists of net profit and operating costs that a company incurs for its activities. The level of operating costs is defined as the ratio of the amount of operating costs to the amount of company sales for a certain period. That is, let's say we know that the company's operating costs are 15.4% of the company's sales price - in our case it is 20 USD. from 130 USD Thus, the company understands that the gross profit for this product will include operating costs at the level of 20 USD. If we subtract from 30 USD gross profit 20 USD operating costs, then the company will receive a net profit of 10 cu. If you divide 10 USD net profit on the company's selling price of 130 cu, then we get that the company's net profitability of sales will be 7.6%. That is, as you understand, net sales profitability- this is the ratio of the amount of net profit of the company for a certain sale of products to the selling price for these products.

Based on the proposed scheme, it can be seen that formulas for trade markups and margins have the following form.

Trade markup formula:

% markup =((P.C. - SEB.) / SEB.) * 100

Margin formula:

margin (%) =((P.C. - SEB.) / P.C.) * 100

where, P.C. – the company’s selling price in USD,

SEB. – cost of production in c.u.

Let's substitute the price components into the proposed formulas (Scheme 1):

• % markup= ((130 y.e. – 100 y.e.)/100y.e.)*100 = 30%
• margin (%)= ((130 y.e. – 100 y.e.)/130 y.e.)*100 = 23%

So, we have figured out what a trade margin is, what a margin is, what is the difference between them, when, by whom and for what these concepts are used.