This strange phrase is often found today in articles on economic topics. Let's figure out what gross margin is, what it means, how it is calculated, etc.

What it is?

By definition, gross margin is the resulting sales revenue after all variable costs(costs of materials and raw materials, funds spent on selling products, wages to workers, etc.).

Sometimes financiers use the term “contribution margin.” This is the same as gross margin.

This concept is not suitable to characterize a company with financial side. However, it can be used to calculate other important indicators.

One of the components of calculating gross margin is variable costs. In reality, they are considered directly proportional to the total volume of production.

Any enterprise wants the costs it makes per unit of finished product to be as low as possible. This will provide an opportunity to get high profits. Over time, variations in production volume may increase or decrease. However, their ongoing impact on one unit of finished product is constant.

The concept of gross margin is essential for financiers. It allows them to conduct an operational analysis of the enterprise.

Sometimes this term is replaced by more familiar ones - the amount of covering expenses, marginal income. It is determined by the state pricing policy.

For each area of ​​activity, gross margin has its own meaning:

• for trade - this is a markup;
• in macroeconomics, this is a version of the profit that a company receives;
• in finance - this is the difference in percentages, exchange rates, shares;
• for banks - this is the interest difference that the bank receives as a result of issuing loans and opening deposits;
• The securities market uses this concept to determine the amount of credit taken to carry out transactions.

Cost is an important concept in commerce and economics. Here you will learn what types of costs exist and how this indicator is calculated.

What does gross margin show?

According to experts, gross margin allows you to understand whether a particular enterprise is able to cover everything fixed costs for the manufacture of their products, received from the proceeds from their sale. After carrying out the calculations, the economist can make an analysis and give appropriate recommendations.

It is generally accepted that the higher the obtained indicator, the higher the profit received by the company, provided that all fixed costs are taken away. The high percentage of gross margin indicates the high profit that was received from sales.

This indicator is used later to calculate another figure - the gross margin ratio.

In practice it looks like this. Let's say the company received an income of 45% for 3 months.

Then it is worth saying that she was able to save 45 kopecks from each ruble in her budget after her manufactured products were sold.

The saved amount will be used to cover wages, payment of utility and administrative costs, payments to shareholders, etc.

Gross margin has different meaning for different sectors of trade and production.

There is a relationship between this indicator and the turnover indicator of stored materials. It is inversely proportional. For example, for trading, this manifests itself as follows: the gross margin is higher in the case of low inventory turnover. If the turnover is high, then the gross margin percentage is lower.

For production, the margin figure should be even higher than in trade. This is due to the fact that the final product takes longer to reach the buyer.

Margin calculation formula

To determine this indicator, standard expressions are used:

GP = TR-TC or CM = TR – VC

• In them, GP shows the gross margin;
• CM – gross marginal income;
• TR – shows the revenue received by the company after selling products;
• T.C. full cost, which is found as follows.

TC = FC + VC,

• where FC – fixed costs;
• VC – variable costs.

Economists also use the expression interest margin. This indicator is used to analyze financial condition specific company. It is found as follows:

GP = TC/TR or CM = VC/TR

• In it, GP is the percentage margin indicator;
• CM – amount of marginal income as a percentage.

The gross margin indicator is found by subtracting the costs incurred from the income received.

But the percentage indicator allows you to find out what the ratio of costs to income is as a percentage.

The resulting calculated data allows you to find the marginal income indicator. This figure makes it possible to find out the ratio of margin to revenue received. Sometimes this indicator is called the rate of return margin:

Kmd = GP/TR

There are certain normal data that every organization must know in order to obtain a positive result. Here everything depends on the type of activity of the company in question: trade - 30%, industry - 20%. If the calculation results are as required, then the company is considered profitable.

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Video on the topic

When compiling an income statement, an accountant traditionally calculates several types of profit: gross, from sales, before taxes and net. In management accounting, another type is used - marginal.

The formula for calculating marginal profit is simple, but its application is ambiguous. It's connected with different understanding foreign terms.

Where did profit get its name?

The indicator received the prefix “margin” due to the principle of subtraction, which is used for calculation and was originally incorporated into the essence of margin.

Margin is the difference between the selling price of a specific product (work, service) and its cost. It comes in two types:

• Absolute – in in monetary terms as a financial result per unit of production;
• Relative – as a percentage of the sales price as a profitability ratio.

For example, in the banking industry, margin is the difference between interest rates on deposits and loans, and in marketing activities– extra charge.

To calculate margin, you can use several formulas:

• Margin = (Revenue – Cost): Quantity of products sold in natural units
• Margin = Price – Unit cost
• Margin (%) = (Price – Unit Cost) : Price

What is contribution margin and how to calculate it?

Marginal profit (income) is the part of the enterprise’s net income remaining after compensation for the variable costs it has incurred. In the future, marginal profit will be used to finance fixed costs and generate profits.

The calculation of this indicator implies a mandatory division of costs into two groups:

• Variables are costs that are linearly dependent on the scale of activity (the more products need to be produced, the larger they will be);
• Fixed costs are costs whose changes do not directly depend on production volumes. They will take place even if the company cannot produce or sell anything.

The separation method is determined by the accountant based on technological features enterprises and industries.

For determining overall size Marginal profit formula is applied:

Contribution Margin = Net Income – Variable Costs

If you need to determine its value per unit of production, then use the formula:

Marginal profit = (Net income - Variable costs) : Sales volume in natural units = Price - Variable costs per unit

Contribution Margin ≠ Gross Profit

Many accountants, when talking about profit, equate the concepts of “gross” and “margin”. In fact, they differ from each other in essence and in the calculation method.

Gross profit is revenue minus all production costs that relate to products sold in the reporting period.

Contribution margin is revenue minus all variable costs that were incurred to produce the products sold.

As you can see, to determine the gross financial result, you need to divide costs into production and non-production. This involves calculating the full production cost. To achieve marginal profit, you need to separate costs into variable and fixed. In this case, the variables will amount to the cost specific types products. Constants, which depend not on the volume of activity, but on time, should be considered as period costs (not included in the cost price).

Sometimes an accountant assumes that manufacturing costs are variable and non-production costs are fixed. But that's not true. For example, production costs include depreciation and equipment maintenance costs, which are constant in nature. And non-production costs include salesperson bonuses as a percentage of sales and are definitely variable.

Therefore, in order to correctly find the marginal profit, it is important to divide all the costs of the enterprise into variable and constant parts, regardless of the stage at which they arose.

The relationship between contribution margin and profit

Contribution margin shows how much money a company has left to:

• Cover fixed costs;
• Make a profit (before tax).

Therefore, the indicator is also called coverage or contribution to coverage, which is reflected in the formula:

Marginal profit = Fixed costs + Profit

In fact, this is the upper limit of profit when the value of fixed costs changes over time, namely:

• How larger size fixed costs, the lower the profit;
• The company will incur losses if the level of fixed costs exceeds the marginal profit;
• Profit reaches its maximum when fixed costs tend to zero.

These patterns are very important for analysis in order to understand how changes in volumes will affect the financial result. Changes (Δ) of two indicators can be expressed as follows:

Δ MP = Δ BH – ΔZ AC and ΔOP = ΔBH – (ΔZ AC + ΔZ DC)

where BH is net income; Z variable – variable costs;

3rd post - fixed costs.

When the scale of production and sales changes, 3 post remain at the same level, that is, Δ3 post = 0.

Then we get a logical relationship:

ΔOP = ΔBH – (ΔZ variable + 0) = Δ MP

Conclusion: by assessing the dynamics of marginal profit, we can say how much the entire profit will increase or decrease.

Marginal profit ratio and its application

Marginal profit ratio (KMP) is specific gravity marginal profit in net income. It shows how many kopecks of profit each additional ruble of revenue will bring. Calculated using the formula:

(K MP) = Marginal profit: Net income

(K MP) = Variable costs per unit: Price

This indicator is important in making management decisions market oriented. It is a constant value and does not depend in any way on the volume of activity. With its help, you can predict how much the financial result will change if sales growth or decline is expected:

ΔOP = ΔBH × K MP

For example, if at KMP = 0.3 it is planned to increase sales volume by 120,000 rubles, then we should expect an increase in profit by 36,000 rubles. (120,000 × 0.3).

The break-even point (profitability threshold) is the level of production at which the enterprise's expenses are at the level of income and profit is zero.

By lowering production below this level, the enterprise receives a loss, and by increasing it, it begins to make a profit. To find this indicator in monetary terms, use the profit ratio:

Break-even point = Fixed costs: K MP

This formula is convenient in that it allows you to calculate the break-even level of sales even for enterprises that produce a wide range of products, since there is no need to take into account the price of each individual unit.

The coefficient (K MP) will allow the company:

• Determine the critical level of production and control it;
• Planning expansion of activities, with high accuracy predict changes in profit;
• If financial indicators are negative, calculate a new break-even point and adjust the production and sales plan.

The main disadvantage: this only works ideally when the products are fully sold, that is, there is no work in progress and no leftover finished goods at the end of the month.

Calculations are made to control the company's activities various types margin, an indicator that reflects how profitable the production of a product is. Below we will describe the formula for calculating margins in various areas.

Margin ( literal translation from French - difference, advantage) is the difference between cost and price. This term is often used to replace the concept “”. The concept of "margin" is used in industrial production, banking, stock exchange operations, trade. In the work of banks, the value determines the profitability/unprofitability of a financial transaction. Calculations are carried out to determine the gross and percentage indicators.

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

There is a calculation of net margin, which shows the profitability of a business. This is the net profit that remains after paying all expenses. The operating form is calculated as the share of operating profit in the company's cash turnover.

Formula for marginal profit for banks

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

1. The credit amount is determined as the difference between the amount specified in the credit agreement and actually received by the client.
2. The guarantee is the difference between the collateral and the loan amount issued to the client.
3. Net interest form is the main indicator of the bank’s activities. When calculating the value, all assets of the financial institution are taken into account. The value is calculated using 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, a margin loan 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 deposit smaller size loan or financial transaction. The standard share of the indicator is 25% of the loan amount.

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

Calculation of gross and percentage form

Marginality can be gross or percentage. The gross indicator reflects the performance of the company. It is formed on the basis of labor costs and the provision of services. The gross value does not include funds for rent, staff salaries, and utility costs.

Gross indicator is the difference between profit and labor costs. Gross margin shows the level of profit from . An organization is considered to be operating successfully 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 contribution margin = revenue – variable costs

This is the marginal profit that is used to calculate financial transactions. Marginal income does not reflect the state of the organization; it shows the costs 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 income. The value shows the share of costs in relation to profits.

Rules for calculating margins in the video:

It is calculated like this:

Percentage margin = total cost / revenue

Or percentage contribution margin = variable costs / revenue

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

How is margin calculated as a percentage in the Russian Federation?

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

Margin = net profit / income x 100

If the value is 30%, this means that out of every ruble of income, 30 kopecks are net profit, and 70 kopecks are the company’s expenses. Margin calculation shows the profitability of the enterprise. This is an indicator of income received from financial investments. In fact, margin is profitability.

Margin ratio

The marginality ratio is the ratio of gross profit to revenue. In percentage terms, this is the work of the organization. The higher the margin, the more efficiently the institution operates, the more profit the organization receives. Development fund calculations are made based on the marginality ratio.

The marginality 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 calculations, decisions are made to reject unprofitable goods or change technology, increase or decrease the output of goods.

Sales margin calculation

Before introducing a new product to the market, the profitability of sales is calculated. To do this, a calculation is made of the optimal markup on the product that provides the expected profit. The calculation is done for different periods - month, quarter, year. On initial stage operational and monthly profitability monitoring is carried out. After production stabilizes, 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 costs at all stages of doing business. Therefore, profit is less than margin. As margins grow, so do profits. In relation to profit, margin is profit divided by market value product.

Income shows the final result of the organization’s work, margins determine the price. Based on it they do:

• marketing cost calculations
• analyze customer flow
• calculate income level

Commercial activity involves making a profit. Margin is the most striking measure of the success of an enterprise.

Level of medium and large margins

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

Financiers distinguish between medium, small and 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 enterprise 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 trading margin

When the margin is calculated in %, beginners confuse it with a markup. Margin is the ratio of the difference between the selling price and the cost to the selling price. Markup is the ratio of the difference between the selling price and the cost to the cost. In monetary terms, these values ​​are the same. In percentage terms they differ.

: a product was bought for 50 rubles, sold for 150. Profit is (150 – 50) / 50 = 2 x 100% = 200%.

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

Video about the difference between these two indicators:

Table 1. Differences between margin and markup.

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

Indicator analysis

By studying marginality, they get a complete picture of the organization’s performance. It shows how profitable/unprofitable the enterprise is. Using the indicator, the following is determined and controlled:

• profitability of the 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
• most expensive projects
• how much does each service cost?

Profitability analysis allows you to respond in a timely manner to a decrease in profitability and increase the cost of services. If the need arises, unprofitable projects are abandoned.

For an accurate picture, a quarterly figure is calculated. If the enterprise operates stably, annual payments are limited.

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

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The concepts of markup and margin, which many have heard, are often denoted by one concept - profit. IN general outline, 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.

Dear reader! Our articles talk about standard methods solutions legal issues, but each case is unique.

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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 product.
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 by 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 economy and marketing when we're talking about Regarding margin, 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.

Upon receipt unknown meaning, 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 stock exchange:

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