What is margin in trading? What is marginality? Analysis and calculation of the indicator Products with high, medium and low margins

Today, the term “margin” is widely used in stock exchange, trading, and banking. Its main idea is to indicate the difference between the selling price and the cost per unit of product, which can be expressed either as profit per unit of production or as a percentage of the selling price (profitability ratio). What is marginality? In other words, this is the return on sales. And the coefficient presented above serves as the main indicator, because it determines the profitability of the enterprise as a whole.

What is the commercial meaning and significance of this term? The higher the ratio, the more profitable the company. This means that the success of a particular business structure is determined by its high margins. That is why it is advisable to base all decisions in the field of marketing strategies, which, as a rule, are made by managers, on the analysis of the indicator in question.

What is marginality? It should be remembered: margin is also a key factor in predicting the profitability of potential clients, developing pricing policies and, of course, the profitability of marketing in general. It is important to note that in Russia marginal profit is often called gross profit. In any case, it represents the difference between the profit from the sale of the product (without excise taxes and VAT) and the costs of the production process. Coverage amount is the second name of the concept being studied. It is defined as the portion of revenue that goes directly to generating profit and covering costs. Thus, the main idea is to increase the profit of the enterprise in direct proportion to the rate of recovery of production costs.

To begin with, it should be noted that the calculation of marginal profit is made per unit of manufactured and sold product. It is he who makes it clear whether we should expect an increase in profit due to the release of the next product unit. The marginal profit indicator is not a characteristic of the economic structure as a whole, but it allows one to identify the most profitable (and most unprofitable) types of product in relation to the possible profit from them. Thus, marginal profit depends on price and variable production costs. To achieve the maximum indicator, you should either increase the markup on products or increase sales volumes.

So, the marginality of a product can be calculated by using the following formula: MR = TR - TVC (TR is the total profit from the sale of the product; TVC is variable costs). For example, the production volume is 100 units of goods, and the price of each of them is 1000 rubles. In turn, variable costs, including raw materials, wages to employees and transportation, amount to 50,000 rubles. Then MR = 100 * 1000 – 50,000 = 50,000 rubles.

To calculate additional revenue, you need to apply another formula: MR = TR(V+1) - TR(V) (TR(V) – profit from sales of products at current production volume; TR(V+1) – profit in case increase in output by one unit of goods).

Marginal profit and break-even point

It is important to note that the margin (formula presented above) is calculated in accordance with the division of fixed and variable costs in the pricing process. Fixed costs are those that would remain the same even if there was zero output. This should include rent, some tax payments, salaries of employees in the accounting department, human resources department, managers and maintenance personnel, as well as repayment of loans and borrowings.

The situation in which the contribution to the covering is equal to the amount of fixed costs is called the break-even point.

At the break-even point, the volume of sales of goods is such that the company has the opportunity to fully recoup the costs of producing the product without making a profit. In the figure above, the break-even point corresponds to 20 units of product. Thus, the income line crosses the cost line, and the profit line crosses the origin and moves into a zone where all values are positive. In turn, the marginal profit line crosses the line of fixed production costs.

Methods for increasing marginal profit

The question of what marginality is and how to calculate it is discussed in detail. But how to increase marginal profit and is it a priori possible? Methods for raising the MR level are mostly similar to methods for increasing the overall level of income or direct profit. These include participation in tenders of various types, increasing production output to distribute fixed costs between large volumes of product, studying new market sectors, optimizing the use of raw materials, searching for the cheapest sources of raw materials, as well as an innovative advertising policy. It should be noted that, in general, the fundamentals of the marketing industry do not change. But the advertising industry is constantly undergoing some changes, but the main reason for its existence and application remains the same.

Marginality is...in simple words

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

Margin is expressed as a percentage and is calculated based on the cost of production and the price to the buyer. It can be banking, investment, guaranteed, mutual and market. The last option is used in sales.

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

Products with high, medium and low margins

To understand which products are more profitable to sell, you need to decide what is considered a low-, medium- and high-margin product.

Products with low margins are not exclusive. They can be bought at any store.

These include:

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

This group of goods and services sells well, but the profit will be minimal. It is impossible to make a high markup on such products, since in this case no one will buy the product.

Medium-margin goods include so-called essential products.

These include:

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

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

People need high-margin products for special occasions. For example, this group includes the services of a wedding photographer, jewelry, branded items, luxury goods, etc. Consumers rarely need all this, but it pays off quickly. It's a matter of markup. It can reach almost any indicator (300, 500, 1000%)

TOP 5 products with high margins

You can name the TOP products with high margins:

Beverages. The cost of bottled water is 2-3 rubles, and the cost for the buyer in regular stores is at least 30 rubles. The markup in this niche sometimes reaches 500% or more.
Flowers. It is always profitable, not only on 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-made. In this niche, the seller can “inflate” any price, and there are more and more lovers of handmade work every day.
Holiday accessories. The cost of balloons, cards, gift wrapping and other attributes is pennies, but the markup is colossal.
Bijouterie. The markup here reaches 300%.

No less high-margin sales of elite alcohol, loose tea and coffee, cosmetics, popcorn and related services for business.

Marginality and profitability: what are the differences?

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

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

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 is markup and margin in trading, as well as how they differ and what you should pay attention to when talking about them, the video clearly explains:

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, materials, 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:

To md =GP/TR or To 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- the difference between the initial and final cost, interest rate, sale price and purchase price, price and cost, is used to determine profitability.

To determine the efficiency of business activities, the goal of which is to maximize profits, the main analytical indicators are:

marginal income (profitability indicator),
marginal (recoupment indicator).

Marginal profit or marginal income is the value obtained by subtracting variable costs from gross income, therefore, margin is a source of compensation for fixed costs and the formation of profit. The calculation is made according to the following formula:

Margin (profit per unit of production) = Selling Price - Cost

Determining the marginal profit helps to establish the optimal size of the trading margin, sales volume and the level of variable costs at the planning stages. To calculate marginal income in percentage terms, use profitability ratio (marginality):

Margin coefficient (KP) = Margin / Selling Price

Marginal profitability, in turn, is the ratio of marginal income and cost:

Marginal profitability = Marginal profit / Direct costs

It can be calculated both grossly and per unit of goods (works, services).

Thus, the gross margin indicator itself does not reflect the financial position of the enterprise, but is used to make calculations when analyzing economic activities. At the same time, in domestic practice (Russia, Belarus) there is a difference from the European system for calculating gross margin.

In the post-Soviet space, gross margin is calculated as the difference between gross revenue and total costs, expressed in absolute value. In Europe, this figure is a percentage of total sales revenue minus direct expenses and is expressed as a percentage only.

When determining the amount of profit depending on different options for the volume of output or sales, the calculation of the average marginal income is used. It is equal to the difference between the price per unit of production and the average variable costs of its production and/or promotion. This indicator reflects the share per unit of production in covering fixed costs and generating profit.

Conducting marginal analysis contributes to the effective distribution of production capabilities and limited working capital, helps to optimize the composition and volume of production and sales of products, analyze the activities of individual divisions of the enterprise, and is also an integral part of pricing. In a global sense, based on the results of marginal analysis, you can make a decision either on concluding additional contracts, or on closing production or one of its areas even during planning, since it allows you to calculate the break-even point and clearly see the situation regarding the profitability of various types of products.

Hello, dear readers of the blog site. Those who, to one degree or another, are faced with the topic of doing business or any other financial aspects of activity have probably heard the word “margin”.

At the same time, this word is used quite often in everyday life, but not everyone fully understands its meaning (which occurs often, but few people really understand what it means).

So what is margin? What is marginality or margin? Speaking in general terms, then this is a share of the profit, which is calculated as the difference between the cost of something and the price at which it is sold.

Remember the joke about 3%, where a not very distant businessman explains that he lives on only three percent, buying something for 100 rubles and selling for 300. But such discrepancies actually occur not only in questionnaires. People, for example, often confuse margin and markup, and then have to spend a long time trying to figure out which partner was wrong.

In simple words about margin

There are several words that are very close in meaning and mean almost the same thing - these are the words profit, markup and, of course, margin. Today we will focus on marginality, but we will also definitely mention how they differ from each other, so that later we can speak the same language with business partners without any “misunderstandings” arising.

Historically, the word margin comes from the English “margin”, which, as is usual in the great and mighty Russian language, has dozens of meanings. For example, in a series of articles about website layout, and there this word meant margins, indentation from adjacent elements, a certain amount of free space.

Actually, it means something similar in the world of finance. In fact, this is precisely the notorious profit that a businessman increases relative to the base cost something (product, service). In the most general sense, this is the difference in the price of a product at different stages of its movement on the market (from creation to acquisition).

The margin can be expressed both in absolute monetary units (rubles, tugrigs, dollars, hryvnias, euros) and as a percentage. It's important to remember - the margin can never be greater than 100%. This is an axiom, and by remembering this simple rule, you will be able to avoid mistakes and discrepancies with colleagues and partners in the future.

They confuse margin with the so-called trade margin, which again can be expressed in both absolute and relative units. Moreover, in absolute units both the margin and markup will be the same, but in relative terms they will be different. All the confusion arises precisely when margins are calculated as percentages. Why is this happening? Let me show you with an example.

Let us have a product that we bought for 100 rubles, and sell for 300 rubles (the same notorious three percent from the joke). In this case in absolute units both margin and markup will be calculated using the same formula: resale price minus purchase price. In our example, it will be 300 minus 100 = 200 rubles. Everything is clear here and no one ever gets confused.

But the relative values of margin and trade margin are calculated differently. Margin in percent- this is 300 - 100 divided by 300 (and, of course, multiplied by 100%). And the trade margin as a percentage is 300 - 100 divided by 100 (multiplied by 100%).

You can see for yourself that the margin in our example will be equal to 66% (significantly less than 100%, although the intermediary tripled the price of the goods), but the trade margin will be exactly that same 300%. It's clear? We felt the difference. Therefore, it is important to understand very clearly what we are talking about - margins or trade margins, because as a percentage these result in completely different numbers (often differing significantly).

If my example seemed incomprehensible to you, then in this two-minute video, look at the formulas with your own eyes and get the gist:

Well and Margin differs from net profit the fact that additional costs are not taken into account here, for example, for temporary storage of goods, for their transportation, for advertising, etc. That is, the net profit will be slightly less than the calculated margin. But this, of course, will not be as striking a difference (however) as with the trade margin.

Margin and margin trading - what is it?

I'll torment you a little more. You can also hear the word “margin” in relation to various stock market speculations. An exchange is, in fact, just a platform for transactions, and they make money there exactly the same as in life - buy cheaper and sell more expensive. Speculation is also speculation in Africa (and this word used to be a dirty word).

So, in some other types of exchanges (for example, in, which I recently wrote about) there is an opportunity conduct margin trading with the so-called shoulder. What it is? In principle, I wrote about this in great detail in the article linked to it, but here I will still briefly repeat myself.

On such exchanges, you place bets on the fall or rise of the exchange rate (dollar, pound, euro, bitcoin or other altcoins). If you guessed the direction of the exchange rate, then your earnings will depend on how much the exchange rate changes in the direction you want.
The main thing here is to close in time, before the process of the rate moving in a different direction begins. Your profit will be equal to the transaction margin (the difference between the initial price and the closing price of the transaction). You can make money both on growth and on decline - it doesn’t matter.

Margin trading with leverage allows having a relatively small amount on deposit (exchange account) earn (or lose) a lot at once. Without trading with leverage, you, say, with $10 in your account, can earn a couple of cents, but if you used x100 leverage in the same situation, you would have earned a hundred times more, i.e. a couple of dollars.

It is true that the loss when margin trading with leverage will be the same number of times greater, so beginners are highly discouraged from starting to trade immediately with a large leverage, because there is a risk of losing everything quickly. It is noteworthy that in this case you risk only the money on deposit. You won’t be able to lose more than this and you won’t owe it to anyone (this is not a loan).

It’s as if they give you virtual money (in our example, increasing the real $10 to $1000 thanks to x100 leverage). In any case, even if you win, then at your own expense you you will only get profit from the transaction (the very notorious margin) plus the amount that you actually used (the virtual increase will remain virtual). In our example, by betting $10 you will receive $12 in total (increase your deposit).

If you lose, then the margin (negative, i.e. loss) will be deducted from the amount involved in the transaction. In our example, instead of betting $10, you will only have $8 left (the $10 bet minus the $2 loss). But with a large leverage, you can lose everything, and very, very quickly (literally in seconds), if you choose the wrong direction of movement of the exchange rate (dollar and cryptocurrency), and the exchange rate sharply goes in the other direction.

In general, this type of trading can allow earn much faster(tens and hundreds of times), but the risk of losing everything increases just as much. For beginners, as I already mentioned, margin trading with a leverage higher than two and three is highly not recommended. Pros can add margin in time and stay afloat even with an unsuccessful bet, waiting for the desired direction of the exchange rate movement. IMHO.

Good luck to you! See you soon on the pages of the blog site