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 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 interest rate, which determines the ratio of the profit received by the company to sales of manufactured products at selling price. This value is used to establish an assessment of the level of performance of a specific organization in the trade and economic spheres. On the territory of the Russian Federation, the margin represents the amount received from a completed transaction net profit, 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, therefore there is no fundamental difference in calculating profit and margin. It's important to remember that we're talking about specifically 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.

Market relations seem complex and confusing to any person who does not have specialized education and experience. How, for example, does margin differ from markup? It would seem that both the first and second concepts denote the profit that a business entity receives. In fact, there is a difference, and it is quite significant: let's try to figure it out.

Definition

Margin– the ratio of profit to the market price of a product, an indicator of a company’s income after deducting expenses, which is measured as a percentage. Its limit value cannot be equal to 100%, which is due to the peculiarities of the calculation. This value is estimated to provide a relative assessment of the company's performance.

Extra charge- the difference between the cost of a product and the price at which it is sold to the final buyer, designed to cover the costs of its production, delivery, storage and sale. The maximum amount of markup can be limited by administrative methods, but in developed economic systems formed by the market method.

Comparison

To differentiate concepts, a clear understanding of them is required. Let’s imagine a situation in which a product purchased for 100 rubles is sold for 150. In this case:

Margin = (150-100)/150=0.33 (33.3%)

Markup = (150-100)/100=0.5 (50%)

Thus, margin is the amount of income received by the company minus expenses, and markup is just an extra charge added to the cost of the product. The maximum markup value is practically unlimited, and the margin under no circumstances can be 100% or higher. There are also differences in the basis for calculating these values. The basis for determining margin is the company’s income, while determining revenue is based on markup.

Conclusions website

1. Essence. Margin shows how much income will remain after deducting expenses, markup is an extra charge added to the purchase price of the product.
2. Limit volume. The margin cannot be equal to 100%, while the markup can.
3. Calculation base. Margin is calculated based on the company's income, markup is calculated based on cost.
4. Ratio. The higher the markup, the higher the margin, but the second indicator is always lower than the first.

Market relations seem complex and confusing to any person who does not have specialized education and experience. How, for example, does margin differ from markup? It would seem that both the first and second concepts denote the profit that a business entity receives. In fact, there is a difference, and it is quite significant: let's try to figure it out.

What is margin and markup

Margin– the ratio of profit to the market price of a product, an indicator of a company’s income after deducting expenses, which is measured as a percentage. Its limit value cannot be equal to 100%, which is due to the peculiarities of the calculation. This value is estimated to provide a relative assessment of the company's performance.
Extra charge- the difference between the cost of a product and the price at which it is sold to the final buyer, designed to cover the costs of its production, delivery, storage and sale. The maximum volume of the markup can be limited by administrative methods, but in developed economic systems it is formed by a market method.

Difference between margin and markup

To differentiate concepts, a clear understanding of them is required. Let’s imagine a situation in which a product purchased for 100 rubles is sold for 150. In this case:
Margin = (150-100)/150=0.33 (33.3%)
Markup = (150-100)/100=0.5 (50%)
Thus, margin is the amount of income received by the company minus expenses, and markup is just an extra charge added to the cost of the product. The maximum markup value is practically unlimited, and the margin under no circumstances can be 100% or higher. There are also differences in the basis for calculating these values. The basis for determining margin is the company’s income, while determining revenue is based on markup.

TheDifference.ru determined that the difference between margin and markup is as follows:

Essence. Margin shows how much income will remain after deducting expenses, markup is an extra charge added to the purchase price of the product.
Limit volume. The margin cannot be equal to 100%, while the markup can.
Calculation base. Margin is calculated based on the company's income, markup is calculated based on cost.
Ratio. The higher the markup, the higher the margin, but the second indicator is always lower than the first.

H

You often hear the term, but, as it turns out, not everyone who uses it correctly understands the meaning.

After hearing again “margin 200%”, etc. - we publish this article.

Today we will define what “is”, consider how to calculate the margin and how it differs from the markup.

(profitability sales ) is the difference between the selling price and the cost. This difference is usually expressed as a percentage of the selling price ( profitability ratio), or in absolute values How profit per unit.

Margin in percentage terms

Profitability ratio(%) = Profit per unit ($) / Selling price per unit ($)

Profit per unit($) = Selling price per unit ($) - Cost per unit ($)

This article does not consider the meaning of the term “margin” for exchange transactions. In this case, Margin is a collateral that provides the opportunity to obtain a loan in money or goods for temporary use.

Goal: determining the amount of sales growth: and managing pricing and decision-making on product promotion.

Return on sales ("return on sales" - hereinafter not to be confused with other types of profitability!) is a key factor among many other basic types of calculation of commercial activities, including estimates and forecasts. All managers should (and usually do) know the approximate return on sales your company. However, managers vary greatly in the assumptions they use when calculating return on sales and in the ways in which they analyze and communicate these important figures.

Profitability ratio and profit per unit

When talking about margin, it is important to keep in mind the difference between profitability ratio and profit per unit on sales. This difference is easy to reconcile, and managers must be able to switch from one to the other.

What is a unit of production? Each company has its own idea of ​​what a unit of production is, which can range from a ton of margarine to 1 liter of cola or a bucket of plaster. Many industries deal with numerous units of output and calculate margins accordingly. In the tobacco industry, for example, cigarettes are sold in pieces, packs, blocks and boxes (which hold 1200 cigarettes). In banks, margin is calculated based on accounts, customers, loans, transactions, family units and bank branches. You must be able to easily switch from one concept to another, since decisions can be based on any of them.

Profitability ratio

The profitability ratio can also be calculated using gross sales in monetary terms and total costs.

Profitability ratio(%) = [Total sales in monetary terms ($) - Total costs] / Total sales in monetary terms ($)

When calculating return on sales, expressed both as a percentage (profitability ratio) and as profit per unit, a simple reconciliation can be performed by checking whether the individual parts add up to the total.

To reconcile profit per unit of production ($):

Selling price per unit= profit per unit of goods + cost per unit of goods.

To check the profitability ratio($):

Costs as a percentage of sales= 100% - profitability ratio.

Example

One company sells fabric by linear meters. Its basic costs and selling price are as follows:

Selling price per unit = 24 US dollars per linear meter.

Unit cost = $18 per linear meter.

Profitability ratio (%) = ($24 -$18) / $24 = $6 / $24 = 25%

Let's check the correctness of our calculations:

Selling price per unit = Profit per unit + Cost per unit.
$24 per linear meter = $6 per linear meter + $18 per linear meter.

You can check your profitability ratio calculations in a similar way:

100% - Sales profitability ratio (%) = Costs as a percentage of sales.
100% - 25% = $18 / $24
75% = 75%

Data Sources, Challenges, and Cautions

Once you define your units of measure, you need two types of input data: unit costs and unit selling prices.

Selling prices may be determined before or after the various pricing steps. Deductions, customer discounts, intermediary payments and commissions can be shown to management either as expenses or as deductions from the selling price. Moreover, external reporting may differ from reporting to management because accounting standards may require data processing that differs from internal practices. Reported profitability ratios can vary quite widely depending on the calculation methodologies used. This can lead to significant organizational confusion in such a matter of primary importance as determining the actual price of a product.

Care should be taken when calculating certain discounts and surcharges (surcharges) when calculating net price. There is often greater flexibility in whether to subtract certain items from the list price to calculate the net price or add them to expenses. One example is the practice of providing gift certificates in retail to those customers who have purchased a certain number of goods. They are not easily accounted for in a way that avoids confusion over pricing, marketing costs and profitability. There are two important points to note in this regard:

1. Certain positions can be viewed as either deductions from prices, or how markup to cost, but only one thing.
2. Processing such items will not affect profit per unit, but will affect the profitability ratio.

Margin as a share of total costs

In some industries, particularly retail, margin is calculated as percentage share on the amount of costs, not selling prices. Using this technique in the previous example, the profit margin per meter of regular fabric could be calculated as the profit per unit ($6) divided by the unit cost ($18), and would therefore be 33%.

Markup or margin?

Although some people use the terms " margin" And " markup” or “surcharge” as interchangeable concepts, this is not true. The term "Markup" usually refers to the practice of adding a certain percentage to the cost to calculate selling prices.

To better understand the difference or ratio between margin and markup, let's do some math. For example , markup 50% variable cost of $10 would be $5, resulting in a retail price of $15. And here, margin an item that sells for a retail price of $15 and incurs $10 in variable costs would be $5/$15 or 33.3%. Those. margin - 33.3%. There is a difference, isn't there? The following table shows some of the relationships between Margin and Markups.

The relationship between margin values ​​and markups

Price	Costs		Extra charge
10 dollars	$9.00	10%	11%
10 dollars	$7.50	25%	33%
10 dollars	$6.67	33,3%	50%
10 dollars	$5.00	50%	100%
10 dollars	$4.00	60%	150%
10 dollars	$3.33	66,7%	200%
10 dollars	$2.50	75%	300%

In order not to get confused again, learn the rule that Margin is the ratio of Profit to PRICE, (i.e. the percentage of profit in the price of the product), and Markup is the ratio of Profit to COST, (i.e. the percentage of profit in cost).

Another interesting conclusion from this rule is that (return on sales) can only approach 100%, because a margin of 100% can only be at zero cost - which cannot be, and calculating the markup in this case is impossible. Margin 100% impossible! 100% sales profitability is impossible!

One of the peculiarities of retailing is that prices increase as a percentage of store purchase prices (variable costs per item), but decrease during sales periods in percentage to the retail price.

Most managers understand that a 50% discount sale means that retail prices are reduced by 50%.

Example

A clothing retailer buys T-shirts for $10 and sells them at a 50 percent markup. A 50% markup on variable costs of $10 results in a retail price of $15. Unfortunately, the product is not selling and the store owner wants to sell it at cost to free up space on the shelves. He inadvertently tells sellers to sell the product at a 50 percent discount. However, this 50% price reduction reduces the retail price by $7.50. Thus, a 50% Markup followed by a 50% Markdown results in a total loss of $2.50 on each item sold.

It is easy to see how the confusion occurs. Usually they prefer to use the term “margin” in relation to the sales profitability ratio. However, we recommend that all managers agree with their colleagues what they mean by this important term.

To analyze the profitability and record the income of an enterprise, different categories of profit assessment are used, which at first glance seem the same. For example, it is difficult for novice businessmen to understand how margin differs from markup. Both of these concepts determine the degree of income, but are calculated using separate formulas and measured in different units.

Margin and markup: what's the difference?

To determine the difference between margin and markup, it is necessary to clearly define a number of economic concepts:

1. Cost is the initially assumed amount of cash costs incurred by the enterprise for the production of an individual copy (piece) or unit of production. This includes all types of resources invested by the enterprise in production, these include the costs of materials and raw materials, consumed electricity and gas, depreciation of equipment, wages employees (including administrative staff), overhead costs (packaging, packing, transportation).
2. Cost is the monetary equivalent, including prime cost and allowances, taking into account taxes and expenses for production development.
3. Price is the market equivalent of the accepted cost of a unit of goods, the final amount of its sale. That is, the real amount of money that can be requested for selling products on the market.
4. Production costs are total cash costs, including the entire range of costs necessary to create a unit of production. IN general concept production costs include fixed and variable costs.

An indicative factor that determines the difference between markup and margin is the calculation method and unit of measurement. General production and commodity indicators are taken into account, but the calculation method and the result differ greatly. Often, to calculate the markup you need to have special knowledge, as well as perseverance and attentiveness. To calculate the trade markup, it is better to contact a specialized

Margin is the ratio of profit to the final price of the product; it shows the enterprise’s income after calculating all expenses and deductions. There are several formulas for calculating margin, but it is always expressed as a percentage. Margin is an analytical parameter showing the profitability of an enterprise. Even with the highest results of profitability and efficiency of the enterprise, the margin cannot be 100%. They are used for different fields of activity various shapes margin:

• the profitability of banking operations is determined by NIM (net interest margin) or OM (operating margin);
• to calculate profitability industrial enterprises Gross margin applies.

The markup is the difference between the total amount spent on creating a product (cost) and its selling price. Product margin consists of the sum of all costs for production, packaging, delivery and storage of products. The concepts of margin or markup can relate to different industries and areas of activity. The margin has no restrictions, as it is determined analytically; there may be restrictions on the markup. The markup can determine several values:

• surcharge to the original cost of the goods;
• difference between wholesale and retail prices;
• the final difference between purchase and sale prices in retail trade.

Markup and margin - difference in calculation and indicators

The concept of margin and markup, their difference and relationship are clearly demonstrated by the calculation formula. Depending on the company's line of business, formulas are used to calculate percentage or gross margin. Percentage margin is calculated as the ratio of costs to income, gross margin as the difference between income and total expenses.

The easiest way is to consider the difference between margin and markup on specific example. For example, if the final selling price of a product is 1,500 rubles, and the initial cost is 1,000 rubles, then:

• the margin will be calculated using the formula 1500-1000/1500=0.33 (33%);
• the markup is determined by the simple difference of 1500-1000 = 500 rubles.

To make it clearer, the markup can also be expressed as a percentage. For this, 1500-1000/1000=0.5 or 50%. That is, with the same cost and price indicators, the difference in margin and markup is 33% and 50%.

Considering that trade belongs to the most widespread service sector, marginal income as an increase in monetary capital per unit of goods is an excellent indicator of profitability. In the trade sector, the markup on goods can be more than 100% of the purchase price. To understand what margin is considered good in trading, you can look at the previous example. With a product markup of 50%, as in the example above, the margin is 33%. As the markup increases, the marginal profit will increase accordingly.

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