What is the average margin. Margin: what is it in simple words? Margin types

In the economic field, there are many concepts that Everyday life one rarely meets. Sometimes we come across them while listening to economic news or reading a newspaper, but we only imagine general meaning. If you have just started entrepreneurial activity, You will have to familiarize yourself with them in more detail in order to correctly draw up a business plan and easily understand what the partners are talking about. One of these terms is the word margin.

In trade "Margin" expressed as a ratio of sales proceeds to the cost of the product sold. This is a percentage, it shows your profit in the sale. Net profit is calculated based on margin indicators. It is very easy to find out the margin indicator

Margin=Profit/Sell Price * 100%

For example, you bought a product for 80 rubles, and the sale price was 100. The profit is 20 rubles. Making a calculation

20/100*100%=20%.

The margin was 20%. If you have to work with European colleagues, you should take into account that in the West the margin is calculated differently than in our country. The formula is the same, but net income is used instead of sales proceeds.

This word is widespread not only in trade, but also on stock exchanges, among bankers. In these industries, it means the difference in securities rates and the bank's net profit, the difference in interest rates on deposits and loans. For various areas economies, there are different types margin.

Enterprise margin

The term gross margin is used in businesses. It means the difference between profit and variable costs. It is used to calculate net income. Variable costs include equipment maintenance costs, labor costs, public utilities. If we are talking about production, then the gross margin is the product of labor. It also includes non-operating services that are profitable from the outside. This is the identifier of the company's profitability. Various monetary bases are formed from it for expanding and improving production.

Banking Margin

Credit margin- difference commodity value and the amount that the bank allocates for its purchase. For example, you take a table worth 1000 rubles on credit for a year. A year later in total amount with interest you give 1500 rubles. Based on the formula above, the margin on your loan to the bank will be 33%. The credit margin for the bank as a whole affects the interest rate on loans.

banking- the difference between the interest rate coefficients for deposits and loans issued. The higher the interest on loans and the lower the interest on deposits, the greater the bank margin.

Net interest- the difference between interest income and expense in the bank in relation to its assets. In other words, we subtract the bank's expenses (paid loans) from income (profit on deposits) and divide by the amount of deposits. This indicator is the main one in calculating the profitability of the bank. It defines stability and is freely available to interested contributors.

Warranty- the difference between the probable value of the collateral and the loan issued against it. Determines the level of profitability in case of non-return of money.

Exchange Margin

Among traders participating in exchange trading, the concept of variation margin is widespread. This is the difference between the prices of the purchased futures in the morning and in the evening. A trader buys a futures for a certain amount in the morning at the beginning of trading, in the evening, at the close of trading, the morning and evening prices are compared. If the price has risen, the margin is positive; if it has fallen, it is negative. It counts daily. If analysis is needed over several days, the indicators are added up and the average value is found.

The difference between margin and net income

Indicators such as margin and net income are often confused. To feel the difference, you should first understand that the margin is the difference between the values of the purchased and sold goods, and net income is the amount of sales minus consumables: rent, equipment maintenance, utility bills, wages etc. If we deduct the tax from the amount received, we get the concept of net profit.

Margin trading is a method of buying and selling futures using leveraged funds. certain bail- margin.

The difference between margin and "cheat"

The difference between these concepts is that the margin is the difference between the sales profit and the cost of the goods sold, and the margin is the profit and the cost of the purchase.

In conclusion, I would like to say that the concept of margin is very common in the economic sphere, but depending on the specific case, it affects different indicators of the profitability of an enterprise, bank or stock exchange.

Learn more about what a margin is and how it differs from a trading margin. In what areas it is used and how it is calculated: the margin calculation formula with explanations, as well as expert comments and a video that will help you understand the essence of the definition.

What is margin in simple words

Margin is the difference between the price at which the product was sold and the cost. Margin calculation is carried out in order to determine the actual profit per unit of goods. This indicator is used in trading, banking, insurance or stock exchange and Forex.

Margin can be viewed in exact values (amount) or percentages. For calculations, use the formula:

Profit ÷ Revenuex100 = Margin

Selling price of goods - Cost =X ÷ Revenue x 100 = Margin

Imagine you buy a product for Rs. and sell it to the final consumer for 120 rubles. To get the margin value, you need to do this: (120 - 100) ÷ 120 x 100 = 16.6%.

When calculating, you need to use absolute values in any currency.

Margin is often confused with markup. To eliminate this common confusion, watch this short video:

Such an assessment of the performance of a company, enterprise or small business is imperfect. It is not able to take into account all the factors of pricing and costs. But for the sake of clarity, the picture can be used.

When calculating margin, it must be remembered that this type of analysis is not ideal. It should not be used as the main method for assessing the success of a business. It is only an analytics tool to be used with other methodologies for calculating profits, expenses, and other financial items.

Margin in various areas

Margin in the economy

Margin in economics is an analytical tool that allows you to find out the difference between the cost and the selling price of a product. With it, you can determine how efficiently the company is operating and how revenues are converted into profits.

The end result is expressed as a percentage. Calculations are carried out according to the formula indicated above.

Gross margin

This type of margin is used in the analysis of the financial situation in the enterprise. That is, when you need to understand whether the company is operating at a loss, and what profit it receives. After receiving the result, it is possible to draw conclusions about the need to maintain or revise the pricing for manufactured products.

In the gross margin formula, you can use income from the provision of additional services, credit, accounts receivable etc.

Bank margin

In the banking sector, 4 margin options are used:

Banking - calculation of the difference between interest on deposits and loans.
Credit - determination of the difference between the amount specified in the contract and the amount issued to the debtor.
Net interest margin - the calculation of the difference in commission income and expenses on bank operations to its assets.
Guarantee margin - calculation of the difference between the estimated value of the collateral and the amount issued on hand.

Each method of calculating the margin allows the bank to determine how correctly and profitably it operates.

Margin in Forex

Margin in Forex differs significantly from previous areas. This refers to a pledge that makes it possible to operate with large amounts of money - that is, to conduct large transactions.

Margin trading in Forex is very common in this area, as traders can get at their disposal large sums and for conducting transactions that they must return in the same volume and within a certain period - that is, to sell the currency.

If the margin trade was unprofitable, then the margin is held to pay off the losses.

“Margin is the share of profit in the price of a product. As a general rule: the higher the price, the higher the margin. When dealing with margin, it is important to remember that price is always subjective to the buyer. The buyer always compares the subjective value of the quantity of the product you offer with the amount of money you ask for it.

If the value of a good is greater than the value of money, then the buyer chooses to exchange that amount of money for that amount of goods. This is how the deal is done.

We work on the margin first of all. And here it is important to remember that all buyers are divided into three broad categories. The first is buyers who choose the cheapest. The second category chooses according to the ratio of price and quality. The third category always prefers the best and most expensive.

If you want to increase your margin, you need to be in every customer segment to hook every segment.”

Evgeny Romanenko - sales expert

findings

Margin is a tool for analysis economic efficiency enterprises, companies and businesses. It should be used in:

trade to determine the profitability of the business;
the banking sector to assess the risks of loans and investments;
brokerage and Forex to understand the financial rationale for ongoing transactions and operations.

Margin calculation is an analysis that helps to understand whether the business is developing correctly, what measures need to be taken in pricing and what is the real profitability in the present and future.

Quite often, entrepreneurs start their business based on good margins. It evaluates the profitability of a business. In this article, we will talk in detail about the margin, as well as some of the features associated with it.

It doesn't matter how much income your business brings, it is important that as little money as possible is spent on its production. For example, if you receive $100 million a year and spend $100 million and one dollar, then you will not be able to make money in such a business. In order for your business to last long, it must generate income. No firm will work for a long time if it brings a small income. The resulting profit allows your business to stay afloat.

Each entrepreneur, starting his own business, must estimate the expected profitability. For your business to be successful, it is necessary condition. Therefore, before starting your business, you need to calculate the expected margin. This check will help you save your money and appreciate possible risks. Often you can observe such a situation when a business starts without risk calculation. We recommend that you do this in the initial stages of starting your business.

Margin definition

Margin is the increase in cash equivalent, taking into account costs and the cost of goods. However, such a concept will not give you a complete definition of this monetary instrument. Marginality increases if the cost of production decreases and the price of the product increases. So, you need to ensure maximum profit by reducing costs. Let's analyze this definition in more detail.

First, you need to add the above concept.
Marginality is usually understood as growth money capital per unit of goods.

That is, marginality is the difference between all the costs that were spent on production and the profit received.

The process of calculating the margin will be carried out both at the start of your business and throughout its existence.

The more often you determine the margin, the better your business will be, because you will correctly estimate the expected cash gain.

Calculation formula

To understand the essence of this procedure, you need to specify the formula for calculating the margin:

MAR=DOH-ED

This formula provides us with a visual understanding of the margin calculation process. There is nothing difficult in calculating the margin. Two indicators will be enough for you to determine the profitability of your business.

Let's consider a specific example.

Let's say you need to produce 2,000 units of a product with a market price of $20 each. The total cost of production is 25 thousand rubles.

Substituting the data into the above formula:

MAP \u003d 2000 * 20-25000 \u003d 15,000 rubles.

Thus, we have established that the margin of our enterprise will be 15 thousand rubles.

You also need to indicate that the margin can be calculated not in monetary terms, but as a percentage.

Let's consider another example.

Let's say a broker offers you to buy 500 shares at $1 each. In addition, he said that their cost next month would be $3.

It turns out that you had $ 500, with an investment in the stock market, your amount became equal to $ 1,500.

In formula form: МАР=1500*100/500=300%

That is, when investing money in stocks, your margin will be 300%. Any businessman will tell you that this is a great investment. We will not consider the possibilities of the stock market, but you need to understand that this activity has its own risks. Therefore, whether you care about money in it is up to you.

Purpose of Margin Calculation

The purpose of margin calculation is to assess the profitability of the business.

In order to correctly calculate margins, you do not need to have great knowledge in the field of economics or investment finance. All you need is to use the above formulas. We recommend that you use the formula to determine the margin as a percentage.

This option will allow you to correctly assess the capabilities of your monetary investment. The margin interest rate will help determine the expected return over time. Guided correct assessment situations, you will be able to choose the right solution.

The difference between margin and markup

The markup is the difference between the wholesale and retail prices. And we have established earlier that marginality is the difference between profit and costs incurred. So the markup is defined as the difference in relation to the cost price, and the margin will be determined by the difference between the valuable and the cost price.

Thus, we have established formulas for determining marginality. Which option to choose is up to you. Properly defined margins will allow you to handle your money more intelligently.

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

1. What is margin in simple terms?

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

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

In simple words, the margin in trade is the difference between the cost of goods (the cost of its manufacture or purchase cost) and its final (sales) price. Those. it's a measure of efficiency economic activity particular company or entrepreneur.

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

M \u003d P / D * 100%,

P - profit, which is determined by the formula:

P \u003d selling price - cost price

D - income (selling price).

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

However, I want to note that the margin in our and Western understanding is very different. For European colleagues, it represents the ratio of profit from the sale of goods to its selling price. We use for calculation net profit, namely (sales price - cost price).

2. Types of margin

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

2.1 Gross margin

Gross margin (English gross margin) is the percentage of a company's total revenue that it retains after direct costs incurred in the production of its goods and services.

Gross margin is calculated using the following formula:

VM \u003d (VP / OP) * 100%,

VP - gross profit, which is defined as:

VP \u003d OP - SS

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

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

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

2.2 Profit margin

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

2.3 Variation margin

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

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

2.4 Net interest margin (bank interest margin)

Net interest margin - one of key indicators evaluating the effectiveness of banking activities. NIM is defined as the ratio of the difference between interest (fee) income and interest (fee) expenses to the assets of a financial institution.

The formula for calculating net interest margin is as follows:

NPM \u003d (DP - RP) / AD,

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

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

2.5 Guarantee margin

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

2.6 Credit margin

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

2.7 Bank margin

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

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

2.8 Front and back margin

These two terms should be considered together, as they are connected,

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

3. Margin vs Profit: What's the Difference?

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

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

Profit \u003d V - SP - KI - UZ - PU + PP - VR + VD - PR + PD

B - revenue;
SP - the cost of production;
CI - commercial costs;
UZ - management costs;
PU - interest paid;
PP - interest received;
BP - unrealized expenses;
WD - unrealized income;
PR - other expenses;
PD - other income.

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

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

4. What is the difference between margin and markup?

Very often, the margin is mistakenly confused with the trading margin. markup- the ratio of profit from the sale of goods to its cost. In order for you to no longer have confusion, remember one simple rule:

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

Let's go on specific example Let's try to tell the difference.

Suppose you bought a product for 1000 rubles, and sold it for 1500 rubles. Those. In our case, the markup was:

H \u003d (1500-1000) / 1000 * 100% \u003d 50%

Now let's define the margin:

M \u003d (1500-1000) / 1500 * 100% \u003d 33.3%

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

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

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

5. Conclusion

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

On this, perhaps, everything. I hope that now you have the necessary understanding of what margin is and how it is calculated.

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

Companies that do trading activities, exist at the expense of the margin. A certain amount in rubles is added to the cost of goods or services, and as a result, the selling price of the goods is obtained. But then the question arises, what is the margin and does it equal the markup? Many aspiring entrepreneurs often confuse the two. Let's figure it out...

I am not an economist and I used to confuse these concepts myself. When I was hired in sales at big company, my future manager asked me if the margin could be higher than the markup and I was stumped at first, because I thought they were the same thing. He asked me, if the price of the goods is 130 rubles, and the cost is 100, then how much will the margin and markup be. I said 30 and was not mistaken. Then he asked me how much as a percentage, and then I swam 🙂 30%, I answered, margin and markup, a little embarrassed and already realizing that I didn’t know something. 30% and 23% answered he. After that, I began to improve my economic knowledge, since it is required for active growth in the field of sales and management, negotiation skills alone will not be enough here, I realized.

Margin- (from English margin - difference, advantage) is the difference between the selling price of the goods and its cost (purchase price + delivery costs). It is also called gross profit. In other words, the rate of return on sales. This difference can be expressed both in rubles and as a percentage.

We figured out the margin, but what is the markup? markup(in English markup) is the difference between the cost of goods and the sale price, an addition to the price of the goods being sold. I myself am a visual and I love a visual explanation, for which I made the following picture.

Once again point by point:

When they calculate the margin, they take the difference between the cost of goods and the sale price, and when they calculate the margin, they take the difference between the company's revenue after the sale of the goods and its cost.
The maximum volume of the margin has no restrictions, and it can be at least 100%, at least 500% in relation to the cost of goods. For example, the cost of goods is 100 rubles, and they decided to make a margin of 250 rubles. In this case, the markup will be 250%.
The margin cannot be more than 100%, as this will exceed the sale price of the goods. The biggest margin is 99.99%. If you have one, call me urgently and tell me what you do 🙂
Margin and markup are directly proportional to each other. The only thing is that the margin cannot exceed the markup.
These calculations apply to both goods and services.

Before setting a markup, proceed from the competitiveness of both the product itself and the company in the market. It is important not to forget about the development of your company relative to competitors, because some of them sell similar goods at a low price, but in large volumes, and vice versa - at a high price, but in small volumes.

Of course, ideally trade margin should allow you to keep a balance between the optimal price and the expected sales volume, but in no case affect the quality of the product or service. If you are for uncalculated dumping, your road leads to collapse, believe me. This clearly shows the market plastic windows in Russia. Hundreds of companies are closed every year that knew how to trade only with the help of uncalculated price reduction, they did not know other ways to attract a client. Only major manufacturers windows and skillful trading companies who make the right calculation, attract the buyer high level service, product quality and are able to earn not only on the main product, but also on related products, for example, OKFIL window filters, which can be resold with each window and this will increase the overall profitability of the business. If you set the correct trade margin for your services (or goods), then its value will be able to fully cover the costs that a unit of goods brought and, moreover, will leave the company with a profit.

Margin and markup are very common terms, now you know their meanings and differences. Use them wisely and reach new levels of cooperation with large companies.