Types of margin in retail trade. What does marginality mean, calculation formula, reasons and classification

Often economic terms are ambiguous and confusing. The meaning inherent in them is intuitive, but it is rarely possible for anyone to explain it in public words, without prior preparation. But there are exceptions to this rule. It happens that the term is familiar, but with an in-depth study of it, it becomes clear that absolutely all of its meanings are known only to a narrow circle of professionals.

Everyone has heard, but few know

Let's take the term "margin" as an example. The word is simple and, one might say, ordinary. Very often it is present in the speech of people who are far from the economy or stock trading.

Most people think that the margin is the difference between any homogeneous indicators. In daily communication, the word is used in the process of discussing trading profits.

Few people know absolutely all the meanings of this fairly broad concept.

However, a modern person needs to understand all the meanings of this term, so that at an unexpected moment for himself “not to lose face”.

Margin in the economy

Economic theory says that margin is the difference between the price of a product and its cost. In other words, it reflects how effectively the activity of the enterprise contributes to the transformation of income into profit.

Margin is a relative indicator, it is expressed as a percentage.

Margin=Profit/Revenue*100.

The formula is quite simple, but in order not to get confused at the very beginning of studying the term, let's consider a simple example. The company works with a margin of 30%, which means that in each ruble received, 30 kopecks are net profit, and the remaining 70 kopecks are expenses.

Gross margin

In the analysis of the profitability of the enterprise, the main indicator of the result of the activities carried out is the gross margin. The formula for its calculation is the difference between the proceeds from the sale of products in the reporting period and the variable costs of producing these products.

Only the level of gross margin does not allow for a full assessment of the financial condition of the enterprise. Also, with its help, it is impossible to fully analyze individual aspects of its activities. This is an analytical indicator. It shows how successful the company as a whole is. is created at the expense of the labor of employees of the enterprise spent on the production of products or the provision of services.

It is worth noting one more nuance that must be taken into account when calculating such an indicator as “gross margin”. The formula can also take into account income outside the implementation of the economic activity of the enterprise. These include the write-off of receivables and payables, the provision of non-industrial services, income from housing and communal services, etc.

It is extremely important for an analyst to correctly calculate the gross margin, since this indicator is used to form enterprises, and later development funds.

In economic analysis, there is another concept similar to gross margin, it is called "profit margin" and shows the profitability of sales. That is, the share of profit in total revenue.

Banks and margin

The profit of the bank and its sources demonstrates a number of indicators. To analyze the work of such institutions, it is customary to calculate as many as four different margin options:

The credit margin is directly related to work under loan agreements, it is defined as the difference between the amount indicated in the document and the amount actually given out.

Bank margin is calculated as the difference between interest rates on loans and deposits.

Net interest margin is a key indicator of banking performance. The formula for its calculation looks like the ratio of the difference in commission income and expenses for all operations to all bank assets. The net margin can be calculated on the basis of both all the bank's assets, and only those involved in the work at the moment.

The margin is the difference between the assessed value of the collateral and the amount given to the borrower.

Such different meanings

Of course, the economy does not like discrepancies, but in the case of understanding the meaning of the term "margin", this happens. Of course, on the territory of one and the same state, everything is fully consistent with each other. However, the Russian understanding of the term "margin" in trade is very different from the European one. In the reports of foreign analysts, it represents the ratio of profit from the sale of goods to its selling price. In this case, the margin is expressed as a percentage. This value is used for a relative assessment of the effectiveness of the trading activities of the company. It should be noted that the European attitude to margin calculation is fully consistent with the basics of economic theory, which were described above.



In Russia, this term is understood as net profit. That is, when making calculations, they simply replace one term with another. For the most part, for our compatriots, the margin is the difference between the proceeds from the sale of goods and the overhead costs for its production (purchase), delivery, and sale. It is expressed in rubles or another currency convenient for settlements. It can be added that the attitude towards margin among professionals differs little from the principle of using the term in everyday life.

How is margin different from trading margin?

There are a number of common misconceptions about the term "margin". Some of them have already been described, but we have not touched on the most common yet.



Most often, the margin indicator is confused with the trading margin. It is very easy to tell the difference between them. The margin is the ratio of profit to cost. We have already written about how to calculate the margin.

An illustrative example will help dispel any doubts that have arisen.

Suppose a company bought a product for 100 rubles, and sold it for 150.

Let's calculate the trade margin: (150-100)/100=0.5. The calculation showed that the margin is 50% of the value of the goods. In the case of margin, the calculations will look like this: (150-100)/150=0.33. The calculation showed a margin of 33.3%.

Correct analysis of indicators

For a professional analyst, it is very important not only to be able to calculate the indicator, but also to give a competent interpretation of it. This is a difficult job that requires
great experience.

Why is it so important?

Financial indicators are rather conditional. They are influenced by valuation methods, accounting principles, the conditions in which the enterprise operates, changes in the purchasing power of the currency, etc. Therefore, the result of the calculations cannot be immediately interpreted as “bad” or “good”. Additional analysis should always be performed.

Margin in the stock markets

Exchange margin is a very specific indicator. In the professional slang of brokers and traders, it does not mean profit at all, as it was in all the cases described above. The margin on the stock markets becomes a kind of collateral for transactions, and the service of such trades is called "margin trading".



The principle of margin trading is as follows: when concluding a transaction, the investor does not pay the entire amount of the contract in full, he uses his broker, and only a small deposit is debited from his own account. If the result of the operation carried out by the investor is negative, the loss is covered from the security deposit. And in the opposite situation, the profit is credited to the same deposit.

Margin transactions provide an opportunity not only to make purchases at the expense of the broker's borrowed funds. The client may also sell borrowed securities. In this case, the debt will have to be repaid with the same papers, but their purchase is made a little later.

Each broker gives its investors the right to make margin transactions on their own. At any time, he may refuse to provide such a service.

Benefits of margin trading

By participating in margin transactions, investors receive a number of advantages:

• The ability to trade on financial markets without having sufficiently large amounts on the account. This makes margin trading a highly profitable business. However, when participating in operations, one should not forget that the level of risk is also not small.

  Opportunity to receive with a decrease in the market value of shares (in cases where the client borrows securities from a broker).

  To trade in different currencies, it is not necessary to have funds in these currencies on your deposit.

Management of risks

To minimize the risk when entering into margin transactions, the broker assigns each of its investors the amount of collateral and the margin level. In each case, the calculation is made individually. For example, if after a transaction a negative balance appears on the investor's account, the margin level is determined by the following formula:

UrM=(DK+SA-ZI)/(DK+SA), where:

DK - the investor's funds deposited;

SA - the value of the investor's shares and other securities accepted by the broker as collateral;

ZI - the investor's debt to the loan broker.

It is possible to carry out a trace only if the margin level is at least 50%, and if otherwise is not provided in the agreement with the client. According to the general rules, the broker cannot enter into transactions that will lead to a decrease in the margin level below the established limit.



In addition to this requirement, a number of conditions are put forward for margin transactions in the stock markets, designed to streamline and secure the relationship between the broker and the investor. The maximum amount of loss, terms of repayment of debts, conditions for changing the contract and much more are negotiated.

It is quite difficult to understand all the variety of the term "margin" in a short time. Unfortunately, in one article it is impossible to tell about all areas of its application. In the above reasoning, only the key points of its use are indicated.

Very common concepts in the field of management accounting are profit and margin. They allow you to adequately evaluate and analyze the financial result of the company. Some economists tend to consider them equivalent concepts, but in fact, margin and profit are somewhat different from each other. It is useful to take a closer look at these two important concepts.

Margin as the difference between indicators

Translated from English, the word "margin" can be interpreted as "difference". In management accounting and financial analysis, the understanding of this term is more specific. The margin is the difference between the company's revenue and the cost of production. It is often also referred to as gross profit.

Margin (gross profit) = Revenue - Cost of production

This indicator is usually expressed in monetary units. It shows exactly how much benefit the business owner received from the sale of his products, minus the variable costs of its production.

In general, the margin plays an extremely important role in assessing the effectiveness of the company, because:

• The final result of the company's activity - profit - depends on its size;
• It is she who forms the basis for the formation of enterprise development funds;
• The value of the indicator, expressed as a percentage, is calculated as ((Revenue - Cost) / Revenue) * 100% and shows the margin on the company's goods as a percentage;
• The margin ratio is the ratio of gross profit to revenue. When multiplying the obtained value by 100%, the return on sales is obtained - the most important indicator for evaluating the company's performance.

All of the above indicators are calculated in the course of the company's activities and form a separate area of ​​management accounting - marginal analysis. In general, the margin allows you to effectively manipulate variable costs and revenue, thereby affecting the final financial result.

Profit - the final financial result of the functioning of the business

The purpose of the formation of any commercial organization is to obtain a positive difference between inflows and outflows from activities. Profit, unlike margin, is the final financial result, namely the total income minus all possible types of costs.

The difference between profit and margin is best seen in form No. 2 - the Profit and Loss Statement of the enterprise. So, to get gross profit, you need to subtract the cost of production from revenue.

Profit is calculated differently:

Profit = Revenue - Cost of production - Selling costs - Management costs - Interest paid + Interest received - Non-operating expenses + Non-operating income - Other expenses + Other income

Income tax is subsequently charged on the resulting value. After deducting it, net income is formed. It is directed to the payment to shareholders and the formation of retained earnings, which plays the role of a reserve and the basis for investing in the future development of the enterprise.

In other words, when calculating the margin, only one type of cost is taken into account - variable production costs, which form the cost price. Profit also involves taking into account all types of expenses and receipts that the firm faces in the process of producing goods and services.

Product markup calculator

The concept of markup and margin (People also say "gap") are similar to each other. They are easy to confuse. Therefore, first we will clearly define the difference between these two important financial indicators.

We use the markup to form prices, and the margin to calculate the net profit from the total income. In absolute terms, markup and margin are always the same, but in relative (percentage) terms they are always different.

Formulas for calculating margin and markup in Excel

A simple example for calculating margin and markup. To accomplish this task, we need only two financial indicators: price and cost. We know the price and cost of the product, but we need to calculate the markup and margin.

Margin formula in Excel

Create a table in Excel, as shown in the figure:

In the cell under the word margin D2, enter the following formula:

As a result, we get the indicator of the margin volume, we have it: 33.3%.

Formula for calculating markup in Excel

We move the cursor to cell B2, where the result of the calculations should be displayed and enter the formula into it:

As a result, we get the following indicator of the markup share: 50% (easy to check 80+50%=120).

Difference between margin and markup by example

Both of these financial ratios consist of profits and expenses. What is the difference between markup and margin? And their differences are very significant!

These two financial ratios differ in the way they are calculated and in percentage terms.

The markup allows businesses to cover costs and make a profit. Without it, trade and production would go into negative territory. And the margin is already the result after the markup. For an illustrative example, we define all these concepts with formulas:

1. Product price = Cost price + Markup.
2. Margin is the difference between price and cost.
3. Margin is the share of profit that the price contains, so the margin cannot be 100% or more, since any price also contains a share of the cost.

The markup is the part of the price that we added to the cost price.

Margin is the portion of the price that remains after deducting the cost.

For clarity, we translate the above into formulas:

1. N=(Ct-S)/S*100;
2. M=(Ct-S)/Ct*100.

Description of indicators:

• N is the markup indicator;
• M – margin indicator;
• Ct is the price of the goods;
• S is the cost.

If we calculate these two indicators as numbers, then: Markup = Margin.

And if in percentage terms then: Markup > Margin.

Please note that the markup can be as high as 20,000%, and the margin level can never exceed 99.9%. Otherwise, the cost will be = 0r.

All relative (as a percentage) financial indicators allow you to display their dynamic changes. Thus, changes in indicators in specific periods of time are tracked.

They are proportional: the higher the markup, the greater the margin and profit.

This gives us the opportunity to calculate the values ​​of one indicator if we have the values ​​of the second. For example, margin indicators allow predicting real profit (margin). And vice versa. If the goal is to reach a certain profit, you need to calculate what markup to set, which will lead to the desired result.

Before practice, let's summarize:

• for margin, we need indicators of the sum of sales and margins;
• for the markup, we need the amount of sales and the margin.

How to calculate the margin as a percentage if we know the markup?

For clarity, we give a practical example. After collecting reporting data, the company received the following indicators:

1. Sales volume = 1000
2. Markup = 60%
3. Based on the data obtained, we calculate the cost price (1000 - x) / x = 60%

Hence x = 1000 / (1 + 60%) = 625

Calculate the margin:

• 1000 - 625 = 375
• 375 / 1000 * 100 = 37,5%

From this example, the margin formula algorithm for Excel follows:

How to calculate the markup as a percentage if we know the margin?

Sales reports for the previous period brought the following figures:

1. Sales volume = 1000
2. Margin = 37.5%
3. Based on the data obtained, we calculate the cost price (1000 - x) / 1000 = 37.5%

Hence x = 625

Calculate markup:

• 1000 - 625 = 375
• 375 / 625 * 100 = 60%

An example of the markup formula algorithm for Excel:

Note. To check formulas, press the key combination CTRL + ~ (the “~” key is in front of the one) to switch to the appropriate mode. To exit this mode, press again.

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

Margin vs Markup: What's the Difference?

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

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

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

Margin is the ratio of profit to the final price of the goods, it shows the income of the enterprise after calculating all expenses and deductions. There are several formulas for calculating the 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 equal to 100%. For different areas of activity, different forms of margin are used:

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

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

• premium on the original cost of the goods;
• difference between wholesale and retail price;
• the final difference between the purchase and sale value in retail.

Markup and margin - difference in calculation and indicators

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

The easiest way to consider the difference between margin and markup is with a 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 according to the formula 1500-1000/1500=0.33 (33%);
• the margin is determined by a simple difference of 1500-1000=500 rubles.

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

Given that trade is one of the most widespread services, marginal income as an increase in money capital per unit of goods is an excellent indicator of profitability. In the retail sector, the mark-up of 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 markup of 50%, as in the example above, the margin is 33%. As the margin increases, the profit margin will increase accordingly.

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I decided to create an online store and went to the forum to study the pricing policy of competitors. I came across a poll:

Members of the forum voted, shared their experiences and argued: is it possible to survive with a margin of 20-30% for cosmetics and 80% for jewelry. Someone complained that he was selling VIP sockets through an online store with a 25% markup, while his friend in Petrogradka was selling the same ones with a 500% - 700% markup. It works because it offers familiar designers a 20% kickback. Then Artem came and said that the margin and markup differ from each other, like an apple from a cherry. And the survey is meaningless, because the margin is never more than 100%. Let's see if Artem is right.

What is markup

The markup is the ratio of gross profit to cost. It helps to understand how much we "welded".

Suppose we trade balls. We pay 75 ₽ to the manufacturer for each ball and 25 ₽ to the transport company for delivery: 100 ₽ is the cost. If we sold the ball for 130 ₽, then we received 30 ₽ of gross profit. Gross profit is important for accounting, but does not show how much we earned: is 30 ₽ a lot or a little?

To understand the benefit, we divide the gross profit by the cost - we get a markup of 30%.

Of all these indicators, only the markup makes sense for the business.

We sold the ball with a markup of 30%.
Competitor - with a surcharge of 20% (40 ₽ divided by 200 ₽) We "welded" 30%, the competitor - 20%.
It doesn't matter how much we have earned in rubles, how much our competitor has earned. Obviously we sold the ball better

The markup shows the benefit from the sale of goods and helps to compare yourself with competitors without being tied to money.

What is margin

Margin - the ratio of gross profit to revenue. It helps to understand what part of the proceeds we put in our pocket.

We sell balls for 130 ₽ and get a gross profit of 30 ₽. From the sale, we got 13,000 ₽ - so much is at the box office. But how do you know gross profit? How much did we earn? To understand this, let's calculate how much gross profit we get from each ruble from the sale of the ball. This is the margin.

A margin of 23% means that for every 1 ₽ from the sale, we put 23 kopecks in our pocket.

Calculate how much gross profit we received with a revenue of 13,000 ₽.

Our gross profit was 3000 ₽ - so much we put in our pocket.

Margin shows how much of the proceeds from the sale of goods we put in our pocket. It helps to manage a business - to regulate prices, sales volumes, a range of goods - and to receive the desired income.

Maximum markup and margin

Any markup can be. We bought the ball for 100 ₽ and sold it for 500 ₽ - the markup is 400%. The size of the margin can only be limited by legislation and common sense.

Margin is limited. We found the ball on the street and sold it for 500 ₽. Since we got it for free, its cost is zero. Therefore, 500 ₽ is our gross profit, and the margin is 100%. We will not earn more than we received for the goods - the margin cannot be more than 100%.

Artem was right:
- margin and markup - different things;
- markup can be any, and the margin - no more than 100%.

How markup is involved in pricing

Imagine that in addition to balls, we trade dozens of other goods with different costs and prices. Without a margin, we will not understand how much we earn on what and which product is more profitable to sell.

We don't know the markup. We seem to earn the most from boxing gloves, the least from jump ropes and badminton.

Let's calculate the score. It turns out that we earn more on boxing gloves and skipping ropes. These items have the same markup, even though the gross margin for a pair of boxing gloves is double that. With the least profit we sell badminton. Although we get the same gross profit from selling it as from selling the jump rope. Without a margin, we will not figure out what is more profitable to trade.

Without knowing the markup, we do not understand the benefits of selling the goods, which means we can sell too cheap.

For several months in a row, we have been selling balls for 130 ₽. Does this mean that we earn the same? No, if the cost of the balls has changed.

Let's find out how much we need to "weld" in February in order to sell the ball at a profit, as in January. Knowing the new cost and the desired margin, we determine the gross profit.

Let's add the desired gross profit to the cost price and set the price to 143 ₽. Now we will not sell cheap - we will sell the goods with the same profit as in January. So the margin forms the price.

Markup is a pricing tool. It allows you to compare different periods and products, find out how competitors are performing, and adjust your prices.

How Margin Helps a Business Grow

Suppose we spent 10,000 rubles on the purchase of balls and received 13,000 rubles from their sale. Gross profit - 3,000 ₽. Of these, 2,000 ₽ went to operating expenses: rent of premises, payment for electricity and salaries to sellers. After that, we had a net profit of 1,000 ₽.

Let's calculate the margin.

Find out what part of the revenue was "eaten" by operating expenses.

Determine what part of the proceeds remained in the form of net profit.

We pocketed 23% of the proceeds from the sale of balls. But we spent some of this money on rent, electricity and wages - operating expenses "ate" 15% of our revenue. We can dispose of the remaining net profit at our discretion - this is 8% of revenue.

Margin shows how we do business.

Knowing the amount of operating costs, we know what the minimum margin should be in order not to go broke. So we can regulate prices, sales volumes and influence the profit margin. If the landlord increases the rent and the level of operating costs equals the margin, we will stop making a profit. Then something will have to be decided. Lots of options:
- increase the sale price of the ball - increase the margin;
- agree on a reduction in the purchase price in order to reduce the cost;
- find another supplier who sells cheaper;
- find another room with a lower rent;
- save on something to reduce operating costs;
- increase sales volumes to cover operating expenses;
- stop selling balls and start selling boxing gloves because they have a high margin.

What we choose depends on the situation. The main thing is to see the benefit in time and take advantage of it or prevent an impending disaster if something went wrong. Margin will help you figure it out.

Margin is a tool for evaluating the effectiveness of sales and making managerial decisions.

Summing up

The mark-up shows how much we “gained” on the cost of goods and helps not to sell too cheap if the supplier raised prices. Any markup can be.

The margin tells us how much we put in our pocket from every ruble we earn and helps us decide how to develop the business - reduce operating costs, raise prices, change suppliers or start selling something new. The margin cannot be more than 100%.

Before discussing business with colleagues, make sure you are talking about the same things.