What does marginal profit mean? What is profit - a detailed analysis of the concept

Let's talk about marginal profit, its calculation formula, analysis methods, features and its relationship with other types of enterprise profit.

Marginal profit. Definition

marginprofit (analogues: MR, marginal revenue, marginal income, contribution to coverage, incremental revenue, marginal revenue, gross margin) is the difference between the revenue from sales of the company's products and variable costs. Income is understood as the proceeds received by the enterprise from the sale of its products, excluding VAT. Variable costs include such costs: for materials and raw materials, wages of working personnel, fuel, electricity, etc.

It should be noted that variable costs, unlike fixed costs, change non-linearly depending on the volume of production. The higher the volume of production, the lower the variable costs and the higher the marginal profit. This effect in economics is also called "scale effect". It is explained by the fact that when setting up mass production, the cost of production is significantly reduced.

The economic meaning of marginal profit

In each coefficient or indicator, one should, first of all, see its main economic meaning. So the marginal profit shows what maximum profit the enterprises can generate. The greater the marginal profit, the higher the company's ability to cover its fixed costs/costs. Marginal profit is sometimes called a contribution to cover, and it is understood: how it affects the formation of the net profit of the enterprise and covering (financing) fixed costs. The marginal profit indicator is used to assess the amount of profit coverage of production costs both in general and for each type (nomenclature) of goods.

The formula for calculating the marginal profit of an enterprise

The formula for gross marginal profit of an enterprise consists of two main indicators: revenue from sales of products and variable costs. Below is the calculation formula for the enterprise as a whole:

Marginal profit= Income - Variable Costs;

In addition to calculating the marginal profit / income for the entire volume of production, the marginal profit of each type of manufactured product is also calculated. The marginal profit of each product is calculated as the difference between the sales / sale price and its cost.

Marginal profit nomencl.= Price - Cost;

The calculation of the marginal profit for each manufactured product range allows you to exclude economically unprofitable products. Let's take an example, we produce cement of various brands: M300, M400 and M500. The calculation of the marginal profit for each brand allows you to select those that are not advisable to produce. The table below shows an example of a comparison between different grades of cement.

Grade of cement	Selling price 50 kg.	The cost of production is 50 kg.	Marginal profit	conclusions
		200 rub.	100 rub.	Marginal profit is 100 rubles.
				Marginal profit 50 rubles.
	400 rub.	500 rub.		Margin. profit is negative, it is not advisable to produce this product range.

The marginal profit of the enterprise is formed due to various groups of goods and products. This can be represented as a hierarchical scheme. Representation in the form of such a scheme allows the analyst to conclude that it is inappropriate to produce a product or group of products if their marginal profit is less than zero. The figure below shows the margin scheme. profit at the enterprise as a whole, green color shows goods that have a positive contribution margin, red negative. This sets the task for the production and sales department of the need to change the income / cost of sales of this product / group.

Calculation of marginal profit in Excel by balance

In the domestic balance sheet, instead of marginal profit, the term gross profit is used. To calculate it, it is necessary to subtract from the Revenue (excluding VAT) the cost of sales.

Gross profit= p.2110 - p. 2120;

Analysis of changes in gross profit over the years allows you to make a forecast about the situation in production and sales. In this example, the balance sheet of OJSC “Surgutneftekhim” was considered. You can see the positive dynamics of gross profit growth over the past five years.

Relationship between marginal profit and other types of profit of the enterprise

In order to understand the place of marginal profit in the enterprise profit system, consider the figure below. Marginal profit comes in second place immediately after sales proceeds (sales proceeds) of products excluding VAT, and its volume will directly determine the size of operating, profit and net profit.

Profit margin analysis is carried out in order to determine the critical volume of production and sales of goods to cover variable costs. Profit margin analysis is similar to the analysis of the break-even point of the enterprise and is based on similar restrictions:

The company's income and costs have a linear relationship.
Prices for sold products do not change. Only under this condition it is possible to determine the amount of cash receipts from sales in the future.
Enterprise productivity does not change.
Stocks of finished goods are low, as a result, they do not affect the future volume of sales. All products manufactured at the enterprise are immediately sold (sold).
Stability of the external and internal environment. External macroeconomic factors have a sustainable impact. External factors include: financial policy states in relation to enterprises, tax deductions, interest rates of the Central Bank, demand for products in the region and industry, etc. Internal factors within the enterprise itself do not have a dramatic impact on productivity. Internal factors include: production technology, wage rates, etc.

Relationship between break-even point and marginal profit

The break-even point is important financial indicator enterprise, which characterizes the critical level of production at zero profit, we will analyze its relationship with marginal profit. The figure below shows this connection. At the break-even point, the size of losses and profits are equal, while marginal profit (margin) is equal to the costs of the cost of production (fixed costs), while net profit is equal to zero. You can read more about the break-even point in the enterprise in my article ““.

Graphical analysis contribution margin includes the following areas:

assessment of the break-even volume of production/sales of products;
determination of the zone of profitability / unprofitability of the enterprise,
profit forecasting for different sales volumes;
calculation of the critical level of fixed costs for the selected marginal profit;
minimum allowable selling prices of products for a given volume of production, variable and fixed costs.

The problem with using this model is that future perspective production volumes are influenced by many factors, which distorts the linear relationship between production volume and sales.

Video lesson: “How to calculate the margin and the optimal price for maximum profit”

How to increase the marginal profit of the enterprise?

The marginal profit formula consists of two components: total sales revenue without VAT and Variable costs, therefore, in order to increase marginal profit, you need to focus on increasing the size of total income and reducing variable costs. The table below shows the possible managerial methods increasing total revenue and reducing variable costs.

Increase in total income	Reducing variable costs
Participation of the enterprise in various tenders	Use of cheaper raw materials and fuels
Expansion of sales markets for products	Automation of the functions of working personnel
Advertising companies, development effective methods product promotion	Introduction of new production technologies
Use of debt capital to finance new production facilities	Outsourcing of part of the functions of production and sale of the company's products to third-party firms and organizations
Issuance of bonds, entering the stock market (IPO/SPO)	Change in product range
Change pricing policy enterprises	Implementation of innovations

In this article, we examined various aspects of such a concept as the marginal profit of an enterprise. This indicator is very important for assessing the competitiveness of the enterprise and its products in the market. Diagnostics of the state of marginal profit by product range allows you to identify products leaders and outsiders and form the necessary set of measures to increase productivity and sales.

Profit (P) is the difference between the income from the sale of a product and the cost of its production. This is the most important economic indicator, showing efficiency economic activity enterprises. Let us consider in detail its types and methods for their calculation.

This is the amount received after subtracting costs from revenue (B). The general calculation formula will look like this:

Profit = Revenue - Costs (in financial terms).

What is net profit (NP)

These are the funds remaining from the balance sheet profit after deducting taxes, fees, deductions to the budget. PE is used to invest in manufacturing process, organizing reserve funds, increasing . Its size depends on several factors:

tax burden on the organization, additional payments;
In enterprises;

How to Calculate Net Income

To do this, you must first perform the following operations:

Add up all costs.
Determine the gross income (AR).
Now we can calculate the PE. The formula looks like this:

What is Gross Profit (GRP)

This is the difference between the amount from the sale of the product, and its cost. The difference between gross and net is that the first is received before the deduction of mandatory contributions. It does not include the cost of repaying defined benefits.

There are two categories of factors that influence the volume of GDP. The first includes those that depend on the head of the organization:

growth rates of production volumes;
the effectiveness of the sale of goods;
expansion of the range;
implementation of measures aimed at improving quality;
cost reduction;
effective marketing campaign.

External factors that cannot be influenced include:

location;
environmental conditions;
current legislature;
government measures to stimulate business;
political, economic situation in the state and other world powers;
external factors affecting the provision of the enterprise with resources and transport.

The formula for calculating VP is simple. To get its value, you need to subtract from net income(NV) from the sale of the cost of goods or services rendered:

VP \u003d BH - C

The NR is the total revenue (TR) from sales minus the amount of discounts provided and returned products.

What is marginal profit (MP)

This is the difference between the funds from the sale and variable costs (PV) - the cost of raw materials and materials needed for production, employee salaries, electricity. MP allows for easy production. The indicator is also considered part B, from which the PE will be formed directly and fixed costs will be repaid.

Marginal analysis of manufactured products allows you to determine which products are the most profitable and which are not profitable to produce. The two main indicators that regulate the amount of MP are price and variable costs. To increase it, you must either sell goods at a higher price.

MP=OD-PZ

What is operating profit (OP)

This is the amount remaining after deducting depreciation deductions, rent, payment for fuel and lubricants and other current expenses from P. The OP does not exclude funds for tax deductions and loan overpayments.

It is calculated according to the following formula:

OP \u003d VP - KR - UR - PrR + PrD + Prts,
where:
KR- commercial expenses (P);
UR- managerial P;
PrR- other R;
PrD- income;
Prts- interest.

OP allows you to view a set of costs and revenues of the enterprise, at the same time making it possible to evaluate in detail the most profitable or unprofitable budget columns.

What is book profit (BP)

This is the total P of the organization, fixed on its balance sheet for a specific period of time. Combines income received from all types of production and non-production operations. It is a PE before the transfer of taxes and other established payments. The BP indicator reflects the effectiveness of the enterprise strategy and performance decisions taken guides.

To assess the implementation of the plan and compare with the indicators for the previous period, a balance analysis is carried out. This is necessary in order to establish the reasons for non-fulfillment of the plan, to identify shortcomings in management system, find sources of losses and generate resources to increase profits.

The main elements forming the BP are:

income or damage (D / D) from the sale of goods;
D / C from additional implementation;
D / C from non-operating activities.

Balance sheet profit is obtained from operating or vice versa. The formula looks like this:

BP \u003d OP - Prts,
where:
Prts - interest.

General concept of revenue

These are proceeds from the sale. The activity of any enterprise is concentrated on obtaining it. The difference between B and P is that profit is the difference between the revenue received and the costs incurred. B can come from several sources:

sales;
implementation;
investments;
implementation of financial transactions.

Total B is calculated by adding the funds received from all sources.

What is Gross Revenue (BB)

This is the total amount of funds received from the sale. Determined by the formula:

BB \u003d Quantity of goods produced (T) * Price T.

It is not a decisive indicator, as it does not include the costs incurred. It cannot be considered as a separate element for assessing the performance of the organization.

Even people far from economics are familiar with the terms margin and profit - what is the difference between them and how to calculate these indicators? Often these concepts are used as synonyms, but there are some differences between them. We tell how important they are and why a literate person needs to know them.

To better understand the difference between these concepts, you need to start by defining their content. So, the Russian-language word "profit" usually does not raise questions and is understood as a material advantage received by someone as a result of work or a transaction. In business, it is the end result of work in financial terms.

With the foreign word "margin" is more difficult. It has roots in English and French and is translated primarily as "difference" or "advantage". In modern accounting, the term is most often understood as the difference between the cost of production and its selling price.

Based on the above explanations of the values, Initially, we can conclude that these concepts are actually analogues, because profit is also the difference between the final price and the cost. But in reality this is not entirely true.

Margin is the difference between cost and price for the buyer, and profit is the material benefit of the entrepreneur.

How to distinguish between margin and profit: calculation formulas and main features

How is margin different from profit? We have already found out that the margin is the difference between the cost and the price for the buyer, and the profit is the material benefit of the entrepreneur. But how can this be explained even more simply? To begin with, we will study the formulas by which the considered coefficients are calculated.

Margin formula: what you need to know to calculate

The margin is calculated using a very simple formula: the company's revenue minus the cost of production. That is, if the company's revenue after the sale of products amounted to 10 thousand rubles, and its cost at the same time - 6 thousand rubles, margin is calculated as follows:

10,000 - 6,000 = 4,000 rubles.

(4,000/10,000) x 100% = 40%.

The concept of margin is much closer in meaning to gross profit. Gross profit and margin are actually calculated the same way as the difference between the proceeds and the cost. However, the concept of “net profit” should be distinguished, the difference between which and the margin is more significant.

Net profit formula: how to count and not get confused

The calculation of profit is somewhat more complicated, since it represents the final material result, the final monetary benefit that the entrepreneur will receive after selling the product and paying all related costs.

To find out the profit, you need to subtract from the revenue:

cost price;
management costs;
business expenses;
tax deductions;
interest for payment on loans and borrowings (if any);
any other costs associated with the activities of the enterprise.

Let's go back to the previous example. The revenue is 10 thousand rubles, the cost is 6 thousand, but at the same time, the entrepreneur must pay the bank 5% of the transaction (of all revenue) and pay 500 rubles to the manager, whose labor was not included in the cost of production. Then the net profit will be equal to:

10,000 - 6,000 - (10,000x5%) - 500 = 3,000 rubles.

It turns out that the profit from the transaction is less than the margin by a whole thousand rubles. It is clear that we present the most simplified calculations, allowing you to visually depict what a particular indicator is. In practice, all calculations are much more complicated, and the values \u200b\u200bof expenses in the profit formula may not be so obvious.

In practice, all calculations are much more complicated, and the values \u200b\u200bof expenses in the profit formula may not be so obvious.

The difference between margin and profit

Profit is the final, final value of the funds received by the entrepreneur after the sale of products and the payment of all associated costs. It is this indicator that captures how successful the business is.

The margin shows what percentage markup the company makes on its products and thus allows you to draw conclusions about the profitability of the entire work of the organization. Funds received by the enterprise in the form of margin can be used to develop the business.

Related concepts: contribution margin

So, we explained in an accessible language the difference between margin (gross profit) and net profit. But together with these concepts, the combined term “marginal profit” is quite often used. What is it and how does gross profit differ from marginal profit?

So it is customary to call the difference between the proceeds (revenue) and the variable costs of the manufacturer, that is, all the funds spent on the production of a specific volume of products. Variable costs include:

purchase of raw materials and components, without which it is impossible to manufacture products;
payment of energy, utility bills;
wages of employees involved in production.

Fixed costs are not included in margin calculation- interest on loans, property taxes, depreciation, rent, salaries of management personnel. Thus, marginal profit shows how much money was brought in by the sale of products, taking into account the costs of its production, but does not characterize how much net profit the company will receive.

What else you need to know about margin and profit

After reading all the previous paragraphs, it is easy to make sure that the difference between the concepts is quite simple and can be perceived even by people far from the economy. And to entrepreneurs, all the arguments may seem obvious at all. However, let's take a closer look at what else characterizes these concepts:

Both indicators can be measured both in specific values (in monetary terms) and in percentages, but the margin is more often measured in percentages, and profit - in money.
The coefficients are interconnected in direct proportion: the greater the margin, the greater the profit.
Margin will always be greater than profit, since the second is one of its components.
The meaning of terms may vary depending on the field in which they are used. So in the field of exchange transactions, margin is a pledge that is paid for a loan, the funds of which are planned to be used in an exchange transaction.

Why Calculate These Ratios

Now let's analyze the final question - why calculate these coefficients at all and why can't we limit ourselves to calculating revenue and net profit? Knowing both indicators - margin and profit - will help the entrepreneur to fully evaluate the results of the work. and the ratio of income earned to expenses incurred. The coefficients make it possible to judge the efficiency of resource use, the correctness of pricing and the overall results of the enterprise's work within a specific time cycle.

A lot of people come across the concept of "margin", but often do not fully understand what it means. We will try to correct the situation and give an answer to the question of what is margin in simple words, and also we will analyze what varieties are and how to calculate it.

The concept of margin

Margin (eng. margin - difference, advantage) is an absolute indicator that reflects how the business functions. Sometimes you can also find another name - gross profit. Its generalized concept shows what is the difference between any two indicators. For example, economic or financial.

Important! If you are in doubt about how to write - walrus or margin, then know that from the point of view of grammar, you need to write through the letter "a".

This word is used in various fields. It is necessary to distinguish between what margin is in trading, on stock exchanges, in insurance companies and banking institutions.

Main types

This term is used in many areas of human activity - there are a large number of its varieties. Consider the most widely used.

Gross Profit Margin

Gross or gross margin is the percentage of total revenue left after variable costs. Such costs can be the purchase of raw materials and materials for production, the payment of wages to employees, spending money on selling goods, etc. It characterizes common work enterprises, defines it net profit, and is also used to calculate other quantities.

Operating profit margin

Operating margin is the ratio of a company's operating profit to its revenue. It indicates the amount of revenue, as a percentage, that remains with the company after taking into account the cost of goods, as well as other related expenses.

Important! High performance indicates good performance of the company. But you should be on the alert, because these numbers can be manipulated.

Net (Net Profit Margin)

Net margin is the ratio of a company's net profit to its revenue. It displays how many monetary units of profit the company receives from one monetary unit of revenue. After its calculation, it becomes clear how successfully the company copes with its expenses.

It should be noted that the value of the final indicator is affected by the direction of the enterprise. For example, firms in the field retail, usually have rather small digits, and large ones manufacturing enterprises have pretty high numbers.

Interest

Interest margin is one of important indicators activity of the bank, it characterizes the ratio of its revenue and expenditure parts. It is used to determine the profitability of loan transactions and whether the bank can cover its costs.

This variety is absolute and relative. Its value can be influenced by inflation rates, various kinds of active operations, the ratio between the bank's capital and resources that are attracted from outside, etc.

variational

Variation margin (VM) is a value that indicates the possible profit or loss on trading floors. It is also a number by which the amount of funds taken on bail during a trade transaction can increase or decrease.

If the trader correctly predicted the market movement, then this value will be positive. Otherwise, it will be negative.

When the session ends, the running VM is added to the account, or vice versa - it is canceled.

If a trader holds his position for only one session, then the results of the trade transaction will be the same with the VM.

And if a trader holds his position for a long time, it will add up daily, and ultimately its performance will not be the same as the result of the transaction.

Watch a video about what margin is:

Margin and Profit: What's the Difference?

Most people tend to think that the concepts of "margin" and "profit" are identical, and cannot understand what is the difference between them. However, even if insignificant, the difference is still present, and it is important to understand it, especially for people who use these concepts on a daily basis.

Recall that margin is the difference between a firm's revenue and the cost of the goods it produces. To calculate it, only variable costs are taken into account without taking into account the rest.

Profit is the result financial activities firms for any given period. That is, these are the funds that remain with the enterprise after taking into account all the costs of production and marketing of goods.

In other words, the margin can be calculated in this way: subtract the cost of goods from revenue. And when profit is calculated, in addition to the cost of goods, various costs, business management costs, interest paid or received, and other types of expenses are taken into account.

By the way, such words as “back margin” (profit from discounts, bonus and promotional offers) and “front margin” (profit from markup) are associated with profit.

What is the difference between margin and markup

To understand the difference between margin and markup, you must first clarify these concepts. If everything is already clear with the first word, then not quite with the second.

The markup is the difference between the cost price and the final price of the product. In theory, it should cover all costs: for production, delivery, storage and sale.

Therefore, it is clear that the margin is an allowance to the cost of production, and the margin just does not take this cost into account during the calculation.

Different difference. When they calculate the margin, they take the difference between the cost of goods and the purchase price, and when they calculate the margin, they take the difference between the company's revenue after sales and the cost of goods.
Maximum volume. The margin has almost no limits, and it can be at least 100, at least 300 percent, but the margin cannot reach such figures.
The basis of the calculation. When calculating the margin, the company's income is taken as the base, and when calculating the margin, the cost is taken.
Conformity. Both quantities are always directly proportional to each other. The only thing is that the second indicator cannot exceed the first.

Margin and markup are quite common terms used not only by specialists, but also ordinary people in everyday life, and now you know what their main differences are.

Margin Formula

Basic concepts:
GP(grossprofit) — gross margin. Reflects the difference between revenue and total costs.
CM(contribution margin) - marginal income (marginal profit). Difference between sales revenue and variable costs
TR(totalrevenue) - revenue. Income, the product of the price of a unit of production and the volume of production and sales.
TC(totalcost) - total costs. The cost price, consisting of all costing items: materials, electricity, wage, depreciation, etc. There are two types of costs - fixed and variable.
FC(fixedcost) — fixed costs. Costs that do not change with changes in capacity (production volumes), for example, depreciation, director's wages, etc.
VC(variablecost) - variable costs. Costs that increase / decrease due to changes in production volumes, for example, wages of key workers, raw materials, materials, etc.

Gross margin reflects the difference between revenue and total costs. The indicator is necessary for the analysis of profit taking into account the cost and is calculated by the formula:

GP=TR-TC

Similarly, the difference between revenue and variable costs will be called Marginal income and is calculated by the formula:

CM=TR-VC

Using only the indicator of gross margin (marginal income), it is impossible to estimate the total financial condition enterprises. These indicators are usually used to calculate a number of other important indicators: the contribution margin ratio and the gross margin ratio.

Gross margin ratio , equal to the ratio of the gross margin to the amount of sales revenue:

K VM = GP / TR

Similarly Marginal income ratio is equal to the ratio of marginal income to the amount of sales revenue:

K MD = CM / TR

It is also called the marginal return rate. For industrial enterprises the margin rate is 20%, for trading - 30%.

The gross margin ratio shows how much profit we will receive, for example, from one dollar of revenue. If the gross margin ratio is 22%, this means that every dollar will bring us 22 cents of profit.
This value is important when it is necessary to make important decisions on the management of the enterprise. With its help, you can predict the change in profit during the expected increase or decrease in sales.

Interest margin shows the ratio of total costs to revenue (income).

GP=TC/TR

or variable cost to revenue:

CM=VC/TR

As we have already mentioned, the concept of "margin" is used in many areas, and perhaps that is why it is difficult for an outsider to understand what it is. Let's take a closer look at where it is used and what definitions give.

In economics

Economists define it as the difference between the price of a good and its cost. That is, in fact, this is its main definition.

Important! In Europe, economists explain this concept as a percentage rate of the ratio of profit to sales of products at a selling price and use it in order to understand whether the company's activities are effective.

In general, when analyzing the results of the company's work, the gross variety is most often used, because it is it that has an impact on net profit, which is used for the further development of the enterprise by increasing fixed capital.

In banking

In banking documentation, you can find such a term as credit margin. When a loan agreement is concluded, the amount of goods under this agreement and the amount paid in fact to the borrower may be different. This difference is called credit.

When applying for a secured loan, there is a concept called the guarantee margin - the difference between the value of the property issued on security and the amount of funds issued.

Almost all banks lend and accept deposits. And in order for the bank to have a profit from this type of activity, different interest rates are set. The difference between the interest rate on loans and deposits is called the bank margin.

In exchange activities

The exchanges use a variational variety. It is most often used on futures trading platforms. From the name it is clear that it is changeable and cannot have the same value. It can be positive if the trades made a profit, or negative if the trades turned out to be unprofitable.

Thus, we can conclude that the term "margin" is not so complicated. Now you can easily calculate it using the formula different kinds, marginal profit, its coefficient and most importantly, you have an idea in what areas this word is used and for what purpose.

Marginal profit- this is the difference in the received income without tax at the enterprise among the variable costs, including the cost of purchasing raw materials, staff salaries, gasoline costs and company maintenance.

The increase in marginal profit depends on the expansion of the company, the wider the range of expansion, the lower the cost. This is explained by the fact that with an increase in the value, the initial cost per manufactured product decreases.

What is the economic meaning?

Marginal profit will be able to show what the biggest results the company can expect. The higher the income, the better the costs are covered.

In another way, marginal profit is called a contribution to coverage. The marginal profit ratio itself is used to assess how much profit is able to cover the costs of the entire product as a whole, and for one item.

Methodology for calculating the company's marginal income

Marginal profit is divided into two indicators, this is the proceeds from the sale of goods and variable costs.

Revenue - Variable Costs = Marginal Profit

Officially, the formula looks like this:

MR=TR-TVC

MR - marginal profit,

TR - income from the sale of goods,

TVC - variable costs.

Example:

In the manufacture of 200 pieces of any unit of goods, the amount of each is 1000 rubles. Variable costs, which include production costs, transport maintenance, wages, etc., is 100.000.

How to Calculate Gross Marginal Profit?

MR=200*100-100.000=100.000 is the production margin.

Marginal profit nomencl. = Price - Cost;

Official wording:

MR=TR(V+1)-TR(V)

TR(V+1) is the profit received from the sale of goods,

TR(V) is the profit received from the sale with an increase of one unit of production.

Here's an example:

With the release of 10 products, costing 100 rubles, the company decided to produce 11 products and sell them for 99 rubles.

MR = 99*11-10*100=89 rubles

Such a calculation allows you to exclude unprofitable products from production, and also helps to make changes in sales of unprofitable products.

Marginal profit and other types of company income

To determine the relationship between marginal profit and the volume of goods produced, it is necessary to separately take into account variable and fixed costs when forming pricing.

These include:

rental fee,
tax,
staff salary,
loan payments;

Break even is equally the ratio of the contribution of coverage to fixed costs. Anything that rises above the norm is called marginal profit.

Analysis of the company's marginal profit

The analysis of the company is carried out to determine the critical volume and to determine the coverage of variable costs with the help of traded items.

Margin analysis is required:

with limited capital, when more efficient distribution of funds is required.
with limited production capabilities, it is required to distribute the most profitable subtype of products.
if there are doubts in some divisions of the enterprise and their effectiveness.
when it is necessary to compare prices of a competitive party and justify the pricing policy of production.

What does the analysis of the marginal profit of the enterprise give?

breakeven point calculation,
rigorous assessment of the profitability of any product of the company,
assessment of decision-making when concluding additional contracts,
appraisal and decision to close the enterprise.

What is the relationship between break-even point and marginal profit?

Helps to characterize the production of a product with zero income. The relationship between marginal profit and the break-even point becomes clear when using the methodology: “costs minus efficiency”.

The calculation of the classical point is ideal for the calculation of products of the same type, which are close in terms of the value of profitability and marginal profitability. Permissible change in the volume of production with proportional changes for each release of the product.

Practice shows that such rules are most often not observed, since some subspecies of the produced goods cannot be reduced or increased.

Therefore, the more considered term “Overheads Cauldron”, which is filled for each unit, with marginal profit, that is, in other words, the company receives income only when the boiler is full, when the profit flows out and is collected on a separate plate.

How to increase the marginal profit of the company?

In order to increase marginal profit, you should focus on raising total revenue and reducing variable costs.

Here is a table with methods to achieve higher profits and lower costs.

How to increase overall profit	How to reduce variable costs
Take part in tenders	Use of raw materials and fuels at low cost
Increase sales outlets	Put some staff functions on automation
Application of promotion methods: advertising, promotions, etc.	Application of new technologies
Take a loan	Outsource and resell some functions to other enterprises
Entering the stock market with the issuance of bonds	Revision of the range
Price change	Innovation in production and advertising

Marginal income in Russia

Marginal income in Russia is calculated using this formula:

V.marzha = VP - Zper VP-revenue from the goods sold, Zper - variable costs.

Contribution to coverage fixed costs company, shows the margin. In Russia, marginal income is used in production at large enterprises, where it can bring maximum profit.

When can we say that the company has reached the level of income?

Why do you need to know what marginal profit your company has?

Marginal profit allows you to determine which product or service contributes to an increase in profit and which, on the contrary, to its decline.

Manufacturing faces the following challenges:

which product to discontinue and how to replace it,
whether to expand the sale of any product or not;

The negative side of this method is that it is best suited for large and well-established companies, where the calculation of marginal profit is very significant.

Conclusion

The article shows the different sides of marginal profit. This is of great importance in assessing the competitiveness of production in the market and its promotion in general.

Correctly applied these techniques, marginal profit allows you to increase productivity and sales, thereby increasing the profitability of the enterprise.

THE BELL