How to influence marginal income. What is the difference between margin and gross margin

Marginal profit is the difference between the proceeds from the sale of products that were produced by the enterprise and the costs that appeared as a result of the creation of these products.

A little about margin

Very often it is also called the coverage amount. This can be explained by the fact that it is the revenue that the company receives to cover wages and to create the so-called permanent profit. That is, if the marginal income (profit) is higher each time, then this means that the cost recovery will be carried out faster, and the company will receive net profit more.

Marginal income in Russia

IN Russian Federation term " contribution margin" is not used so often. With some stretch, we can say that gross profit is practically the same, because the meaning of these two operations is very similar. But there are some differences in them.

Gross income in the calculation uses non-production and production costs, but in the marginal approach they are considered more elastic. At the same time, such income is calculated both per unit of sold products and per unit of output. Why is it necessary to calculate it? To get the most accurate information about how much profit each unit of output brings to the company.

At the same time, in Russia there is another important term that is directly related to the money received - the marginal profit of the enterprise. It includes all income from the sale and production of various products.

Very often marginal profit is incorrectly identified with the so-called direct costing system. But they have significant differences that experts in this field are aware of. As a rule, on the territory of the Russian Federation, marginal income is used in the market and industrial sphere of entrepreneurship, because it is here that it brings the maximum result.

When can a company be considered to be making money?

In the event that the analysis of marginal profit shows that the income of the enterprise covers any variable costs well enough, we can say that the profit here exists on high level. At the same time, in the analysis process, it is necessary to take into account the entire range of manufactured goods. Marginal profit also helps to understand which types of products are the most profitable for production in terms of sales, and which are unprofitable or completely unprofitable.

What determines marginal profit and how can it be increased?

As a rule, it primarily depends on the variables in the modern market indicators.

This is the cost of manufacturing one unit of goods and the price at which this product can be sold.

In practice, marginal profit can increase. How to get more income?

First, you can mark up your product range several times more. Secondly, you can produce and, accordingly, sell more product. But it is best, of course, to combine these two methods, then you will get higher profits. Of course, these methods seem simple, but sometimes they are not so easy to implement.

First of all, this is due to price competition, which nevertheless dictates its own conditions in setting the price for a particular product. Sometimes it happens that it is impossible to raise the cost of production higher. Also, limits on the cost are often determined by the state, especially for basic necessities. In addition, it often happens that a large number of cheap products on the market brings a decline in their quality. This, in turn, may lead to the fact that there will be no demand for it.

Determine marginal profit

When an enterprise releases several products at the same time, then marginal profit and its calculation are a very important part of operational analysis. It should also be remembered that the larger the volume of products a company produces, the less cost it will receive per unit of goods. It works and vice versa. Since this necessarily includes the calculation of such fixed costs as renting premises, paying taxes, and so on, the marginal profit, the formula of which

• MP \u003d PE - Zper,

shows how much should cover the costs of production. In this formula, MP shows the marginal profit, NP - the net profit of the enterprise, and Zper - these are variable costs. If your income only covers the costs of the company, then it is at the break-even point.

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

First of all, this formula will allow you to understand which product you produce is the most in demand on the market in this moment. It is on its manufacture that you need to focus in order to get a sufficiently large income. By calculating the margin for each product, you can get an almost complete picture of your company's performance and profitability.

The negative aspects of this method

1. There is a linear relationship between costs and revenues, which means that even with an increase in the volume of goods produced, the price in the market may not change. At the same time, at certain points, the cost can also decrease or increase very sharply.
2. Fixed and variable costs, which can be considered in terms of relation to the costs per unit of goods, may have other values ​​in terms of conversion. For example, constants can become variables, or vice versa. In this case, the constants will directly depend on the volume of output, and the variables at the moment will not change. This may slightly confuse the information received, which gives us marginal profit (including its calculation).
3. Influencing factors will not change. This includes technology, scale of production, labor productivity, labor rates, selling price of products. That is, only volume can be a variable factor.
4. Production and sales must be equal in volume.

Marginal profit is the difference in income received without tax at the enterprise among variable costs, including the cost of purchasing raw materials, personnel, gasoline 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.

Income - 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, wage 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 the variables and fixed costs.

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.
• if it is necessary to compare prices of a competitive party and justify pricing policy 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 assortment
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.

The contribution to covering the fixed costs of the company, shows the value of 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;

Negative sides this method, is that it is best suited for large and established companies, where the calculation of marginal profit is very significant.

Conclusion

The article shows the different sides of marginal profit. This one has 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.

During the financial and production planning activities of the enterprise in the future, of particular importance is the definition and analysis of such indicators as the break-even level and marginal profit.

Break even analysis

The break-even point is understood as such a level of production (sales) at which a zero level of profit is ensured, i.e. break even implies equality of total costs and revenues received. In other words, this is the marginal level of production, going down below which the company suffers losses.

The concept of the break-even point is well stated, so we will only briefly dwell on the main points of its definition. Let us dwell in more detail on the modifications of this indicator, taking into account the need to make expenses from profit and fulfill debt obligations.

Within the framework of determining the break-even level, all costs of the enterprise are divided into two groups: conditionally variable (change in proportion to changes in production volumes) and conditionally constant (do not change with changes in production volumes).

It should be noted that the division of costs into variable and fixed, especially with regard to overhead (overhead) costs, is rather arbitrary. In reality, there is a group of costs that contain components of both variable and fixed costs - the so-called mixed costs. The latter relate to variable costs in terms of the share of the variable component and to fixed costs in terms of the share of fixed costs.

According to PBU (accounting rules), the list and composition of variable and fixed overhead costs are established by the enterprise. In the classic version, the calculation of the break-even point is based on a simple ratio based on the balance of revenue, assuming zero profit. In value terms, for the production (sale) of diversified products:

Break even point = fixed costs/ (1 - Share of variable costs)

where, the share of variable costs \u003d Variable costs / Volume of production (sales)

In quantitative terms, for the production (sales) of mono- nomenclature (or averaged) products:

Break even point = Fixed costs / Invested income per unit of output

where, invested income per unit of output = Price - Variable costs per unit of output; fixed and variable costs are costs that are charged to the cost of production.

Accordingly, the break-even level calculated in this way reflects the level of production that must be provided to recover all costs that form the cost of production.

However, the break-even point calculated according to the above classical variant does not give a sufficiently complete picture of what level of production (sales) the company needs to provide in order to cover all necessary costs. Indeed, in practice, the enterprise must not only reimburse the costs of production, but also, for example, maintain facilities social sphere, pay off loans, etc. In order to take into account the need to compensate for all current costs, the concept of “real break-even point” is introduced, which is calculated:

Real break-even point = All fixed costs / (1 - Share of variable costs)

where, share of variable costs = All variable costs / Volume of production

The break-even point calculated in this way reflects the level of production that must be ensured in order to compensate for all, and not just those included in the accounting cost, the necessary costs of the enterprise. In the case of existing debt obligations that need to be repaid within a certain period, the company must ensure the appropriate volume of production (sales) and incoming cash flows.

To take into account the need to calculate debt obligations, the concept of a debt break-even point is introduced:

Debt break-even point = Amount of required payments / (1 - Share of variable costs)

where, the amount of necessary payments = Fixed costs + Costs from profit + Current part of the debt; share of variable costs = All variable costs / Volume of production

The above debt break-even point takes into account the need to ensure both all current costs and the settlement of current debt, i.e. most fully reflects the required level of production (sales).

In reality, when calculating required level production at the enterprise, it is of interest to analyze and compare all the above break-even indicators and develop, based on their analysis, the corresponding management decisions.

Marginal profit

In addition to the breakeven level important indicator for financial and production planning is marginal profit. Under contribution margin refers to the difference between income received and variable expenses. Special meaning margin analysis acquires in the case of multi-product production.

Unit Profit Margin = Price - Variable Costs

Marginal profit of a product = Marginal profit of a unit of a product * Volume of production of this product

The meaning of marginal profit is as follows. The formation of variable costs is carried out directly for each type of product. The formation of overhead (fixed) costs is carried out within the framework of the entire enterprise. That is, the difference between the price of a product and the variable cost of producing it can be represented as the potential "contribution" of each type of product to the total final result enterprise activities.

Or, contribution margin is the marginal profit that an enterprise can receive from the production and sale of each type of product. With a multi-product release, the analysis of the assortment in terms of marginal profit (the so-called marginal analysis) makes it possible to determine the most profitable types of products in terms of potential profitability, as well as to identify products that are not profitable (or unprofitable) for the enterprise to produce.

That is, marginal analysis allows you to rank the product range in ascending order of "marginal (potential) profitability" various kinds products and develop appropriate management decisions regarding changes in the range of output. Complementary to marginal profit is the indicator of marginal profitability, calculated as:

Marginal profitability = (Marginal profit / Direct costs) * 100%

The marginal profitability indicator reflects how much income an enterprise receives for the invested ruble of direct costs, and is very indicative for comparative analysis various types of products. It should be noted that marginal analysis is, to some extent, a formalized approach to studying the "profitability" of the production of a particular type of product.

Its main advantage is that it allows you to see the overall picture of potential profitability, compare different types (groups) of products in terms of production profitability. But in order to make decisions on changing the structure of output, more in-depth studies are needed, focused mainly on the future.

These are, for example, stability, reliability and the possibility of expanding sales markets, even if not the most profitable products, the possibility of improving the quality and increasing the competitiveness of certain types of products, etc. In any case, the efforts of the enterprise should be aimed at optimizing the product range, maximizing the production of the most profitable products and reducing the output of unprofitable products. The total amount of marginal profits for all types of products produced is the marginal profit of the enterprise.

Marginal profit is a source of covering the company's overhead costs and profits. Then the profit that the company can count on is determined by:

Profit = Marginal Profit - Overhead

That is, the increase in profit is achieved by maximizing the marginal profit (or optimizing the assortment) and reducing overhead costs.

In general, both break-even analysis and marginal analysis are important tools in the process of planning production and financial flows and are increasingly used in the practice of enterprises.

Not all entrepreneurs who opened production studied at economic faculties. But sooner or later, everyone comes across such a concept as “marginal profit”. What exactly is this concept and by what method it is calculated, we understand below.

Terminology

Marginal profit (MP / coverage amount / margin) is the difference between sales revenue (excluding VAT) and the company's variable costs incurred, which means the share of expenses for the purchase of raw materials and production material, salaries to employees, public utilities. MP directly depends on market conditions.

If the sales volume covers the expenses of the enterprise without increasing the level of revenue, then the marginal income is equal to the fixed costs and the enterprise is in. If the production profit exceeds all variable costs, we are talking about marginal profit.

The MP value shows what maximum profit the enterprise can realize. The bottom line is that the lower the variable cost index, the higher the marginal income, which means the wider the organization's ability to cover its own costs. Therefore, development mass production and large-scale sales is the goal of any business.

Profit Margin Formula

MP \u003d D - PZ;

MP - marginal profit,

D - total income,

PV - variable costs.

In addition to calculating the MP for the entire volume of production, there is one for each product separately. It helps to identify economically disadvantageous types of products. The structure of the formula looks like this:

MPed \u003d C - C;

MPed - marginal profit of a single product,

C - sale price,

C is the cost.

Example. The company produces three different brands of cheese: "Russian" (price of 1 kg - 900 rubles, cost - 750), "Soviet" (price of 1 kg - 1200 rubles, cost - 900) and "Domestic" (price of 1 kg - 800 rubles, cost - 950). It is necessary to calculate the MP for each of them and determine which cheese is not suitable for production.

MPed (Russian cheese) = 900 - 750 = 150

MPed (Soviet cheese) = 1200 - 900 = 300

MPed (Domestic cheese) \u003d 800 - 950 \u003d -150.

Conclusion: A negative indicator of marginal profit indicates the inappropriateness of the production of cheese "Domestic". The rest of the cheeses meet the "norm" criterion.

Summing up

Running a company requires professional erudition and a lot of time from an entrepreneur. All rests on his shoulders. manufacturing process, in which for the scale to identify strong and weak sides sometimes it becomes almost impossible. Analysis of marginal profit allows you to assess the situation in production, track the dynamics of the release of a particular product, and make a forecast for the coming years. The “viability” of the entire business depends on how the revenue indicators are checked.

When compiling a statement of financial results, an accountant traditionally calculates several types of profit: gross, from sales, before tax and net. In management accounting, another type is used - marginal.

The formula for calculating marginal profit is simple, but its application is ambiguous. This is due to the different understanding of foreign terms.

Where did the profit get such a name from?

The prefix "marginal" indicator received due to the principle of subtraction, which is used for calculation and was originally incorporated into the essence of the margin.

Margin is the difference between the selling price of a particular product (work, service) and its cost. It is of two types:

• Absolute - in monetary terms How financial results per unit of production;
• Relative - as a percentage of the sales price as a profit ratio.

For example, in banking, margin is the difference between interest rates on deposits and loans, and marketing activities- markup.

Several formulas can be used to calculate the margin:

• Margin \u003d (Revenue - Cost) : The number of products sold in natural units
• Margin = Price - Unit Cost
• Margin (%) = (Price - Unit Cost) : Price

What is marginal profit and how to calculate it?

Marginal profit (income) is the part of the company's net income that remains after compensation for the variable costs incurred by it. In the future, marginal profit will go to finance fixed costs and profit.

The calculation of this indicator implies a mandatory division of costs into two groups:

• Variables are costs that are linearly dependent on the scale of activity (the more you need to produce products, the more they will be);
• Fixed costs are costs that do not change directly with the volume of production. They will take place even if the company cannot produce and sell anything.

The separation method is determined by the accountant based on the technological features of the enterprise and industry.

To determine the total marginal profit, the following formula is used:

Marginal Profit = Net Income - Variable Costs

If you need to determine its value per unit of production, then use the formula:

Marginal profit = (Net income - Variable costs) : Sales volume in natural units = Price - Variable costs per unit

Marginal profit ≠ Gross profit

Many accountants, speaking of profit, equate the concepts of "gross" and "marginal". In fact, they differ from each other in essence and in the method of calculation.

Gross profit is revenue minus all production costs that relate to sales reporting period products.

Marginal profit is revenue minus all variable costs incurred to produce the product sold.

As you can see, to determine the gross financial result, it is necessary to divide the costs into production and non-production. This implies the calculation of the total production cost. For marginal profit, you need to divide costs into variable and fixed costs. In this case, the variables will be the cost specific types products. Fixed, which do not depend on the volume of activity, but on time, should be considered as period costs (not included in the cost price).

Sometimes an accountant assumes that manufacturing costs are variable and non-manufacturing costs are fixed. But it's not. For example, production costs include depreciation and maintenance costs for equipment, which are inherently fixed. And non-production costs include seller bonuses as a percentage of sales and they are definitely variable.

Therefore, in order to correctly find the marginal profit, it is important to divide all the costs of the enterprise into variable and fixed parts, regardless of the stage at which they arose.

Relationship between marginal profit and profit

Marginal profit shows how much money a company has left to:

• Cover fixed costs;
• Make a profit (before tax).

Therefore, the indicator is also called coverage or contribution to coverage, which is reflected in the formula:

Marginal Profit = Fixed Costs + Profit

In fact, this is the upper limit of profit when the value of fixed costs changes over time, namely:

• The larger the fixed costs, the lower the profit;
• The company will incur losses if the level of fixed costs exceeds marginal profit;
• Profits are maximized when fixed costs tend to zero.

These patterns are very important for analysis in order to understand how changes in volumes will affect the financial result. Changes (Δ) of two indicators can be expressed as follows:

Δ MP \u003d Δ BH - ΔZ shift and ΔOP \u003d ΔBH - (ΔZ change + ΔZ post)

where BH - net income; Z variable - variable costs;

Z post - fixed costs.

When the scale of production and sales changes, Z post remains at the same level, that is, ΔZ post = 0.

Then we get a logical relationship:

ΔOP = ΔBH - (ΔZ change + 0) = Δ MP

Conclusion: evaluating the dynamics of marginal profit, we can say how much the entire profit will increase or decrease.

Profit margin ratio and its application

Marginal profit ratio (K MP) is specific gravity marginal profit in net income. It shows how many kopecks of profit each additional ruble of revenue will bring. Calculated according to the formula:

(K MP) \u003d Marginal profit: Net income

(CMP) = Variable cost per unit: Price

This indicator is important in making market-oriented management decisions. It is a constant value and does not depend on the volume of activity. With it, you can predict how much the financial result will change if sales are expected to rise or fall:

ΔOP = ΔBH × K MP

For example, if at K MP = 0.3 it is planned to increase the volume of sales by 120,000 rubles, then an increase in profit by 36,000 rubles should be expected. (120,000 × 0.3).

The break-even point (profitability threshold) is a level of production at which the company's expenses are at the level of income, and the profit is zero.

By lowering production below this level, the company receives a loss, and by increasing it, it begins to make a profit. To find this indicator in monetary terms, use the profit ratio:

Break-even point \u003d Fixed costs: K MP

This formula is convenient in that it allows you to calculate the break-even level of sales even for enterprises that produce a wide range of products, since you do not need to take into account the price of each individual unit.

The coefficient (K MP) will allow the company to:

• Define critical level production and control it;
• When planning the expansion of activities, predict the change in profits with high accuracy;
• With negative financial indicators, calculate a new break-even point and adjust the production and sales plan.

Main disadvantage: this only works perfectly when the product is fully sold, i.e. there is no work-in-progress and leftovers finished products at the end of the month.