What is marginality? Analysis and calculation of the indicator. Today, the term "margin" is widely used in the stock exchange, trade, as well as banking. His main idea is to determine the difference between the selling price and the cost per unit of a product, which can be expressed in terms of profit per unit of output, as well as in percentage of the selling price.
Today, the term "margin" is widely used in the stock exchange, trade, as well as banking. Its main idea is to determine the difference between the selling price and the unit cost price, which can be expressed in terms of profit per unit of output, as well as in percentage of the selling price (profitability coefficient). What is marginality? In other words, it is the profitability of sales. And the above ratio is the main indicator, because it determines the profitability of the enterprise as a whole.
What is marginality?
What is the commercial meaning and meaning of this term? The higher the coefficient, the more profitable the company. Consequently, the success of a business entity is determined by its high margin. That is why all decisions in the field of marketing strategies, which are usually accepted by managers, it is reasonable to base on the analysis of the considered indicator.
What is marginality? It should be remembered: Margin also serves as a key factor in forecasting the profitability of potential clients, developing pricing policies and, of course, marketing profitability in general. It is important to note that marginal profit in Russia is often referred to as gross. In any case, it represents the difference between the profit from the sale of the product (excluding excise taxes and VAT) and the cost of the production process. Coverage is the second name of the subject under study. It is defined as a part of the proceeds that goes directly to the formation of profits and the cost recovery. Thus, the main idea is to increase the company's profit directly in proportion to the rate of compensation for production costs.
Calculation of marginal profit
To begin with, it should be noted that the calculation of marginal profit is made on the unit of manufactured and sold product. It is he who makes it clear whether a profit margin should be expected from the release of another commodity unit. The margin profit indicator is not a characteristic of the economic structure as a whole, but it allows you to identify the most profitable (and the most harmful) types of product in relation to the possible return on them. Thus, marginal profit depends on the price and variable costs of production. In order to reach the maximum, you need to either increase the markup on the product or increase sales.
Consequently, marginality of a product can be calculated using the following formula: MR = TR - TVC (TR - total revenue from product sales, TVC - variable costs). For example, the volume of production - 100 units of goods, and the price of each of them - 1000 rubles. In turn, variable costs, which include raw materials, salaries for workers and transportation, amount to 50,000 rubles. Then MR = 100 * 1000 - 50,000 = 50,000 rubles.
To calculate additional revenue, you must apply another formula: MR = TR (V1) - TR (V) (TR (V) - profit from product sales at the current production level
Marginal profit and break-even point
It is important to note that profitability (the formula presented above) is calculated according to the distribution of constant and variable costs in the process of pricing. Constant costs are those that would be preserved even in the case of a zero volume of the product produced. This should include a rent, some tax payments, salaries of accounting staff, personnel, managers and service personnel, as well as repayment of loans and loans.
The situation in which the contribution to the coverage is equivalent to the sum of constant costs, called the break-even point.
At the break-even point, the volume of sales of a product is such that the company has the ability to fully reimburse the cost of production of the product, without receiving any profit therewith. In the picture above, the break-even point correlates with 20 units of the product. Thus, the revenue line crosses the cost line, and the revenue line crosses the origin and goes to a zone where all values are positive. In turn, the line of marginal revenue crosses the line of constant costs of production.
Methods of increasing marginal profit
The question of what marginality and how to calculate it is considered in detail. But how to increase margin profit and a priori maybe it? The methods of raising the level of MR are mainly related to ways of increasing the total level of income or direct income. These should include participation in tenders of various types, increasing production output for the distribution of fixed costs between large volumes of the product, studying new market sectors, optimizing the use of raw materials, searching for the cheapest raw materials, as well as innovation policy on advertising. It should be noted that the general fundamentals of the marketing industry do not change. But the advertising industry is constantly undergoing some changes, but the main reason for its existence and application remained the same.