Business is a set of many processes, the efficiency of which is measured in special indicators. One of the most important is considered to Marginality: What is it, How to Calculate it, and 5 Tips on How to Increase It be business marginality. This indicator reflects the overall efficiency of cost management and the management of the company’s main production. However, not every entrepreneur understands its importance and knows how to work with it correctly.You are reading the magazine Compass – a messenger for effective and safe teamwork. Learn more about Compass.
In this article, we will comprehensively analyze such a concept as margin and marginality. We will consider what this indicator is for, learn how to calculate and evaluate it, and analyze the types of goods by marginality. We will also give some advice on optimizing marginality.All about marginalityBefore moving on to a detailed analysis of marginality, it is worth examining one similar concept in detail.
What is margin?
The term margin or gross margin is a financial measure that shows how much money a company has earned from sales, taking into account all variable costs. Margin is the difference between revenue and variable costs.
Let’s look at each element of the formula. Revenue is all the money that the company earned from selling its services or goods.
All expenses are divided into 2 types:
variable and fixed. In the context of marginality, variable expenses are key for us. These are only those expenses that are involved in the creation of a. Fproduct or service and necessarily depend on the volume of sales and output. That is, the more products are. F produced, the more variable production costs the company will incur.
These costs include: raw materials and supplies (purchase price), the price of packaging the goods, their delivery, etc. In order to understand the essence of variable costs, you can present the formula in the form of specific product names:
Margin = Total cost of the cake for welcome to photo retouch editior website the buyer – (Cost of all ingredients + Delivery + Packaging + Hourly ( not fixed ) payment of the pastry chef)
Margin is different from net profit.
Net profit is all revenue minus all of the e-commerce in ukraine prospects for the development of online trade organization’s existing expenses (including variable expenses, fixed expenses, taxes, depreciation, interest on loans, etc.). When calculating net profit, it is important to focus on fixed expenses.
If we greatly simplify the general model afb directory of cash inflows and outflows, we can say that all revenue includes: all fixed, variable, other expenses and a possible remainder – net profit.
Since when calculating the margin
we subtract only variable expenses . From revenue, we can say that the margin consists of fixed expenses + all other expenses (for example, taxes) + possible net profit. In turn, it is obvious that. Fixed and other expenses. Fare not included in the net profit. This is net earnings, the balance of the organization’s cash.