The activities of an organization are a very important tool for monitoring and assessing the quality and effectiveness of its work. All indicators are of great importance. But Special attention turn into income and profit. The analysis of these factors is carried out in the context various types income by economic and marketing content. On many modern enterprises Income analysis is carried out not only for the purpose of assessment. It is done to successfully make further strategic decisions. In this case, marginal income is used for analysis as an approach to determining the profit necessary to make responsible business decisions.

The concept of marginal income

In addition to the important profit indicator, which shows the main result of activity, other equal concepts are used. One of them is marginal income. This term comes from a consonant English phrase translated in its pure form as “ultimate return.” Used in several cases:

1. It means the amount of additional profit resulting from the sale of an additional unit of production.
2. Means calculated revenue minus variable costs.

The main economic significance of marginal income lies in determining the impact of management decisions on the amount of profit and the receipt of fixed assets. Thanks to this, it becomes possible to set sales levels so that there is maximum profit, so that there is no profit, or so that there are losses at all.

The relationship between marginal income, profit and costs

Profit generation and distribution are important processes entrepreneurial activity. Therefore, in the analysis financial activities Very big role plays a consideration of the profit received from the factors influencing it. Marginal income and profit are two interrelated indicators. The first, after calculation, determines the marginal value of the second. Both indicators play a very important role for analyzing the financial performance of the organization, its prospects and making decisions for break-even operation.

Also, these two economic terms are closely related to the costs of operating an enterprise. After all, marginal income shows how much profit is able to cover variable costs, which are directly included in the cost of production. In general, all enterprise expenses represent direct and variable costs. It is variable costs that have a great influence on the production process and profit. They are directly related to the volume of goods produced.

Calculation of marginal income

According to one of its values, marginal income is a calculated indicator intended for analyzing activities, but above all for making the right marketing decisions. This income is calculated by determining the difference between total revenue and variable costs. It should be noted that price and fixed costs are not involved in influencing contribution margin. The formula (below) for its definition shows the possibility of covering costs that directly depend on production volumes and the profit received from the sale of these volumes.

where TRm - Marginal income;

TR - revenue (total revenue);

TVC - total variable cost.

An important role is played by the calculation of this indicator in an enterprise where several types of goods are produced simultaneously. In this case, it is very difficult to understand which type of product takes the largest specific gravity in the amount of total revenue.

Options for calculating marginal income

In order to calculate the amount of revenue required to cover costs, two indicators are used in practice: the coefficient and the amount of marginal income. In this case, most often they try to define marginal income as the dependence of the effectiveness of management decisions on covering variable costs.

Two calculation methods are used:

1. Variable costs are minus from total revenues.
2. Variable costs and profit margins are added up.

Many analysts take into account the average value of this income. It is derived by subtracting the average variable cost from the product price. And also in parallel they calculate the coefficient of such income by determining its share in the proceeds from product sales.

Contribution Margin Analysis

The company is characterized by regular analysis of its activities as a whole and its individual indicators. Analysis of contribution margin is necessary, since its value has a direct impact on profit. Based on the results of its calculation, the following conclusions are drawn:

1. The indicator is zero. Consequently, revenue covers only variable costs, and the company experiences a loss in the amount of fixed costs.
2. The indicator is greater than zero, but less than the value of fixed costs. Consequently, revenue covers variable costs and part of fixed costs, and loss equal to the value uncovered part.
3. The indicator is equal to the sum of fixed costs. Consequently, the revenue is enough to operate without loss, but also without profit. This situation in the economy is called the break-even point.
4. The indicator is higher than the value of fixed costs. Consequently, revenue allows you to cover all expenses and make a profit.

Determining marginal income plays an important economic role in financial analysis enterprises. Thanks to this indicator, it is possible to establish the relationship between revenue, profit and costs. This relationship is of particular importance when making financial decisions in the field of production.

In the process of financial and production planning of the enterprise for the future, the definition and analysis of such indicators as break-even level and marginal profit are of particular importance.

Break-even analysis

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

The concept of the break-even point is well explained, 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 incur costs from profits and fulfill debt obligations.

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

It should be noted that the division of costs into variable and fixed, especially with regard to overhead (overhead) costs, is rather conditional. 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 constant costs in terms of the share of fixed costs.

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

Break Even Point = Fixed Costs / (1 - Share of Variable Costs)

where, share of variable costs = Variable costs / Volume of production (sales)

In quantitative terms, for the production (sales) of mononomenclature (or average) products:

Break-even point = Fixed costs / Input per unit of output

where, invested income per unit of production = Price - Variable costs per unit of production; Fixed and variable costs are costs attributable to the cost of production.

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

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

Real break-even point = All fixed costs / (1 - Variable cost share)

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 time frame, the enterprise must ensure the corresponding volume of production (sales) and incoming cash flows.

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

Debt break-even point = Volume of required payments / (1 - Variable cost share)

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

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

In reality, when calculating the required level of production at an enterprise, it is of interest to analyze and compare all the above break-even indicators and, based on their analysis, develop appropriate 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. Marginal analysis is of particular importance in the case of multi-item production.

Unit Profit Margin = Price - Variable Costs

Product contribution margin = Marginal profit units of 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 entire enterprise. That is, the difference between the price of a product and the variable costs of its production can be presented as a potential “contribution” of each type of product to the overall final result of the enterprise.

Or, marginal profit- is the marginal profit that an enterprise can receive from the production and sale of each type of product. With a multi-product production, analysis of the assortment based on marginal profit (the so-called marginal analysis) makes it possible to determine the most profitable types of products from the point of view 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 increasing order of “marginal (potential) profitability” of various types of products and develop appropriate management decisions regarding changes in the product range. Supplementary to marginal profit is the marginal profitability indicator, calculated as:

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

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

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

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

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

Profit = Marginal Profit - Overhead

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

In general, both break-even point 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.

Marginal revenue is the difference between income from sales or sales of products and various variable costs. In this case, income is considered as the company's sales revenue excluding VAT. As for variable costs, everything is quite simple here; from the final cost of the product, the enterprise calculates: the cost of electricity costs, wages of working personnel, the cost of raw materials, fuel, various unforeseen financial investments, etc.

Undoubtedly, margin is the main indicator of the capacity potential of an enterprise. The higher it is, the more financial resources are available to pay off variable costs, which increases the potential for the production plan.

It is quite profitable to produce large quantities of goods, since with large-scale production the cost of goods is reduced, which allows you to have a large marginal profit. This pattern in economics is called “economy of scale.” We'll talk about it later.

In business and retail, this concept is quite widespread. This is due to the fact that retailers can change the price of goods during market instability. Because in the laws Russian Federation There is no mention of a penalty for exceeding the margin rate. Permissiveness is restrained only by competition. When there is a shortage of goods, the margin tends to increase. This is a natural response of supply to demand.

Margin in retail- the main income of businessmen. They form the final cost of products on the market.

Calculation formula for calculating the margin rate

Gross marginal profit includes two fundamental indicators - revenue from sales of goods and variable costs.

As you know, margin is the difference between income and variable costs. Below you can consider the formula by which you can calculate the marginal profit.

Marginal profit = “price” minus “variable costs”.

The formula can be seen below.

Marginal profit per unit:

“Price” minus “Cost”.

For example: the price per liter is 50 rubles, and the cost is 20 rubles.

Calculation: 50-20=30,

30 rubles - marginal profit per unit of goods.

To find the total marginal profit, subtract variable costs from this cost (30 rubles).

If your income only covers the final expenses of the manufacturer, then it is at the “point of hopelessness”.

Marginal profit analysis is needed to calculate the critical volume of output that can cover variable costs 100%. It is quite common to call this the break-even point. It provides a guarantee for the feasibility and profitability of production.

The demand for products and the costs of their production are the main criteria for marginal analysis. When calculating it, all factors are taken into account, the influence of which may primarily affect the price. After all, price is the overwhelming criterion for selecting manufactured products on the market. It is a guideline for the buyer; the demand for the product and the success of sales depend on it.

By analyzing the technological capabilities of the enterprise, its tariffs for paying wages, fixed and variable costs, taxes and various deductions, it will be possible to formulate the profitability of product production and set the minimum amount of output at which the manufacturer will make a profit.

If the marginal profit is equal to the cost of production, then the profit is zero.

Over the past 15 years, a list of products that have a biased margin percentage has been formed.

1. Beverages. All retailers know that reselling drinks is a very profitable business. Another plus is that this product is in seasonal demand.
2. Bijouterie. Products made from cheap plastics, glass and various metals are sold with a 300% markup. It's hard to argue that this is beneficial.
3. Flowers. The cost of one flower is often 7% of the total cost. Do the math yourself.
4. Hand-made products. There's a lot of people here. Prices for exclusive goods can differ in price by thousands, or even more times.
5. Tea and coffee by weight. It is quite difficult to imagine that you can make a lot of money from this. But now, for example, by purchasing tea or coffee in China at a wholesale price and selling it in your store at a 300% markup, you can achieve up to 70-80% margin.
6. Cosmetics. This information will be useful for women. General statistics say that only 25% of the total price of cosmetics is its cost, and 75% is various markups from retailers.
7. Sweets for children. Opening a point of sale for this product provides payback in just the first month. Because the price of the same popcorn, which at cost is equal to 5% of the total price, is inflated by at least 3-4 times, allowing you to get up to 90% of the margin.

Every businessman is interested in creating a business with maximum foreign exchange returns. Of course, no one wants to get involved in a business that will not generate profitable income. Also, no one wants to go into the red. For this, goods or offers are classified into:

1. High margin;
2. Average margin;
3. Low margin;

What is a high margin product? There are a number of reasons why this product is overpriced:

• It has high demand on the market, but is sold in small quantities. This includes such types of goods as: jewelry, products made of precious metals, branded products for which demand is high throughout the year;
• Created a “wow” effect in the market. These can be different things: from socks to various gadgets. The margin on them increases sharply during periods of surge in demand. But, as a rule, these products hold a high standard only for a short time;
• Seasonal goods. Most people have heard at least once that winter clothes should be bought in the summer. This recommendation proves that the markup on a product increases sharply as its demand increases. Seasonal goods have an order of magnitude higher price than in the off-season. Take ice cream, for example. In winter, the price for this product is the lowest, since it does not cause a stir and the margin on it is about 15% of the real cost. Another situation is in summer period when the demand for a product increases hundreds of times. During this period, entrepreneurs increase their margin to 50-70%, and in some cases by more than 100-200%. For example, at resorts.

There are also high-margin service sectors: cafes, restaurants, etc. Institutions of this type have a high margin percentage (100-200%). In a restaurant, for example, you can sell one bottle of wine, which costs about 1,000 rubles, for 3,000 rubles. The price, as a rule, depends on the status of the establishment and the quality of services. But strangely enough, the demand for these services is growing over time.

Medium-margin goods. These products are often not for everyday use. The margin on them is less than on high-margin ones. Such products include: household appliances, Construction Materials, various instruments, electronics and even cars.

Sales representatives typically set a margin of 30-40%. The presented products also have some seasonality, but it is not so great as to be considered.

In business this niche brings good income, since the balance between price and supply increases the number of sales.

Low-margin goods. As a rule, these are goods of everyday use, such as: household chemicals, non-food products, children's products, etc.

The margin on these goods cannot be higher than 10-20 percent. The benefit from sales of this group of products is due to high turnover.

As for the service sector, according to research data, the lowest income belongs to transportation- no more than 20%.

To date, the state has not yet established the maximum allowable margin for goods and services. That's why price policy is stable only due to market competition. And exceeding the price limit entails the loss of the most important component market trade- client.

It is most profitable to buy medium-margin and low-margin goods from wholesalers or close to production, if you have such an opportunity. The higher the wholesale purchase, the greater the discount the manufacturer or distributor gives. As a result, the amount saved partially or fully compensates for transportation or other costs, which reduces its cost.

In harsh conditions market economy the formation of the price of a manufactured product is influenced by many external and internal factors. Government policy is not always aimed at improving pricing in the common market. Increasing tariffs and taxes entails a very large increase in the price of products. Therefore, production facilities are trying to put only some types of goods into large-scale production. This allows you to compensate for all fixed and variable costs and receive a large marginal profit. This is called “economy of scale”.

But the situation is worse with those goods that, although they have demand in the consumer market, are not very high. It is not profitable to place such goods on a large production flow, since wholesale purchases are very small. Manufacturing can only be rational if its cost is high, since all taxation costs and production costs will be taken into account. Such a product is considered high-margin.

There are criteria by which a product is considered profitable for large-scale production:

• Great consumer demand;
• Profitability of implementation;
• Cyclical use of this product among customers;
• Technological accessibility;
• Consumer accessibility;
• Availability of multiple points of sale;
• Stability of implementation.

Compliance with the conditions guarantees that the product will be sold stably on the market, because it is stability that makes it clear that the product can be put into production by default. The demand for it will not fall for a long time and with this you can make long-term plans for business diversification.

An important factor in rising product prices is variable costs. After all, they make up 40% of the cost of production. Reducing payments on them will reduce the final cost of the product and increase the margin.

Variable cost reduction methods:

• Implementation innovative technologies;
• Simplification technological process;
• Automation of production;
• Reducing the cost of raw materials and types of purchased fuel;
• Change in product range.

Concerning positive side margin, it, like any other economic value, is beneficial only for sales representatives. Since the state has not approved the maximum allowable margin interest rate. A good opportunity for those who want to create a high-margin product or service.

The other side is consumer, since the buyer always has to overpay for the product. And it is unlikely that he will ever be able to find out the real cost of the goods. This could become a kind of consumer revolt, which will provoke a decrease in the interest rate of the margin. This benefits no one.

Increasingly, consumers are receiving requests to the Ministry of Finance to distribute the maximum allowable margin for each type of product and service. A reform of this kind will make it possible to stabilize prices, expand the number of points of sale of goods, and significantly reduce the price of high-margin products.

In what cases can the state influence margins?

The state apparatus in Russia does not interfere in the market economy as long as the business is not a monopoly. If the enterprise has grown to such a scale that there are no competitors left in terms of market shares or production volume, the antimonopoly committee comes into play. This government structure was created in order to restrain the ardor of a monopolist in a market where there is no competition for him.

If a monopoly begins to raise prices without good reason, the antimonopoly committee may appeal to the Supreme Court. Responsibility for non-compliance with the rules may be as follows:

1. A fine, the amount of which is not limited. For example, in 2016, the court ordered Google to pay a fine of 500 million rubles for deliberately creating unfavorable conditions for other players in the monopolized mobile software market;
2. Restriction on activities in the Russian Federation;
3. Prohibition on price increases.

If a monopolized market belongs to one or two companies, the marginality of products and services on it is weakly related to the laws of a market economy. Consumers have no other choice but to use the goods or services offered by the monopolist. An example is the above-mentioned mobile market software, 80% of which is occupied by Google with its operating system “Android”.

Competing with a monopolist is often pointless. A new player who wants to win market share must have almost unlimited cash injections, which will be aimed at reducing the cost of products or services for the end consumer. This must be done so that the new supply can compete with the monopoly on price. Obviously, in such situations, the new player has to work at a loss for years. Sometimes decades. Until the market share will provide exponential growth. Resources required for this great amount, so it is difficult to compete with monopolies. The only way to exist in the same market with large corporations- activities of the antimonopoly service or transition to other niches, meeting the needs of the audience in new ways or targeting a different target audience.

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 this concept is and by what method it is calculated will be discussed below.

Terminology

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

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

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

Marginal Profit Formula

MP = D – PZ;

MP – marginal profit,

D – total income,

PV – variable costs.

In addition to calculating the MP for the entire production volume, there is one for each product separately. It helps identify economically unviable products. The structure of the formula is as follows:

MPed = C – C;

MPed – marginal profit of a single product,

C – selling price,

C – cost.

Example. The company produces cheese of three different brands: “Russian” (price 1 kg – 900 rubles, cost – 750), “Sovetsky” (price 1 kg – 1200 rubles, cost – 900) and “Domestic” (price 1 kg – 800 rubles, cost price – 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 (Otechestvenny cheese) = 800 – 950 = -150.

Conclusion: A negative marginal profit indicator indicates that the production of Otechestvenny cheese is inappropriate. The remaining cheeses meet the “norm” criterion.

Summing up

Managing a company requires the entrepreneur to have professional erudition and large quantity time. All rests on his shoulders manufacturing process, in which, behind the scale, one can identify the strengths 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.

Profit margin (in other words, “margin”, contribution margin) is one of the main indicators for assessing the success of an enterprise. It is important not only to know the formula for its calculation, but also to understand what it is used for.

Determination of marginal profit

To begin with, we note that margin is financial indicator. It reflects the maximum received from a particular type of product or service of the enterprise. Shows how profitable the production and / or sale of these goods or services. Using this indicator, it is possible to assess whether the enterprise will be able to cover its fixed costs.

Any profit is the difference between income (or revenue) and some costs (costs). The only question is what costs we need to take into account in this indicator.

Marginal profit / loss is revenue minus variable costs / costs (in this article, we will assume that this is the same thing). If revenue is greater than variable costs, then we will make a profit, otherwise it is a loss.

You can find out what revenue is.

Formula for calculating marginal profit

As follows from the formula, in the calculation of marginal profit data on revenue and the entire amount of variable costs are used.

Formula for calculating revenue

Since we calculate revenue based on a certain number of units of goods (that is, from a certain sales volume), then the value of marginal profit will be calculated from the same sales volume.

Let us now determine what should be classified as variable costs.

Determination of variable costs

Variable costs- These are costs that depend on the volume of goods produced. Unlike constant costs, which an enterprise incurs in any case, variable costs appear only during production. Thus, if such production is stopped, the variable costs for this product disappear.

An example of fixed costs in the production of plastic containers is the rental fee for premises necessary for the operation of the enterprise, which does not depend on the volume of production. Examples of variables are raw materials and supplies necessary for production, as well as wage employees, if it depends on the volume of this release.

As we can see, the contribution margin is calculated for a certain volume of production. At the same time, for the calculation it is necessary to know the price at which we sell the product and all the variable costs incurred to produce this volume.

This means that contribution margin is the difference between revenue and variable costs incurred.

Specific marginal profit

Sometimes it makes sense to use unit indicators to compare the profitability of several products. Specific marginal profit– this is the contribution margin from one unit of production, that is, the margin from a volume equal to one unit of goods.

Marginal profit ratio

All calculated values ​​are absolute, that is, expressed in conventional monetary units (for example, in rubles). In cases where an enterprise produces more than one type of product, it may be more rational to use contribution margin ratio, which expresses the ratio of margin to revenue and is relative.

Calculation examples

Let's give an example of calculating marginal profit.

Let's assume that a plastic packaging plant produces three types: per 1 liter, per 5 liters and per 10. It is necessary to calculate the marginal profit and coefficient, knowing the sales income and variable costs for 1 unit of each type.

Let us recall that marginal profit is calculated as the difference between revenue and variable costs, that is, for the first product it is 15 rubles. minus 7 rubles, for the second - 25 rubles. minus 15 rub. and 40 rub. minus 27 rub. - for the third. Dividing the obtained data by revenue, we get the margin ratio.

As we can see, the third type of product gives the highest margin. However, in relation to the proceeds received per unit of goods, this product gives only 33%, in contrast to the first type, which gives 53%. This means that by selling both types of goods for the same amount of revenue, we get more profit from the first type.

In this example, we calculated the unit margin because we took the data for 1 unit of production.

Let us now consider the margin for one type of product, but for different volumes. At the same time, suppose that with an increase in output to certain values, variable costs per unit of production decrease (for example, a supplier of raw materials makes a discount when ordering a larger volume).

In this case, marginal profit is defined as revenue from the entire volume minus the total variable costs from the same volume.

As can be seen from the table, with an increase in volume, profit also grows, but the relationship is not linear, since variable costs decrease as volume increases.

Another example.

Suppose our equipment allows us to produce one of two types of products per month (in our case, this is 1 liter and 5 liters). At the same time, for containers for 1 liter, the maximum production volume is 1500 pcs., And for 5 liters - 1000 pcs. Let us calculate that it is more profitable for us to produce, taking into account the different costs required for the first and second types, and the different revenues that they provide.

As is clear from the example, even taking into account the higher revenue from the second type of product, it is more profitable to produce the first one, since the final margin is higher. This was previously shown by the contribution margin coefficient, which we calculated in the first example. Knowing it, you can determine in advance which products are more profitable to produce at known volumes. In other words, the contribution margin ratio represents the percentage of revenue that we will receive as margin.

Break even

When starting a new production from scratch, it is important for us to understand when the enterprise will be able to provide sufficient profitability to cover all costs. To do this, we introduce the concept break even- this is the volume of output for which the margin is equal to fixed costs.

Let's calculate the marginal profit and break-even point using the example of the same plastic container production plant.

For example, monthly fixed costs in production are 10,000 rubles. Let's calculate the break-even point for the production of 1 liter containers.

To solve, we subtract variable costs from the selling price (we get the specific contribution margin) and divide the amount of fixed costs by the resulting value, that is:

Thus, by producing 1250 units monthly, the enterprise will cover all its costs, but at the same time operate without profit.

Let's consider the contribution margin values ​​for different volumes.

Let's display the data from the table in graphical form.

As can be seen from the graph, with a volume of 1250 units, net profit is zero, and our contribution margin is equal to fixed costs. Thus, we found the break-even point in our example.

The difference between gross profit and marginal profit

Let's consider another principle of dividing costs - into direct and indirect. Direct costs are all costs that can be attributed directly to the product/service. While indirect are those costs not related to the product/service that the enterprise incurs in the process of work.

For example, direct costs will include raw materials used for production, wages for workers involved in creating products, and other costs associated with the production and sale of goods. Indirect ones include administration salaries, equipment depreciation (methods for calculating depreciation are described), commissions and interest for the use of bank loans, etc.

Then the difference between revenue and direct costs is (or gross profit, “shaft”). At the same time, many people confuse the shaft with the margin, since the difference between direct and variable costs is not always transparent and obvious.

In other words, gross profit differs from marginal profit in that to calculate it, the sum of direct costs is subtracted from revenue, while for marginal profit, the sum of variables is subtracted from revenue. Since direct costs are not always variable (for example, if there is an employee on the staff whose salary does not depend on the volume of output, that is, the costs of this employee are direct, but not variable), then gross profit is not always equal to marginal profit.

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If the enterprise is not engaged in production, but, for example, only resells the purchased goods, then in this case both direct and variable costs will, in fact, constitute the cost of the resold products. In such a situation, the gross and contribution margin will be equal.

It is worth mentioning that the gross profit indicator is more often used in Western companies. In IFRS, for example, there is neither gross nor marginal profit.

To increase the margin, which essentially depends on two indicators (price and variable costs), it is necessary to change at least one of them, or better yet, both. That is:

• raise the price of a product/service;
• reduce variable costs by reducing the cost of producing 1 unit of goods.

To reduce variable costs the best option may include expenses for conducting transactions with counterparties, as well as with tax and other government agencies. For example, the transfer of all interactions to an electronic format significantly saves staff time and increases their efficiency, as well as reducing transportation costs for meetings and business trips.