Marge, income and profit: What is the difference, how to calculate?

In this topic, we will consider the difference between margins, income and profit.

For the first time, faced with entrepreneurial activity, it is worth thinking about such concepts as margin, income and profit. In principle, in the modern world, a practical each person with them to one degree or another collides, simply does not fully deprive him of a significant essence. Therefore, sometimes confusion or misunderstanding may occur. And in order to avoid this, we should find out the general and distinctive features between them, which we will talk about in this material.

Marge, income and profit: What is the difference?

Often all these three concepts confuse or even replace as synonyms. After all, if you do not go deeper, then they can be replaced with one word or compared with income. But this is an absolutely incorrect judgment - margin, income and profit - these are related, but completely different economic concepts. And in order to put everything in its place, we will analyze each term individually.

Let's start with the most simple - with income

• It has only one side - this is a plus. That is , there is an increase and increase in any cash, assets and other elements that are on benefits for the enterprise, individual or legal entity.
• And it covers income all aspects that replenish cash supplies, except for the main types. That is, they include promotions, increased interest on deposit and other auxiliary funds.
• If you speak even a simpler language, then income is the total benefit of the company, which increases its capital by any means. But The income can go into the minus!

Important: in entrepreneurship or business, it replaces the concept of revenue income. It is it that reflects the effectiveness of the enterprise. Remember - in accounting, we use revenue, which also reflects earned funds from our activities.

What is the margin?

• The term “margin” who came to us from Europe for the first time arose from the English “margin” and the French “marge”. So he is that The conversation is about the margin. The margin often appears in areas such as banking, insurance business, operations with securities, etc.
• In simple words, margin - This is the difference between the income that the company or other commercial organization receives, and the cost of goods, the production of which the same company is engaged in. In other words, this is the same margin that the company makes, selling its goods to a wide consumer market.
• Perhaps some have encountered economics lessons with such a concept as “gross profit”. So this is the same margin, only in other words. It’s easy to calculate the margin - It is enough from the total amount of income received to subtract the cost of manufactured products.
• Usually this shows the real profit of the organization from sales, but without taking into account additional costs. It can also be calculated as a percentage. More precisely, this percentage will speak for the margin:

• ((Revenue - cost)/ revenue) * 100 %

• Also remember that margin cannot be more or equal to 100 %. Indeed, in this case, the cost of goods will be zero. And if it is smaller than the margin, then this will already talk about an excessive percentage increase in wrapping.

Important: margin indicates how effective the business is, and what profit it brings. As a result, this helps to see how the company’s business is to avoid big losses. Assessment of the efficiency of the enterprise or company directly depends on net profit, and do not forget about this. After all, income should not go into minus. And now we see the first close relationship between these terms.

And what is profit?

• Speaking of business, often the first thing that comes to mind is profit. To be easier, then This is the money that the enterprise remains after the deduction of all deductions, taxes and other payments. Its obtaining means a positive financial result in the work of the company and guarantees financing work processes.
• Profit differs from margin in that is a final financial result, taking into account all costs in production, And not just without cost. Whereas margin is the margin that the manufacturer makes.
• The profit differs the same from income, because it includes only the amounts of profit without taking into account any waste. The formula for calculating profit consists of the following combinations:
  • revenue;
  • tax deductions;
  • product costs;
  • commercial costs;
  • minus or profitable interest on a loan or loan, if any;
  • expenses and income that are not included in the implementation;
  • other expenses/income that are associated with the work of the enterprise.

Let us give an example of calculating margin, income and profit to clarify their differences

We will take insanely simple indicators to catch the distinctive essence between terms. For example, the total income of the enterprise in sales amounted to 15 thousand rubles. But at the same time, 5 thousand are the cost of goods. There is also a tax deduction from the sale of products in the amount of 10%. And also there is an expense for vehicles in the amount of 3 thousand and wages of an employee in the amount of 1 thousand rubles.

• And so we have income or revenue in the amount of 15 thousand. After all, we do not take into account any expenses, only the monetary indicator is important to us.
• But the margin has already taken into account the proceeds and the costs of them in the form of production costs:
  • 15 thousand - 5 thousand \u003d 10 thousand rubles - this is a margin with revenue or gross profit;
  • 10 thousand/15 thousand * 100 \u003d 66.7 % - no more than 100 %, as it should be.
• We can double -check for ourselves:
  • 15 thousand * 0.667 \u003d 10 thousand - this is our wrapping, which is equal to the margin.
• The net profit for the sale of this product will be a different amount:
  • 15 thousand - 5 thousand - 3 thousand - 1 thousand - ((15,000 * 10%)/100) \u003d 4.5 thousand rubles - this is already the profit of the enterprise, taking into account all planned or spontaneous expenses.

What is the difference between margin, income and profit among themselves?

• It is worth noting that profit, margin and income are talking about business success, but a little about different areas.
  • The main difference between margin and profit from income is the availability of accounting for any expenses. Yes, minus indicators may be folded. But income will never talk about communal or salary expenses. That is , he always speaks for the total monetary benefit.
  • The margin shows the profitability and profitability of products due to percentage wrapping. After all, the more it is, the more profit it will be obtained. Marge is a certain hint for the correct development of business.
  • But Profit is already the final, final importance of the funds that the entrepreneur will receive after all proper payments. That is, that in fact it will work without costs and investments. It is this indicator that says how successful the business turned out to be.

• But you can see that Profit is the accounting of all expenses and income of the company.In turn, calculating the margin, we take only variable production costs.
• In the circles of economists, the concept of "operating lever" is common. This is when a change in margin corresponds to a change in profit. And the increase and decrease in profit in percentage equivalent is almost always fewer margin changes. Remember that profit is a component of margin, so it cannot be more!

Summing up, it is worth saying that margin, income or profit are concepts that play a key role in evaluating the work of the company. Or rather, calculating its expenses and income. This is important in the analysis of the efficiency of the use of resources and the general results of the enterprise.

Video: What is the difference between margins, revenue and profit?