Any entrepreneur tries to get income from his activities. For this, the costs of the business must be less than income. The race for profit margins contributes to the evolution of the market as a whole.
Entrepreneur's margin
Margin is the difference between income and costs. It can be determined both in rubles (euros, dollars) and as a percentage of the cost of goods / services. The profit margin can be calculated both for the entire business as a whole, and for each product / service separately. Renowned car manufacturer and popularizer Henry Ford in his autobiography My Life. My Achievements”advised entrepreneurs to take a popular product as a basis for a product, simplify and improve it as much as possible. "Only by controlling the costs of the sample can the maximum marginal profit be obtained in the market," Ford wrote.
Monopoly
One of the most reliable ways to get high margins (super profits) is to create a monopoly. If an enterprise is the only supplier of a product in demand on the market, it can put any price on it, there is no “price ceiling”.
At all times, business people wanted to become the owners of monopolies and receive huge profit margins. Monopolies were handed out and gifted by emperors, seized as a result of coups d'état. At present, the laws of most countries protect fair competition that fosters the evolution of the market and products. Antimonopoly commissions also exist in Russia. The Federal Antimonopoly Service (FAS) prohibits collusion of large enterprises, anti-competitive price cuts for essential goods. Fighting monopolies helps to reduce prices and their marginal profit, create fair competition, and is beneficial to small and medium-sized businesses.
Stock Exchange
The concept of "margin profit" is one of the most important in operations on the stock exchange and is one of the parameters for evaluating a trader. Most of the transactions in the securities market are carried out using borrowed funds - leverage, or leverage. The bank can give the financier a loan secured by margin - the amount of money or highly liquid (which can be easily sold) instruments. Traders use leverage when dealing with changes in the stock / currency rate. If the deal succeeds, the trader receives a margin profit - the spread (rate difference) multiplied by the amount of borrowed funds. If a trader is mistaken, he loses the "rate" - the margin that is the security of the transaction.
Income tax
The state can solve the problems of society using the tax base. Every citizen should contribute to the development of the country by giving a part of his income in the form of tax deductions. And if the income tax on wages is taken from hired workers, then it is pointless to take it from entrepreneurs from their salaries (some businessmen do not even charge themselves a permanent salary). Entrepreneurs are taxed on the margin. In Russia, this tax is permanent and is called VAT - value added tax. VAT in Russia is 18% of the profit margin.
