I have my own business, and I make decisions about the feasibility of releasing a particular product/service based on its total profit. Is this the right way to manage the economic process?
Of course not!
For any business in the real sector, the priority indicator in management is margin profit.
The difference between total profit and margin profit is that the former simply states the significance of the fact (or plan) and says: "they worked well" or "poorly", while the latter is used exclusively to manage the production process and serves as an element of finding the optimal lever to increase the total business profits.
In other words, for any commercial organization, the primary task in management is to determine the economic feasibility of each type of product or service (from its entire product range that it can produce) based on its marginality. The value of the total profit will depend on how well the production program for the product range is formed, taking into account their margins. Naturally, more output should be focused on products and services with high margin profits. Products and services with negative margins contribute to the growth of unprofitability.
If you evaluate the feasibility of products based on their total profit rather than margin, this leads to a distortion of the overall economic picture of the business and incorrect decisions, which negatively affects the overall economy of the company. For example, when deciding to increase the output of a product based on its total profit, without paying attention to its marginal profit (which may have a negative value), you can reduce the company's total profit rather than increase it.
All this underlines how important it is in professional management to operate on this particular indicator - marginality, and not just profit.
The marginality of a product is a very important criterion for the proper management of any commercial activity.
