Calculating commercial margin in percentage | 9 Exercises

Application: Gold Sparkle Jewelry

States :

The Éclat d'Or jewelry store wants to analyze the performance of its gold jewelry sales. The purchase price excluding tax (PA HT) of a bracelet is €500, and the sale price excluding tax (PV HT) is €700. The management wants to know the commercial margin made on this product as well as the margin rate and the markup rate.

Work to do :

1. Calculate the unit sales margin in euros for the sale of the bracelet.

2. Determine the bracelet's trade margin rate.

3. Calculate the markup rate of the bracelet.

4. For a target margin rate of 50%, what should be the selling price excluding tax of the bracelet?

5. Analyze the impact of a 10% reduction in the net selling price on the margin rate.

Proposed correction:

1. The unit sales margin is calculated by subtracting the pre-tax purchase price from the pre-tax selling price.
   Unit commercial margin = PV excluding tax – PA excluding tax = €700 – €500 = €200.
   The unit commercial margin is €200 per bracelet.

2. The margin rate is calculated by dividing the unit commercial margin by the net PA then multiplying by 100.
   Margin rate = ((PV HT – PA HT) ÷ PA HT) x 100 = ((700 € – 500 €) ÷ 500 €) x 100 = 40%.
   The bracelet's margin rate is 40%.

3. The markup rate is calculated by dividing the unit commercial margin by the PV excluding tax then multiplying by 100.

Markup rate = ((PV HT – PA HT) ÷ PV HT) x 100 = ((700 € – 500 €) ÷ 700 €) x 100 = 28,57%.
The brand rate of the bracelet is 28,57%.

4. For a margin rate target of 50%, we use the formula: PV HT = PA HT x (1 + Margin rate).
   PV excluding tax = €500 x (1 + 0,50) = €750.
   The selling price excluding tax should be €750 to achieve a margin rate of 50%.

5. 10% reduction in the PV excluding tax: €700 x 0,90 = €630.
   New margin rate = ((€630 – €500) ÷ €500) x 100 = 26%.
   A 10% reduction in the net selling price reduces the margin rate to 26%.

Formulas Used:

Title	Formulas
Unit sales margin	PV HT – PA HT
Margin rate	((PV HT – PA HT) ÷ PA HT) x 100
Brand taxes	((PV HT – PA HT) ÷ PV HT) x 100
PV for a given margin rate	PA HT x (1 + Margin rate)

Application: Delicate Words Bookstore

States :

The Librairie Aux Mots Délicats sells a best-seller whose purchase price excluding tax is €12 and the sale price excluding tax is €20. Keen to optimize its margins, the bookstore wants to know its commercial margin and its performance indicators.

Work to do :

1. Calculate the sales margin for selling one copy of this bestseller.

2. Determine the margin rate charged by the bookstore on this book.

3. Establish the markup rate applied to the sale of the book.

4. What maximum purchase price could the bookstore afford if it wanted to maintain a 60% margin?

5. Discuss the impact of a 5% inflation in purchasing costs on the margin rate.

Proposed correction:

1. The unit commercial margin is calculated by subtracting the PA excluding tax from the PV excluding tax.
   Unit commercial margin = PV excluding tax – PA excluding tax = €20 – €12 = €8.
   The unit trade margin is €8 per pound.

2. The margin rate is calculated by dividing the unit commercial margin by the net PA then multiplying by 100.
   Margin rate = ((PV HT – PA HT) ÷ PA HT) x 100 = ((20 € – 12 €) ÷ 12 €) x 100 = 66,67%.
   The margin rate applied is 66,67%.

3. The markup rate is calculated by dividing the unit commercial margin by the PV excluding tax then multiplying by 100.

Markup rate = ((PV HT – PA HT) ÷ PV HT) x 100 = ((20 € – 12 €) ÷ 20 €) x 100 = 40%.
The applied markup rate is 40%.

4. For a margin rate of 60%, we use the formula: PA HT = PV HT ÷ (1 + Margin rate).
   PA excluding VAT = €20 ÷ (1 + 0,60) = €12,50.
   The bookstore could have a maximum purchase price of €12,50 for a margin rate of 60%.

5. Inflation of 5%, new PA excluding tax = €12 x 1,05 = €12,60.
   Margin rate = ((€20 – €12,60) ÷ €12,60) x 100 = 58,73%.
   An inflation of 5% reduces the margin rate to 58,73%.

Formulas Used:

Title	Formulas
Unit sales margin	PV HT – PA HT
Margin rate	((PV HT – PA HT) ÷ PA HT) x 100
Brand taxes	((PV HT – PA HT) ÷ PV HT) x 100
Max PA for a given margin rate	PV HT ÷ (1 + Margin rate)

Application: Organic Grocery Store Flavors of the World

States :

The organic grocery store Saveurs du Monde sells an assortment of dried fruits with a purchase price excluding tax of €3 per bag, for a sales price excluding tax of €5. Management is seeking to improve its understanding of margin indicators and evaluate different pricing strategies.

Work to do :

1. Calculate the sales margin for this sale of dried fruit.

2. Determine the margin rate applied by the grocery store.

3. Establish the markup rate achieved on these dried fruits.

4. What would the commercial margin be if the selling price excluding tax was reduced by €0,50 per bag?

5. What could be the effects of a 10% increase in the purchase price on the markup rate?

Proposed correction:

1. The commercial margin is calculated by subtracting the PA excluding tax from the PV excluding tax.
   Unit commercial margin = PV excluding tax – PA excluding tax = €5 – €3 = €2.
   The commercial margin is €2 per sachet.

2. The margin rate is calculated by dividing the unit commercial margin by the net PA then multiplying by 100.
   Margin rate = ((PV HT – PA HT) ÷ PA HT) x 100 = ((5 € – 3 €) ÷ 3 €) x 100 = 66,67%.
   The margin rate is 66,67%.

3. The markup rate is calculated by dividing the unit commercial margin by the PV excluding tax then multiplying by 100.

Markup rate = ((PV HT – PA HT) ÷ PV HT) x 100 = ((5 € – 3 €) ÷ 5 €) x 100 = 40%.
The markup rate is 40%.

4. Reduction of the PV HT of €0,50, new PV HT = €5 – €0,50 = €4,50.
   New trade margin = €4,50 – €3 = €1,50.
   The commercial margin would be €1,50 per sachet.

5. 10% increase in PA HT, new PA HT = €3 x 1,10 = €3,30.
   New markup rate = ((€5 – €3,30) ÷ €5) x 100 = 34%.
   A 10% increase in the purchase price reduces the markup rate to 34%.

Formulas Used:

Title	Formulas
Unit sales margin	PV HT – PA HT
Margin rate	((PV HT – PA HT) ÷ PA HT) x 100
Brand taxes	((PV HT – PA HT) ÷ PV HT) x 100

Application: La Mie Dorée Bakery

States :

La Mie Dorée, a famous bakery, sells croissants whose production cost is €0,80 per unit. These croissants are sold at a price of €1,50 per unit. The bakery wants to explore its commercial margins to optimize its pricing strategies.

Work to do :

1. Calculate the commercial margin made on each croissant.

2. Evaluate the margin rate applied by the bakery for the sale of croissants.

3. Determine the markup rate of these sales.

4. If the bakery wants to offer a new range at a selling price excluding tax of €1,80, while maintaining a margin rate of 70%, what would be the maximum production cost per croissant?

5. Do you think that increasing the selling price to €1,70 could positively influence the mark-up rate? Justify with a calculation.

Proposed correction:

1. The sales margin is found by subtracting the production cost from the selling price.
   Unit sales margin = PV excluding tax – Cost = €1,50 – €0,80 = €0,70.
   The commercial margin per croissant is €0,70.

2. The margin rate is calculated by dividing the sales margin by the cost and then multiplying by 100.
   Margin rate = ((PV HT – Cost) ÷ Cost) x 100 = ((€1,50 – €0,80) ÷ €0,80) x 100 = 87,5%.
   The margin rate is 87,5% for a croissant.

3. The markup rate is obtained by dividing the commercial margin by the selling price and then multiplying by 100.

Markup rate = ((PV HT – Cost) ÷ PV HT) x 100 = ((€1,50 – €0,80) ÷ €1,50) x 100 = 46,67%.
The markup rate is 46,67%.

4. If the bakery wants a margin rate of 70% with a PV excluding tax of €1,80, it uses: Cost = PV excluding tax ÷ (1 + Margin rate).
   Cost = €1,80 ÷ (1 + 0,70) = €1,06.
   The maximum production cost would be €1,06 to achieve the desired margin rate.

5. By increasing the PV excluding tax to €1,70, the new markup rate would be:
   Markup rate = ((€1,70 – €0,80) ÷ €1,70) x 100 = 52,94%.
   Yes, increasing the sale price to €1,70 positively influences the markup rate which increases to 52,94%.

Formulas Used:

Title	Formulas
Unit sales margin	PV HT – Cost
Margin rate	((PV HT – Cost) ÷ Cost) x 100
Brand taxes	((PV HT – Cost) ÷ PV HT) x 100
Max cost for a given margin rate	PV HT ÷ (1 + Margin rate)

Application: UrbanFit Sports Channel

States :

UrbanFit, a chain of stores specializing in sports equipment, sells exercise bikes for a purchase price excluding VAT of €350 and a sale price excluding VAT of €500. Management is interested in commercial margins and is seeking to evaluate cost-cutting scenarios.

Work to do :

1. Calculate the unit sales margin on the sale of an exercise bike.

2. What is the margin rate achieved by UrbanFit on this product?

3. Establish the corresponding mark rate on the bike.

4. If a 10% reduction in purchasing costs is applied, what would be the new margin rate while maintaining the same selling price?

5. Analyze the impact of a 15% reduction in the net selling price on the profitability rate.

Proposed correction:

1. The unit trade margin is calculated by:
   Unit commercial margin = PV excluding tax – PA excluding tax = €500 – €350 = €150.
   Each bike generates a commercial margin of €150.

2. The margin rate is calculated with the following formula:
   Margin rate = ((PV HT – PA HT) ÷ PA HT) x 100 = ((500 € – 350 €) ÷ 350 €) x 100 = 42,86%.
   UrbanFit achieves a margin rate of 42,86% on this product.

3. The markup rate is determined by the following formula:

Markup rate = ((PV HT – PA HT) ÷ PV HT) x 100 = ((500 € – 350 €) ÷ 500 €) x 100 = 30%.
The markup rate is 30% for the bike.

4. With a 10% reduction in purchasing costs (new PA excluding tax = €350 x 0,90 = €315), the new margin rate is:
   Margin rate = ((€500 – €315) ÷ €315) x 100 = 58,73%.
   The new margin rate would be 58,73%.

5. 15% reduction in the PV excluding VAT (new PV excluding VAT = €500 x 0,85 = €425), new margin rate:
   Margin rate = ((€425 – €350) ÷ €350) x 100 = 21,43%.
   A 15% reduction in the selling price significantly reduces the margin rate to 21,43%.

Formulas Used:

Title	Formulas
Unit sales margin	PV HT – PA HT
Margin rate	((PV HT – PA HT) ÷ PA HT) x 100
Brand taxes	((PV HT – PA HT) ÷ PV HT) x 100

Application: CréaStyl Stationery

States :

CréaStyl sells recycled notebooks at a purchase price excluding VAT of €2 and a sale price excluding VAT of €3,50. Motivated by its eco-responsible objectives, CréaStyl wishes to analyze the profitability of these notebooks.

Work to do :

1. Calculate the commercial margin made per unit of notebook.

2. Determine the margin rate obtained by CréaStyl on this product.

3. Establish the markup rate for recycled notebook sales.

4. For a markup rate target of 50%, what should the selling price excluding tax be?

5. Consider the economic viability if the cost of recycled notebooks increased by 20%.

Proposed correction:

1. The unit trade margin is given by:
   Unit commercial margin = PV excluding tax – PA excluding tax = €3,50 – €2 = €1,50.
   Each notebook generates a margin of €1,50.

2. The margin rate is calculated by:
   Margin rate = ((PV HT – PA HT) ÷ PA HT) x 100 = ((3,50 € – 2 €) ÷ 2 €) x 100 = 75%.
   The margin rate is 75%.

3. The mark rate is obtained by:

Markup rate = ((PV HT – PA HT) ÷ PV HT) x 100 = ((3,50 € – 2 €) ÷ 3,50 €) x 100 = 42,86%.
The markup rate is 42,86%.

4. For a markup rate of 50%, the calculation of the new selling price is:
   PV HT = PA HT ÷ (1 – Markup rate) = €2 ÷ (1 – 0,50) = €4.
   The selling price excluding VAT should be €4 to achieve a mark-up rate of 50%.

5. 20% increase in cost (new PA excluding tax = €2 x €1,20 = €2,40):
   New trade margin = €3,50 – €2,40 = €1,10, new margin rate:
   Margin rate = ((€3,50 – €2,40) ÷ €2,40) x 100 = 45,83%.
   A 20% increase in the cost of notebooks decreases the margin rate to 45,83%, thereby reducing profitability.

Formulas Used:

Title	Formulas
Unit sales margin	PV HT – PA HT
Margin rate	((PV HT – PA HT) ÷ PA HT) x 100
Brand taxes	((PV HT – PA HT) ÷ PV HT) x 100
PV for a given mark rate	PA HT ÷ (1 – Mark rate)

Application: Photographic Studio Flash Reflecting

States :

The Éclair Reflétant studio offers high-quality photo prints at a production cost of €6 excluding VAT per unit, and at a sales price excluding VAT of €15. In a competitive context, the studio team wishes to analyze their commercial margins to better position their offers.

Work to do :

1. Calculate the unit commercial margin made on each photo print.

2. What is the margin rate that the studio makes on this product?

3. Determine the markup rate for selling these photo prints.

4. What adjustment to the selling price could the studio consider to achieve a target margin rate of 150%?

5. Evaluate the effects of a concerted €2 reduction in the selling price on the margin rate.

Proposed correction:

1. The unit trade margin is calculated by:
   Unit sales margin = PV excluding tax – Production cost = €15 – €6 = €9.
   The commercial margin per print run is €9.

2. The margin rate is calculated as follows:
   Margin rate = ((PV HT – Production cost) ÷ Production cost) x 100 = ((15 € – 6 €) ÷ 6 €) x 100 = 150%.
   The margin rate is 150% each draw.

3. The markup rate is determined by:

Markup rate = ((PV HT – Production cost) ÷ PV HT) x 100 = ((€15 – €6) ÷ €15) x 100 = 60%.
The markup rate is 60%.

4. For a target margin rate of 150%, we use the formula:
   Production cost = €6, Margin rate = 1,50 => PV excluding tax = Production cost x (1 + Margin rate)
   What is obtained does not adjust the loving concern: PV HT = 6 € x (1 + 1,50) = 15 €.
   For a margin rate of 150%, this price should already be maintained, no adjustment necessary.

5. Reduction of the PV HT by €2, new PV HT = €15 – €2 = €13, and new margin rate:
   Margin rate = ((€13 – €6) ÷ €6) x 100 = 116,67%.
   A reduction of €2 in the selling price lowers the margin rate to 116,67%.

Formulas Used:

Title	Formulas
Unit sales margin	PV HT – Production cost
Margin rate	((PV HT – Production cost) ÷ Production cost) x 100
Brand taxes	((PV HT – Production cost) ÷ PV HT) x 100

Application: World Purity Cosmetics

States :

Purité du Monde produces natural-based moisturizing creams, purchased at €8 excluding VAT and sold at €20 excluding VAT. In order to stand out, the company analyzes its margins to ensure good profitability.

Work to do :

1. What is the commercial margin made on each unit sold?

2. Calculate the current margin rate achieved by Purité du Monde.

3. What is the markup rate associated with these cream sales?

4. Consider a decrease in the purchase cost of €1,50 while maintaining the selling price. What would be the adjusted margin rate?

5. Discuss the relevance of this reduction in purchase cost in the long term.

Proposed correction:

1. The unit sales margin is calculated by removing the purchase cost from the selling price:
   Unit sales margin = PV excluding tax – Purchase cost = €20 – €8 = €12.
   Each cream generates a commercial margin of €12.

2. The margin rate is calculated by:
   Margin rate = ((PV HT – Purchase cost) ÷ Purchase cost) x 100 = ((20 € – 8 €) ÷ 8 €) x 100 = 150%.
   The margin rate is 150% for each cream.

3. The mark rate is obtained by:

Markup rate = ((PV HT – Purchase cost) ÷ PV HT) x 100 = ((€20 – €8) ÷ €20) x 100 = 60%.
The markup rate is 60%.

4. With a decrease in the purchase cost of €1,50 (new purchase cost = €8 – €1,50 = €6,50), the new margin rate is:
   Margin rate = ((€20 – €6,50) ÷ €6,50) x 100 = 207,69%.
   The reduction in purchasing cost increases the margin rate to 207,69%.

5. In the long term, reducing the cost of purchase seems beneficial since it significantly increases the margin rate, however, it is imperative to ensure that this reduction does not compromise the quality or image of the brand, which could have a negative impact on sales.

Formulas Used:

Title	Formulas
Unit sales margin	PV HT – Purchase cost
Margin rate	((PV HT – Purchase cost) ÷ Purchase cost) x 100
Brand taxes	((PV HT – Purchase cost) ÷ PV HT) x 100

Application: Fruit Symphony Orchard

States :

The company Symphonie du Fruit sells homemade jams that the company produces itself at a cost of €3 per jar, and it sells them for €7 excluding VAT. The company is considering different strategies to increase its profitability.

Work to do :

1. What is the commercial margin for each jar of jam sold?

2. Determine the current margin rate for this product.

3. Evaluate the markup rate associated with these sales.

4. If Symphonie du Fruit decided to increase the sale price to €8, what would be the new markup rate?

5. Analyze the potential risks associated with increasing the selling price.

Proposed correction:

1. The sales margin is the difference between the selling price and the cost:
   Unit sales margin = PV excluding tax – Cost = €7 – €3 = €4.
   Each jar of jam generates €4 of commercial margin.

2. The margin rate is calculated as follows:
   Margin rate = ((PV HT – Cost) ÷ Cost) x 100 = ((€7 – €3) ÷ €3) x 100 = 133,33%.
   The margin rate is 133,33%.

3. The markup rate is calculated by:

Markup rate = ((PV HT – Cost) ÷ PV HT) x 100 = ((€7 – €3) ÷ €7) x 100 = 57,14%.
The markup rate is 57,14%.

4. With the PV excluding tax at €8, the new markup rate would be:
   Markup rate = ((€8 – €3) ÷ €8) x 100 = 62,5%.
   The increase in the selling price would increase the markup rate to 62,5%.

5. While a price increase may increase brand equity, it could also lead to a decrease in demand if customers feel that the price is no longer justified. Price positioning should be carefully considered so as not to harm product image or customer loyalty.

Formulas Used:

Title	Formulas
Unit sales margin	PV HT – Cost
Margin rate	((PV HT – Cost) ÷ Cost) x 100
Brand taxes	((PV HT – Cost) ÷ PV HT) x 100