In this section:
Application: Local Specialties
States :
Spécialités Terroir, a local company that sells artisanal gourmet products, wants to optimize its pricing strategy. For one of its flagship products, an artisanal blueberry jam, the company has the following data: the purchase price excluding tax (HT) is €2,50 per jar. Currently, the jam is sold at a price of €5,00 excluding tax.
Work to do :
- Calculate the margin rate achieved on this jam.
- Determine what the selling price excluding tax should be to obtain a markup rate of 30%.
- If the company decides to set its markup rate at 25%, what would be the maximum authorized purchase price excluding tax?
- Spécialités Terroir is planning a 10% increase in its purchasing cost. What would be the new selling price excluding tax to maintain the same current margin rate?
- Analyze the strategic implications for Spécialités Terroir if it were to reduce its selling price by 15% while seeking to maintain its margin.
Proposed correction:
To calculate the margin rate, we use the formula:
Margin rate = ((PV HT – PA HT) ÷ PA HT) x 100.
Substituting, ((5,00 – 2,50) ÷ 2,50) x 100 = 100%.
This product generates a margin rate of 100%.To obtain a markup rate of 30%, we use:
PV HT = PA HT ÷ (1 – Mark rate).
Substituting, 2,50 ÷ (1 – 0,30) = €3,57 (rounded).
The new selling price excluding VAT should be around €3,57.For a markup rate of 25%, we use PV excluding VAT = €5,00 and the formula:
PA HT = PV HT x (1 – Mark rate).
Substituting, 5,00 x (1 – 0,25) = €3,75.
The maximum authorized purchase price excluding tax is €3,75.
The cost increase is 10%, i.e. a net PA of 2,50 x 1,10 = €2,75.
The current margin rate is 100%, i.e. PV HT requirement = PA HT x (1 + Margin rate).
2,75 x (1 + 1) = €5,50.
The new selling price excluding VAT would be €5,50.A 15% discount of €5,00 = €5,00 x 0,85 = €4,25.
At this price, the margin would decrease if costs remain constant.
Spécialités Terroir will have to reconsider its costs or margin structure to avoid loss of profitability.
Formulas Used:
| Title | Formulas |
|---|---|
| Margin rate | ((PV HT – PA HT) ÷ PA HT) x 100 |
| PV HT for brand rate | PA HT ÷ (1 – Mark rate) |
| PA HT for mark rate | PV HT x (1 – Mark rate) |
| PV HT with margin rate | PA HT x (1 + Margin rate) |
Application: EcoFactory
States :
ÉcoloFactory is an innovative company in the sector of ecological building materials. It manufactures recycled bricks that can be purchased at €1,20 excluding VAT per unit. The current selling price excluding VAT is €2,00.
Work to do :
- Calculate the current unit margin of the brick.
- Determine the selling price excluding tax if ÉcoloFactory wanted a margin rate of 150%.
- If annual sales are 50 units, what would be the overall margin achieved?
- What could be the pricing strategy if EcoloFactory decided to offer a 10% discount on the current selling price, and how would this affect the unit margin?
- Discuss the possible impacts on profitability and brand image if EcoloFactory increased its selling price by 20%.
Proposed correction:
The unit margin is calculated as follows:
Unit margin = PV HT – PA HT.
Substituting, 2,00 – 1,20 = €0,80.
The current unit margin is €0,80 per brick.To obtain a margin rate of 150%, we use:
PV HT = PA HT x (1 + Margin rate).
Replacing, 1,20 x (1 + 1,50) = €3,00.
The new selling price excluding VAT would be €3,00.The overall margin is:
Overall margin = Unit margin x quantity sold.
Replacing, 0,80 x 50 = €000.
The overall margin is €40.
A 10% reduction from the current price is:
2,00 x 0,90 = €1,80.
New unit margin = 1,80 – 1,20 = €0,60.
The reduction strategy results in a reduction of the unit margin to €0,60.Increasing by 20% would bring the price to:
2,00 x 1,20 = €2,40.
This could increase margin but risks decreasing sales volume and thus the perceived attractiveness of the brand.
Formulas Used:
| Title | Formulas |
|---|---|
| Unit margin | PV HT – PA HT |
| PV HT for margin rate | PA HT x (1 + Margin rate) |
| Overall margin | Unit margin x quantity sold |
Application: ModeEtChic
States :
ModeEtChic is a fashion brand that wants to adjust its prices for a new clothing line. A pair of jeans in this line has a purchase price excluding tax of €25 and a sale price excluding tax of €55.
Work to do :
- Calculate the current markup rate of jeans.
- What would the selling price excluding tax be if the company wanted to achieve a margin rate of 100%?
- ModeEtChic wants to launch a new promotion with a 15% discount on the sale price. What would the price be after the discount?
- If ModeEtChic sells 1 jeans at the current price, what will the overall margin be?
- Evaluate the potential impacts on the premium fashion image if the selling price was systematically reduced by 20%.
Proposed correction:
The markup rate is obtained by the formula:
Mark rate = ((PV HT – PA HT) ÷ PV HT) x 100.
Substituting, ((55 – 25) ÷ 55) x 100 ? 54,55%.
The current markup rate is around 54,55%.For a margin rate of 100%, the price is:
PV HT = PA HT x (1 + Margin rate).
Replacing, 25 x (1 + 1) = €50.
The selling price excluding tax for this margin rate would be €50.For a 15% discount on the current price:
Price after discount = 55 x 0,85 = €46,75.
The price after discount would be €46,75.
The overall margin with 1 jeans:
Unit margin = 55 – 25 = €30.
Overall margin = 30 x 1 = €000.
The overall margin would be €30.Reducing by 20% would give a price of:
55 x 0,80 = €44.
Premium fashion could be seen as being downgraded, which could dilute its high-end image.
Formulas Used:
| Title | Formulas |
|---|---|
| Brand taxes | ((PV HT – PA HT) ÷ PV HT) x 100 |
| PV HT for margin rate | PA HT x (1 + Margin rate) |
| Price after reduction | PV HT x (1 – Reduction rate) |
| Overall margin | Unit margin x quantity sold |
Application: MobileInnov
States :
MobileInnov is a technology start-up specializing in smartphone accessories. It offers portable batteries that it buys at a unit price excluding tax of €8 and resells at €19 excluding tax.
Work to do :
- Determine the unit margin on each battery.
- Calculate the current margin rate.
- MobileInnov is considering reducing its selling price by €5 for a special promotional model. What will the new margin rate be?
- If the company aims for a markup rate of 40%, what should the selling price excluding VAT be?
- How could a €2 price increase affect sales volume and customer perception?
Proposed correction:
The unit margin is:
Unit margin = PV HT – PA HT.
Substituting, 19 – 8 = €11.
The unit margin is €11.The margin rate is calculated by:
Margin rate = ((PV HT – PA HT) ÷ PA HT) x 100.
((19 – 8) ÷ 8) x 100 = 137,5%.
The margin rate is 137,5%.Reducing €5 from the price gives us:
New PV excluding tax = 19 – 5 = 14 €.
New margin rate = ((14 – 8) ÷ 8) x 100 = 75%.
The new margin rate is 75%.
For a markup rate of 40%:
PV HT = PA HT ÷ (1 – Mark rate).
8 ÷ (1 – 0,40) = €13,33.
The selling price excluding tax would be €13,33.By increasing by €2, the price would be €21.
This could increase margin but risks decreasing competitive attractiveness and sales volume, posing a challenge to maintain customer loyalty.
Formulas Used:
| Title | Formulas |
|---|---|
| Unit margin | PV HT – PA HT |
| Margin rate | ((PV HT – PA HT) ÷ PA HT) x 100 |
| New margin rate | ((New PV HT – PA HT) ÷ PA HT) x 100 |
| PV HT for brand rate | PA HT ÷ (1 – Mark rate) |
Application: Bakery Guru
States :
Boulangerie Guru is a family business specializing in pastries. For its new fruit tart, the costs are €3,50 excluding VAT per piece. It is currently sold at €7 excluding VAT.
Work to do :
- Calculate the current markup rate of the pie.
- What would happen to the selling price excluding tax if Boulangerie Guru wanted a margin of 80%?
- What should be the maximum purchase price if the company wants to maintain a 50% markup?
- With a 5% increase in sales prices, what will be the new price of the pie?
- Discuss strategic choices that might be made if the competition aggressively lowers prices.
Proposed correction:
The markup rate is calculated by:
Mark rate = ((PV HT – PA HT) ÷ PV HT) x 100.
Substituting, ((7 – 3,50) ÷ 7) x 100 = 50%.
The current markup rate is 50%.For a margin rate of 80%, the price is:
PV HT = PA HT x (1 + Margin rate).
Replacing, 3,50 x (1 + 0,80) = €6,30.
The selling price excluding tax would be €6,30.To maintain a 50% markup rate, the calculation is:
PA HT = PV HT x (1 – Mark rate).
Substituting, 7 x (1 – 0,50) = €3,50.
The maximum permitted purchase price is €3,50.
A 5% increase will lead to:
New price = 7 x 1,05 = €7,35.
The new selling price of the pie would be €7,35.Faced with aggressive price cuts from competitors, Boulangerie Guru should consider strengthening its product differentiation or further improving customer loyalty to maintain its positioning.
Formulas Used:
| Title | Formulas |
|---|---|
| Brand taxes | ((PV HT – PA HT) ÷ PV HT) x 100 |
| PV HT for margin rate | PA HT x (1 + Margin rate) |
| PA HT for mark rate | PV HT x (1 – Mark rate) |
| New price | PV HT x (1 + Increase rate) |
Application: TechnoGadget
States :
TechnoGadget produces bold wireless earphones. The unit cost of an earphone is €15 excluding VAT and the current selling price excluding VAT is €35.
Work to do :
- What is the current markup rate of this earphone?
- If the unit cost increased by €2, what would be the new selling price to maintain the same margin rate?
- Find the selling price excluding VAT if the company aims to achieve a markup rate of 60%.
- If sales increase by 10% when prices drop by 5%, what should the selling price excluding VAT be to exploit this movement?
- Discuss the market strategy if TechnoGadget plans to double its production capacity.
Proposed correction:
The mark rate is obtained by:
Mark rate = ((PV HT – PA HT) ÷ PV HT) x 100.
Substituting, ((35 – 15) ÷ 35) x 100 ? 57,14%.
The current markup rate is around 57,14%.If the cost increases by €2, the new cost is €17.
The current margin rate is: ((35 – 15) ÷ 15)x100 = 133,33%.
New PV HT = 17 x (1 + 1,3333) ? €39,67.
The sale price should be around €39,67.For a markup rate of 60%, we have:
PV HT = PA HT ÷ (1 – Mark rate).
15 ÷ (1 – 0,60) = €37,50.
The sale price should be €37,50.
If the price drops by 5%, the new price is:
35 x (1 – 0,05) = €33,25.
Exploiting this dynamic could thus make it possible to optimize sales volume.Doubling production capacity could lower unit cost through economies of scale, which could either improve margins or enhance competitiveness through lower prices at constant volume.
Formulas Used:
| Title | Formulas |
|---|---|
| Brand taxes | ((PV HT – PA HT) ÷ PV HT) x 100 |
| PV HT for margin rate | PA HT x (1 + Margin rate) |
| PV HT for brand rate | PA HT ÷ (1 – Mark rate) |
| New price | PV HT x (1 – Reduction rate) |
Application: SavoirPlus Bookstore
States :
Librairie SavoirPlus is a specialist bookstore. It buys a book for €12 excluding VAT and offers it for sale for €24 excluding VAT.
Work to do :
- Calculate the unit margin made on each book.
- Determine the current margin rate for this book.
- If the bookstore wants to maintain its margin but reduce the sale price by €2, what should the new maximum purchase cost be?
- What would be the selling price to get a 50% markup rate?
- Discuss the potential impacts on customer base and revenue if the bookstore adopts a continued low pricing strategy.
Proposed correction:
The unit margin is:
Unit margin = PV HT – PA HT.
Substituting, 24 – 12 = €12.
The unit margin is €12.The margin rate is:
Margin rate = ((PV HT – PA HT) ÷ PA HT) x 100.
((24 – 12) ÷ 12) x 100 = 100%.
The current margin rate is 100%.If the price drops by €2, new PV excluding tax = €22.
To keep the margin = 12, New PA HT = 22 – 12 = 10 €.
The new maximum purchase cost should be €10.
For a markup rate of 50%, we have:
PV HT = PA HT ÷ (1 – Mark rate).
Substituting, 12 ÷ (1 – 0,50) = €24.
However, this calculation corroborates that the current price already corresponds to this markup rate.Adopting a low-price strategy could increase customer flow but decrease the perception of the bookstore as a supplier of quality books, thus posing a dilemma between attractiveness and image.
Formulas Used:
| Title | Formulas |
|---|---|
| Unit margin | PV HT – PA HT |
| Margin rate | ((PV HT – PA HT) ÷ PA HT) x 100 |
| PA HT for margin maintenance | New PV HT – Margin |
| PV HT for brand rate | PA HT ÷ (1 – Mark rate) |
Application: FuturHome
States :
FuturHome is a company specializing in connected home equipment. One of its products, a smart thermostat, is purchased for €50 excluding VAT and sold for €120 excluding VAT.
Work to do :
- What is the margin rate achieved on each thermostat?
- If FuturHome wants to increase its markup rate to 60%, what should the selling price excluding tax be?
- What is the overall margin if 500 thermostats are sold at the original price?
- If the company decides to lower its selling price by 20%, what would be the new impact on the margin rate?
- Assess the long-term viability of shrinking margins in the face of increasing competition.
Proposed correction:
The margin rate is calculated by:
Margin rate = ((PV HT – PA HT) ÷ PA HT) x 100.
Substituting, ((120 – 50) ÷ 50)x100 = 140%.
The current margin rate is 140%.For a 60% markup rate, we use:
PV HT = PA HT ÷ (1 – Mark rate).
50 ÷ (1 – 0,60) = €125.
To obtain this rate, the sale price would have to be €125.The overall margin with 500 units is:
Unit margin = 120 – 50 = €70.
Overall margin = 70 x 500 = €35.
The total margin is therefore €35.
A 20% drop in the selling price gives:
Reduced price = 120 x 0,80 = €96.
Margin rate then = ((96 – 50) ÷ 50) x 100 = 92%.
The new impact is a marked reduction in the margin rate to 92%.The continued reduction in margins may weaken the economic position if it is not offset by a considerable increase in sales volume or by a reduction in production costs.
Formulas Used:
| Title | Formulas |
|---|---|
| Margin rate | ((PV HT – PA HT) ÷ PA HT) x 100 |
| PV HT for brand rate | PA HT ÷ (1 – Mark rate) |
| Overall margin | Unit margin x quantity sold |
| New margin rate | ((New PV HT – PA HT) ÷ PA HT) x 100 |
Application: PureVital
States :
PureVital is an organic cosmetics company that sells a revitalizing serum. The unit cost is €20 excluding VAT, and the current retail price is €45 excluding VAT.
Work to do :
- Calculate the mark rate achieved on this serum.
- If the company wants to maintain a margin of 125% by lowering the selling price by €5, what should be the maximum unit cost?
- What should the selling price excluding tax be to increase the margin rate to 150%?
- If annual sales reach 10 units at the initial price, what will the overall margin be?
- Analyze the possible impact on customer relationships if frequent price adjustments are observed throughout the year.
Proposed correction:
The markup rate is determined by:
Mark rate = ((PV HT – PA HT) ÷ PV HT) x 100.
Substituting, ((45 – 20) ÷ 45) x 100 ? 55,56%.
The mark rate is about 55,56%.With a decrease of €5, the new PV excluding tax = €45 – €5 = €40.
The requested margin of 125% implies:
Maximum unit cost = 40 ÷ (1 + 1,25) = €17,78.
The unit cost must be a maximum of €17,78.For a margin rate of 150%, the price is:
PV HT = PA HT x (1 + Margin rate).
20 x (1 + 1,50) = €50.
The new selling price excluding tax would then be €50.
The overall margin with 10 units is:
Unit margin = 45 – 20 = €25.
Overall margin = 25 x 10 = €000.
The total margin therefore amounts to €250.Frequent price changes can harm the perceived stability of the brand, confusing loyal customers and potentially affecting their purchasing decision due to fear of future fluctuations.
Formulas Used:
| Title | Formulas |
|---|---|
| Brand taxes | ((PV HT – PA HT) ÷ PV HT) x 100 |
| Maximum unit cost | PV HT ÷ (1 + Margin rate) |
| PV HT for margin rate | PA HT x (1 + Margin rate) |
| Overall margin | Unit margin x quantity sold |