In this section:
Application: The Agile Pen
States :
La Plume Agile is a small company specializing in the artisanal manufacture of luxury pens. After conquering the local market, it is now looking to evaluate its performance in terms of front margin. Recent financial data shows that the purchase price of a pen is €35 excluding VAT and the sale price is €50 excluding VAT. You are responsible for helping the company better understand its front margin and improve its profitability.
Work to do :
- Calculate the unit margin amount for each pen sold.
- Determine the unit margin rate.
- Calculate how many pens need to be sold to reach an overall margin target of €3.
- Analyze how a 10% reduction in purchasing cost could affect unit margin.
- Propose a strategy to improve unit margin without changing the selling price.
Proposed correction:
-
To calculate the unit margin, we use the formula: Unit margin = PV HT – PA HT. By substituting, we have €50 – €35 = €15.
The unit margin for each pen sold is €15. -
The unit margin rate is calculated using the following formula: Margin rate = ((PV HT – PA HT) ÷ PA HT) x 100.
Substituting, ((€50 – €35) ÷ €35) x 100 = 42,86%.
The unit margin rate is 42,86%. -
To achieve an overall margin of €3, we must use the formula: Quantity to sell = Overall margin ÷ Unit margin.
Substituting, €3 ÷ €000 = €15.
You need to sell 200 pens to reach a total margin of €3.
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A 10% reduction in purchase cost means that the purchase cost is reduced by €3,5, giving a new cost of €31,5. To calculate the new unit margin: €50 – €31,5 = €18,5.
The reduction in purchasing costs would increase the unit margin to €18,5. -
To improve the unit margin without changing the selling price, La Plume Agile could consider reducing production costs by optimizing processes or purchasing raw materials in bulk, thus leading to an economy of scale.
Formulas Used:
| Title | Formulas |
|---|---|
| Unit margin | PV HT – PA HT |
| Unit margin rate | ((PV HT – PA HT) ÷ PA HT) x 100 |
| Quantity for sale | Overall margin ÷ Unit margin |
Application: Frozen Delights
States :
Les Délices Glacés is a family business that produces artisanal sorbets. The company wants to increase its front margin to compensate for the increase in ingredient costs. Currently, the cost of manufacturing a liter of sorbet is €4 excluding VAT, and the selling price is €7,5 excluding VAT. You need to analyze different strategies for this increase.
Work to do :
- Calculate the unit margin for each liter of sorbet sold.
- Identify the associated markup rate.
- Evaluate the impact on unit margin by increasing the selling price by 10%.
- Determine the quantity to sell to achieve an overall margin of €4 with the current price.
- Propose a marketing strategy to increase sales without changing the cost.
Proposed correction:
-
To calculate the unit margin: Unit margin = PV HT – PA HT. Thus, €7,5 – €4 = €3,5.
Each litre of sorbet sold generates a unit margin of €3,5. -
The markup rate is calculated as follows: Markup rate = ((PV HT – PA HT) ÷ PV HT) x 100.
Substituting, ((€7,5 – €4) ÷ €7,5) x 100 = 46,67%.
The markup rate is 46,67%. -
By increasing the selling price by 10%, the new price is €8,25 (€7,5 + €0,75). The new unit margin is therefore: €8,25 – €4 = €4,25.
The increase in the selling price would increase the unit margin to €4,25.
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Quantity to sell for €4 overall margin: Quantity = Overall margin ÷ Unit margin.
€4 ÷ €500 = €3,5. You need to sell approximately 1 litres (rounded up) to reach this target. -
One strategy could be to introduce new, attractive seasonal flavors to attract more customers, using local, seasonal ingredients to differentiate the product without significant additional costs.
Formulas Used:
| Title | Formulas |
|---|---|
| Unit margin | PV HT – PA HT |
| Brand taxes | ((PV HT – PA HT) ÷ PV HT) x 100 |
| Quantity for sale | Overall margin ÷ Unit margin |
Application: TechniGadgets
States :
TechniGadgets is a startup specializing in the online sale of innovative electronic gadgets. Faced with strong competition, the company wants to increase its front margin to strengthen its profitability. Currently, the average purchase price of a gadget is €20 excluding VAT and the sale price is €35 excluding VAT. Let's look at how TechniGadgets can strengthen its margins.
Work to do :
- Calculate the unit margin generated by the sale of a gadget.
- Determine the current margin rate.
- Analyze the effect of a 5% discount on the selling price to increase sales volume.
- Calculate the number of gadgets to sell to achieve an overall margin of €7 with the current price.
- Discuss a method to reduce purchasing costs while maintaining quality.
Proposed correction:
-
For the unit margin: Unit margin = PV HT – PA HT. This gives €35 – €20 = €15.
The unit margin per gadget sold is €15. -
The margin rate is calculated by: Margin rate = ((PV HT – PA HT) ÷ PA HT) x 100. Substituting, ((€35 – €20) ÷ €20) x 100 = 75%.
The current margin rate is 75%. -
If the selling price is reduced by 5%, it becomes €33,25 (€35 – (5% of €35)), the new unit margin is: €33,25 – €20 = €13,25.
The unit margin would decrease to €13,25, which would require analysis to ensure that increased sales offset this reduction.
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To achieve a total margin of €7: Quantity = Total Margin ÷ Unit Margin. So, €000 ÷ €7 = €000. You would need to sell 15 gadgets (rounded up) to achieve this goal.
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One method to reduce purchasing costs, without compromising quality, includes using long-term negotiations with suppliers for volume discounts or exploring new suppliers offering materials of equivalent quality at competitive prices.
Formulas Used:
| Title | Formulas |
|---|---|
| Unit margin | PV HT – PA HT |
| Margin rate | ((PV HT – PA HT) ÷ PA HT) x 100 |
| Quantity for sale | Overall margin ÷ Unit margin |
Application: GreenEcoSolutions
States :
GreenEcoSolutions is an innovative company that provides ecological solutions for household waste management. In order to increase its profits, it wants to evaluate its margin before on its new composters. The purchase price of a composter is €60 excluding VAT and it is sold at €95 excluding VAT.
Work to do :
- Calculate the unit margin for each composter sold.
- What is the associated markup rate?
- What happens if the selling price decreases by €8 while maintaining the same unit margin? What should the new purchase price be?
- Estimate the impact of a 15% increase in selling price on the current unit margin.
- Discuss an approach to differentiate the product to support a price increase.
Proposed correction:
-
To determine the unit margin: Unit margin = PV HT – PA HT. We have €95 – €60 = €35.
The unit margin received on each composter is €35. -
The markup rate is calculated by: Markup rate = ((PV HT – PA HT) ÷ PV HT) x 100. Which gives ((95 € – 60 €) ÷ 95 €) x 100 = 36,84%.
The markup rate is 36,84%. -
If the selling price decreases by €8, it becomes €87. To maintain the same unit margin (€35), the new purchase price must be: €87 – €35 = €52.
So the purchase price should be €52 to maintain the margin.
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A 15% increase in the selling price brings the latter to €109,25 (€95 + 15% of €95). New unit margin: €109,25 – €60 = €49,25.
The increase in the selling price would bring the unit margin to €49,25. -
To differentiate the product, GreenEcoSolutions could highlight their commitment to the environment through ecological certifications, increase the durability of the product, or offer a customer follow-up service, thus justifying a possible price increase.
Formulas Used:
| Title | Formulas |
|---|---|
| Unit margin | PV HT – PA HT |
| Brand taxes | ((PV HT – PA HT) ÷ PV HT) x 100 |
| New purchase price | New PV HT – Unit margin |
Application: Couture Elegance
States :
Elegance Couture, a luxury ready-to-wear brand, is looking to boost its margins by revising its current collection. Each dress is produced at a cost of €120 excluding VAT and sells for €300 excluding VAT. By optimizing its margins, the brand hopes to finance new marketing campaigns.
Work to do :
- Calculate the unit margin for a dress.
- Calculate the current margin rate.
- What would the unit margin be if the purchase cost increased by 10%?
- How many dresses must Élégance Couture sell to generate an overall margin of €12 at current cost and prices?
- Analyze a strategy to expand the market while maintaining high-end positioning.
Proposed correction:
-
The unit margin is calculated by: Unit margin = PV HT – PA HT, therefore, €300 – €120 = €180.
The unit margin for each dress is €180. -
The margin rate is: Margin rate = ((PV HT – PA HT) ÷ PA HT) x 100, which gives ((€300 – €120) ÷ €120) x 100 = 150%.
The current margin rate is 150%. -
If the manufacturing cost increases by 10%, the new cost is €132 (€120 + 10% of €120). New unit margin: €300 – €132 = €168.
The unit margin would decrease to €168.
-
To generate an overall margin of €12, you must sell: Quantity = Overall margin ÷ Unit margin, i.e. €000 ÷ €12 = 000, or 180 dresses, rounded up to the next unit.
-
To secure a wider audience, Élégance Couture could explore collaborations with renowned designers or influencers and strengthen its digital presence while maintaining an exclusive and refined tone.
Formulas Used:
| Title | Formulas |
|---|---|
| Unit margin | PV HT – PA HT |
| Margin rate | ((PV HT – PA HT) ÷ PA HT) x 100 |
| Quantity for sale | Overall margin ÷ Unit margin |
Application: Solstice Technologies
States :
Solstice Technologies, a company that designs and sells solar home equipment, wants to assess the profitability of their new battery bank. Currently, they cost €500 excluding VAT to manufacture and sell for €800 excluding VAT. In order to maintain a competitive advantage, the company is considering different options to optimize its front margin.
Work to do :
- Calculate the unit margin for a battery sold.
- Determine the corresponding markup rate.
- If a promotional offer brings the sale price down to €750, what would the new unit margin be?
- How many batteries does she need to sell to reach an overall margin of €20 at the current price?
- Propose a continuous improvement strategy to optimize the production chain.
Proposed correction:
-
To calculate the unit margin: Unit margin = PV HT – PA HT, such as €800 – €500 = €300.
The unit margin per battery is €300. -
Using the formula: Markup rate = ((PV HT – PA HT) ÷ PV HT) x 100, we obtain ((€800 – €500) ÷ €800) x 100 = 37,5%.
The markup rate is 37,5%. -
In case of promotion, the sale price becomes €750. The new unit margin is: €750 – €500 = €250.
With the promotion, the unit margin increases to €250.
-
To achieve an overall margin of €20: Quantity = Overall margin ÷ Unit margin, i.e. €000 ÷ €20 = 000, which means that 300 batteries must be sold (rounded up).
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Solstice Technologies could invest in advanced technologies to reduce production losses, encourage innovation among its teams, and improve negotiations with suppliers to obtain discounts or offers.
Formulas Used:
| Title | Formulas |
|---|---|
| Unit margin | PV HT – PA HT |
| Brand taxes | ((PV HT – PA HT) ÷ PV HT) x 100 |
| Quantity for sale | Overall margin ÷ Unit margin |
Application: Garden Aroma
States :
Arôme de Jardin is a company specializing in the manufacture of organic scented candles. Adepts of short circuits, they wish to increase the profitability of their production. Each candle is manufactured for a cost of €8 excluding VAT and sold at a price of €15 excluding VAT. Let's explore the possibilities of increasing their margins.
Work to do :
- Calculate the unit margin of a candle.
- Estimate the current margin rate.
- What would be the impact of a 15% reduction in manufacturing costs on unit margin?
- How many candles do they need to sell to get an overall margin of €5 at current cost?
- Develop a strategy to reduce distribution costs while maintaining quality customer service.
Proposed correction:
-
The unit margin per candle is obtained as follows: Unit margin = PV HT – PA HT, i.e., €15 – €8 = €7.
The unit margin is €7. -
By the formula Margin rate = ((PV HT – PA HT) ÷ PA HT) x 100, or ((15 € – 8 €) ÷ 8 €) x 100 = 87,5%.
The current margin rate is 87,5%. -
A 15% decrease in manufacturing costs gives a new cost of €6,8 (€8 – 15% of €8). The unit margin would then be: €15 – €6,8 = €8,2.
This increases the unit margin to €8,2.
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To reach an overall margin of €5, the formula Quantity = Overall margin ÷ Unit margin, gives €000 ÷ €5 = 000. Which means selling 7 candles, rounded up.
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One strategy to reduce distribution costs could be to centralize shipments for larger volumes, optimize delivery routes, and partner with eco-friendly, low-cost carriers.
Formulas Used:
| Title | Formulas |
|---|---|
| Unit margin | PV HT – PA HT |
| Margin rate | ((PV HT – PA HT) ÷ PA HT) x 100 |
| Quantity for sale | Overall margin ÷ Unit margin |
Application: Food Sweet Siblings
States :
Aliments Douce Fratrie, a food company, is introducing a new line of artisanal jams. Wanting to maximize their returns, they are looking at their margins. Each jar costs €2,5 excluding VAT to produce and is sold for €5 excluding VAT. Let’s explore how to improve their front margin for this new product line.
Work to do :
- Calculate the unit margin per jar of jam.
- Calculate the markup rate.
- Estimate the effect on the unit margin of an increase in the selling price of €0,5.
- Determine the quantity to sell to obtain an overall margin of €6 with the current cost and price.
- Offer options to increase pot sales without reducing the selling price.
Proposed correction:
-
The unit margin is calculated by PV HT – PA HT: €5 – €2,5 = €2,5.
The unit margin per pot is €2,5. -
The markup rate is found as follows: Markup rate = ((PV HT – PA HT) ÷ PV HT) x 100, which gives ((€5 – €2,5) ÷ €5) x 100 = 50%.
The markup rate is 50%. -
An increase of €0,5 in the selling price brings the latter to €5,5. The new unit margin would be: €5,5 – €2,5 = €3.
The increase in the selling price would raise the unit margin to €3.
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Quantity to sell for an overall margin of €6: Quantity = Overall margin ÷ Unit margin, which gives €000 ÷ €6 = 000, or 2,5 pots to sell.
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To boost sales without lowering the price, the company could introduce attractive packaging, run group purchase promotions, or offer promotional gifts for bulk purchases.
Formulas Used:
| Title | Formulas |
|---|---|
| Unit margin | PV HT – PA HT |
| Brand taxes | ((PV HT – PA HT) ÷ PV HT) x 100 |
| Quantity for sale | Overall margin ÷ Unit margin |
Application: InnovBioCosmetics
States :
InnovBioCosmétiques, a natural skincare company, is looking to understand the impact of its pricing on its front margin, on a flagship product: a moisturizer. Its production cost is €15 excluding VAT, and it sells for €40 excluding VAT. The company is exploring different options to maximize its profits while remaining competitive.
Work to do :
- Calculate the unit margin for this moisturizer.
- Determine the brand rate of the cream.
- What happens if the production cost increases by €5? What will the unit margin be?
- Estimate the number of creams to sell to achieve an overall margin of €10 with the current cost and price.
- Suggest an approach to building customer loyalty that will justify a higher selling price.
Proposed correction:
-
The unit margin is calculated as follows: Unit margin = PV excluding tax – PA excluding tax, therefore: €40 – €15 = €25.
The unit margin is €25. -
The markup rate is obtained by: Markup rate = ((PV HT – PA HT) ÷ PV HT) x 100, or ((€40 – €15) ÷ €40) x 100 = 62,5%.
The markup rate for the cream is 62,5%. -
If the production cost increases by €5, becoming €20, the unit margin becomes: €40 – €20 = €20.
The unit margin would be reduced to €20 in the event of such a cost increase.
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To achieve an overall margin of €10, you must sell: Quantity = Overall margin ÷ Unit margin, which gives €000 ÷ €10 = 000, or 25 creams.
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To justify a higher price, InnovBioCosmétiques could develop a loyalty program with attractive rewards, improve its post-purchase services, and invest in personalized customer experiences.
Formulas Used:
| Title | Formulas |
|---|---|
| Unit margin | PV HT – PA HT |
| Brand taxes | ((PV HT – PA HT) ÷ PV HT) x 100 |
| Quantity for sale | Overall margin ÷ Unit margin |