How to Calculate Trade Margin in Percentage | 9 Exercises

Application: Eco-Leather Workshop

States :

L'Atelier Écolo-Cuir is a small business specializing in the artisanal manufacture of vegetable leather bags. Recently, management wanted to have a better vision of its margins in order to optimize its profitability. The latest model of bag sold generates a turnover based on the following data: a purchase price excluding tax (PA HT) of €50 and a sale price excluding tax (PV HT) of €100 per bag. To increase the commercial margin, the Workshop is considering reducing costs or adjusting prices. In order to make an informed decision, management would like to calculate the commercial margin as a percentage for different profit scenarios.

Work to do :

1. Calculate the current sales margin as a percentage for a bag sold by Atelier Écolo-Cuir.
2. If the purchase price is reduced by 10%, what will the new margin rate be?
3. What increase in selling price is necessary to achieve a 60% margin while maintaining the same purchase cost?
4. Analyze how a €5 increase in the PV excluding tax impacts the current commercial margin.
5. Consider the strategic implications for the Workshop of a growing business margin.

Proposed correction:

1. Calculation of current trade margin as a percentage:
   The commercial margin is calculated as follows:
   ( \text{Commercial margin} = \frac{\text{PV HT} – \text{PA HT}}{\text{PV HT}} \times 100 ).
   Substituting the values: ( \frac{100 – 50}{100} \times 100 = 50 % ).
   The current commercial margin is therefore 50%.

2. New margin rate with a 10% reduction in the purchase cost:
   The new PA excluding tax is €50 – (10% of €50) = €45.
   The new trade margin is: ( \frac{100 – 45}{100} \times 100 = 55 % ).
   Cost reduction helps increase margin to 55%.

3. Necessary increase in selling price to reach 60% margin:

If the target margin is 60%, then:
( 60 = \frac{\text{PV HT} – 50}{\text{PV HT}} \times 100 ).
Or (0,6 \times \text{PV HT} = \text{PV HT} – 50).
Let's solve for PV HT: PV HT = €125.
The PV excluding tax must be increased to €125 to reach a margin of 60%.

4. Impact of a €5 increase in the PV excluding tax on the commercial margin:
   If PV excluding tax becomes €105, then:
   ( \text{Trade margin} = \frac{105 – 50}{105} \times 100 ).
   Result = ( \frac{55}{105} \times 100 ? 52,38 % ).
   The increase in the PV excluding tax of €5 improves the margin to around 52,38%.

5. Strategic implications of a growing trade margin:
   A growing margin can strengthen the Workshop's competitiveness on the market by allowing better reinvestments, while preserving customer satisfaction through good value for money.

Formulas Used:

Title	Formulas
Trade margin as a percentage	((PV HT – PA HT) ÷ PV HT) x 100

Application: Tech Innovators

States :

Tech Innovators, a company specializing in cutting-edge electronic gadgets, wants to evaluate its new pricing strategies. The latest product launched, a smart voice assistant, is sold at a sales price excluding taxes of €300, while the purchase cost excluding taxes is €180. Wanting to rethink margins for their future financial decisions, the management wants to calculate the sales margin as a percentage while exploring various cost and sales scenarios.

Work to do :

1. Determine the current sales margin as a percentage of the new voice assistant.
2. Analyze the impact on margin if the purchase cost is reduced by 15%.
3. What tax-free selling price should you set to achieve a 50% margin without changing the purchase cost?
4. Evaluate how a €10 reduction in the PV excluding VAT affects the current margin?
5. Discuss possible strategic decisions with a narrow margin.

Proposed correction:

1. Current trade margin in percentage:
   The formula for the trade margin is given by:
   ( \text{Trade margin} = \frac{300 – 180}{300} \times 100 = 40 % ).
   Currently the margin is 40%.

2. Impact of 15% reduction in purchase cost:
   New PA excluding tax = €180 – (15% of €180) = €153.
   New margin: ( \frac{300 – 153}{300} \times 100 = 49 % ).
   Cost reduction results in margin revised to 49%.

3. Necessary PV HT for a margin of 50%:

Let's use the equation:
( 50 = \frac{\text{PV HT} – 180}{\text{PV HT}} \times 100 ).
So, ( 0,5 \times \text{PV HT} = \text{PV HT} – 180 ).
PV HT must be adjusted to €360 for a margin of 50%.

4. Effect of the €10 drop in the PV excluding tax on the margin:
   New PV excluding tax = €290.
   New trade margin = ( \frac{290 – 180}{290} \times 100 ? 37,93 % ).
   This reduces the margin to around 37,93%.

5. Strategic decisions with reduced margin:
   A declining margin could force Tech Innovators to reduce its cost structure or diversify its product range to offset competitive pricing pressure.

Formulas Used:

Title	Formulas
Trade margin as a percentage	((PV HT – PA HT) ÷ PV HT) x 100

Application: Gourmet Flavor

States :

Saveur Gourmet, a high-end caterer, is known for its gourmet and refined dishes. Their latest culinary creation, called "Délice Sudiste", sells at a sales price excluding tax of €50 while its cost price excluding tax amounts to €20. Saveur Gourmet's objective is to calculate the current percentage sales margin and explore different price adjustments to increase profitability while maintaining the same level of quality.

Work to do :

1. Calculate the current percentage margin for a “Southern Delight” dish.
2. If the cost price decreases by 25%, what will the new sales margin be?
3. What would be the new selling price to aim for to obtain a 70% margin, without changing the cost price?
4. Consider the impact of a €10 increase in the HT PV on the commercial margin.
5. Propose strategic directions to ensure profitability with increasing margin.

Proposed correction:

1. Current trade margin in percentage:
   Using:
   ( \text{Trade margin} = \frac{50 – 20}{50} \times 100 = 60 % ).
   Currently the margin is 60%.

2. New margin with a 25% reduction in cost price:
   New PA excluding tax = €20 – (25% of €20) = €15.
   New margin: ( \frac{50 – 15}{50} \times 100 = 70 % ).
   Cutting costs increases margin to 70%.

3. PV HT to aim for a margin of 70%:

By applying:
( 70 = \frac{\text{PV HT} – 20}{\text{PV HT}} \times 100 ).
Let's solve for PV HT: PV HT must be approximately €66,67.

4. Effects of a €10 increase in the PV excluding tax:
   Increased PV excluding tax = €60.
   New trade margin = ( \frac{60 – 20}{60} \times 100 = 66,67 % ).
   This increases the margin to 66,67%.

5. Strategic directions to improve profitability:
   Saveur Gourmet could step up its marketing efforts to justify a move upmarket, thereby supporting higher prices and strengthening its margin.

Formulas Used:

Title	Formulas
Trade margin as a percentage	((PV HT – PA HT) ÷ PV HT) x 100

Application: Fashion and Design SAS

States :

Mode et Design SAS, a company specializing in the creation of eco-friendly clothing, wants to adjust its pricing strategy for its new linen jackets. Currently, the sales price excluding taxes of a jacket is set at €180, while the manufacturing cost excluding taxes is €120. In order to increase its margins while remaining competitive, the company would like to understand the impact of possible changes on its sales margin as a percentage.

Work to do :

1. Calculate the current trade margin as a percentage of a jacket.
2. Consider a 20% decrease in manufacturing cost and determine the new sales margin.
3. What new selling price would be needed to achieve a 40% margin, without changing the manufacturing cost?
4. Analyze how a decrease of €5 in the PV excluding tax affects the commercial margin.
5. Develop possible strategies for Mode et Design SAS to achieve higher margins.

Proposed correction:

1. Current trade margin in percentage:
   Let's calculate:
   ( \text{Trade margin} = \frac{180 – 120}{180} \times 100 = 33,33 % ).
   The current margin is 33,33%.

2. New margin with a 20% reduction in manufacturing costs:
   New PA excluding tax = €120 – (20% of €120) = €96.
   New margin: ( \frac{180 – 96}{180} \times 100 = 46,67 % ).
   This cost reduction brings the margin to 46,67%.

3. Required for a new HT PV for a margin of 40%:

Let's apply:
( 40 = \frac{\text{PV HT} – 120}{\text{PV HT}} \times 100 ).
When solving, PV HT must be €200.

4. Effect of the €5 reduction in the PV excluding tax:
   New PV excluding VAT = €175.
   New trade margin = ( \frac{175 – 120}{175} \times 100 ? 31,43 % ).
   This reduces the margin to 31,43%.

5. Strategies to increase margins:
   Mode et Design SAS could explore alternative materials to lower its manufacturing costs or strengthen its brand position to justify price increases.

Formulas Used:

Title	Formulas
Trade margin as a percentage	((PV HT – PA HT) ÷ PV HT) x 100

Application: Vibrating Bike

States :

Vibrant Vélo, a fast-growing start-up, is launching a range of electric bikes to capture the urban market. Each bike is sold at a sales price excluding tax of €1200, while the cost of purchasing the components to manufacture a bike is €800 excluding tax. To consider its future profitability axes, the company wants to evaluate the sales margin as a percentage and understand the impact of potential adjustments to the cost and sales price.

Work to do :

1. What is the current commercial margin rate for each bike sold by Vibrant Vélo?
2. If manufacturing costs were to decrease by 10%, what would the new sales margin be?
3. Calculate the selling price required to achieve a 35% sales margin without changing the manufacturing cost.
4. Consider the effect of a €20 reduction in the selling price on the sales margin.
5. Provide recommendations based on these findings to maintain and increase profitability.

Proposed correction:

1. Current trade margin rate:
   The formula is:
   ( \text{Trade margin} = \frac{1200 – 800}{1200} \times 100 = 33,33 % ).
   The current margin rate is 33,33%.

2. New margin with a 10% decrease in manufacturing cost:
   New PA excluding tax = €800 – (10% of €800) = €720.
   New margin: ( \frac{1200 – 720}{1200} \times 100 = 40 % ).
   This reduction in costs increases the margin to 40%.

3. Selling price to achieve a 35% margin:

Using the formula:
( 35 = \frac{\text{PV HT} – 800}{\text{PV HT}} \times 100 ).
Thus, PV excluding tax = approximately €1230,77.

4. Effect of a €20 reduction in the PV excluding tax:
   New PV excluding VAT = €1180.
   New trade margin = ( \frac{1180 – 800}{1180} \times 100 ? 32,20 % ).
   The reduction lowers the margin to around 32,20%.

5. Strategic recommendations for profitability:
   Vibrant Vélo could explore partnerships to reduce costs or invest in innovation to maintain product differentiation that justifies its prices.

Formulas Used:

Title	Formulas
Trade margin as a percentage	((PV HT – PA HT) ÷ PV HT) x 100

Application: Mondia Bookstore

States :

Librairie Mondia, an online bookstore, has a project to maximize its profitability on a particular collection of historical works. The sales price excluding tax for each book is €24, and the purchase price excluding tax from the publisher is €16. To lay the foundation for new promotional campaigns, the management team wants to analyze the sales margin as a percentage and see how different cost and price variables affect their profits.

Work to do :

1. Calculate the current trade margin as a percentage for each book.
2. Imagine a 5% drop in the purchase price; what would the new sales margin be?
3. Determine the selling price needed to achieve a 45% margin, without changing the purchase cost.
4. Explain how a €2 increase in the net sales price affects the margin rate.
5. Suggest measures that Librairie Mondia could adopt to improve its sales margin while remaining competitive.

Proposed correction:

1. Current trade margin in percentage:
   Calculation :
   ( \text{Trade margin} = \frac{24 – 16}{24} \times 100 = 33,33 % ).
   The commercial margin is 33,33%.

2. New margin with a 5% reduction in the purchase price:
   New PA excluding tax = €16 – (5% of €16) = €15,20.
   New margin: ( \frac{24 – 15,20}{24} \times 100 = 36,67 % ).
   The reduction in the purchase cost increases the margin to 36,67%.

3. Selling price to reach 45% margin:

Let's use:
( 45 = \frac{\text{PV HT} – 16}{\text{PV HT}} \times 100 ).
Solving, PV HT = €29,09.

4. Effect of a €2 increase in the PV excluding tax:
   New PV excluding VAT = €26.
   New trade margin = ( \frac{26 – 16}{26} \times 100 ? 38,46 % ).
   The increase raises the margin to 38,46%.

5. Measures to improve the commercial margin:
   Librairie Mondia could highlight combined promotional packs, or even form editorial partnerships to offer exclusive reductions on their costs.

Formulas Used:

Title	Formulas
Trade margin as a percentage	((PV HT – PA HT) ÷ PV HT) x 100

Application: Naturally Beautiful Cosmetics

States :

Naturally Beautiful Cosmetics aims to offer eco-friendly beauty products while ensuring a competitive price. Currently, their moisturizer is sold at a tax-free price of €25, with a tax-free manufacturing cost of €10. The company's goal is to adjust its strategy to maximize the commercial margin while exploring the effects of various changes on pricing and costs.

Work to do :

1. What is the current trade margin of moisturizer in percentage?
2. If the manufacturing cost increases by €2, what would be the new commercial margin?
3. Calculate the new selling price required to achieve a 60% margin, without changing the manufacturing cost.
4. Determine the impact of a €1 reduction in the net sales price on the margin rate.
5. What adjustments can Naturally Beautiful Cosmetics consider to improve its profitability without sacrificing the ethics of its products?

Proposed correction:

1. Current trade margin in percentage:
   Commercial margin:
   ( \text{Trade margin} = \frac{25 – 10}{25} \times 100 = 60 % ).
   Currently, the commercial margin is 60%.

2. New margin with a €2 increase in manufacturing cost:
   New PA excluding tax = €12.
   New margin: ( \frac{25 – 12}{25} \times 100 = 52 % ).
   The increase in cost reduces the margin to 52%.

3. Selling price to achieve a 60% margin:

Using the formula:
( 60 = \frac{\text{PV HT} – 10}{\text{PV HT}} \times 100 ).
PV excluding tax must be €25, already reached, so no modification necessary.

4. Effect of a €1 reduction in the PV excluding tax:
   New PV excluding VAT = €24.
   New trade margin = ( \frac{24 – 10}{24} \times 100 ? 58,33 % ).
   The reduction lowers the margin to 58,33%.

5. Potential adjustments to improve profitability:
   Naturally Beautiful Cosmetics should consider optimizing its supply chain or exploring new supply markets to preserve its margin while maintaining the integrity of its products.

Formulas Used:

Title	Formulas
Trade margin as a percentage	((PV HT – PA HT) ÷ PV HT) x 100

Application: High-Tech Solutions

States :

High-Tech Solutions, a leading company in the field of professional audio equipment, has just launched its new wireless speaker. The sales price excluding taxes is set at €250, while the production costs excluding taxes reach €150. The management seeks to optimize its sales margin to stimulate growth while remaining competitive.

Work to do :

1. Calculate the current percentage margin of the wireless speaker.
2. What happens to the commercial margin as a percentage if production costs are reduced by €20?
3. What selling price should be set to obtain a 45% margin if the cost remains unchanged?
4. Discuss how increasing the PV excluding tax by €30 changes the margin rate.
5. What strategic axes should High-Tech Solutions explore to improve its margins while strengthening its position on the market?

Proposed correction:

1. Current percentage trade margin:
   Let's calculate:
   ( \text{Trade margin} = \frac{250 – 150}{250} \times 100 = 40 % ).
   The current margin is 40%.

2. New margin with a reduction of 20 € in production costs:
   New PA HT = €150 – €20 = €130.
   New margin: ( \frac{250 – 130}{250} \times 100 = 48 % ).
   This reduction increases the margin to 48%.

3. Selling price for a 45% margin:

Formally:
( 45 = \frac{\text{PV HT} – 150}{\text{PV HT}} \times 100 ).
Let's solve to obtain PV HT = approximately €272,73.

4. Impact of a €30 increase in the PV excluding tax:
   New PV excluding VAT = €280.
   New trade margin = ( \frac{280 – 150}{280} \times 100 ? 46,43 % ).
   This increases the margin to around 46,43%.

5. Strategies to improve margins:
   High-Tech Solutions could relaunch innovations to justify premium prices or optimize production to further reduce costs while increasing customer satisfaction.

Formulas Used:

Title	Formulas
Trade margin as a percentage	((PV HT – PA HT) ÷ PV HT) x 100

Application: CycloFun Accessories

States :

CycloFun Accessories designs and sells unique accessories for cyclists. One of its flagship products, a trendy bicycle bell, is currently sold at a price of €15 excluding taxes, with a manufacturing cost of €6. To prepare for a business strategy adjustment, the company reviews its sales margins and studies different scenarios to optimize its margins while ensuring customer satisfaction.

Work to do :

1. What is the current percentage margin for the bicycle bell?
2. What would happen if manufacturing costs increased by €1?
3. What should be the new pricing for a 55% margin, while keeping the cost unchanged?
4. Analyze the impact of a reduction of €1,50 in the PV excluding tax on the commercial margin.
5. Propose strategic actions for CycloFun Accessories to improve its margins while adopting sustainable practices.

Proposed correction:

1. Current trade margin in percentage:
   The formula is:
   ( \text{Trade margin} = \frac{15 – 6}{15} \times 100 = 60 % ).
   The current margin is 60%.

2. Margin if manufacturing cost increases by €1:
   New PA HT = €6 + €1 = €7.
   New margin: ( \frac{15 – 7}{15} \times 100 = 53,33 % ).
   The increase in cost reduces the margin to 53,33%.

3. New pricing for 55% margin:

Let's apply:
( 55 = \frac{\text{PV HT} – 6}{\text{PV HT}} \times 100 ).
By calculating, PV excluding VAT? €13,33.

4. Impact of a reduction of €1,50 in the PV excluding tax:
   New PV excluding VAT = €13,50.
   New trade margin = ( \frac{13,50 – 6}{13,50} \times 100 ? 55,56 % ).
   This reduction affects the margin at approximately 55,56%.

5. Strategic actions to improve margins:
   CycloFun Accessories could invest in sustainable design that lowers long-term costs or improve the design to justify the price, while strengthening its environmental commitment.

Formulas Used:

Title	Formulas
Trade margin as a percentage	((PV HT – PA HT) ÷ PV HT) x 100