In this section:
Application: Fancy Pastry
States :
Located in the heart of Paris, Pâtisserie Fantaisie is renowned for its sweet treats, including its chocolate éclairs. With the recent rise in raw material prices, the patisserie wants to reassess its margins to ensure that its sales prices remain in line with its financial objectives while maintaining the interest of its customers. The purchase price excluding VAT of an éclair is €2,50, while its sales price excluding VAT is €4,50.
Work to do :
- Calculate the gross unit margin made on an éclair.
- Determine the margin rate on the flash.
- Calculate the mark rate on the lightning.
- The bakery is considering lowering the selling price to €4,20 excluding VAT. Calculate the new markup rate.
- What pricing strategy would you recommend to maximize profits while remaining competitive?
Proposed correction:
-
The gross unit margin is calculated by subtracting the pre-tax purchase price from the pre-tax selling price.
Unit margin = PV excluding tax – PA excluding tax = €4,50 – €2,50 = €2,00.
Thus, the gross unit margin achieved per éclair is €2,00. -
The margin rate is calculated using the formula: ((PV HT – PA HT) ÷ PA HT) x 100.
Margin rate = ((€4,50 – €2,50) ÷ €2,50) x 100 = 80%.
The margin rate on an éclair is 80%. -
The markup rate is calculated as follows: ((PV HT – PA HT) ÷ PV HT) x 100.
Markup rate = ((€4,50 – €2,50) ÷ €4,50) x 100 = 44,44%.
The mark rate on a lightning bolt is 44,44%.
-
With a new PV excluding tax of €4,20, the markup rate is calculated in the same way:
Markup rate = ((€4,20 – €2,50) ÷ €4,20) x 100 ? 40,48%.
The new markup rate with a sales price of €4,20 would be 40,48%. -
To maximize profits while remaining competitive, it would be wise to assess the price elasticity of demand for éclairs. If demand is sensitive to price reductions, a slight reduction in the selling price could increase sales volumes, thereby offsetting the decrease in unit margin.
Formulas Used:
| Title | Formulas |
|---|---|
| Gross unit 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: TechnoDistrib
States :
TechnoDistrib is a wholesaler of electronic devices, mainly computer peripherals. Following a financial analysis, the company wants to improve the profitability of its HDMI cables that it sells to retailers. The purchase price excluding VAT of an HDMI cable is €8 and the sale price excluding VAT is €12. They are also considering introducing a new pricing strategy to face the competition.
Work to do :
- Calculate the unit margin achieved per HDMI cable.
- What is the margin rate on HDMI cables?
- Calculate the markup rate on HDMI cables.
- TechnoDistrib wants to increase the selling price to €13 excluding VAT. What effect does this have on the margin rate?
- What recommendation would you make regarding the impact of price increases on competitiveness?
Proposed correction:
-
The gross unit margin is calculated by the difference between the PV excluding tax and the PA excluding tax.
Unit margin = €12 – €8 = €4.
Per HDMI cable, TechnoDistrib achieves a gross unit margin of €4. -
The margin rate is obtained by the formula: ((PV HT – PA HT) ÷ PA HT) x 100.
Margin rate = ((€12 – €8) ÷ €8) x 100 = 50%.
The margin rate on HDMI cables is therefore 50%. -
The markup rate is calculated as follows: ((PV HT – PA HT) ÷ PV HT) x 100.
Markup rate = ((€12 – €8) ÷ €12) x 100 = 33,33%.
The mark rate stands at 33,33%.
-
With an increase to €13 excluding VAT, the new margin rate will be:
Margin rate = ((€13 – €8) ÷ €8) x 100 = 62,5%.
By increasing the price to €13, the margin rate will increase to 62,5%. -
The increase in the selling price to €13 could improve the margin. However, competitiveness could be compromised if competitors do not follow the increase. It is important to assess the impact on sales volumes and monitor market reactions.
Formulas Used:
| Title | Formulas |
|---|---|
| Gross unit 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: Fashion & Chic
States :
Mode & Chic is a clothing store located in a trendy area of Bordeaux. It specializes in women's clothing. One of their flagship products is a summer dress purchased at a cost of €30 excluding tax and resold at a price of €55 excluding tax. The store wants to evaluate its price positioning while maintaining its operating margin.
Work to do :
- Determine the unit margin that Mode & Chic makes on each dress sold.
- Calculate the margin rate of the summer dress.
- What is the markup rate on the sale of the dress?
- If the store decides to reduce the selling price to €50 excluding VAT to increase sales, what would be the new markup rate?
- Propose a pricing strategy for Mode & Chic to boost both margin and sales volume.
Proposed correction:
-
The gross unit margin is the difference between the selling price and the purchase price:
Unit margin = €55 – €30 = €25.
Mode & Chic achieves a gross unit margin of €25 per dress. -
The margin rate is determined by the following formula: ((PV HT – PA HT) ÷ PA HT) x 100.
Margin rate = ((€55 – €30) ÷ €30) x 100 = 83,33%.
The summer dress offers a margin rate of 83,33%. -
The markup rate is calculated as follows: ((PV HT – PA HT) ÷ PV HT) x 100.
Markup rate = ((€55 – €30) ÷ €55) x 100 = 45,45%.
Mode & Chic gets a markdown rate of 45,45% on the dress.
-
With a reduced PV excluding tax of €50, the markup rate becomes:
Markup rate = ((€50 – €30) ÷ €50) x 100 = 40%.
The new markup rate would be 40%. -
In order to boost margin and volume, Mode & Chic could run promotions on certain models to increase sales, while maintaining their prices on the most popular products to preserve margin. A loyalty program could also encourage customers to buy more frequently.
Formulas Used:
| Title | Formulas |
|---|---|
| Gross unit 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: Eco Garden
States :
Jardin Eco is an online retailer that sells eco-friendly gardening tools. They recently introduced a new model of pruning shears that were purchased for €15 excluding VAT and sold for a price excluding VAT of €25. They are looking to analyze the viability of their new pricing strategy.
Work to do :
- Calculate the gross unit margin made on each pruner sold.
- Determine the margin rate on this pruner.
- What is the markup rate for the pruning shears model?
- Jardin Eco is considering revising the sale price to €22 excluding VAT. What would be the new margin rate?
- Discuss the possible impact of this price change on brand perception and sales.
Proposed correction:
-
The gross unit margin is calculated as follows:
Unit margin = €25 – €15 = €10.
Jardin Eco makes a margin of €10 per secateurs sold. -
The margin rate is determined by: ((PV HT – PA HT) ÷ PA HT) x 100.
Margin rate = ((€25 – €15) ÷ €15) x 100 = 66,67%.
The margin rate on the pruning shears is 66,67%. -
The markup rate is calculated using the formula: ((PV HT – PA HT) ÷ PV HT) x 100.
Markup rate = ((€25 – €15) ÷ €25) x 100 = 40%.
The markup rate for the pruning shears is 40%.
-
If the PV excluding tax is adjusted to €22, the margin rate becomes:
Margin rate = ((€22 – €15) ÷ €15) x 100 = 46,67%.
The new margin rate would be 46,67%. -
A price reduction could potentially increase sales by making the product more affordable, while improving the brand's accessibility. However, care must be taken to ensure that this perception of a price reduction is not associated with a reduction in the perceived value of the product.
Formulas Used:
| Title | Formulas |
|---|---|
| Gross unit 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: Gourmand'Chic
States :
Gourmand'Chic, a delicatessen located in Lyon, sells gourmet baskets made up of local products. A basket costs €50 excluding VAT to buy and is sold at €90 excluding VAT. In order to prepare for the next holiday season, the grocery store wants to re-evaluate its margins for these products.
Work to do :
- What is the amount of unit margin made on each basket sold?
- Calculate the margin rate for the gourmet basket.
- What is the markup rate on this product?
- Gourmand'Chic is considering a promotional offer by setting the sale price at €85 excluding VAT. What is the new margin rate?
- Offer strategic advice to maintain profitability while driving sales during the holiday season.
Proposed correction:
-
The gross unit margin is the difference between the selling price and the purchase price:
Unit margin = €90 – €50 = €40.
Gourmand'Chic makes a margin of €40 per basket. -
The margin rate is calculated using: ((PV HT – PA HT) ÷ PA HT) x 100.
Margin rate = ((€90 – €50) ÷ €50) x 100 = 80%.
The margin rate on each basket is therefore 80%. -
The mark rate is determined with: ((PV HT – PA HT) ÷ PV HT) x 100.
Markup rate = ((€90 – €50) ÷ €90) x 100 = 44,44%.
The markup rate is 44,44% for this product.
-
If the selling price is adjusted to €85, the margin rate becomes:
Margin rate = ((€85 – €50) ÷ €50) x 100 = 70%.
The new margin rate with a price of €85 would be 70%. -
To maintain profitability during the holidays, the grocery store can complement the promotional offer with upsells on complementary products or explore partnerships with other delicatessens to reach a broader customer base.
Formulas Used:
| Title | Formulas |
|---|---|
| Gross unit 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: HealthPlus
States :
SantéPlus is a pharmacy chain that sells food supplements. A famous supplement sold is purchased for €12 excluding VAT and sold to customers for €20 excluding VAT. Faced with growing competition, SantéPlus wants to evaluate its margins in order to adjust if necessary.
Work to do :
- Calculate the gross unit margin of this dietary supplement.
- Determine the margin rate for this product.
- What is the current markup rate?
- If the selling price is reduced to €18 excluding VAT to improve competitiveness, how does this affect the mark-up rate?
- Discuss a potential strategy to remain competitive while preserving margin.
Proposed correction:
-
The gross unit margin is:
Unit margin = €20 – €12 = €8.
SantéPlus generates a margin of €8 per unit sold. -
The margin rate is calculated by:
Margin rate = ((€20 – €12) ÷ €12) x 100 = 66,67%.
The margin rate of the supplement is 66,67%. -
For the markup rate, the formula is:
Markup rate = ((€20 – €12) ÷ €20) x 100 = 40%.
The current markup rate is 40%.
-
With a sale price of €18, the markup rate becomes:
Markup rate = ((€18 – €12) ÷ €18) x 100 = 33,33%.
The new mark rate is 33,33% with this PV excluding VAT. -
A competitive strategy could include bundling with other supplements or health products, thereby enhancing perceived value and encouraging larger purchases, without compromising overall margin too much.
Formulas Used:
| Title | Formulas |
|---|---|
| Gross unit 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: FuturoTech
States :
FuturoTech is an innovative startup specializing in technological gadgets. Their flagship product, a portable solar charger, is purchased by the company for €25 excluding VAT and resold for €45 excluding VAT. The management team wants to evaluate the profitability of the product to adjust the business strategy for international expansion.
Work to do :
- What is the unit margin on this solar charger?
- Calculate the margin rate for FuturoTech on this product.
- What is the markup rate for solar charger?
- If FuturoTech decides to increase the PV excluding tax to €40 for foreign markets, how does this impact the margin rate?
- Consider an international market entry strategy taking into account tariff adjustments.
Proposed correction:
-
The unit margin is obtained by subtracting the PA HT from the PV HT:
Unit margin = €45 – €25 = €20.
FuturoTech benefits from a margin of €20 per charger. -
The margin rate is calculated as follows:
Margin rate = ((€45 – €25) ÷ €25) x 100 = 80%.
The margin rate is 80%. -
The markup rate is determined by:
Markup rate = ((€45 – €25) ÷ €45) x 100 = 44,44%.
The current markup rate is 44,44%.
-
With a new PV excluding tax of €40, the margin rate becomes:
Margin rate = ((€40 – €25) ÷ €25) x 100 = 60%.
The margin rate is reduced to 60%. -
To enter international markets, FuturoTech could align with the competition by adjusting its prices but capitalizing on quality and innovation as differentiators. Offering a warranty or personalized service could strengthen the perceived value, offsetting a possible reduction in margin.
Formulas Used:
| Title | Formulas |
|---|---|
| Gross unit 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: BioNature
States :
BioNature is a company specializing in the sale of organic cosmetic products. One of its bestsellers is an organic face cream purchased for €10 excluding VAT and resold for €18 excluding VAT. The management wants to understand the margins before launching an advertising campaign.
Work to do :
- Calculate the gross unit margin made on each cream sold.
- Determine the margin rate for organic cream.
- What is the markup rate for the product?
- If BioNature decides to introduce a promotional discount and sell at €16 excluding VAT, what happens to the margin rate?
- Suggested strategy to combine promotion and maintenance of the perception of quality.
Proposed correction:
-
The gross unit margin is obtained by:
Unit margin = €18 – €10 = €8.
BioNature makes a margin of €8 per cream sold. -
The margin rate is calculated with:
Margin rate = ((€18 – €10) ÷ €10) x 100 = 80%.
The margin rate is 80%. -
To determine the markup rate:
Markup rate = ((€18 – €10) ÷ €18) x 100 = 44,44%.
The markup rate is 44,44%.
-
With a resale price of €16, the margin rate would become:
Margin rate = ((€16 – €10) ÷ €10) x 100 = 60%.
The margin rate will drop to 60%. -
To maintain the perception of quality while applying the discount, BioNature could associate the promo with a special event or a partnership with other products to enhance the offer. Ensuring that customers perceive this quality despite the discount is crucial for the brand.
Formulas Used:
| Title | Formulas |
|---|---|
| Gross unit 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: EcoVélos
States :
EcoVélos is a manufacturer of eco-friendly electric bikes. The unit cost excluding tax of one of their models is €500, and it is sold at €900 excluding tax. To improve their profitability and support their growth, the company wants to analyze its current margins.
Work to do :
- What is the unit margin achieved by EcoVélos on this bike?
- Calculate the margin rate for this item.
- What is the markup rate on the sale of the bike?
- EcoVélos is considering lowering the price to €850 excluding VAT. How does this affect the margin rate?
- Recommend an approach to balance price and sustainable growth.
Proposed correction:
-
The gross unit margin is:
Unit margin = €900 – €500 = €400.
EcoVélos generates a unit margin of €400 per bicycle. -
The margin rate is calculated by:
Margin rate = ((€900 – €500) ÷ €500) x 100 = 80%.
The margin rate is 80%. -
The markup rate is:
Markup rate = ((€900 – €500) ÷ €900) x 100 = 44,44%.
The markup rate is 44,44%.
-
With a price adjustment to €850, the margin rate becomes:
Margin rate = ((€850 – €500) ÷ €500) x 100 = 70%.
The new margin rate is 70%. -
EcoVélos should assess the sensitivity of demand to price declines and consider investments in marketing and R&D to support innovation, while maintaining adequate margins for sustainable growth.
Formulas Used:
| Title | Formulas |
|---|---|
| Gross unit 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 |