How-to-calculate-actual-margin

How to Calculate Actual Margin | 9 Exercises

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Application: Pleasure Shoes

States :

You have recently been hired as a financial analyst at Chaussures Plaisir, a company specializing in the sale of fashion shoes. The company wants to review its pricing strategy to maximize its real margin. Currently, it sells a very popular model of sneakers with a purchase price excluding tax (PA HT) of €50 and a sale price excluding tax (PV HT) of €75. Your first missions concern the analysis of margins and the proposal of actions to optimize profits.

Work to do :

  1. Calculate the unit margin in euros for the model of sneakers sold by Chaussures Plaisir.
  2. What is the margin rate for this model of sneakers?
  3. Calculate the current markup rate for this model.
  4. If Chaussures Plaisir sells 1 pairs of these sneakers, what is the total margin generated?
  5. Following a market analysis, it is suggested to increase the selling price by 10%. Calculate the new unit margin in euros.

Proposed correction:

  1. To calculate the unit margin, we subtract the purchase price excluding tax (PA HT) from the sale price excluding tax (PV HT).

    Unit margin = PV excluding tax – PA excluding tax = €75 – €50 = €25.

    The unit margin is €25 per pair.

  2. The margin rate is calculated using the formula: ((PV HT – PA HT) ÷ PA HT) x 100.

    Substituting, we have: ((€75 – €50) ÷ €50) x 100 = (€25 ÷ €50) x 100 = 50%.

    The margin rate is 50%.

  3. The markup rate is calculated using the formula: ((PV HT – PA HT) ÷ PV HT) x 100.

Substituting, we have: ((€75 – €50) ÷ €75) x 100 = (€25 ÷ €75) x 100 ? 33,33%.

The markup rate is around 33,33%.

  1. The total margin is the unit margin multiplied by the quantity sold.

    Total margin = Unit margin x Quantity sold = €25 x 1 = €000.

    The total margin for selling 1 pairs is €000.

  2. With a 10% increase in the selling price, the new PV excluding tax is €75 x 1,10 = €82,50.

    New unit margin = €82,50 – €50 = €32,50.

    The new unit margin would be €32,50 per pair if the selling price is increased by 10%.

Formulas Used:

Title Formulas
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
Total margin Unit margin x Quantity sold
New PV HT Old PV HT x (1 + Percentage increase)

App: TechVerse Solutions

States :

TechVerse Solutions, an innovative technology company, wants to analyze the sales performance of its latest product, an intelligent personal assistant. Each unit costs €120 in purchase price excluding taxes and sells for €200 excluding taxes. To improve the sales strategy, the company needs to evaluate margins and understand the effects of various pricing changes.

Work to do :

  1. Calculate the gross margin per unit sold for the intelligent personal assistant.
  2. Determine the margin rate for this product.
  3. What does the current markup rate of the assistant represent?
  4. TechVerse Solutions is considering a 5% reduction in the sales price to boost sales. What would be the new sales price excluding tax?
  5. What would be the new unit margin after this 5% reduction?

Proposed correction:

  1. The gross margin per unit is calculated by subtracting the gross profit from the gross profit.

    Gross margin per unit = PV excluding tax – PA excluding tax = €200 – €120 = €80.

    The gross margin per unit is €80.

  2. The margin rate is calculated as follows: ((PV HT – PA HT) ÷ PA HT) x 100.

    This gives: ((€200 – €120) ÷ €120) x 100 = (€80 ÷ €120) x 100 ? 66,67%.

    The margin rate is approximately 66,67%.

  3. The markup rate is calculated using the formula: ((PV HT – PA HT) ÷ PV HT) x 100.

So: ((€200 – €120) ÷ €200) x 100 = (€80 ÷ €200) x 100 = 40%.

The markup rate is 40%.

  1. For the new sales price after a 5% reduction, we apply: New PV HT = Old PV HT x (1 – Reduction percentage).

    New PV excluding tax = €200 x (1 – 0,05) = €190.

    The new sales price excluding tax would be €190.

  2. The new unit margin after reduction is calculated by subtracting the HT PA from the new HT PV.

    New unit margin = €190 – €120 = €70.

    After a 5% reduction in the selling price, the unit margin increases to €70.

Formulas Used:

Title Formulas
Unit gross 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
New PV HT Old PV HT x (1 – Reduction percentage)
New margin New PV HT – PA HT

Application: Flavors of the World

States :

Les Saveurs du Monde is a thriving company specializing in the sale of exotic food products. A featured product is a basket of oriental delicacies whose purchase cost is €30 excluding tax and whose sale price is set at €60 excluding tax. As a tourist season approaches, your task is to assess the current situation and then propose concrete actions after analyzing the margins associated with this product.

Work to do :

  1. What is the net margin per basket sold?
  2. Calculate the margin rate associated with the sale of each basket.
  3. Determine the current markup rate for the Oriental Delights Basket.
  4. Consider an increase in sales volume of 500 units per month. What will be the total monthly margin generated?
  5. Following the analysis, one option is to add a feature that would increase the HT PA to €45. What would then be the new margin rate if the HT PV remains the same?

Proposed correction:

  1. The net margin per basket is calculated by the difference between the PV excluding tax and the PA excluding tax.

    Net margin = PV HT – PA HT = €60 – €30 = €30.

    The net margin per basket is €30.

  2. The margin rate is calculated as: ((PV HT – PA HT) ÷ PA HT) x 100.

    We get: ((€60 – €30) ÷ €30) x 100 = (€30 ÷ €30) x 100 = 100%.

    The margin rate is 100%.

  3. Using the markup rate formula: ((PV HT – PA HT) ÷ PV HT) x 100.

So: ((€60 – €30) ÷ €60) x 100 = (€30 ÷ €60) x 100 = 50%.

The markup rate for this product is 50%.

  1. With a sales increase of 500 units, the total monthly margin would be calculated with: Overall Margin = Unit Margin x Quantity Sold.

    Total margin = €30 x €500 = €15.

    The total monthly margin will be €15.

  2. If the HT PA increases to €45, let’s recalculate the margin rate: ((HT PV – New HT PA) ÷ New HT PA) x 100.

    Margin rate = ((€60 – €45) ÷ €45) x 100 = (€15 ÷ €45) x 100 ? 33,33%.

    The new margin rate would be around 33,33% if the PV excluding tax remains unchanged.

Formulas Used:

Title Formulas
Net 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
Total margin Unit margin x Quantity sold
New margin rate ((PV HT – New PA HT) ÷ New PA HT) x 100

Application: Solar Green Energy

States :

Énergie Verte Solaire is a leader in the renewable energy sector. One of its flagship products is a solar panel sold for €400 excluding tax for a purchase cost of €250 excluding tax. To remain competitive while maximizing margins, the company wants to have a precise view of the financial performance of this product and is considering various price adjustment strategies.

Work to do :

  1. Determine the unit margin per solar panel sold.
  2. What is the margin rate associated with the sale of each panel?
  3. Calculate the markup rate for this sunscreen product.
  4. If Énergie Verte Solaire succeeds in reducing the PA HT to €230, what would be the new margin rate with an unchanged sales price?
  5. What strategy would you recommend to improve total margin, taking into account potential reductions in production cost?

Proposed correction:

  1. The unit margin is simply calculated by the difference between the PV HT and the PA HT.

    Unit margin = PV excluding tax – PA excluding tax = €400 – €250 = €150.

    The unit margin per product is therefore €150.

  2. The margin rate is obtained by: ((PV HT – PA HT) ÷ PA HT) x 100.

    Let's calculate: ((€400 – €250) ÷ €250) x 100 = (€150 ÷ €250) x 100 = 60%.

    The margin rate is 60%.

  3. The markup rate is determined using the formula: ((PV HT – PA HT) ÷ PV HT) x 100.

Let's calculate: ((€400 – €250) ÷ €400) x 100 = (€150 ÷ €400) x 100 = 37,5%.

The markup rate is therefore 37,5%.

  1. If the net PA is reduced to €230, let's recalculate the margin rate: ((net PV – new net PA) ÷ new net PA) x 100.

    This gives us: ((€400 – €230) ÷ €230) x 100 = (€170 ÷ €230) x 100 ? 73,91%.

    The new margin rate would be approximately 73,91%.

  2. To improve the total margin, the company could consider diversifying its sourcing strategies to reduce the cost of production, while maintaining or increasing the sales volume. This would maximize economies of scale and improve overall margins.

Formulas Used:

Title Formulas
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
New margin rate ((PV HT – New PA HT) ÷ New PA HT) x 100

Application: Jewelry Shine

States :

Bijoux Éclat is a company specializing in the creation and sale of handcrafted jewelry. Currently, a gold necklace is sold at a sales price of €500 excluding taxes, while the purchase price is €300 excluding taxes. The company wants to evaluate its current margins to adjust its pricing strategy and maximize its profits.

Work to do :

  1. Calculate the unit margin for each necklace sold.
  2. What is the margin rate associated with the collar?
  3. Determine the markup rate of this product.
  4. If Bijoux Éclat wants to increase its markup rate to 50%, what should the new selling price excluding tax be?
  5. Taking into account a possible decrease in production costs, by how much should the purchase price be reduced to achieve a margin rate of 80% with an unchanged selling price?

Proposed correction:

  1. The unit margin is calculated using the following formula: PV HT – PA HT.

    Calculation: €500 – €300 = €200.

    The unit margin per necklace is €200.

  2. The margin rate is calculated as follows: ((PV HT – PA HT) ÷ PA HT) x 100.

    So: ((€500 – €300) ÷ €300) x 100 = (€200 ÷ €300) x 100 ? 66,67%.

    The margin rate is 66,67%.

  3. The markup rate is calculated by: ((PV HT – PA HT) ÷ PV HT) x 100.

Let's calculate: ((€500 – €300) ÷ €500) x 100 = (€200 ÷ €500) x 100 = 40%.

The current markup rate is therefore 40%.

  1. For a markup rate of 50%, PV HT should be such that ((PV HT – PA HT) ÷ PV HT) x 100 = 50.

    By reversing the formula, we find PV HT = PA HT ÷ (1 – Markup rate) = €300 ÷ (1 – 0,50) = €600.

    The new selling price excluding VAT should be €600.

  2. With a margin rate of 80%, we use the following formula, replacing PA HT: PA HT = PV HT ÷ (1 + Margin rate).

    PA excluding tax = €500 ÷ (1 + 0,80) = €500 ÷ 1,80? €277,78.

    The purchase price should be reduced to approximately €277,78 to achieve a margin rate of 80% with the same selling price.

Formulas Used:

Title Formulas
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
New PV HT PA HT ÷ (1 – Mark rate)
New PA HT PV HT ÷ (1 + Margin rate)

Application: Flavors of the Ocean

States :

Saveurs de l'Océan is a company that sells seafood products. The flagship product is a box of caviar sold at €150 excluding tax, with a purchase cost of €90 excluding tax. The company wants to evaluate its margins in order to optimize its profits. Suggestions for price and supply adjustments are being studied.

Work to do :

  1. Calculate the unit margin of a box of caviar sold.
  2. What is the margin rate for this product?
  3. What is the markup rate of the caviar box?
  4. If Saveurs de l'Océan plans to reduce the selling price by 10%, calculate the new unit margin.
  5. What impact would a reduction in the purchase cost to €80 have on the margin rate while keeping the initial sale price?

Proposed correction:

  1. The unit margin is obtained by subtracting the PA HT from the PV HT.

    Unit margin = €150 – €90 = €60.

    Each box of caviar generates a unit margin of €60.

  2. The margin rate is calculated by: ((PV HT – PA HT) ÷ PA HT) x 100.

    Calculating: ((€150 – €90) ÷ €90) x 100 = (€60 ÷ €90) x 100 ? 66,67%.

    The margin rate is 66,67%.

  3. The markup rate is calculated as follows: ((PV HT – PA HT) ÷ PV HT) x 100.

Let's calculate: ((€150 – €90) ÷ €150) x 100 = (€60 ÷ €150) x 100 = 40%.

The markup rate for caviar is 40%.

  1. For a 10% reduction in the PV excluding VAT, let's calculate the new price: New PV excluding VAT = PV excluding VAT x (1 – Reduction percentage).

    New PV excluding VAT = €150 x 0,90 = €135.

    New unit margin = €135 – €90 = €45.

    The new unit margin would be €45 after a 10% reduction in the selling price.

  2. Reducing the purchase cost improves the margin rate by increasing the net PA to €80: ((€150 – €80) ÷ €80) x 100 = (€70 ÷ €80) x 100 = 87,5%.

    Reducing the purchase cost would increase the margin rate to 87,5%.

Formulas Used:

Title Formulas
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
New PV HT PV HT x (1 – Reduction percentage)
New margin rate ((PV HT – New PA HT) ÷ New PA HT) x 100

Application: Green Gadget Innovations

States :

Green Gadget Innovations, a company specializing in eco-friendly gadgets, is selling a portable solar charger. The purchase price is €40 excluding tax and the sales price excluding tax is €80. The company is looking to improve its market positioning by examining its margins and is considering approaches to improve marketing costs.

Work to do :

  1. Calculate the unit margin obtained from the sale of a solar charger.
  2. What is the current sales margin rate?
  3. What is the brand rating of this solar charger?
  4. Provide an impact analysis if the marketing cost increases the selling price by 20%.
  5. What would you recommend as a method to maintain margin while reducing the selling price?

Proposed correction:

  1. The unit margin can be calculated by subtracting the HT PA from the HT PV.

    Unit margin = €80 – €40 = €40.

    The unit margin is €40.

  2. The margin rate is obtained by: ((PV HT – PA HT) ÷ PA HT) x 100.

    Let's calculate: ((€80 – €40) ÷ €40) x 100 = (€40 ÷ €40) x 100 = 100%.

    The margin rate is 100%.

  3. The markup rate is calculated via: ((PV HT – PA HT) ÷ PV HT) x 100.

So: ((€80 – €40) ÷ €80) x 100 = (€40 ÷ €80) x 100 = 50%.

The markup rate is 50%.

  1. With a marketing cost increasing the PV HT by 20%, the new price is: New PV HT = PV HT x 1,20.

    New PV excluding VAT = €80 x 1,20 = €96.

    The immediate impact is a higher price, potentially increasing margin.

  2. To maintain margin, consider optimizing other cost segments, such as supply chain or scale economics, to reduce costs without impacting price and potentially deliver a price reduction while maintaining margin.

Formulas Used:

Title Formulas
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
New PV HT PV HT x 1,20
Other segments Optimize supply chain/reduce costs

Application: Wine and Vine Selection

States :

Vin et Vigne Sélection is a distributor of high-end wines. A prestigious bottle of wine is sold for €30 excluding tax with a purchase cost of €18 excluding tax. Faced with increased competition, the company plans to review its margins and pricing strategy in order to consolidate its position on the market.

Work to do :

  1. Calculate the gross margin generated by each bottle sold.
  2. What is the margin rate on a bottle of wine?
  3. Do you know the markup rate applied to this wine?
  4. Do you think that a reduction of €2 on the purchase cost has tangible effects on the margin?
  5. Provide a resource/risk analysis if the selling price is adjusted to keep up with the competition.

Proposed correction:

  1. The gross margin is the difference between the PV excluding tax and the PA excluding tax.

    Gross margin = €30 – €18 = €12.

    So the gross margin per bottle sold is €12.

  2. The margin rate is calculated by: ((PV HT – PA HT) ÷ PA HT) x 100.

    So: ((€30 – €18) ÷ €18) x 100 ? (€12 ÷ €18) x 100 = 66,67%.

    The margin rate is 66,67%.

  3. The markup rate is calculated as follows: ((PV HT – PA HT) ÷ PV HT) x 100.

Let's calculate: ((€30 – €18) ÷ €30) x 100 = (€12 ÷ €30) x 100 = 40%.

The markup rate is 40%.

  1. Reducing the purchase cost to €16 results in a calculation of the new margin rate: ((€30 – €16) ÷ €16) x 100 ? (€14 ÷ €16) x 100 = 87,5%.

    Reducing the purchase cost by €2 would increase the margin rate to 87,5% with a unit margin reaching 100%.

  2. Competition requires that the revision of the PV HT offers an alternative of adaptability. This could strengthen or weaken the position in terms of perception of profitability, hence the need to properly assess the potential risks on the brand image and the resources allocated to conquering the market.

Formulas Used:

Title Formulas
Gross 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
New margin rate ((PV HT – New PA HT) ÷ New PA HT) x 100

Application: Ethical Fashion

States :

Mode Éthique, a start-up that stands out for its responsible clothing design, evaluates the current margins of its range of pants. One model is sold at €120 excluding tax while its manufacturing cost is €70 excluding tax. As part of an establishment in new markets, the company wants to inspect its margins and the applicable pricing strategies.

Work to do :

  1. What is the margin obtained for each pair of pants sold?
  2. Calculate the margin rate for these pants.
  3. What is the markup rate associated with this product?
  4. If Ethical Fashion lowers the selling price by €10, determine the new unit margin and reconsider commercial viability.
  5. State workable solutions to maintain margins despite price fluctuations.

Proposed correction:

  1. The margin per pant is calculated by subtracting the manufacturing cost from the selling price.

    Margin = €120 – €70 = €50.

    The margin is therefore €50 for each sale of trousers.

  2. The margin rate is calculated by: ((PV HT – PA HT) ÷ PA HT) x 100.

    So: ((€120 – €70) ÷ €70) x 100 = (€50 ÷ €70) x 100 ? 71,43%.

    The margin rate is 71,43%.

  3. The markup rate is calculated as follows: ((PV HT – PA HT) ÷ PV HT) x 100.

This gives us: ((€120 – €70) ÷ €120) x 100 = (€50 ÷ €120) x 100 = 41,67%.

The markup rate is 41,67%.

  1. By reducing the PV excluding tax by €10, this would become: €110.

    New unit margin = €110 – €70 = €40.

    Although the unit margin drops to €40, the effectiveness of this approach would depend on price elasticity and the possible increase in sales volume.

  2. In order to secure the margin, Mode Éthique could consider improving production efficiency or exploring economies of scale to offset revenue losses caused by a price drop. Design innovation and increased added value could also help maintain a premium image in the market.

Formulas Used:

Title Formulas
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
New margin New PV HT – PA HT
Sustainability strategy Production optimization/Increase added value

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