In this section:
Application: The Gourmet Factory
States :
La Fabrique Gourmande is an artisanal pastry shop specializing in the making of homemade cakes. Michel, the owner, wants to understand his gross profit margin to better manage his finances and develop his business. He wants to know the different margins in order to make informed decisions about his prices. To do this, he is considering the signature chocolate cake sold for €25 including tax, for which the cost price is €12 per unit. The applicable VAT rate is 5,5%.
Work to do :
- Calculate the sales price excluding tax (SVP HT) of the cake.
- Determine the gross profit margin per unit sold.
- Establish the margin rate for the cake.
- Calculate the corresponding markup rate.
- Analyze the pricing process and discuss the strategic implications for the company.
Proposed correction:
-
To obtain the sales price excluding tax (PV HT), we must first remove the VAT from the sales price including tax, i.e.:
PV HT = PV TTC ÷ (1 + VAT rate)
PV HT = 25 € ÷ (1 + 0,055)
PV HT = €25 ÷ 1,055
PV excluding VAT = €23,70
The selling price excluding VAT is €23,70. -
Gross profit margin per unit is calculated as follows:
Gross profit margin per unit = PV excluding tax – Cost price
Gross profit margin per unit = €23,70 – €12
Gross profit margin per unit = €11,70
The gross profit margin per unit sold is €11,70. -
The margin rate is determined by the following formula:
Margin rate = ((PV excluding tax – PA excluding tax) ÷ PA excluding tax) x 100
Margin rate = ((€23,70 – €12) ÷ €12) x 100
Margin rate = (€11,70 ÷ €12) x 100
Margin rate = 97,50%
The margin rate is 97,50%.
-
For the mark rate, we use:
Brand rate = ((PV excluding tax – PA excluding tax) ÷ PV excluding tax) x 100
Brand rate = ((€23,70 – €12) ÷ €23,70) x 100
Markup rate = (€11,70 ÷ €23,70) x 100
Brand rate = 49,37%
The markup rate is 49,37%. -
The pricing process must take into account costs, competition, and consumer demand. If the margin is too low, Michael might consider increasing the price, improving production efficiency, or negotiating better prices with his suppliers to maximize profits.
Formulas Used:
| Title | Formulas |
|---|---|
| Sale price excl. VAT | PV HT = PV TTC ÷ (1 + VAT rate) |
| Gross profit margin | Gross profit margin per unit = PV excluding VAT – PA excluding VAT |
| Margin rate | Margin rate = ((PV excluding tax – PA excluding tax) ÷ PA excluding tax) x 100 |
| Brand taxes | Brand rate = ((PV excluding tax – PA excluding tax) ÷ PV excluding tax) x 100 |
Application: TechnoWizz
States :
TechnoWizz is an innovative company specializing in the sale of technological gadgets. Lisa, the owner, wants to analyze the profitability of her flagship product: a wireless headset. The headset sells for €180 including VAT and has a manufacturing cost of €100. The VAT rate is 20%.
Work to do :
- Calculate the sales price excluding tax (SRP HT) of the wireless headset.
- Determine the gross profit margin per helmet sold.
- Establish the margin rate for the headset.
- Calculate the markup rate of this product.
- Analyze TechnoWizz's pricing positioning relative to the competition and discuss potential strategies to increase margin.
Proposed correction:
-
The sales price excluding tax (PV HT) is obtained by removing VAT from the price including tax:
PV HT = PV TTC ÷ (1 + VAT rate)
PV HT = 180 € ÷ (1 + 0,20)
PV HT = €180 ÷ 1,20
PV excluding VAT = €150
The selling price excluding VAT is €150. -
The gross profit margin per helmet is determined as follows:
Gross profit margin = PV excluding tax – Manufacturing cost
Gross profit margin = €150 – €100
Gross profit margin = €50
The gross profit margin per helmet sold is €50. -
The margin rate is calculated with the following formula:
Margin rate = ((PV excluding tax – PA excluding tax) ÷ PA excluding tax) x 100
Margin rate = ((€150 – €100) ÷ €100) x 100
Margin rate = (€50 ÷ €100) x 100
Margin rate = 50%
The margin rate is 50%.
-
For the mark rate, we use:
Brand rate = ((PV excluding tax – PA excluding tax) ÷ PV excluding tax) x 100
Brand rate = ((€150 – €100) ÷ €150) x 100
Markup rate = (€50 ÷ €150) x 100
Brand rate = 33,33%
The markup rate is 33,33%. -
TechnoWizz needs to compare its prices with competitors. If its products are competitive, the company could invest in marketing to increase margin. Otherwise, it could explore reducing production costs or product innovation to stand out.
Formulas Used:
| Title | Formulas |
|---|---|
| Sale price excl. VAT | PV HT = PV TTC ÷ (1 + VAT rate) |
| Gross profit margin | Gross profit margin = PV HT – PA HT |
| Margin rate | Margin rate = ((PV excluding tax – PA excluding tax) ÷ PA excluding tax) x 100 |
| Brand taxes | Brand rate = ((PV excluding tax – PA excluding tax) ÷ PV excluding tax) x 100 |
Application: EcoPousse
States :
ÉcoPousse is a young company specializing in the production and sale of urban vegetable gardens. Maxime, the founder, sells each vegetable garden module for €50 excluding tax. The direct costs associated with each vegetable garden amount to €30. He wants to know his margins and optimize his development strategy.
Work to do :
- Determine the gross profit margin per vegetable garden module sold.
- Calculate the margin rate for this product.
- Calculate the markup rate for the vegetable garden module.
- Analyze the financial implications of these margins for the company's future investments.
- Consider potential cost optimizations to improve gross profit margin.
Proposed correction:
-
The gross profit margin is calculated as follows:
Gross profit margin = PV excluding tax – Direct cost
Gross profit margin = €50 – €30
Gross profit margin = €20
The gross profit margin per module is €20. -
The margin rate is determined as follows:
Margin rate = ((PV excluding tax – PA excluding tax) ÷ PA excluding tax) x 100
Margin rate = ((€50 – €30) ÷ €30) x 100
Margin rate = (€20 ÷ €30) x 100
Margin rate = 66,67%
The margin rate is 66,67%. -
For the mark rate, we proceed with:
Brand rate = ((PV excluding tax – PA excluding tax) ÷ PV excluding tax) x 100
Brand rate = ((€50 – €30) ÷ €50) x 100
Markup rate = (€20 ÷ €50) x 100
Brand rate = 40%
The markup rate is 40%.
-
The margins provide EcoPousse with potential funds to reinvest in initiatives such as research and development or expanding distribution. Maximizing these margins could accelerate growth.
-
To improve margin, Maxime might consider streamlining production processes or exploring economies of scale, which could further reduce costs and improve overall financial performance.
Formulas Used:
| Title | Formulas |
|---|---|
| Gross profit margin | Gross profit margin = PV HT – PA HT |
| Margin rate | Margin rate = ((PV excluding tax – PA excluding tax) ÷ PA excluding tax) x 100 |
| Brand taxes | Brand rate = ((PV excluding tax – PA excluding tax) ÷ PV excluding tax) x 100 |
Application: FashionSphere
States :
FashionSphere is an independent boutique specializing in contemporary ready-to-wear. Clara, the manager, sells a dress for €80 excluding VAT with purchase costs of €48. To improve her marketing and pricing strategy, she would like to better understand her margins.
Work to do :
- Determine the gross profit margin per dress sold.
- Calculate the markup rate for this dress.
- Calculate the markup rate for the dress.
- Evaluate the impact of these margins on Clara's marketing decisions.
- Suggest strategies to increase profitability while remaining competitive in the market.
Proposed correction:
-
The gross profit margin is obtained by the following calculation:
Gross profit margin = PV excluding tax – Purchase cost
Gross profit margin = €80 – €48
Gross profit margin = €32
The gross profit margin per dress is €32. -
The margin rate is determined by the formula:
Margin rate = ((PV excluding tax – PA excluding tax) ÷ PA excluding tax) x 100
Margin rate = ((€80 – €48) ÷ €48) x 100
Margin rate = (€32 ÷ €48) x 100
Margin rate = 66,67%
The margin rate is 66,67%. -
For the mark rate, we use:
Brand rate = ((PV excluding tax – PA excluding tax) ÷ PV excluding tax) x 100
Brand rate = ((€80 – €48) ÷ €80) x 100
Markup rate = (€32 ÷ €80) x 100
Brand rate = 40%
The markup rate is 40%.
-
The available margins allow Clara to allocate resources to targeted marketing campaigns to attract more customers and increase sales while maintaining profitability.
-
To increase profitability, Clara could consider diversifying her offering, organizing promotional events to attract customers or optimizing her supply to reduce costs and increase margins.
Formulas Used:
| Title | Formulas |
|---|---|
| Gross profit margin | Gross profit margin = PV HT – PA HT |
| Margin rate | Margin rate = ((PV excluding tax – PA excluding tax) ÷ PA excluding tax) x 100 |
| Brand taxes | Brand rate = ((PV excluding tax – PA excluding tax) ÷ PV excluding tax) x 100 |
Application: BioSanté
States :
BioSanté is a company that manufactures natural food supplements. Marc, the sales manager, would like to know the profitability of one of their flagship products sold for €120 including tax. The production cost is €60 excluding tax, and the applicable VAT is 5,5%. This information is essential for considering a range extension.
Work to do :
- Calculate the sales price excluding tax (SRP HT) of the food supplement.
- Determine the gross profit margin per unit sold.
- Set the margin rate for this product.
- Calculate the markup rate of the complement.
- Suggest ways to increase margin without affecting customer loyalty.
Proposed correction:
-
The sales price excluding tax (PV HT) is:
PV HT = PV TTC ÷ (1 + VAT rate)
PV HT = 120 € ÷ (1 + 0,055)
PV HT = €120 ÷ 1,055
PV excluding VAT = €113,74
The selling price excluding VAT is €113,74. -
The gross profit margin is:
Gross profit margin = PV excluding tax – Production cost
Gross profit margin = €113,74 – €60
Gross profit margin = €53,74
The gross profit margin per unit is €53,74. -
The margin rate is determined as follows:
Margin rate = ((PV excluding tax – PA excluding tax) ÷ PA excluding tax) x 100
Margin rate = ((€113,74 – €60) ÷ €60) x 100
Margin rate = (€53,74 ÷ €60) x 100
Margin rate = 89,57%
The margin rate is 89,57%.
-
The markup rate is calculated as follows:
Brand rate = ((PV excluding tax – PA excluding tax) ÷ PV excluding tax) x 100
Brand rate = ((€113,74 – €60) ÷ €113,74) x 100
Markup rate = (€53,74 ÷ €113,74) x 100
Brand rate = 47,24%
The markup rate is 47,24%. -
To increase margin, BioSanté could explore sourcing raw materials at lower cost or improving production efficiency. Maintaining product quality is crucial to preserve customer loyalty.
Formulas Used:
| Title | Formulas |
|---|---|
| Sale price excl. VAT | PV HT = PV TTC ÷ (1 + VAT rate) |
| Gross profit margin | Gross profit margin = PV HT – PA HT |
| Margin rate | Margin rate = ((PV excluding tax – PA excluding tax) ÷ PA excluding tax) x 100 |
| Brand taxes | Brand rate = ((PV excluding tax – PA excluding tax) ÷ PV excluding tax) x 100 |
Application: Greentech Innovations
States :
Greentech Innovations, which specializes in eco-friendly alternators for the automotive industry, has a specific model selling for €500 excluding VAT with a production cost of €350. The management wants to optimize its pricing strategies and assess its profitability to develop its market.
Work to do :
- Determine the gross profit margin per alternator sold.
- Calculate the margin rate for this alternator.
- Calculate the mark rate for the alternator.
- Discuss the financial implications of these margins on Greentech Innovations' development strategies.
- Offer solutions to increase margins without compromising innovation.
Proposed correction:
-
Gross profit margin is calculated as follows:
Gross profit margin = PV excluding tax – Production cost
Gross profit margin = €500 – €350
Gross profit margin = €150
The gross profit margin per alternator is €150. -
The margin rate is calculated with the following formula:
Margin rate = ((PV excluding tax – PA excluding tax) ÷ PA excluding tax) x 100
Margin rate = ((€500 – €350) ÷ €350) x 100
Margin rate = (€150 ÷ €350) x 100
Margin rate = 42,86%
The margin rate is 42,86%. -
The markup rate is calculated as follows:
Brand rate = ((PV excluding tax – PA excluding tax) ÷ PV excluding tax) x 100
Brand rate = ((€500 – €350) ÷ €500) x 100
Markup rate = (€150 ÷ €500) x 100
Brand rate = 30%
The markup rate is 30%.
-
These margins allow Greentech to have some financial flexibility to invest in R&D and the expansion of their ecological product lines. Stable margins are excellent levers for raising funds or seeking partnerships.
-
Greentech could streamline its logistics processes, strengthen strategic partnerships with suppliers or customers, or explore niche segments that could potentially justify higher prices and margins.
Formulas Used:
| Title | Formulas |
|---|---|
| Gross profit margin | Gross profit margin = PV HT – PA HT |
| Margin rate | Margin rate = ((PV excluding tax – PA excluding tax) ÷ PA excluding tax) x 100 |
| Brand taxes | Brand rate = ((PV excluding tax – PA excluding tax) ÷ PV excluding tax) x 100 |
Application: Ludicool
States :
Ludicool, a revolutionary start-up in the educational toys sector, is marketing an educational game for €45 including VAT. The production cost is €22. The applicable VAT rate is 5,5%. In order to position the product wisely on the market, they want to analyze its profit margins.
Work to do :
- Calculate the sales price excluding tax (PV HT) of the educational game.
- Determine the gross profit margin per unit sold.
- Establish the margin rate of the educational game.
- Analyze the mark rate for the game.
- Explore prospects for margin improvement and upscaling.
Proposed correction:
-
The sales price excluding tax (PV HT) is calculated on the following basis:
PV HT = PV TTC ÷ (1 + VAT rate)
PV HT = 45 € ÷ (1 + 0,055)
PV HT = €45 ÷ 1,055
PV excluding VAT = €42,65
The selling price excluding VAT is €42,65. -
The gross profit margin is obtained as follows:
Gross profit margin = PV excluding tax – Production cost
Gross profit margin = €42,65 – €22
Gross profit margin = €20,65
The gross profit margin per game sold is €20,65. -
The margin rate is determined by the following formula:
Margin rate = ((PV excluding tax – PA excluding tax) ÷ PA excluding tax) x 100
Margin rate = ((€42,65 – €22) ÷ €22) x 100
Margin rate = (€20,65 ÷ €22) x 100
Margin rate = 93,86%
The margin rate is 93,86%.
-
For the educational game mark rate, we proceed as follows:
Brand rate = ((PV excluding tax – PA excluding tax) ÷ PV excluding tax) x 100
Brand rate = ((€42,65 – €22) ÷ €42,65) x 100
Markup rate = (€20,65 ÷ €42,65) x 100
Brand rate = 48,42%
The markup rate is 48,42%. -
Ludicool could exploit innovation to justify price increases, while analyzing the reduction of production costs through alternative raw materials or optimized processes to maximize margins.
Formulas Used:
| Title | Formulas |
|---|---|
| Sale price excl. VAT | PV HT = PV TTC ÷ (1 + VAT rate) |
| Gross profit margin | Gross profit margin = PV HT – PA HT |
| Margin rate | Margin rate = ((PV excluding tax – PA excluding tax) ÷ PA excluding tax) x 100 |
| Brand taxes | Brand rate = ((PV excluding tax – PA excluding tax) ÷ PV excluding tax) x 100 |
Application: PureEden
States :
PureEden, a company producing organic cosmetics, is making significant sales thanks to its flagship day cream sold for €75 excluding VAT with a production cost of €45. In a competitive environment, the company wants to evaluate its margins to ensure it remains competitive.
Work to do :
- Determine the gross profit margin per pot of cream sold.
- Calculate the margin rate of the day cream.
- Analyze the brand rate associated with this product.
- Discuss the strategic implications of these margins in pricing.
- Suggest ways for PureEden to improve its profitability while maintaining organic ethics.
Proposed correction:
-
Gross profit margin is calculated as follows:
Gross profit margin = PV excluding tax – Production cost
Gross profit margin = €75 – €45
Gross profit margin = €30
The gross profit margin per pot of cream is €30. -
The margin rate is obtained using the following formula:
Margin rate = ((PV excluding tax – PA excluding tax) ÷ PA excluding tax) x 100
Margin rate = ((€75 – €45) ÷ €45) x 100
Margin rate = (€30 ÷ €45) x 100
Margin rate = 66,67%
The margin rate is 66,67%. -
The mark rate is given by:
Brand rate = ((PV excluding tax – PA excluding tax) ÷ PV excluding tax) x 100
Brand rate = ((€75 – €45) ÷ €75) x 100
Markup rate = (€30 ÷ €75) x 100
Brand rate = 40%
The markup rate is 40%.
-
PureEden benefits from a comfortable margin that allows it to adjust its prices according to the market. Margins support investments in product promotion and differentiation to maintain organic appeal while optimizing costs.
-
PureEden could explore expanding its range of sustainable ingredients, leveraging economies of scale or long-term beneficial partnerships to remain profitable while maintaining its ecological commitment.
Formulas Used:
| Title | Formulas |
|---|---|
| Gross profit margin | Gross profit margin = PV HT – PA HT |
| Margin rate | Margin rate = ((PV excluding tax – PA excluding tax) ÷ PA excluding tax) x 100 |
| Brand taxes | Brand rate = ((PV excluding tax – PA excluding tax) ÷ PV excluding tax) x 100 |
Application: SnapFit
States :
SnapFit is a company specializing in personalized fitness equipment and offers its adjustable dumbbells at a price of €120 including VAT. The manufacturing cost of a set of dumbbells is €70. The applicable VAT rate is 20%.
Work to do :
- Calculate the sales price excluding tax (SRP excluding tax) of adjustable dumbbells.
- Determine the gross profit margin per set sold.
- Establish the dumbbell margin rate.
- Calculate the markup rate.
- Consider the factors that may influence SnapFit's choice to improve its profit margin while keeping up with market trends.
Proposed correction:
-
The sales price excluding tax (PV HT) is calculated as follows:
PV HT = PV TTC ÷ (1 + VAT rate)
PV HT = 120 € ÷ (1 + 0,20)
PV HT = €120 ÷ 1,20
PV excluding VAT = €100
The selling price excluding VAT is €100. -
The gross profit margin per unit is obtained by:
Gross profit margin = PV excluding tax – Manufacturing cost
Gross profit margin = €100 – €70
Gross profit margin = €30
The gross profit margin per set sold is €30. -
The margin rate is given by the formula:
Margin rate = ((PV excluding tax – PA excluding tax) ÷ PA excluding tax) x 100
Margin rate = ((€100 – €70) ÷ €70) x 100
Margin rate = (€30 ÷ €70) x 100
Margin rate = 42,86%
The margin rate is 42,86%.
-
The markup rate is determined by:
Brand rate = ((PV excluding tax – PA excluding tax) ÷ PV excluding tax) x 100
Brand rate = ((€100 – €70) ÷ €100) x 100
Markup rate = (€30 ÷ €100) x 100
Brand rate = 30%
The markup rate is 30%. -
SnapFit could implement strategies such as product diversification, using innovative materials or developing a lean manufacturing approach to improve margins while remaining aligned with current customer preferences and trends.
Formulas Used:
| Title | Formulas |
|---|---|
| Sale price excl. VAT | PV HT = PV TTC ÷ (1 + VAT rate) |
| Gross profit margin | Gross profit margin = PV HT – PA HT |
| Margin rate | Margin rate = ((PV excluding tax – PA excluding tax) ÷ PA excluding tax) x 100 |
| Brand taxes | Brand rate = ((PV excluding tax – PA excluding tax) ÷ PV excluding tax) x 100 |