How to calculate margin on a product | 9 Exercises

Application: Elegance Shoes

States :

The company "Chaussures Élégance", specializing in the sale of luxury shoes, wants to analyze the profitability of a new model of ankle boots. The purchase price excluding tax of a pair is €150 and it is sold at €250 excluding tax. You are responsible for evaluating the margin and key indicators of this product.

Work to do :

1. Calculate the unit margin excluding tax achieved per pair sold.
2. Determine the margin rate for this model of boots.
3. What would be the selling price excluding tax required to achieve a margin rate of 30%?
4. Analyze the impact on the margin if the purchase price increased by €10.
5. What advice would you give to increase the profitability of this product?

Proposed correction:

1. Unit margin excluding tax:
   To calculate the unit margin excluding VAT, use the formula: Unit margin excluding VAT = PV excluding VAT – PA excluding VAT.

   By replacing, we get €250 – €150 = €100.

   The unit margin excluding tax made per pair sold is €100.

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

   Substituting, ((250 – 150) ÷ 150) x 100 = 66,67%.

   The margin rate of the ankle boot model is 66,67%.

3. Selling price excluding tax for a margin rate of 30%:

To obtain a margin rate of 30%, use the formula: PV HT = PA HT x (1 + Margin rate).

By replacing, €150 x (1 + 0,30) = €195.

The selling price excluding tax required to achieve a margin rate of 30% is €195.

4. Impact of the €10 purchase price increase:
   If the purchase price increases by €10, the new purchase price is €160. The unit margin becomes: €250 – €160 = €90.

   The increase in the purchase price reduces the unit margin excluding tax to €90.

5. Tip to increase profitability:
   To improve profitability, you might consider increasing the selling price, reducing purchasing costs by negotiating with suppliers, or improving operational efficiency to reduce indirect costs.

Formulas Used:

Title	Formulas
Unit margin excluding tax	PV HT – PA HT
Margin rate	((PV HT – PA HT) ÷ PA HT) x 100
PV HT required (margin rate)	PA HT x (1 + Margin rate)

Application: Tech Savvy

States :

Tech Savvy, an innovative tech gadget startup, has launched a new wireless charging case. The purchase cost of each unit is €35 and the retail price is set at €59 excluding VAT. The company wants to evaluate its sales performance and pricing strategy.

Work to do :

1. Calculate the periodic margin excluding tax generated by the sale of 1 units.
2. What is the current markup rate for this product?
3. If the company wants a 50% margin rate, what should the new selling price be?
4. Evaluate the effect of a €5 drop in the selling price on the unit margin.
5. What strategy would you recommend to be more competitive in the market?

Proposed correction:

1. Overall margin per 1 units sold:
   Use the formula: Overall Margin = Unit Margin x Quantity Sold.

   Replacing, (€59 – €35) x 1 = €000.

   The periodic margin excluding tax for 1 units is €000.

2. Current markup rate:
   The markup rate is calculated using the formula: Markup rate = ((PV HT – PA HT) ÷ PV HT) x 100.

   Replacing, ((€59 – €35) ÷ €59) x 100 = 40,68%.

   The current markup rate is 40,68%.

3. New selling price for a margin rate of 50%:

Use the formula: PV HT = PA HT x (1 + Margin rate).

By replacing, €35 x (1 + 0,50) = €52,5.

The new selling price should be €52,5 for a margin rate of 50%.

4. Effect of a €5 drop in the selling price on the margin:
   New sale price = €59 – €5 = €54.

   New unit margin = €54 – €35 = €19.

   The price drop reduces the unit margin excluding tax to €19.

5. Strategy for competitiveness:
   To be competitive, follow a policy of differentiation by adding unique features, offering quality after-sales services or optimizing your promotion to increase your brand awareness.

Formulas Used:

Title	Formulas
Overall margin	Unit margin x quantity sold
Brand taxes	((PV HT – PA HT) ÷ PV HT) x 100
PV HT required (margin rate)	PA HT x (1 + Margin rate)

Application: Gourmet Artist

States :

Artiste Gourmand, an artisanal pastry shop famous for its custom birthday cakes, wants to calculate the profitability of its new chocolate cake. The cost of making a cake is €12 excluding VAT, while its advertised sale price is €30 excluding VAT.

Work to do :

1. Calculate the unit margin excluding tax for each cake sold.
2. What is the markup rate offered for this cake?
3. If the cost of ingredients increases by 15%, how will this affect the unit margin?
4. What is the minimum selling price excluding tax to guarantee a margin of €20 per cake?
5. Suggest a suggestion to increase margins without touching the selling price.

Proposed correction:

1. Unit margin excluding tax:
   Use the formula: Unit margin excluding tax = PV excluding tax – PA excluding tax.

   As a replacement, €30 – €12 = €18.

   The unit margin excluding tax per cake is €18.

2. Mark rate:
   Use the formula: Mark rate = ((PV HT – PA HT) ÷ PV HT) x 100.

   Replacing, ((€30 – €12) ÷ €30) x 100 = 60%.

   The markup rate for this cake is 60%.

3. Effect of a 15% increase in cost:

New manufacturing cost = €12 x 1,15 = €13,8.

New unit margin = €30 – €13,8 = €16,2.

The increase in costs reduces the unit margin to €16,2.

4. Selling price to ensure a margin of €20:
   Use the formula: PV HT = PA HT + Desired margin.

   By replacing, €12 + €20 = €32.

   The minimum selling price for a margin of €20 is €32 excluding VAT.

5. Suggestion to increase margins:
   Optimize your purchases by negotiating better rates with suppliers or buying in bulk to reduce the cost of ingredients.

Formulas Used:

Title	Formulas
Unit margin excluding tax	PV HT – PA HT
Brand taxes	((PV HT – PA HT) ÷ PV HT) x 100
PV HT for desired margin	PA HT + Desired margin

Application: Flowering Gardens

States :

Jardins en Fleurs is a renowned nursery that has taken the initiative to launch a new range of hybrid roses. The unit cost of producing a rose plant is €8, while the sale price is set at €19 excluding VAT. The company is curious to know the margins of this new line.

Work to do :

1. Calculate the unit margin excluding tax per rose plant sold.
2. What is the margin rate for this product line?
3. Determine the selling price excluding tax required to achieve a markup rate of 50%.
4. Imagine that the production cost decreases by €2, what will the new unit margin be?
5. Consider a strategy to increase revenue without changing the selling price.

Proposed correction:

1. Unit margin excluding tax:
   For this calculation, use: Unit margin excluding tax = PV excluding tax – PA excluding tax.

   As a replacement, €19 – €8 = €11.

   The unit margin excluding tax per rose plant sold is €11.

2. Margin rate:
   Use: Margin rate = ((PV HT – PA HT) ÷ PA HT) x 100.

   Replacing, ((€19 – €8) ÷ €8) x 100 = 137,5%.

   The margin rate for this range of roses is 137,5%.

3. PV HT for a markup rate of 50%:

Use: PV HT = PA HT ÷ (1 – Mark rate).

Substituting, €8 ÷ (1 – 0,50) = €16.

The sales price required for a 50% markup rate is €16 excluding VAT.

4. New margin with a reduction of 2 € in cost:
   New cost = €8 – €2 = €6.

   New unit margin = €19 – €6 = €13.

   With the drop in costs, the new unit margin is €13.

5. Strategy to increase turnover:
   Increase turnover by diversifying the offer with complementary accessories and packaged promotions or by improving visibility via local marketing campaigns.

Formulas Used:

Title	Formulas
Unit margin excluding tax	PV HT – PA HT
Margin rate	((PV HT – PA HT) ÷ PA HT) x 100
PV HT (brand rate)	PA HT ÷ (1 – Mark rate)

Application: Handcrafted Lighting

States :

Luminaire Artisanal, a small company that creates lamps from recycled materials, has launched its new collection. The unit cost of manufacturing a lamp is €22, and the fixed selling price is €50 excluding VAT. In order to maximize their profit, the company wants to know where their margins are.

Work to do :

1. Calculate the unit margin excluding tax for a lamp sold.
2. What is the markup rate of this collection of lamps?
3. What selling price would be necessary to guarantee a unit margin of €40?
4. Estimate the impact on unit margin of a 10% reduction in selling price.
5. What strategic recommendations would you propose to improve margins beyond prices?

Proposed correction:

1. Unit margin excluding tax:
   Use the formula: Unit margin excluding tax = PV excluding tax – PA excluding tax.

   As a replacement, €50 – €22 = €28.

   The unit margin excluding tax per lamp sold is €28.

2. Mark rate:
   Use the formula: Mark rate = ((PV HT – PA HT) ÷ PV HT) x 100.

   Replacing, ((€50 – €22) ÷ €50) x 100 = 56%.

   The markup rate of this collection is 56%.

3. Selling price for a margin of €40:

Use the formula: PV HT = PA HT + Desired margin.

By replacing, €22 + €40 = €62.

The selling price required for a unit margin of €40 is €62 excluding VAT.

4. Impact of a 10% price reduction on the margin:
   New sale price = €50 x (1 – 0,10) = €45.

   New unit margin = €45 – €22 = €23.

   The price reduction reduces the unit margin to €23.

5. Strategic recommendations:
   Improve margins by increasing awareness of the collection through storytelling about the origin of materials or by looking for methods to reduce manufacturing costs.

Formulas Used:

Title	Formulas
Unit margin excluding tax	PV HT – PA HT
Brand taxes	((PV HT – PA HT) ÷ PV HT) x 100
PV HT for desired margin	PA HT + Desired margin

Application: Digital Editorial

States :

Éditorial Numérique, a publishing house specializing in e-books, has recently adjusted its prices. For the latest published work, the production cost is €7 while the sale price is €15 excluding VAT. The aim is to analyze competitiveness compared to competitors.

Work to do :

1. Calculate the unit margin excluding tax for each copy sold.
2. What is the margin rate of the digital book?
3. If costs increase to €9, what selling price would ensure a margin of €8?
4. What would be the new markup rate if the selling price drops by €2?
5. What strategy could I suggest to retain customers without reducing margin?

Proposed correction:

1. Unit margin excluding tax:
   Use the formula: Unit margin excluding tax = PV excluding tax – PA excluding tax.

   As a replacement, €15 – €7 = €8.

   The unit margin excluding tax per copy sold is €8.

2. Margin rate:
   Use the formula: Margin rate = ((PV HT – PA HT) ÷ PA HT) x 100.

   Replacing, ((€15 – €7) ÷ €7) x 100 = 114,29%.

   The margin rate for digital books is 114,29%.

3. Selling price for a margin of €8:

New cost = €9.

PV excluding tax required = €9 + €8 = €17.

To ensure a margin of €8, the selling price must be €17.

4. New mark rate with a €2 price reduction:
   New sale price = €15 – €2 = €13.

   New markup rate = ((€13 – €7) ÷ €13) x 100 = 46,15%.

   The new mark rate is 46,15%.

5. Strategy for customer loyalty:
   Introduce a loyalty program, offering discounts on future purchases or exclusive access to books to increase customer engagement without affecting margin.

Formulas Used:

Title	Formulas
Unit margin excluding tax	PV HT – PA HT
Margin rate	((PV HT – PA HT) ÷ PA HT) x 100
PV HT with desired margin	PA HT + Desired margin
Brand taxes	((PV HT – PA HT) ÷ PV HT) x 100

Application: Pure Melodies

States :

Pure Melodies is a company specializing in the sale of musical vinyls. For the special edition of a vinyl, the purchase cost is €10 and the sale price excluding VAT is €25. Evaluating the pricing structure is crucial for the company's marketing strategy.

Work to do :

1. Determine the unit margin excluding tax generated for each vinyl sold.
2. Calculate the margin rate for this copy.
3. What would be the required selling price excluding tax to achieve a markup rate of 40%?
4. How would it affect the margin if the purchase price increased by 20%?
5. Suggest a tactic to capture a new market segment without changing pricing.

Proposed correction:

1. Unit margin excluding tax:
   Use: Unit margin excluding tax = PV excluding tax – PA excluding tax.

   As a replacement, €25 – €10 = €15.

   The unit margin excluding tax per vinyl sold is €15.

2. Margin rate:
   Use: Margin rate = ((PV HT – PA HT) ÷ PA HT) x 100.

   Replacing, ((€25 – €10) ÷ €10) x 100 = 150%.

   The margin rate for this copy is 150%.

3. Selling price for a 40% markup rate:

Use: PV HT = PA HT ÷ (1 – Mark rate).

Substituting, €10 ÷ (1 – 0,40) = €16,67.

The required selling price excluding tax for a markup rate of 40% is €16,67.

4. Impact of a 20% increase in cost:
   New purchase cost = €10 x €1,20 = €12.

   New unit margin becomes: €25 – €12 = €13.

   The increase in cost reduces the unit margin to €13.

5. Tactics for a new market:
   Partner with emerging artists for exclusive editions or customize vinyls for certain musical genres to attract new customers.

Formulas Used:

Title	Formulas
Unit margin excluding tax	PV HT – PA HT
Margin rate	((PV HT – PA HT) ÷ PA HT) x 100
PV HT for brand rate	PA HT ÷ (1 – Mark rate)

Application: BioBelle

States :

BioBelle, a chain of organic stores, plans to market a new range of fruit juices. The unit cost of a liter is €2,50 and the selling price is set at €5 excluding VAT. The objective is to determine margins and study the possibilities of price readjustment.

Work to do :

1. Calculate the unit margin excluding tax per liter of juice sold.
2. What is the markup rate of this product?
3. What selling price would be necessary to ensure a unit margin of €3,50?
4. Analyze the impact on the margin if the cost of juice increases by €0,50.
5. Recommend an initiative to promote this range and increase sales.

Proposed correction:

1. Unit margin excluding tax:
   Use: Unit margin excluding VAT = PV excluding VAT – PA excluding VAT.

   As a replacement, €5 – €2,50 = €2,50.

   The unit margin excluding tax per litre of juice sold is €2,50.

2. Mark rate:
   Use: Mark rate = ((PV HT – PA HT) ÷ PV HT) x 100.

   Replacing, ((€5 – €2,50) ÷ €5) x 100 = 50%.

   The markup rate is 50%.

3. Selling price for a unit margin of €3,50:

Use: PV HT = PA HT + Desired margin.

By replacing, €2,50 + €3,50 = €6.

The selling price required for a margin of €3,50 is €6 excluding VAT.

4. Impact of a cost increase of €0,50:
   New cost = €2,50 + €0,50 = €3.

   New unit margin = €5 – €3 = €2.

   The increase in cost reduces the unit margin to €2.

5. Initiative to promote the range:
   Create branding focused on the naturalness and local origin of fruits, engaging influencers to promote and create in-store experiences.

Formulas Used:

Title	Formulas
Unit margin excluding tax	PV HT – PA HT
Brand taxes	((PV HT – PA HT) ÷ PV HT) x 100
PV HT for desired margin	PA HT + Desired margin

Application: Old-fashioned Care

States :

Soins d'Antan, a natural beauty products store, wants to launch an organic moisturizer. The manufacturing cost is €5 per unit and the selling price excluding VAT has been set at €12. Evaluating margins and discussing possible adjustments is essential.

Work to do :

1. Calculate the unit margin excluding tax for each pot of cream sold.
2. What is the margin rate of this moisturizer?
3. Determine the selling price required for a 150% margin rate.
4. What would be the new markup rate if the selling price is reduced to €10?
5. Suggest an approach to reduce costs without compromising quality.

Proposed correction:

1. Unit margin excluding tax:
   Use: Unit margin excluding tax = PV excluding tax – PA excluding tax.

   As a replacement, €12 – €5 = €7.

   The unit margin excluding tax for each pot sold is €7.

2. Margin rate:
   Use: Margin rate = ((PV HT – PA HT) ÷ PA HT) x 100.

   Replacing, ((€12 – €5) ÷ €5) x 100 = 140%.

   The margin rate of the moisturizer is 140%.

3. Selling price for a margin rate of 150%:

Use: PV HT = PA HT x (1 + Margin rate).

By replacing, €5 x (1 + 1,50) = €12,50.

The selling price required for a 150% margin rate is €12,50.

4. New brand rate with a price of €10:
   New markup rate = ((€10 – €5) ÷ €10) x 100 = 50%.

   The new markup rate would be 50%.

5. Approach to reducing costs:
   Explore sourcing from local producers to reduce transportation costs or implementing more resource-efficient production methods without changing the formula.

Formulas Used:

Title	Formulas
Unit margin excluding tax	PV HT – PA HT
Margin rate	((PV HT – PA HT) ÷ PA HT) x 100
PV HT (margin rate)	PA HT x (1 + Margin rate)
Brand taxes	((PV HT – PA HT) ÷ PV HT) x 100