How to calculate your self-employed margin | 9 Exercises

Application: The Delights of Mary

States :

Marie is a self-employed woman who sells artisanal jams at local markets. She wants to optimize her margins to better plan her future investments. Here are some recent financial data: the purchase price of raw materials is €2,50 per jar, and the sales price excluding tax (HT) is €5. She sells an average of 1 jars per month.

Work to do :

1. Calculate the unit margin that Marie makes on each jar of jam sold.
2. Determine the overall monthly margin that Marie generates from the sale of her jams.
3. What is Marie's margin rate on her jams?
4. Calculate the markup rate applied to jams.
5. Analyze the impact on the markup rate if Marie decided to increase her selling price excluding tax to €6.

Proposed correction:

1. The unit margin is the difference between the sales price excluding tax and the purchase price of the raw materials:

   Unit margin = PV HT – PA HT = €5 – €2,50 = €2,50

   So, Marie earns €2,50 per jar of jam sold.

2. The monthly overall margin is calculated by multiplying the unit margin by the quantity sold:

   Overall margin = Unit margin x Quantity sold = €2,50 x 1 = €000

   Marie therefore generates a monthly margin of €2 from her sales.

3. The margin rate is given by the formula:

Margin rate = ((PV HT – PA HT) ÷ PA HT) x 100 = ((5 € – 2,50 €) ÷ 2,50 €) x 100 = 100%

Marie's margin rate is 100%, indicating that she doubles her initial investment on each pot sold.

4. The markup rate is calculated as follows:

   Markup rate = ((PV HT – PA HT) ÷ PV HT) x 100 = ((5 € – 2,50 €) ÷ 5 €) x 100 = 50%

   The markup rate applied to jams is 50%.

5. If Marie increases her selling price to €6, the new markup rate will be:

   Brand rate = ((€6 – €2,50) ÷ €6) x 100 = 58,33%

   By increasing the selling price to €6, the markup rate would increase to 58,33%, which would improve its profitability.

Formulas Used:

Title	Formulas
Unit margin	PV HT – PA HT
Overall margin	Unit margin x Quantity sold
Margin rate	((PV HT – PA HT) ÷ PA HT) x 100
Brand taxes	((PV HT – PA HT) ÷ PV HT) x 100

Application: Unpublished Sciences

States :

Marc, a science enthusiast, created “Sciences Inédites”, an online sales company for experiment kits for children. Each kit costs him €20 to make and he sells them for €45 excluding tax. Marc is looking to better understand his margin to prepare a marketing campaign. He sells around 200 kits per month.

Work to do :

1. Calculate Marc's unit margin for each kit sold.
2. What is the overall margin achieved by “Sciences Inédites” in one month?
3. Determine the margin rate of the experiment kits.
4. What would the markup rate be if Marc decided to lower his selling price excluding tax to €40?
5. Consider the strategic implications of a price cut on Marc's margins.

Proposed correction:

1. The unit margin is calculated by subtracting the selling price from the purchase price:

   Unit margin = PV HT – PA HT = €45 – €20 = €25

   Marc makes a margin of €25 on each kit sold.

2. The monthly overall margin is given by:

   Overall margin = Unit margin x Quantity sold = €25 x 200 = €5

   Marc generates an overall margin of €5 per month.

3. The margin rate is calculated as follows:

Margin rate = ((PV HT – PA HT) ÷ PA HT) x 100 = ((45 € – 20 €) ÷ 20 €) x 100 = 125%

Marc's margin rate is 125%, which shows excellent profitability on each product.

4. With a sale price of €40, the markup rate would be:

   Brand rate = ((€40 – €20) ÷ €40) x 100 = 50%

   The markup rate would drop to 50% if Marc reduced his selling price to €40.

5. By lowering the selling price, Mark could attract more customers, but it would also reduce his margin per product. So he would have to weigh the potential benefits of increased demand against the lower margin per unit.

Formulas Used:

Title	Formulas
Unit margin	PV HT – PA HT
Overall margin	Unit margin x Quantity sold
Margin rate	((PV HT – PA HT) ÷ PA HT) x 100
Brand taxes	((PV HT – PA HT) ÷ PV HT) x 100

Application: Fit & Boost

States :

Anna, a dynamic self-employed woman, launched “Fit & Boost”, an online coaching platform. She charges €60 excluding VAT per coaching session, with a cost price per session of €15. She organises around 150 sessions per month. She wants to analyse her financial data to optimise her profits.

Work to do :

1. Calculate Anna's unit margin for each coaching session.
2. What is the overall monthly margin it achieves?
3. Determine the current margin rate for his coaching sessions.
4. If Anna decided to lower her price to €50 excluding VAT to attract new customers, what would the markup rate be?
5. Discuss the strategic implications of this pricing change for its business model.

Proposed correction:

1. The unit margin is calculated by subtracting the cost price from the selling price:

   Unit margin = PV HT – PA HT = €60 – €15 = €45

   Anna makes a margin of €45 per session.

2. The overall margin per month is obtained by multiplying the unit margin by the number of sessions:

   Overall margin = Unit margin x Quantity sold = €45 x 150 = €6

   Anna achieves an overall margin of €6 per month.

3. The margin rate is calculated as follows:

Margin rate = ((PV HT – PA HT) ÷ PA HT) x 100 = ((60 € – 15 €) ÷ 15 €) x 100 = 300%

Anna's profit margin is 300%, which is extremely lucrative.

4. If she reduces the tariff to €50, the markup rate becomes:

   Brand rate = ((€50 – €15) ÷ €50) x 100 = 70%

   The markup rate would be 70% with the new tariff.

5. By lowering the price, Anna would be making a trade-off between increasing her potential customer base and reducing her unit margin. This could potentially increase her overall revenue, but she must be careful about cost management.

Formulas Used:

Title	Formulas
Unit margin	PV HT – PA HT
Overall margin	Unit margin x Quantity sold
Margin rate	((PV HT – PA HT) ÷ PA HT) x 100
Brand taxes	((PV HT – PA HT) ÷ PV HT) x 100

Application: Eco-Mode

States :

Claire created “Eco-Mode”, an environmentally friendly clothing line. She sells her organic cotton t-shirts for €35 excluding VAT, and they cost her €12 to produce. Claire wants to understand the impact of different pricing strategies on her margins as she sells 500 t-shirts per month.

Work to do :

1. Calculate Claire's unit margin for each t-shirt sold.
2. What is the overall monthly margin that Eco-Mode generates?
3. Determine the margin rate for t-shirts.
4. If Claire reduces the sale price to €30 excluding VAT, what will the new markup rate be?
5. Discuss how this price drop might impact customers' perception of the value of its products.

Proposed correction:

1. Unit margin:

   Unit margin = PV HT – PA HT = €35 – €12 = €23

   Claire makes a margin of €23 on each t-shirt sold.

2. Monthly overall margin:

   Overall margin = Unit margin x Quantity sold = €23 x 500 = €11

   The overall margin per month is €11.

3. Margin rate:

Margin rate = ((PV HT – PA HT) ÷ PA HT) x 100 = ((35 € – 12 €) ÷ 12 €) x 100 = 191,67%

Claire's margin rate is 191,67%.

4. New brand rate with a sale price of €30:

   Brand rate = ((€30 – €12) ÷ €30) x 100 = 60%

   The markup rate would be 60% after the price cut.

5. A price reduction could attract more consumers, however it could also negatively influence the perception of product quality, as lower prices are often perceived as synonymous with lower quality in the fashion industry.

Formulas Used:

Title	Formulas
Unit margin	PV HT – PA HT
Overall margin	Unit margin x Quantity sold
Margin rate	((PV HT – PA HT) ÷ PA HT) x 100
Brand taxes	((PV HT – PA HT) ÷ PV HT) x 100

Application: Flavors from Elsewhere

States :

Guillaume runs “Saveurs d'Ailleurs”, a company exporting fine pastries across Europe. Each box of pastries costs him €8 to make and he sells them for €20 excluding VAT. They ship 300 boxes per month. Guillaume wants to optimise his margins while exploring new markets.

Work to do :

1. Calculate the unit margin for each box of pastries.
2. What is the overall margin achieved in one month by “Saveurs d'Ailleurs”?
3. Calculate the margin rate for fine pastries.
4. What would be the impact on the markup rate if Guillaume increased his price to €25 excluding VAT?
5. What could be the strategic impact of pushing the price to €25 excluding VAT compared to competing markets?

Proposed correction:

1. Unit margin:

   Unit margin = PV HT – PA HT = €20 – €8 = €12

   The unit margin made on each box of pastries is €12.

2. Monthly overall margin:

   Overall margin = Unit margin x Quantity sold = €12 x 300 = €3

   Thus, Guillaume generates an overall margin of €3 per month.

3. Margin rate:

Margin rate = ((PV HT – PA HT) ÷ PA HT) x 100 = ((20 € – 8 €) ÷ 8 €) x 100 = 150%

The margin rate on pastry sales is 150%.

4. With a sale price of €25, the markup rate would be:

   Brand rate = ((€25 – €8) ÷ €25) x 100 = 68%

   By increasing its price to €25, the markup rate would reach 68%.

5. By increasing prices, Guillaume could position himself in a premium range, but this requires a marketing approach focused on added value. He must ensure that the target customers perceive this increase as justified by the quality and uniqueness of his products.

Formulas Used:

Title	Formulas
Unit margin	PV HT – PA HT
Overall margin	Unit margin x Quantity sold
Margin rate	((PV HT – PA HT) ÷ PA HT) x 100
Brand taxes	((PV HT – PA HT) ÷ PV HT) x 100

Application: Tech Innovate

States :

Melanie, manager of "Tech Innovate", a company of cutting-edge electronic gadgets, sells devices at €150 excluding VAT each. The production cost of these gadgets is €85. Monthly sales amount to 400 units. Melanie wants to analyze her margins to consider improvements to the production and distribution lines.

Work to do :

1. Determine the unit margin for each device sold.
2. Calculate the monthly overall margin for “Tech Innovate”.
3. What is the current margin rate for gadgets?
4. If the sale price was increased to €160, what would be the new markup rate?
5. What are the strategic advantages and disadvantages of such a price increase in today's market?

Proposed correction:

1. Unit margin:

   Unit margin = PV HT – PA HT = €150 – €85 = €65

   Melanie gets a unit margin of €65 for each device sold.

2. Monthly overall margin:

   Overall margin = Unit margin x Quantity sold = €65 x 400 = €26

   “Tech Innovate” generates an overall margin of €26 per month.

3. Margin rate:

Margin rate = ((PV HT – PA HT) ÷ PA HT) x 100 = ((150 € – 85 €) ÷ 85 €) x 100 = 76,47%

The current margin rate on gadgets is 76,47%.

4. New brand rate with a sale price of €160:

   Brand rate = ((€160 – €85) ÷ €160) x 100 = 46,88%

   With the sale price at €160, the markup rate would be 46,88%.

5. The price increase may position the device in a more premium range and reflect greater perceived value, but it risks reducing demand if customers consider the increase unjustified relative to the benefits of the device.

Formulas Used:

Title	Formulas
Unit margin	PV HT – PA HT
Overall margin	Unit margin x Quantity sold
Margin rate	((PV HT – PA HT) ÷ PA HT) x 100
Brand taxes	((PV HT – PA HT) ÷ PV HT) x 100

Application: Nature & Health

States :

Thomas runs “Nature & Santé”, a company that sells organic food supplements. Each bottle of supplement costs him €10, and it is sold for €25 excluding VAT. Thomas sells around 700 bottles per month and is considering diversifying his offer. He wants to get a clear view of his current margins.

Work to do :

1. Calculate the unit margin on each bottle sold.
2. What is the overall margin achieved per month?
3. Determine the margin rate for these dietary supplements.
4. If Thomas increases his selling price to €30 excluding VAT, what will the markup rate be?
5. Describe the possible impacts on customer loyalty if supplement prices increase.

Proposed correction:

1. Unit margin:

   Unit margin = PV HT – PA HT = €25 – €10 = €15

   Thomas gets a margin of €15 per bottle.

2. Monthly overall margin:

   Overall margin = Unit margin x Quantity sold = €15 x 700 = €10

   The overall margin reaches €10 per month.

3. Margin rate:

Margin rate = ((PV HT – PA HT) ÷ PA HT) x 100 = ((25 € – 10 €) ÷ 10 €) x 100 = 150%

The margin rate applied is 150%.

4. New brand rate with a sale price of €30:

   Brand rate = ((€30 – €10) ÷ €30) x 100 = 66,67%

   With a sale price of €30, the markup rate would be 66,67%.

5. A price increase may reduce customer loyalty if customers do not see a corresponding increase in the perceived value or benefits of the add-ons, so Thomas needs to weigh the consequences carefully and perhaps consider parallel loyalty strategies.

Formulas Used:

Title	Formulas
Unit margin	PV HT – PA HT
Overall margin	Unit margin x Quantity sold
Margin rate	((PV HT – PA HT) ÷ PA HT) x 100
Brand taxes	((PV HT – PA HT) ÷ PV HT) x 100

Application: Art & Tradition

States :

Julie founded “Art & Tradition”, a company specializing in handcrafted objects. She sells each piece for €45 excluding VAT and her production cost is €18. On average, 250 pieces are sold each month. Julie wants to analyze her margins to adjust her pricing and production strategies.

Work to do :

1. Calculate the unit margin achieved by Julie.
2. What is the overall margin per month for “Art & Tradition”?
3. Calculate the margin rate of handicrafts.
4. If Julie increased the sale price to €50 excluding VAT, what would the new markup rate be?
5. Consider the potential benefits of maintaining the current price while others raise their prices.

Proposed correction:

1. Unit margin:

   Unit margin = PV HT – PA HT = €45 – €18 = €27

   Julie makes a margin of €27 per item sold.

2. Monthly overall margin:

   Overall margin = Unit margin x Quantity sold = €27 x 250 = €6

   The overall monthly margin is therefore €6.

3. Margin rate:

Margin rate = ((PV HT – PA HT) ÷ PA HT) x 100 = ((45 € – 18 €) ÷ 18 €) x 100 = 150%

The margin rate on sales is 150%.

4. With a sale price increased to €50, the markup rate would be:

   Brand rate = ((€50 – €18) ÷ €50) x 100 = 64%

   The mark rate would increase to 64%.

5. By maintaining its price, Julie could position itself more advantageously than a competitor raising its prices. This can translate into increased sales volume by attracting price-sensitive consumers.

Formulas Used:

Title	Formulas
Unit margin	PV HT – PA HT
Overall margin	Unit margin x Quantity sold
Margin rate	((PV HT – PA HT) ÷ PA HT) x 100
Brand taxes	((PV HT – PA HT) ÷ PV HT) x 100

App: Unplugged Retreats

States :

Antoine is the owner of “Unplugged Retreats”, a wellness and disconnection retreat center. Each package sold at €250 excluding tax costs him €90 to organize. He sells around 80 packages per month. He wants a better analysis of his margins to consider expanding his offer.

Work to do :

1. What is Antoine's unit margin on each package?
2. Calculate the overall monthly margin for “Unplugged Retreats”.
3. Determine the margin rate on package sales.
4. If Antoine lowers the price to €230 excluding VAT, what will the new markup rate be?
5. What approaches could Antoine consider to avoid reducing his margins while lowering his prices?

Proposed correction:

1. Unit margin:

   Unit margin = PV HT – PA HT = €250 – €90 = €160

   Antoine generates a margin of €160 per package.

2. Monthly overall margin:

   Overall margin = Unit margin x Quantity sold = €160 x 80 = €12

   The overall monthly margin generated by the company is €12.

3. Margin rate:

Margin rate = ((PV HT – PA HT) ÷ PA HT) x 100 = ((250 € – 90 €) ÷ 90 €) x 100 = 177,78%

The margin rate achieved by Antoine is 177,78%.

4. With an adjusted selling price of €230, the markup rate would be:

   Brand rate = ((€230 – €90) ÷ €230) x 100 = 60,87%

   The markup rate with the adjusted price of €230 is 60,87%.

5. Antoine might consider optimizing his costs, for example by negotiating with his suppliers or increasing the efficiency of his operations to compensate for the price drop. Another strategy might be to increase sales volume by improving his value proposition for customers.

Formulas Used:

Title	Formulas
Unit margin	PV HT – PA HT
Overall margin	Unit margin x Quantity sold
Margin rate	((PV HT – PA HT) ÷ PA HT) x 100
Brand taxes	((PV HT – PA HT) ÷ PV HT) x 100