In this section:
Application: ModeFusion
States :
ModeFusion is a French company specializing in the manufacture of eco-responsible clothing. It recently launched a new collection of t-shirts. The purchase price (PA) excluding taxes (HT) of a t-shirt is €20, and it is sold at a sale price (SVP) excluding taxes of €40. The company wants to calculate its gross margin as well as its margins according to different indicators in order to guide its future pricing strategies.
Work to do :
- Calculate the gross unit margin for a ModeFusion t-shirt.
- Determine the margin rate for a t-shirt sold by ModeFusion.
- What is the markup rate of this t-shirt?
- If ModeFusion plans to sell 1 t-shirts, what will the overall margin be?
- Analyze what the implications for ModeFusion might be of a 10% increase in the purchase price.
Proposed correction:
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To calculate the gross unit margin, subtract the purchase price excluding VAT from the selling price excluding VAT.
Gross unit margin = PV excluding tax – PA excluding tax = €40 – €20 = €20.
The gross unit margin is €20 per t-shirt.
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The margin rate is calculated by taking the difference between the selling price excluding VAT and the purchasing price excluding VAT, then dividing the result by the purchasing price excluding VAT, all multiplied by 100.
Margin rate = ((PV HT – PA HT) ÷ PA HT) x 100 = ((40 € – 20 €) ÷ 20 €) x 100 = 100%.
The markup for the t-shirt is 100%.
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The markup rate is calculated by taking the difference between the PV excluding tax and the PA excluding tax, then dividing the result by the PV excluding tax, the whole multiplied by 100.
Markup rate = ((PV HT – PA HT) ÷ PV HT) x 100 = ((40 € – 20 €) ÷ 40 €) x 100 = 50%.
The markup rate of the t-shirt is 50%.
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The overall margin is obtained by multiplying the unit margin by the quantity sold.
Overall margin = Unit margin x quantity sold = €20 x 1 = €000.
The overall margin expected for sales is €20.
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If the purchase price increases by 10%, the new purchase price will be €20 x 1,10 = €22. The gross unit margin would then become €40 – €22 = €18.
This increase could reduce the overall margin, forcing ModeFusion to reconsider its pricing strategy or production costs.
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 |
| Overall margin | Unit margin x Quantity sold |
Application: ElectroSpark
States :
ElectroSpark, a company specializing in the sale of electronic devices, is marketing a new model of audio headset. The purchase price (PA) excluding tax of this headset is €60, while its sale price (SVP) excluding tax is set at €90. The company wishes to evaluate its profitability with this product.
Work to do :
- Calculate the gross margin per unit obtained by ElectroSpark for a headset.
- Determine the margin rate associated with the sale of this helmet.
- Calculate the brand rate of the headset.
- If ElectroSpark sells 500 helmets, what will the total gross margin be?
- Evaluate the potential impact on gross margin if the company decides to increase the PV HT by 5%.
Proposed correction:
-
The gross margin per unit is obtained by removing the purchase price excluding tax from the selling price excluding tax of each unit.
Gross unit margin = PV excluding tax – PA excluding tax = €90 – €60 = €30.
The gross unit margin per helmet is €30.
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To obtain the margin rate, subtract the purchase price from the sale price, divide the result by the purchase price and multiply by 100.
Margin rate = ((PV HT – PA HT) ÷ PA HT) x 100 = ((90 € – 60 €) ÷ 60 €) x 100 = 50%.
The margin rate of the headset is 50%.
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The markup rate is calculated by subtracting the purchase price from the sale price, dividing by the sale price, and multiplying by 100.
Markup rate = ((PV HT – PA HT) ÷ PV HT) x 100 = ((90 € – 60 €) ÷ 90 €) x 100 = 33,33%.
The markup rate is 33,33%.
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Total gross margin is the product of gross unit margin and the number of helmets sold.
Overall margin = Unit margin x Quantity sold = €30 x 500 = €15.
The total gross margin is €15 for 000 helmets.
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With a 5% increase in the PV HT, the new PV HT would be €90 x 1,05 = €94,50. The unit gross margin would become €94,50 – €60 = €34,50.
This increase in the PV excluding tax would increase the gross margin, thus improving profitability per unit sold.
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 |
| Overall margin | Unit margin x Quantity sold |
Application: GourmetDelights
States :
GourmetDelights is an innovative company in the gastronomy sector, offering fine chocolate tasting boxes. Each box has a purchase price excluding VAT of €35 and sells at a sale price excluding VAT of €55. In order to fully understand the impact of its sales, GourmetDelights must calculate its margin indicators.
Work to do :
- What is the gross margin per unit for each box sold?
- Calculate the margin rate for GourmetDelights boxes.
- Determine the markup rate for these boxes.
- If the goal is to sell 2 boxes, what will the overall margin be?
- Discuss the potential financial impact of a 5% reduction in the PV HT due to a promotion.
Proposed correction:
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The unit gross margin is obtained by subtracting the pre-tax purchase price from the pre-tax selling price.
Gross unit margin = PV excluding tax – PA excluding tax = €55 – €35 = €20.
The gross margin per unit is €20 per box.
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To determine the margin rate, the difference between the PV HT and the PA HT must be divided by the PA HT, then multiplied by 100.
Margin rate = ((PV HT – PA HT) ÷ PA HT) x 100 = ((55 € – 35 €) ÷ 35 €) x 100 = 57,14%.
The margin rate for the boxes is 57,14%.
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The markup rate is calculated by taking the difference between the PV HT and the PA HT divided by the PV HT, multiplied by 100.
Markup rate = ((PV HT – PA HT) ÷ PV HT) x 100 = ((55 € – 35 €) ÷ 55 €) x 100 = 36,36%.
The markup rate is 36,36%.
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The overall margin is obtained by multiplying the unit margin by the planned quantity.
Overall margin = Unit margin x Quantity sold = €20 x 2 = €000.
The overall margin for 2 boxes is €000.
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With a 5% reduction in the PV HT, the new PV HT would be €55 x 0,95 = €52,25. The new unit margin would be €52,25 – €35 = €17,25.
Gross margin would decline, which could affect profitability unless sales volume increases significantly to compensate.
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 |
| Overall margin | Unit margin x Quantity sold |
Application: GreenLife Solutions
States :
GreenLife Solutions is a company whose mission is to market sustainable and ecological furniture. One of its bamboo table models has a purchase price excluding VAT of €200 and a sale price excluding VAT of €340. The company wants to evaluate its performance via margin indicators.
Work to do :
- Calculate the unit gross margin for each bamboo table sold by GreenLife Solutions.
- What is the margin rate for this table?
- Determine the markup rate for the bamboo table.
- If the company plans to sell 300 tables, what will the overall margin be?
- If, in order to compete better, GreenLife Solutions lowers its net value by 15%, recommend a pricing strategy.
Proposed correction:
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The unit gross margin is obtained by subtracting the net gross profit from the net gross profit.
Gross unit margin = PV excluding tax – PA excluding tax = €340 – €200 = €140.
The gross margin per table is €140.
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The margin rate is calculated by the difference between the PV excluding tax and the PA excluding tax, divided by the PA excluding tax, multiplied by 100.
Margin rate = ((PV HT – PA HT) ÷ PA HT) x 100 = ((340 € – 200 €) ÷ 200 €) x 100 = 70%.
The margin rate is 70%.
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The mark rate is obtained by dividing the difference between PV HT and PA HT by the PV HT, multiplied by 100.
Markup rate = ((PV HT – PA HT) ÷ PV HT) x 100 = ((340 € – 200 €) ÷ 340 €) x 100 = 41,18%.
The markup rate is 41,18%.
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The overall margin is the multiplication of the unit margin by the quantity sold.
Overall margin = Unit margin x Quantity sold = €140 x 300 = €42.
The overall margin for 300 tables is €42.
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If the HT PA drops by 15%, the new HT PA = €200 x 0,85 = €170. To maximize profit, GreenLife could maintain its HT PV in order to increase its unit margin to €340 – €170 = €170.
Increasing the unit margin without changing the PV HT could strengthen GreenLife's economic position in the market.
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 |
| Overall margin | Unit margin x Quantity sold |
Application: TechNovation
States :
TechNovation is an innovative start-up that produces technological gadgets. Its latest product, an e-reader, has a purchase price excluding VAT of €50 and a sale price excluding VAT of €100. The company seeks to understand the different margins to adjust its pricing strategy.
Work to do :
- What is the gross margin per unit for each e-reader?
- Calculate the margin rate for the e-reader.
- What is the associated markup rate?
- TechNovation plans to sell 5 synthesizers. What will be the overall margin achieved?
- If production costs drop by 10%, what actions could be taken to maximize profits?
Proposed correction:
-
The unit gross margin is the difference between the PV excluding tax and the PA excluding tax.
Gross unit margin = PV excluding tax – PA excluding tax = €100 – €50 = €50.
The gross margin per unit is €50 per e-reader.
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The margin rate is calculated by dividing the difference between the PV HT and the PA HT by the PA HT, multiplied by 100.
Margin rate = ((PV HT – PA HT) ÷ PA HT) x 100 = ((100 € – 50 €) ÷ 50 €) x 100 = 100%.
The margin rate for the e-reader is 100%.
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The markup rate is obtained by dividing the difference between the PV HT and the PA HT by the PV HT, multiplied by 100.
Markup rate = ((PV HT – PA HT) ÷ PV HT) x 100 = ((100 € – 50 €) ÷ 100 €) x 100 = 50%.
The markup rate is 50%.
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The overall margin is obtained by multiplying the unit margin by the expected quantity sold.
Overall margin = Unit margin x Quantity sold = €50 x 5 = €000.
The overall margin for 5 e-readers is €000.
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If production costs decrease by 10%, the new HT PV will be €50 x 0,90 = €45. To maximize profits, TechNovation can maintain the HT PV to increase the unit margin to €100 – €45 = €55.
This increase in the unit margin without adjusting the PV HT would strengthen overall profits.
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 |
| Overall margin | Unit margin x Quantity sold |
Application: FreshBox
States :
FreshBox is a company specializing in the delivery of baskets of fresh fruits and vegetables. A basket has a purchase price excluding tax of €10 and is sold at a sale price excluding tax of €18. The company analyzes the margins of its products to refine its commercial strategy.
Work to do :
- Calculate the unit gross margin for each basket sold.
- Determine the margin rate for this basket.
- What is the markup rate for this product?
- If FreshBox plans to sell 2 baskets, what will its total margin be?
- If purchasing costs increase by 5%, what impact could this have on profitability?
Proposed correction:
-
The gross unit margin is obtained by the difference between the PV excluding tax and the PA excluding tax.
Gross unit margin = PV excluding tax – PA excluding tax = €18 – €10 = €8.
The gross unit margin is €8 per basket.
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The margin rate is calculated by dividing the difference between the PV HT and the PA HT by the PA HT, multiplied by 100.
Margin rate = ((PV HT – PA HT) ÷ PA HT) x 100 = ((18 € – 10 €) ÷ 10 €) x 100 = 80%.
The margin rate for the basket is 80%.
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The markup rate is obtained by dividing the difference between the PV HT and the PA HT by the PV HT, multiplied by 100.
Markup rate = ((PV HT – PA HT) ÷ PV HT) x 100 = ((18 € – 10 €) ÷ 18 €) x 100 = 44,44%.
The markup rate for the basket is 44,44%.
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The total margin is obtained by multiplying the unit margin by the number of baskets sold.
Overall margin = Unit margin x Quantity sold = €8 x 2 = €500.
The overall margin expected is €20 for 000 baskets.
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With a 5% increase in the HT PA, the new PA will be €10 x 1,05 = €10,50. The new unit margin will be €18 – €10,50 = €7,50.
This reduction in unit margin could affect profitability, and FreshBox may have to adjust the PV excluding tax.
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 |
| Overall margin | Unit margin x Quantity sold |
Application: VitaBalance
States :
VitaBalance, a major player in the distribution of food supplements, is launching a product that has a purchase cost excluding tax of €12 and a sale price excluding tax of €25. The company wants to evaluate its gross margins to optimize its profits.
Work to do :
- Calculate the unit gross margin of food supplements sold by VitaBalance.
- What is the margin rate on this product?
- Calculate the markup rate for this product.
- With an expected sale of 4 units, what would be the total margin?
- Develop a strategic analysis if VitaBalance plans to adjust its HT PA upwards by 20%.
Proposed correction:
-
The unit gross margin is obtained by subtracting the HT PA from the HT PV.
Gross unit margin = PV excluding tax – PA excluding tax = €25 – €12 = €13.
The gross margin per unit is €13 per unit.
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The margin rate is calculated by dividing the difference between the PV HT and the PA HT by the PA HT, times 100.
Margin rate = ((PV HT – PA HT) ÷ PA HT) x 100 = ((25 € – 12 €) ÷ 12 €) x 100 = 108,33%.
The margin rate for the product is 108,33%.
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The markup rate is calculated by dividing the difference between the PV HT and the PA HT by the PV HT, times 100.
Markup rate = ((PV HT – PA HT) ÷ PV HT) x 100 = ((25 € – 12 €) ÷ 25 €) x 100 = 52%.
The markup rate for the product is 52%.
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The total margin is determined by multiplying the unit margin by the number of anticipated sales.
Overall margin = Unit margin x Quantity sold = €13 x 4 = €000.
The total margin for the expected sale is €52.
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If the PA HT increases by 20%, it would become €12 x €1,20 = €14,40. The new margin would then be €25 – €14,40 = €10,60.
This increase in the HT PA reduces the unit margin, perhaps requiring an adjustment of the HT PV to maintain profitability.
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 |
| Overall margin | Unit margin x Quantity sold |
Application: CleanWave
States :
CleanWave offers organic cleaning products. Its flagship product is a detergent sold at a price excluding VAT of €15, purchased excluding VAT at €7. The company wants to calculate its margins to assess its competitiveness on the market.
Work to do :
- Calculate the unit gross margin for each detergent sold.
- What is the margin rate for this product?
- Calculate the brand rate for the detergent.
- With an expected sale of 10 units, what will the total margin be?
- Evaluate the strategic consequences of a planned 10% reduction in HT PV.
Proposed correction:
-
The unit gross margin is obtained by subtracting the HT PA from the HT PV.
Gross unit margin = PV excluding tax – PA excluding tax = €15 – €7 = €8.
The gross margin per unit is €8 per detergent.
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The margin rate is calculated by dividing the difference between the PV HT and the PA HT by the PA HT, multiplied by 100.
Margin rate = ((PV HT – PA HT) ÷ PA HT) x 100 = ((15 € – 7 €) ÷ 7 €) x 100 = 114,29%.
The margin rate for the product is 114,29%.
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The markup rate is obtained by dividing the difference between the PV HT and the PA HT by the PV HT, multiplied by 100.
Markup rate = ((PV HT – PA HT) ÷ PV HT) x 100 = ((15 € – 7 €) ÷ 15 €) x 100 = 53,33%.
The markup rate for the product is 53,33%.
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The total margin is determined by multiplying the unit margin by the anticipated sales.
Overall margin = Unit margin x Quantity sold = €8 x 10 = €000.
The total margin for the expected sale is €80.
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With a 10% reduction in the PV HT, the new PV HT would be €15 x 0,90 = €13,50. The unit margin would become €13,50 – €7 = €6,50.
This reduction in unit margin would have an impact on profitability, it would be wise to increase sales volume to compensate for this decrease.
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 |
| Overall margin | Unit margin x Quantity sold |
Application: UrbanStyle
States :
UrbanStyle, a growing company in the fashion footwear sector, sells a model of sneakers whose purchase price excluding VAT is €30 and the sale price excluding VAT is €65. They want to evaluate their profitability in order to strengthen their position in the market.
Work to do :
- Calculate the gross margin per pair of sneakers sold.
- What is the margin rate on this model?
- Determine the associated markup rate.
- If 8 pairs are sold, what will be the total margin?
- Consider the financial implications of a 20% reduction campaign on the PV HT.
Proposed correction:
-
The unit gross margin is the difference between the PV excluding tax and the PA excluding tax.
Gross unit margin = PV excluding tax – PA excluding tax = €65 – €30 = €35.
The gross margin per pair of sneakers is €35.
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The margin rate is calculated by dividing the difference between the PV HT and the PA HT by the PA HT, times 100.
Margin rate = ((PV HT – PA HT) ÷ PA HT) x 100 = ((65 € – 30 €) ÷ 30 €) x 100 = 116,67%.
The margin rate for this model is 116,67%.
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The markup rate is obtained by dividing the difference between the PV HT and the PA HT by the PV HT, times 100.
Markup rate = ((PV HT – PA HT) ÷ PV HT) x 100 = ((65 € – 30 €) ÷ 65 €) x 100 = 53,85%.
The markup rate is 53,85%.
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Total margin is calculated by multiplying the unit margin by the number of expected sales.
Overall margin = Unit margin x Quantity sold = €35 x 8 = €000.
The total margin for 8 pairs is €000.
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A 20% reduction in the PV HT would lead to a new PV HT = €65 x 0,80 = €52. The unit margin would become €52 – €30 = €22.
This reduction in margin requires increasing the number of sales to compensate for the drop in profitability.
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 |
| Overall margin | Unit margin x Quantity sold |