In this section:
Application: The Flavors of Provence
States :
Les Saveurs de Provence is a family business specializing in the production and sale of regional Provençal products. Wishing to optimize its profitability, the company seeks to adjust its sales prices without altering its competitiveness in relation to the market. This exercise aims to calculate the profit margin for several products while analyzing the strategic implications.
Work to do :
- Calculate the unit margin for a product sold for €25 excluding VAT, with a purchase price of €15 excluding VAT.
- Determine the margin rate for this same product.
- If the goal is to increase the markup rate to 30%, what should the new selling price excluding VAT be?
- What is the overall margin if 200 units of this product are sold?
- Consider the strategic impact of an increase in selling price on the company's competitiveness.
Proposed correction:
-
The unit margin is calculated by subtracting the purchase price excluding VAT from the sale price excluding VAT:
25 € – 15 € = 10 €.
The unit margin is therefore €10. -
The margin rate is calculated as follows: ((PV HT – PA HT) ÷ PA HT) x 100.
Substituting the values, ((25 – 15) ÷ 15) x 100 = 66,67%.
The margin rate is 66,67%. -
To achieve a markup rate of 30%, the formula is: PV HT = PA HT ÷ (1 – Markup rate).
Substituting the values, 15 ÷ (1 – 0,30) = €21,43.
The new selling price excluding VAT should be €21,43 for a mark-up rate of 30%.
-
The overall margin is obtained by multiplying the unit margin by the quantity sold: €10 x 200 = €2.
The overall margin is therefore €2. -
An increase in the selling price could improve profitability, but it is crucial to consider the reaction of consumers and competitors. A higher price could reduce sales volumes if it is deemed uncompetitive.
Formulas Used:
| Title | Formulas |
|---|---|
| Unit margin | PV HT – PA HT |
| Margin rate | ((PV HT – PA HT) ÷ PA HT) x 100 |
| PV with mark rate | PA HT ÷ (1 – Mark rate) |
| Overall margin | Unit margin x Quantity sold |
Application: TechHouse
States :
TechHouse is a growing startup selling exclusive tech gadgets. Having recently expanded its range with a special gadget, the company wants to analyze its current performance in a constantly changing market. The following exercise asks you to determine several financial indicators and analyze the implications of these figures.
Work to do :
- Calculate the unit margin for a gadget sold for €80 excluding VAT with a purchase cost of €50 excluding VAT.
- Calculate the markup rate for this gadget.
- If the purchase cost increases to €55, what should the selling price excluding tax be to maintain a margin rate of 50%?
- What is the overall margin if 500 units of this gadget are sold?
- Discuss the potential impact on revenue and brand awareness if TechHouse chooses to reduce prices by 10% to attract new customers.
Proposed correction:
-
The unit margin is obtained by subtracting the pre-tax purchase price from the pre-tax selling price:
80 € – 50 € = 30 €.
The unit margin is therefore €30. -
The markup rate is calculated as follows: ((PV HT – PA HT) ÷ PV HT) x 100.
Substituting the values, ((80 – 50) ÷ 80) x 100 = 37,5%.
The markup rate is therefore 37,5%. -
To maintain a margin rate of 50%, use the formula: PV HT = PA HT x (1 + Margin rate).
Replacing, 55 x (1 + 0,50) = €82,5.
The new selling price excluding VAT should be €82,5.
-
The overall margin is calculated by multiplying the unit margin by the quantity sold: €30 x 500 = €15.
The overall margin is therefore €15. -
Reducing prices by 10% could boost sales and increase brand awareness, but risks reducing unit profit margin. A study of the price elasticity of demand would be relevant before making this decision.
Formulas Used:
| Title | Formulas |
|---|---|
| Unit margin | PV HT – PA HT |
| Brand taxes | ((PV HT – PA HT) ÷ PV HT) x 100 |
| PV with margin rate | PA HT x (1 + Margin rate) |
| Overall margin | Unit margin x Quantity sold |
Application: BioGourmet
States :
BioGourmet, a locally committed organic company, offers a wide range of organic food products. With the demand for healthier living options skyrocketing, the company wants to optimize its margins while staying true to its green values. The exercise presents margin calculations combined with a strategic analysis on the effectiveness of the pricing practices adopted.
Work to do :
- Calculate the unit margin of an organic product sold for €12 excluding tax, knowing that the purchase cost is €9 excluding tax.
- Calculate the margin rate for this product.
- What selling price excluding tax should be adopted to achieve a mark-up rate of 40%?
- What would be the overall margin if BioGourmet sold 1 units of this product?
- Analyze why it will be strategic for BioGourmet to maintain strong margins in a rapidly growing market.
Proposed correction:
-
The unit margin is calculated by subtracting the pre-tax purchase cost from the pre-tax selling price:
12 € – 9 € = 3 €.
The unit margin is therefore €3. -
The margin rate is obtained using the following formula: ((PV HT – PA HT) ÷ PA HT) x 100.
Substituting the numbers, ((12 – 9) ÷ 9) x 100 = 33,33%.
The margin rate is therefore 33,33%. -
For a markup rate of 40%, use: PV HT = PA HT ÷ (1 – Markup rate).
Substituting, 9 ÷ (1 – 0,40) = €15.
The selling price excluding VAT should be €15.
-
The overall margin for 1 units sold is: Unit margin x Quantity sold = €000 x 3 = €1.
The overall margin would be €3. -
Maintaining strong margins would allow BioGourmet to reinvest in sustainable practices while securing its growth strategy. A strong margin also provides stability against cost fluctuations.
Formulas Used:
| Title | Formulas |
|---|---|
| Unit margin | PV HT – PA HT |
| Margin rate | ((PV HT – PA HT) ÷ PA HT) x 100 |
| PV with mark rate | PA HT ÷ (1 – Mark rate) |
| Overall margin | Unit margin x Quantity sold |
Application: Urbano Design
States :
Urbano Design is an innovative company in the urban fashion sector. Distinguished by its bold designs and quality materials, it aims to maximize its margins to support its international development efforts. Through this exercise, evaluate the margins and implications of the company's pricing strategies.
Work to do :
- Calculate the unit margin for an item sold for €45 excluding VAT with a purchase price of €27 excluding VAT.
- Determine the markup rate for this item.
- If Urbano Design wants to increase its margin rate to 70%, what will be the maximum purchase cost to maintain this margin rate with the same selling price?
- Calculate the overall margin if 600 of these items are sold.
- Consider the implications of reducing margins in favor of rapid expansion into new international markets.
Proposed correction:
-
The unit margin is obtained by subtracting the pre-tax purchase price from the pre-tax sale price:
45 € – 27 € = 18 €.
The unit margin is therefore €18. -
The markup rate is calculated as follows: ((PV HT – PA HT) ÷ PV HT) x 100.
Substituting the values, ((45 – 27) ÷ 45) x 100 = 40%.
The markup rate is therefore 40%. -
To maintain a margin rate of 70%, we use: PA HT = PV HT ÷ (1 + Margin rate).
Substituting, 45 ÷ (1 + 0,70) = €26,47.
The maximum purchase cost would be €26,47.
-
The overall margin is calculated by multiplying the unit margin by the quantity sold:
€18 x 600 = €10.
The total margin is €10. -
Reducing margins for rapid expansion may lead to increased market share and sales volumes. However, it could also increase financial pressure and reduce the capacity for innovation in the long term.
Formulas Used:
| Title | Formulas |
|---|---|
| Unit margin | PV HT – PA HT |
| Brand taxes | ((PV HT – PA HT) ÷ PV HT) x 100 |
| PA with margin rate | PV HT ÷ (1 + Margin rate) |
| Overall margin | Unit margin x Quantity sold |
Application: NutriWellness
States :
NutriWellness is a dietary supplement company that focuses on natural ingredients and rigorous scientific formulations. In a highly competitive industry, the company seeks to balance its margins while increasing its reputation for quality and efficacy. The exercise covers margin calculations and the consequences of various business decisions.
Work to do :
- Calculate the unit margin of a supplement sold for €35 excluding VAT whose purchase cost is €22 excluding VAT.
- Determine the margin rate for this supplement.
- What new selling price would be needed to achieve a 25% markup?
- Calculate the overall margin if NutriWellness sells 3 units of this supplement.
- Consider the long-term impacts on reputation and customer loyalty of a strategy focused on high prices combined with high perceived quality.
Proposed correction:
-
The unit margin is: PV HT – PA HT = €35 – €22 = €13.
So the unit margin is €13. -
The margin rate is determined by: ((PV HT – PA HT) ÷ PA HT) x 100.
Substituting, ((35 – 22) ÷ 22) x 100 = 59,09%.
The margin rate is therefore 59,09%. -
For a markup rate of 25%, use: PV HT = PA HT ÷ (1 – Markup rate).
Substituting, 22 ÷ (1 – 0,25) = €29,33.
The new selling price excluding VAT should be €29,33.
-
The overall margin for 3 units is: €000 x 13 = €3.
The total margin is €39. -
Adopting a high pricing strategy can reinforce the perception of quality and prestige of the brand. However, it requires a perfect match between price and perceived value to avoid losing potential price-sensitive customers.
Formulas Used:
| Title | Formulas |
|---|---|
| Unit margin | PV HT – PA HT |
| Margin rate | ((PV HT – PA HT) ÷ PA HT) x 100 |
| PV with mark rate | PA HT ÷ (1 – Mark rate) |
| Overall margin | Unit margin x Quantity sold |
Application: GreenHome
States :
GreenHome is dedicated to building and selling eco-friendly homes. To achieve its sustainability and innovation goals, mastering profit margins is crucial. This case study aims to explore margin calculations and examine different pricing strategies that can be employed to support growth and optimization.
Work to do :
- Calculate the unit margin for a house sold for €250 excluding VAT with a purchase cost of €000 excluding VAT.
- Calculate the markup rate for this house.
- If GreenHome wants to maintain a constant margin rate of 55%, what is the maximum purchase cost that it can accept for a selling price excluding tax of €300?
- What is the overall margin if GreenHome sells five houses at this price?
- Suggest a reflection on the importance of the balance between increased production costs due to sustainable innovation and the need for profits.
Proposed correction:
-
The unit margin is calculated by subtracting the pre-tax purchase price from the pre-tax sale price:
€250 – €000 = €180.
The unit margin is therefore €70. -
The markup rate is calculated by: ((PV HT – PA HT) ÷ PV HT) x 100.
Substituting, ((250 – 000) ÷ 180) x 000 = 250%.
The markup rate is 28%. -
For a constant margin rate of 55%, use: PA HT = PV HT ÷ (1 + Margin rate).
Substituting, 300 ÷ (000 + 1) = €0,55.
The maximum possible purchase cost would be €193.
-
The overall margin is calculated by multiplying the unit margin by the quantity sold:
€70 x 000 = €5.
The total margin is €350. -
Finding the balance between the high production costs of sustainable innovation and the need for profits is essential to ensure GreenHome is economically viable while remaining attractive to those who want an ethical product.
Formulas Used:
| Title | Formulas |
|---|---|
| Unit margin | PV HT – PA HT |
| Brand taxes | ((PV HT – PA HT) ÷ PV HT) x 100 |
| PA with margin rate | PV HT ÷ (1 + Margin rate) |
| Overall margin | Unit margin x Quantity sold |
Application: EcoTransport
States :
EcoTransports is a company specializing in providing green transportation solutions in cities. The challenge for the company is to maintain profitable margins while improving the accessibility of its services. This exercise allows you to calculate margins, assess the impact of pricing decisions, and consider the strategic implications for the company.
Work to do :
- Determine the unit margin for a transport service billed at €100 excluding tax when its cost is €60 excluding tax.
- Calculate the margin rate for this service.
- If EcoTransports wants to align its markup rate at 45%, what selling price excluding tax should it apply to maintain the cost of €60 excluding tax?
- Calculate the overall margin on 1 services rendered.
- Consider the challenges and opportunities created by pricing geared towards a high volume base for green transportation.
Proposed correction:
-
The unit margin is: PV HT – PA HT = €100 – €60 = €40.
The unit margin is therefore €40. -
The margin rate is obtained by: ((PV HT – PA HT) ÷ PA HT) x 100.
Substituting, ((100 – 60) ÷ 60) x 100 = 66,67%.
The margin rate is 66,67%. -
For a markup rate of 45%, the formula is: PV HT = PA HT ÷ (1 – Markup rate).
Substituting, 60 ÷ (1 – 0,45) = €109,09.
The selling price excluding VAT should be €109,09.
-
The overall margin for 1 services is: €200 x 40 = €1.
The overall margin is therefore €48. -
Volume-based pricing can increase EcoTransports’ market coverage. However, this requires continuous optimization of operations to ensure that each trip remains profitable while supporting the ecological mission.
Formulas Used:
| Title | Formulas |
|---|---|
| Unit margin | PV HT – PA HT |
| Margin rate | ((PV HT – PA HT) ÷ PA HT) x 100 |
| PV with mark rate | PA HT ÷ (1 – Mark rate) |
| Overall margin | Unit margin x Quantity sold |
Application: FormaLab
States :
FormaLab is a company specializing in the creation of educational software and online learning platforms. With the rise of new learning technologies, FormaLab plans to maximize its digital solutions. This exercise aims to evaluate profit margins and anticipate the financial impact of increased international integration.
Work to do :
- Calculate the unit margin for software sold for €150 excluding VAT, if the development cost is €90 excluding VAT per unit sold.
- Determine the markup rate for this software.
- What would be the target development cost for a new version, if we decide to set a selling price excluding tax of €200 with a margin of 60%?
- Determine the overall margin on 2 software sold.
- Discuss the implications of deliberately low pricing to increase the user base, especially in the context of rapid expansion.
Proposed correction:
-
The unit margin is: PV HT – PA HT = €150 – €90 = €60.
The unit margin is therefore €60. -
The markup rate is determined by: ((PV HT – PA HT) ÷ PV HT) x 100.
Substituting, ((150 – 90) ÷ 150) x 100 = 40%.
The markup rate is 40%. -
For a margin of 60%, use: PA HT = PV HT ÷ (1 + Margin rate).
Substituting, 200 ÷ (1 + 0,60) = €125.
The target development cost is €125.
-
The overall margin for 2 software is: €000 x 60 = €2.
The overall margin is therefore €120. -
Low pricing encourages early adoption, increases retention, and can attract potential customers in non-traditional markets. However, it can distort the perceived value of the software and requires a strong quantity-oriented business model.
Formulas Used:
| Title | Formulas |
|---|---|
| Unit margin | PV HT – PA HT |
| Brand taxes | ((PV HT – PA HT) ÷ PV HT) x 100 |
| PA with margin rate | PV HT ÷ (1 + Margin rate) |
| Overall margin | Unit margin x Quantity sold |
Application: NewPharma
States :
NewPharma is a pharmaceutical company committed to creating innovative and affordable medicines. As such, it must constantly balance costs and margins in an ever-changing regulatory and competitive environment. In this exercise, you will discuss the profit margins associated with different products and discern the resulting budget allocation strategies.
Work to do :
- Calculate the unit margin for a drug sold for €20 excluding tax with a production cost of €14 excluding tax.
- Calculate the margin rate for this drug.
- What selling price should be aimed for for a 50% margin while taking into account that the production cost will not vary?
- Determine the overall margin for a volume of 10 units sold.
- Consider the potential risks and benefits of investing these margins in research and development to maintain technological leadership.
Proposed correction:
-
The unit margin is: PV HT – PA HT = €20 – €14 = €6.
The unit margin is therefore €6. -
The margin rate is: ((PV HT – PA HT) ÷ PA HT) x 100.
Substituting, ((20 – 14) ÷ 14) x 100 = 42,86%.
The margin rate is 42,86%. -
To aim for a 50% margin, use: PV HT = PA HT x (1 + Margin rate).
Replacing, 14 x (1 + 0,50) = €21.
The target sale price should be €21.
-
The overall margin for 10 units is: €000 x 6 = €10.
The overall margin is therefore €60. -
Investing these margins in R&D supports innovation and strengthens the competitive position. However, this strategic choice involves uncertainties related to the outcome of scientific projects and the return on investment.
Formulas Used:
| Title | Formulas |
|---|---|
| Unit margin | PV HT – PA HT |
| Margin rate | ((PV HT – PA HT) ÷ PA HT) x 100 |
| PV with margin rate | PA HT x (1 + Margin rate) |
| Overall margin | Unit margin x Quantity sold |