In this section:
Application: ÉclatBijou
States :
ÉclatBijou, a fictitious company specializing in the manufacture of custom jewelry, wants to evaluate its margin on a quote for a new client. The total purchase price of the necessary materials is €900. The manager wants to establish a quote with a margin rate of 45%.
Work to do :
- What should the selling price excluding tax be to obtain a margin rate of 45%?
- If ÉclatBijou decides to add 20% VAT, what will the sales price including VAT be?
- Suppose the customer asks for a 10% discount on the net selling price. What would then be the new margin rate?
- What is the gross margin in euros on this initial sale if the selling price excluding tax is set at €1305?
- Discuss the implications of setting a minimum margin for ÉclatBijou's pricing strategy.
Proposed correction:
-
To obtain a margin rate of 45%, we use the formula:
Margin rate = ((PV excluding tax – PA excluding tax) ÷ PA excluding tax) x 100
By rearranging,
PV HT = PA HT x (1 + (Margin rate ÷ 100)).
Replacing, €900 x (1 + (45 ÷ 100)) = €1305.
The selling price excluding tax must be €1305 to achieve a margin of 45%.
-
To determine the sales price including tax, we use the formula:
PV incl. VAT = PV excl. VAT x (1 + VAT).
By replacing, €1305 x (1 + 0,20) = €1566.
So the sales price including tax will be €1566 after application of VAT.
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After a 10% discount, the new selling price excluding VAT is calculated as follows:
New PV HT = Initial PV HT x (1 – Reduction).
Replacing, €1305 x (1 – 0,10) = €1174,50.
The new margin rate would be ((€1174,50 – €900) ÷ €900) x 100 = 30,5%.
The new margin after reduction is 30,5%.
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The gross margin in euros is calculated by:
Gross margin = PV excluding tax – PA excluding tax.
As a replacement, €1305 – €900 = €405.
The gross margin on this transaction is €405.
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Setting a minimum margin preserves profitability and secures ÉclatBijou’s business model. This ensures that costs are covered and gains are sustainable.
Formulas Used:
| Title | Formulas |
|---|---|
| Calculation of the PV HT for a margin rate | PV HT = PA HT x (1 + (Margin rate ÷ 100)) |
| Calculation of the PV including tax | PV including VAT = PV excluding VAT x (1 + VAT) |
| New PV HT after reduction | New PV HT = Initial PV HT x (1 – Reduction) |
| Margin rate | Margin rate = ((PV excluding tax – PA excluding tax) ÷ PA excluding tax) x 100 |
| Gross margin in euros | Gross margin = PV HT – PA HT |
App: TechCraft Solutions
States :
TechCraft Solutions designs software for businesses. For a recent project, the company incurred a development cost of €3. The product manager wants to apply a 000% markup to the quote.
Work to do :
- Calculate the selling price excluding VAT to obtain a markup rate of 25%.
- What would be the amount of VAT at the rate of 20% applied to this sale price excluding VAT?
- What would be the total margin if TechCraft Solutions sold 200 units at this selling price excluding VAT?
- What is the impact on the markup rate if development costs double but the selling price remains unchanged?
- Discuss the importance of a dynamic pricing strategy for a software vendor like TechCraft Solutions.
Proposed correction:
-
To obtain a markup rate of 25%, the formula is:
Mark rate = ((PV HT – PA HT) ÷ PV HT) x 100.
So,
PV HT = PA HT ÷ (1 – (Market rate ÷ 100)).
Substituting, €3 ÷ (000 – 1) = €0,25.
So the required selling price excluding tax is €4.
-
VAT is calculated using:
VAT = PV HT x VAT rate.
Replacing, €4 x 000 = €0,20.
The VAT applied is €800.
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The total margin is:
Overall margin = Unit margin x quantity sold = (PV HT – PA HT) x quantity.
Replacing, (€4 – €000) x 3 = €000.
The total margin would be €200.
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If the costs double but the price remains €4, the new PA excluding tax is €000:
The mark rate would thus change:
Markup rate = ((€4 – €000) ÷ €6) x 000 = -4%.
The brand would become negative, affecting profitability.
-
A dynamic pricing strategy allows TechCraft Solutions to adapt its prices according to the market and demand, thus increasing competitiveness and meeting customer expectations.
Formulas Used:
| Title | Formulas |
|---|---|
| Calculation of the PV excluding tax for a mark rate | PV HT = PA HT ÷ (1 – (Market rate ÷ 100)) |
| VAT calculation | VAT = PV excluding VAT x VAT rate |
| Overall margin | Overall margin = (PV HT – PA HT) x quantity |
| Brand taxes | Brand rate = ((PV excluding tax – PA excluding tax) ÷ PV excluding tax) x 100 |
Application: Green Garden Landscaper
States :
The company VertJardin Paysagiste is preparing a quote for the development of a large park. The fixed costs amount to €12 and the variable costs represent an additional €000. The manager wants to achieve a unit margin of €5 per unit to be sold.
Work to do :
- What is the excluding tax selling price required to achieve this desired unit margin?
- What would be its sales price including tax, including 5,5% VAT derived from plants and materials?
- If variable costs increase by 20%, what would be the new unit margin target needed to maintain the initial selling price?
- Calculate the overall margin if VertJardin Paysagiste plans to sell 10 units.
- Analyze how to maintain profitability when variable costs fluctuate in the landscaping industry.
Proposed correction:
-
The selling price excluding tax is calculated by:
PV HT = (Total unit cost + Desired unit margin).
Total unit cost = €12 (fixed costs per unit) + €000.
By replacing, PV excluding VAT = (€5 + €500) = €3.
The selling price excluding tax must be €8.
-
For the price including VAT, we use:
PV incl. VAT = PV excl. VAT x (1 + VAT).
Substituting, €8 x (500 + 1) = €0,055.
The sale price including tax would therefore be €8.
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With a 20% increase in variable costs:
New variable costs = €5 x 500 = €1,20.
New margin required = initial PV excluding tax – (new total cost).
Replacing, €8 – €500 = €6.
The margin would have to be reduced to €1 to maintain an identical price.
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The overall margin is calculated by:
Overall margin = Unit margin x quantity = €3 x 000 = €10.
The overall margin is €30 on the sale of 000 units.
-
Rapidly adapting pricing and finding cost-competitive suppliers are essential to ensure profitability in the face of cost variations.
Formulas Used:
| Title | Formulas |
|---|---|
| Calculation of PV HT | PV HT = (Total unit cost + Desired unit margin) |
| Calculation of the PV including tax | PV including VAT = PV excluding VAT x (1 + VAT) |
| Calculation of new variable costs | New variable costs = Initial cost x (1 + increase) |
| Overall margin | Overall margin = Unit margin x quantity |
Application: BioRev Chocolate Factory
States :
BioRev Chocolaterie wants to establish a quote for their organic chocolates. The raw materials for the manufacture of a box cost €25. The management decides to set a selling price excluding tax with a margin rate of 60%.
Work to do :
- Determine the necessary selling price excluding tax with this margin rate.
- Calculate the price including VAT for a box by applying the VAT rate of 5,5% applicable to food products.
- If a competitor offers the same product at €38 including tax, analyze what the new market rate should be to be competitive.
- What would be the percentage reduction if BioRev wanted to align its sales price including tax with that of the competitor (€38 including tax)?
- Describe the impact of the biological origin of raw materials on BioRev's pricing strategy.
Proposed correction:
-
When calculating with the margin rate, we use:
PV HT = PA HT x (1 + (Margin rate ÷ 100)).
By replacing, €25 x (1 + 0,60) = €40.
The selling price excluding VAT is €40.
-
For the sales price including VAT:
PV incl. VAT = PV excl. VAT x (1 + VAT).
By replacing, €40 x (1 + 0,055) = €42,20.
The sales price including VAT is €42,20.
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For a competing price of €38 including tax, let’s recalculate the margin rate:
Competitor’s PV excluding VAT = €38 ÷ (1 + 0,055) = €36.
Calculated markup rate = ((€36 – €25) ÷ €36) x 100 = 30,56%.
To be competitive, let's set the walk rate at around 30,56%.
-
The necessary reduction is:
Reduction = ((PV including tax BioRev – Competitor) ÷ PV including tax BioRev) x 100.
Replacing, ((€42,20 – €38) ÷ €42,20) x 100 = 9,95%.
BioRev must reduce its prices by 9,95% to align its rates.
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Organic origin can justify a price premium due to the perception of higher quality and increased production costs, but this requires clear communication to consumers to justify it.
Formulas Used:
| Title | Formulas |
|---|---|
| Calculation of the PV HT for the margin | PV HT = PA HT x (1 + (Margin rate ÷ 100)) |
| Calculation of the PV including tax from the HT | PV including VAT = PV excluding VAT x (1 + VAT) |
| Recalculated markup rate | Brand rate = ((PV excluding tax – PA excluding tax) ÷ PV excluding tax) x 100 |
| Calculation of reduction for alignment | Reduction = ((initial PV including tax – competitor PV including tax) ÷ initial PV including tax) x 100 |
Application: Electra Energy
States :
Electra Energie, a specialist in energy solutions, wants to prepare a quote for the installation of solar panels at a new customer's premises. The total cost of purchasing the equipment is €6. Electra wants to set a margin rate of 500% for its quote.
Work to do :
- What is the selling price excluding tax required to obtain this margin rate?
- Add 20% VAT to determine the sales price including VAT.
- The competition is offering a price of €8 excluding VAT. What is Electra's margin rate if they decide to match this price?
- Calculate the difference in margin in euros if Electra sells at its own suggested price versus the one aligned with the competition.
- Analyze the impact of matching competitive price on customers' perception of quality.
Proposed correction:
-
By applying the margin rate:
PV HT = PA HT x (1 + (Margin rate ÷ 100)).
Substituting, €6 x (500 + 1) = €0,35.
The PV excluding tax must be €8.
-
To obtain the sales price including tax:
PV incl. VAT = PV excl. VAT x (1 + VAT).
Substituting, €8 x (775 + 1) = €0,20.
The PV including tax is €10.
-
By aligning with €8 excluding VAT, the margin rate would be recalculated as follows:
Recalculated margin rate = ((€8 – €200) ÷ €6) x 500 = 6%.
The margin rate would be 26,15%.
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Let's calculate the margin difference in euros:
Margin at €8 = €775 – €8 = €775.
Margin at €8 = €200 – €8 = €200.
Difference = €2 – €275 = €1.
The margin difference is €575.
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Aligning with competitors may affect the perception of quality and premium service that Electra has built around its brand image. This could reduce perceived value.
Formulas Used:
| Title | Formulas |
|---|---|
| PV HT calculation for margin rate | PV HT = PA HT x (1 + (Margin rate ÷ 100)) |
| PV calculation including VAT | PV including VAT = PV excluding VAT x (1 + VAT) |
| Margin rate recalculated on competitor price | Margin rate = ((PV excluding tax – PA excluding tax) ÷ PA excluding tax) x 100 |
| Margin difference in euros | Difference = Initial Margin – Competing Margin |
Application: MedTech Pro
States :
MedTech Pro, a medical device company, is examining the profitability of a new product. The total manufacturing cost is €15 per unit. The company's goal is to achieve a 000% margin on each sale.
Work to do :
- What is the selling price excluding tax to achieve the desired margin rate?
- What is the amount of VAT at the rate of 20%, and the sales price including VAT?
- Imagine that the cost of manufacturing increases by 10%, how does this affect the selling price needed to maintain the same margin rate?
- What would be the new margin rate if, despite the increase, the selling price excluding tax remains unchanged?
- Analyze the importance of manufacturing cost control in MedTech Pro's strategy.
Proposed correction:
-
Let’s calculate the selling price excluding tax:
PV HT = PA HT x (1 + (Margin rate ÷ 100)).
Substituting, €15 x (000 + 1) = €0,25.
The PV excluding tax should be €18.
-
For the amount of VAT and the price including VAT:
VAT = PV HT x VAT rate, therefore €18 x 750 = €0,20.
PV including tax = €18 + €750 = €3.
The VAT is €3 and the VAT-inclusive price is €750.
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With a 10% cost increase:
New PA excluding tax = €15 x 000 = €1,10.
PV excluding tax required = €16 x (500 + 1) = €0,25.
The new PV excluding tax must be €20.
-
If the PV excluding tax remains at €18 despite the increase:
New margin rate = ((€18 – €750) ÷ €16) x 500 = 16%.
The margin rate would fall to 13,64%.
-
Controlling manufacturing costs is crucial for MedTech Pro, as it directly impacts margins and competitiveness in the technologically equipped market.
Formulas Used:
| Title | Formulas |
|---|---|
| PV HT calculation for margin rate | PV HT = PA HT x (1 + (Margin rate ÷ 100)) |
| Calculation of VAT and PV including VAT | VAT = PV excluding VAT x VAT rate, PV including VAT = PV excluding VAT + VAT |
| New PV HT after cost increase | New PV HT = New PA HT x (1 + (Margin rate ÷ 100)) |
| New margin rate | New margin rate = ((PV HT – New PA HT) ÷ New PA HT) x 100 |
Application: OptiMode Styling
States :
OptiMode Stylisme, in the eco-responsible fashion industry, prepares a quote for a capsule collection. The production cost per unit is €80 and the company wants a margin rate of 50%.
Work to do :
- Calculate the selling price excluding tax to obtain the expected margin rate.
- What is the total VAT on the calculated price, at a rate of 20%, and the price inclusive of VAT?
- Suppose raw materials increase by 15% per unit. What is the new margin rate if the price remains unchanged?
- If OptiMode decides to reduce its selling price excluding VAT by 10%, what would the new markup rate be?
- Discuss the importance of eco-responsible alternatives in establishing a target price for OptiMode.
Proposed correction:
-
Calculation of the selling price excluding VAT:
PV HT = PA HT x (1 + (Margin rate ÷ 100)).
By replacing, €80 x (1 + 0,50) = €120.
The PV excluding tax must be €120.
-
Let’s calculate the VAT and the sales price including VAT:
VAT = PV HT x VAT rate, therefore €120 x 0,20 = €24.
PV including tax = €120 + €24 = €144.
VAT is €24 and the PV including VAT is €144.
-
The cost increases by 15%, so:
New costs = €80 x 1,15 = €92.
New margin rate = ((€120 – €92) ÷ €92) x 100 = 30,43%.
The margin falls to 30,43%.
-
With a 10% reduction on the PV excluding VAT:
New PV excluding tax = €120 x (1 – 0,10) = €108.
New markup rate = ((€108 – €80) ÷ €108) x 100 = 25,93%.
The markup rate is 25,93%.
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Choosing eco-responsible alternatives allows OptiMode to justify higher prices through quality and environmental respect, adding long-term value to the product.
Formulas Used:
| Title | Formulas |
|---|---|
| PV HT calculation with margin rate | PV HT = PA HT x (1 + (Margin rate ÷ 100)) |
| Calculation of VAT and PV including VAT | VAT = PV excluding VAT x VAT rate, PV including VAT = PV excluding VAT + VAT |
| New margin rate after increase | New margin rate = ((PV HT – New costs) ÷ New costs) x 100 |
| New mark rate after reduction PV HT | New mark rate = ((New PV HT – PA HT) ÷ New PV HT) x 100 |
Application: HealthyTech Innovations
States :
HealthyTech Innovations develops high-end fitness equipment. The cost to produce one model of the equipment is €1. The company aims to achieve a 800% margin on its sales.
Work to do :
- Calculate the selling price excluding tax to achieve the desired margin.
- What is the value of VAT added to the price excluding VAT, and what is the price including VAT?
- If a 5% discount on the PV excluding VAT is granted for a promotion, what would be the new margin rate?
- What will be the difference in margin in euros compared to the price without discount?
- Discuss the customer perceived added value of HealthyTech products without compromising the company's margin.
Proposed correction:
-
Using the margin rate:
PV HT = PA HT x (1 + (Margin rate ÷ 100)).
Substituting, €1 x (800 + 1) = €0,40.
The PV excluding tax should be €2.
-
Let’s calculate the VAT and the PV including VAT:
VAT = PV HT x VAT rate, therefore €2 x 520 = €0,20.
The PV including tax = €2 + €520 = €504.
The added VAT is €504 and the PV including VAT is €3.
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For a 5% discount:
New PV excluding tax = €2 x (520 – 1) = €0,05.
New margin rate = ((€2 – €394) ÷ €1) x 800 = 1%.
The new margin rate would be 33% after discount.
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Margin difference in euros:
Margin without discount = €2 – €520 = €1.
Margin with discount = €2 – €394 = €1.
Difference = €720 – €594 = €126.
The margin difference is €126.
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The perception of quality and innovation can justify higher pricing for HealthyTech, ensuring healthy margins while building a strong brand.
Formulas Used:
| Title | Formulas |
|---|---|
| PV HT calculation with margin rate | PV HT = PA HT x (1 + (Margin rate ÷ 100)) |
| Calculation of VAT and PV including VAT | VAT = PV excluding VAT x VAT rate, PV including VAT = PV excluding VAT + VAT |
| New margin rate after discount | New margin rate = ((New PV HT – PA HT) ÷ PA HT) x 100 |
| Margin difference in euros | Difference = Initial Margin – Margin after Discount |
App: AutoGreen Motors
States :
AutoGreen Motors designs electric vehicles. The total cost of producing a model is €28. The company wants to apply a 000% markup to set the selling price.
Work to do :
- Determine the selling price excluding VAT required to achieve the desired markup rate.
- Quantify the VAT at the usual rate of 20% and calculate the price including VAT.
- If production costs increase by 15%, how can a new selling price excluding tax be set to maintain a margin rate of 20%?
- If demand allows for a 10% markup, what is the effect on the current markup rate?
- Evaluate how product sustainability can positively impact margins and sales prices.
Proposed correction:
-
Calculate the selling price excluding tax with:
PV HT = PA HT ÷ (1 – (Market rate ÷ 100)).
Substituting, €28 ÷ (000 – 1) = €0,20.
The required PV excluding tax is €35.
-
For VAT and PV including VAT:
VAT = PV HT x VAT rate = €35 x 000 = €0,20.
PV including tax = €35 + €000 = €7.
The VAT is €7 and the PV including tax is €000.
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With a 15% increase in costs:
New PA excluding tax = €28 x 000 = €1,15.
New PV excluding tax = €32 ÷ (200 – 1) = €0,20.
The new PV excluding tax must be €40 to maintain the margin rate.
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In the event of a 10% increase:
Increased PV HT = €35 x 000 = €1,10.
New markup rate = ((€38 – €500) ÷ €28) x 000 = 38%.
The increase brings the markup rate to 27,27%.
-
Sustainability improves reputation and justifies higher prices, helping to increase margins without losing appeal to environmentally conscious consumers.
Formulas Used:
| Title | Formulas |
|---|---|
| PV calculation excluding tax with mark rate | PV HT = PA HT ÷ (1 – (Market rate ÷ 100)) |
| Calculation of VAT and PV including VAT | VAT = PV excluding VAT x VAT rate, PV including VAT = PV excluding VAT + VAT |
| New PV HT after cost increase | New PV HT = New PA HT ÷ (1 – (margin rate ÷ 100)) |
| New mark rate after increase | New mark rate = ((Increased PV HT – PA HT) ÷ Increased PV HT) x 100 |