In this section:
Application: Bio del Sol Grocery Store
States :
L'Épicerie Bio del Sol is a small company specializing in organic and eco-friendly products. In order to develop its range, the company wants to analyze different profitability indicators on its flagship product, an organic olive oil. Currently, olive oil is purchased at a purchase price (PA) excluding tax of €8 per bottle. In order to define a reasonable selling price while maintaining a margin of 10%, the marketing director wants to better understand the impact of margins on profitability.
Work to do :
- Calculate the selling price (SPP) excluding tax to obtain a gross margin of 10%.
- If the manufacturing cost decreases by €2, what impact would this have on the unit margin while maintaining the same PV excluding tax?
- Determine the overall margin if 1 bottles are sold at the determined price.
- What can you say about the markup rate with the selling price calculated in question 1?
- Provide an analysis of the strategic implications if the company offers a 5% discount to its regular customers.
Proposed correction:
To obtain a margin rate of 10%, we use the formula:
PV HT = PA HT x (1 + Margin rate).
By replacing, we have: PV HT = €8 x (1 + 0,10) = €8,80.
The selling price excluding tax should be €8,80 to achieve a margin of 10%.If the manufacturing cost decreases by €2, the new PA excluding tax becomes €6.
With a PV excluding tax of €8,80, the new unit margin is:
PV excluding VAT – PA excluding VAT = €8,80 – €6 = €2,80.
This represents an increase in the unit margin of €0,80 compared to the previous situation.The overall margin is obtained by multiplying the unit margin by the quantity sold:
Unit margin = PV excluding tax – PA excluding tax = €8,80 – €8 = €0,80.
Overall margin = €0,80 x 1 = €000.
The company would make an overall margin of €800 for the sale of 1 bottles.
The markup rate is calculated by the formula:
Mark rate = ((PV HT – PA HT) ÷ PV HT) x 100.
Substituting, we have: Markup rate = ((€8,80 – €8) ÷ €8,80) x 100 = 9,09%.
The markup rate is 9,09%, slightly lower than the margin rate.If a 5% reduction is offered, the new PV excluding tax becomes:
PV excluding tax x (1 – 0,05) = €8,80 x 0,95 = €8,36.
As a result, the new unit margin becomes: €8,36 – €8 = €0,36.
Reducing the price reduces the margin, and could also affect the perception of quality. However, it could boost sales and customer loyalty.
Formulas Used:
| Title | Formulas |
|---|---|
| PV HT (margin) | PA HT x (1 + Margin rate) |
| Unit margin | PV HT – PA HT |
| Overall margin | Unit margin x Quantity sold |
| Brand taxes | ((PV HT – PA HT) ÷ PV HT) x 100 |
Application: TechSavvy Solutions
States :
TechSavvy Solutions, an innovative company in the field of connected objects, is finalizing the development of its new smartwatch. With a production cost of €75 per unit, the financial team wants to establish a selling price that guarantees a profit margin of 10%.
Work to do :
- Determine the selling price (SPP) excluding tax required for a unit margin of 10%.
- If the selling price has to be reduced to €110 for competitive reasons, what new unit margin does this represent?
- Calculate the minimum quantity needed to sell to achieve an overall margin of €7 at an initial PV excluding tax of €500.
- Estimate the change in the margin rate if the production cost increases by 5%.
- Consider the strategic impact of maintaining the initial price, even if market conditions change to encourage discounts.
Proposed correction:
To calculate the PV HT for a margin of 10%, use:
PV HT = PA HT x (1 + Margin rate).
Replace: PV HT = €75 x (1 + 0,10) = €82,50.
The selling price excluding tax required for a margin of 10% is therefore €82,50.At a PV excluding tax of €110, the new margin is:
Selling price – Production cost = €110 – €75 = €35.
This represents a significant increase in unit margin at this price level.The minimum quantity for an overall margin of €7 is calculated by
Unit margin = PV excluding tax – PA excluding tax = €82,50 – €75 = €7,50.
Quantity = Overall margin ÷ Unit margin = €7 ÷ €500 = 7,50.
At least 1 units must be sold to achieve the target overall margin.
With a 5% cost increase, the new production cost is:
PA excluding VAT = €75 x 1,05 = €78,75.
Margin rate = ((PV HT – PA HT) ÷ PA HT) x 100 = ((82,50 € – 78,75 €) ÷ 78,75 €) x 100 = 4,76%.
The margin rate decreases with the increase in the cost of production.By maintaining the price, TechSavvy Solutions could highlight the quality and advanced features of its products, but it could also limit market competitiveness, which is strategic depending on the results expected by the company.
Formulas Used:
| Title | Formulas |
|---|---|
| PV HT (margin) | PA HT x (1 + Margin rate) |
| Unit margin | PV HT – PA HT |
| Minimum quantity | Overall margin ÷ Unit margin |
| Margin rate | ((PV HT – PA HT) ÷ PA HT) x 100 |
Application: Fashion & Senses
States :
The clothing brand "Mode & Sens", specializing in chic office wear, is planning to launch a new range of shirts. With a purchase price (PA) excluding tax of €25 per shirt, the managers want to calculate various scenarios around a margin of 10% to position their offer well.
Work to do :
- Calculate the selling price (SPP) excluding tax to obtain a unit margin of 10%.
- What would be the new unit margin if the purchase price increases by €3 and the sale price remains at €27,50?
- If the desired overall margin is €2, how many shirts should be sold with the initially calculated PV excluding tax?
- Analyze the impact of markup rate on commercial appeal.
- Develop recommendations on necessary adjustments in the event of a general increase in production costs.
Proposed correction:
To calculate the PV HT with a margin of 10%, the formula is:
PV HT = PA HT x (1 + Margin rate).
In our case: PV HT = €25 x (1 + 0,10) = €27,50.
The required selling price excluding tax for a unit margin of 10% is €27,50.If the PA increases by €3, the new PA excluding tax is €28.
The unit margin becomes: PV HT – PA HT = €27,50 – €28 = -€0,50.
This implies a loss on each unit sold at that price.For an overall margin of €2, using the initial margin of €500:
Quantity = Overall margin ÷ Unit margin = €2 ÷ €500 = 2,50.
You need to sell 1 shirts to reach an overall margin of €000.
Markup rate with initial sale price:
Markup rate = ((PV HT – PA HT) ÷ PV HT) x 100 = ((27,50 € – 25 €) ÷ 27,50 €) x 100 = 9,09%.
A markup rate of 9,09% could limit profit margins, but offers a competitive price in the market.In the event of an increase in costs, it would be strategic to examine the possibility of passing on part of the cost to the customer or limiting internal costs by adjusting production more efficiently while preserving quality.
Formulas Used:
| Title | Formulas |
|---|---|
| PV HT (margin) | PA HT x (1 + Margin rate) |
| Unit margin | PV HT – PA HT |
| Minimum quantity | Overall margin ÷ Unit margin |
| Brand taxes | ((PV HT – PA HT) ÷ PV HT) x 100 |
Application: GreenTech Innovators
States :
GreenTech Innovators, a company engaged in developing renewable energy solutions, is launching a home solar kit. The production cost per kit is €350. The company aims to establish a 10% margin to finance its future innovations in research and development.
Work to do :
- Calculate the selling price (SPP) excluding tax required for a unit margin of 10%.
- What would be the impact on the margin if the production cost is reduced to €325?
- Calculate how many kits need to be sold to get an overall margin of €10 with the original price.
- Compare the markup rate and margin rate with the discounted price.
- Discuss strategic implications if competitors launch similar products with aggressive pricing.
Proposed correction:
For a PV HT allowing a margin of 10%, use:
PV HT = PA HT x (1 + Margin rate).
Thus: PV HT = €350 x (1 + 0,10) = €385.
A selling price excluding tax of €385 ensures a unit margin of 10%.With a production cost reduced to €325, the new margin becomes:
PV excluding VAT – PA excluding VAT = €385 – €325 = €60.
Cost reduction significantly strengthens unit margin.To reach an overall margin of €10, use the initial margin:
Unit margin = €35.
Quantity needed = €10 ÷ €500 = 35.
300 kits must be sold to achieve this goal.
Initial margin rate with reduced cost:
((€385 – €325) ÷ €325) x 100 = 18,46%.
Mark rate with reduced PV = ((€385 – €325) ÷ €385) x 100 = 15,58%.
Rates increase, promoting profitability and making the company more competitive.The strategic position must focus on unique attributes, brand, and leverage financial flexibility to scale innovation despite competition.
Formulas Used:
| Title | Formulas |
|---|---|
| PV HT (margin) | PA HT x (1 + Margin rate) |
| Unit margin | PV HT – PA HT |
| Minimum quantity | Overall margin ÷ Unit margin |
| Margin rate | ((PV HT – PA HT) ÷ PA HT) x 100 |
| Brand taxes | ((PV HT – PA HT) ÷ PV HT) x 100 |
Application: Crafts & Design
States :
Artisanat & Design, specializing in the manufacture of custom furniture, is developing its new collection of wooden coffee tables. To be profitable, it is necessary to calculate a margin of 10% on a production cost of €200 per table.
Work to do :
- Calculate the selling price (SPP) excluding tax allowing a margin of 10%.
- What are the implications of reducing the selling price by €20 per table on the margin?
- How many tables must be sold to reach an overall margin of €5 with the initial PV excluding VAT?
- Calculate the markup rate and discuss its importance for business strategy.
- Propose a strategy to increase gross margin while maintaining the initial selling price.
Proposed correction:
To obtain a PV excluding tax allowing a margin of 10%, apply:
PV HT = PA HT x (1 + Margin rate).
Calculation: PV excluding tax = €200 x (1 + 0,10) = €220.
The selling price excluding tax of €220 ensures a margin of 10%.By reducing the sale price by €20, the new PV excluding tax is €200.
The new unit margin is: PV HT – PA HT = €200 – €200 = €0.
This implies that there is no more profit margin.Quantity required for an overall margin of €5 with €000 unit margin:
Unit margin = €20.
Quantity = €5 ÷ €000 = 20.
You need to sell 250 tables to reach this goal with the initial margin.
Markup rate: ((PV HT – PA HT) ÷ PV HT) x 100 = ((220 € – 200 €) ÷ 220 €) x 100 = 9,09%.
The importance of markup lies in its ability to show the share of gain relative to sale, and is essential for price-perception strategy.To increase gross margin while keeping the same price, it is possible to optimize production costs, with better negotiations with suppliers or to introduce more efficient processes to reduce losses and waste.
Formulas Used:
| Title | Formulas |
|---|---|
| PV HT (margin) | PA HT x (1 + Margin rate) |
| Unit margin | PV HT – PA HT |
| Minimum quantity | Overall margin ÷ Unit margin |
| Brand taxes | ((PV HT – PA HT) ÷ PV HT) x 100 |
App: Gourmet Delights
States :
Gourmet Delights, a high-end bakery, is preparing to launch a new luxury cake for the holidays. The cost to make each cake is €15. The company wants to maintain a 10% margin for this specific product while offering customization options that can influence the selling price.
Work to do :
- Calculate the selling price (SPP) excluding tax for a margin of 10%.
- If a customization option increases the cost by €3, how does that affect the margin?
- How many cakes must be sold to achieve an overall margin of €3 with the initial PV excluding VAT?
- Explain the effect of brand rate on customer perception and its strategic importance.
- Discuss alternatives to maximize profit knowing that ingredient costs may vary.
Proposed correction:
To calculate the PV HT with a margin of 10%, use:
PV HT = PA HT x (1 + Margin rate).
Calculation: PV excluding tax = €15 x (1 + 0,10) = €16,50.
The selling price excluding tax should be €16,50 to achieve the desired margin.With an increase of €3 for customization, the HT PA becomes €18.
The new unit margin is: PV HT – PA HT = €16,50 – €18 = -€1,50.
This change induces a loss if the sale price remains at €16,50 without adjustment.For an overall margin of €3, with a unit margin of €000:
Quantity = Overall margin ÷ Unit margin = €3 ÷ €000 = 1,50.
It is necessary to sell 2 cakes to achieve the target margin.
Markup rate ((PV HT – PA HT) ÷ PV HT) x 100 shows that: ((€16,50 – €15) ÷ €16,50) x 100 = 9,09%.
A good markup rate is essential for perceived price positioning, surely influencing purchasing decisions.Alternatives to maximizing profit include adjusting margins on customization options, reducing fixed costs, or frequently evaluating prices based on changes in raw material costs. Strategic promotions can also influence volume performance.
Formulas Used:
| Title | Formulas |
|---|---|
| PV HT (margin) | PA HT x (1 + Margin rate) |
| Unit margin | PV HT – PA HT |
| Minimum quantity | Overall margin ÷ Unit margin |
| Brand taxes | ((PV HT – PA HT) ÷ PV HT) x 100 |
Application: Sano-Solutions Healthcare
States :
Sano-Solutions Healthcare is developing a new product, a disinfectant gel that is enjoying great success on the market. The company wants to establish a profit margin of 10% on a production cost of €5 per bottle to remain competitive and ensure quality.
Work to do :
- Calculate the selling price excluding VAT to obtain a margin of 10%.
- What would be the effect on the unit margin if the reduction in the selling price is €0,50 per unit?
- If the company wants to achieve an overall margin of €15, how many units must be sold at the calculated price?
- How does the markup rate influence Sano-Solutions’ marketing strategy?
- Explore different methods to adjust your prices in the face of increasing pressure from competitors.
Proposed correction:
To obtain a PV excluding tax allowing a margin of 10%, apply:
PV HT = PA HT x (1 + Margin rate).
Calculation: PV excluding tax = €5 x (1 + 0,10) = €5,50.
The selling price excluding tax required for a 10% margin is €5,50.Reducing the price by €0,50 lowers the PV excluding tax to €5,
The new unit margin becomes: PV HT – PA HT = €5 – €5 = €0.
No profit is made from this price reduction without strategic adaptation.To achieve an overall margin of €15, with an initial unit margin of €000:
Quantity = Overall margin ÷ Unit margin = €15 ÷ €000 = 0,50.
Sano-Solutions must sell 30 units to achieve this goal.
The markup rate ((PV HT – PA HT) ÷ PV HT) x 100 is a key indicator ((€5,50 – €5) ÷ €5,50) x 100 = 9,09%:
A strong brand rate often promotes a perception of quality, justifying the pricing policy in marketing communication.Adjusting prices could include incorporating added value, promotional offers, or investing in customer relationships to maintain or increase the product's appeal against the competition.
Formulas Used:
| Title | Formulas |
|---|---|
| PV HT (margin) | PA HT x (1 + Margin rate) |
| Unit margin | PV HT – PA HT |
| Minimum quantity | Overall margin ÷ Unit margin |
| Brand taxes | ((PV HT – PA HT) ÷ PV HT) x 100 |
Application: Digital Sketch Art
States :
Digital Sketch Art, a digital design company, is launching a new photo editing application. The effective development cost is €25, and for each download, the marginal cost is almost zero. The company understands that a 000% margin on the initial development cost is crucial to ensure its return on investment.
Work to do :
- What should the price excluding VAT per download be to ensure a total margin of 10% for 5 downloads?
- If the price for each download is set at €5, what total margin is obtained after 3 downloads?
- What would be the new strategy to reach a specific minimum margin of €15?
- Analyze the importance of markup rate in the context of a digital application.
- Suggest ways to increase margins without increasing the selling price.
Proposed correction:
The required price per download for 10% overall margin on 5 downloads is obtained as follows:
Desired margin = Development cost + 10% development cost = €25 + (000 x €0,10) = €25.
Unit price = Total margin ÷ Number of downloads = €27 ÷ 500 = €5.
Each of the 5 downloads must be sold at €000 to achieve such a margin.With a fixed price of €5 and 3 downloads, the revenue is:
Income = €5 x €3 = €000.
The margin obtained after covering the development cost is:
Margin = Revenue – Development cost = €15 – €000 = -€25.
A negative margin results, highlighting that the break-even point is not reached.To reach a margin of €15, calculate:
Total margin = Development cost + €15 = €000.
The price to be established = Total margin ÷ Number of downloads = €40 ÷ 000 = €5.
Revising the strategy here aims to adopt realistic pricing with effective promotion to support sales.
In a digital application context, the markup rate ((PV HT – PA HT) ÷ PV HT) x 100, is edifying, showing how price optimization increases perceived appeal without compromising on values.
To increase margins without increasing the price, Digital Sketch Art could introduce: premium functionality, additional services around the application, and loyalty through subscriptions, thus enriching users.
Formulas Used:
| Title | Formulas |
|---|---|
| Unit price | Total Margin ÷ Quantity |
| Total margin | Income – Development cost |
| Brand taxes | ((PV HT – PA HT) ÷ PV HT) x 100 |
Application: Small Orchard
States :
Petit Verger, a local organic fruit farmer, is considering selling a new product, artisanal jams. The production cost is estimated at €2 per jar. The producer wants to maintain a 10% margin to expand his market during the harvest season.
Work to do :
- Determine the selling price excluding tax for a unit margin of 10%.
- What will be the impact on the unit margin if the purchase price of the cost increases by €0,75 per pot?
- What is the minimum quantity of pots that must be sold to achieve an overall margin of €2 at the initial PV excluding VAT?
- Explain the relationship between margin rate and markup rate for product viability.
- Provide a sustainable marketing strategy to retain customers despite potentially increasing costs.
Proposed correction:
To obtain a PV excluding tax allowing a margin of 10%, use:
PV HT = PA HT x (1 + Margin rate).
Calculation: PV excluding tax = €2 x (1 + 0,10) = €2,20.
Thus, a PV excluding tax of €2,20 guarantees a unit margin of 10%.If the purchase cost increases by €0,75, the new PA excluding tax becomes €2,75.
The unit margin is calculated: PV HT – PA HT = €2,20 – €2,75 = -€0,55.
The increased cost would result in a loss, requiring an adjustment of the PV.To generate an overall margin of €2 with a margin of €500:
Quantity = Overall margin ÷ Unit margin = €2 ÷ €500 = 0,20.
12 pots are needed to achieve this tax objective.
Margin rate is ((PV HT – PA HT) ÷ PA HT) x 100 = ((€2,20 – €2) ÷ €2) x 100 = 10%.
While the markup rate shows ((PV HT – PA HT) ÷ PV HT) x 100 = ((€2,20 – €2) ÷ €2,20) x 100 = 9,09%.
A dynamic understanding of both rates is crucial to optimize market positioning.Sustainable loyalty could introduce subscription offers, recyclable packaging promoting organic products, and intensify local collaborations that give an increased processional image despite financial challenges.
Formulas Used:
| Title | Formulas |
|---|---|
| PV HT (margin) | PA HT x (1 + Margin rate) |
| Unit margin | PV HT – PA HT |
| Minimum quantity | Overall margin ÷ Unit margin |
| Margin rate | ((PV HT – PA HT) ÷ PA HT) x 100 |
| Brand taxes | ((PV HT – PA HT) ÷ PV HT) x 100 |