How-to-calculate-a-margin-in-catering

How to calculate a margin in catering | 9 Exercises

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Application: The Gourmet Delight

States :

Le Délice Gourmand is a restaurant well known for its gourmet dishes. To optimize its profits, the establishment wants to understand the margin made on one of its star dishes: duck breast. The cost of purchasing the duck breast is €12 per portion. The processing cost (cooking, spices, sauce) is €3 per portion. The dish is sold at €28 including tax and the applicable VAT is 5,5%.

Work to do :

  1. Calculate the selling price excluding tax of the duck breast.
  2. Determine the gross unit margin of the duck breast.
  3. What is the margin rate for duck breast?
  4. Calculate the markup rate of the duck breast.
  5. Provide a critical analysis on the impact of 10% increase in purchasing costs on margin.

Proposed correction:

  1. To calculate the sales price excluding tax (HT), we use the formula:

    PV HT = PV TTC ÷ (1 + VAT)

    Let's replace with the available data:

    PV excluding tax = €28 ÷ 1,055 = €26,54

    The selling price excluding tax is therefore €26,54.

  2. The gross unit margin is calculated by subtracting the purchase cost from the selling price excluding tax:

    Gross unit margin = PV excluding tax – (Purchase cost + Transformation cost)

    Gross unit margin = €26,54 – (€12 + €3) = €11,54

    The gross unit margin is €11,54.

  3. The margin rate is calculated as follows:

Margin rate = ((PV excluding tax – PA excluding tax) ÷ PA excluding tax) x 100

Where PV HT = €26,54, PA HT = €12 + €3 = €15

Margin rate = ((€26,54 – €15) ÷ €15) x 100 = 76,93%

The margin rate is 76,93%.

  1. The markup rate is obtained with the formula:

    Brand rate = ((PV excluding tax – PA excluding tax) ÷ PV excluding tax) x 100

    Brand rate = ((€26,54 – €15) ÷ €26,54) x 100 = 43,44%

    The markup rate is 43,44%.

  2. A 10% increase in purchasing costs would increase the purchasing cost from €12 to €13,20. The unit margin would thus be recalculated:

    New margin = €26,54 – (€13,20 + €3) = €10,34

    With a reduced margin, this would certainly affect profits in the long run. The company might consider slightly increasing the selling price to compensate for the increased costs, otherwise it might lose price-sensitive customers.

Formulas Used:

Title Formulas
PV HT Calculation PV HT = PV TTC ÷ (1 + VAT)
Gross unit margin Gross unit margin = PV excluding tax – (Purchase cost + Transformation cost)
Margin rate Margin rate = ((PV excluding tax – PA excluding tax) ÷ PA excluding tax) x 100
Brand taxes Brand rate = ((PV excluding tax – PA excluding tax) ÷ PV excluding tax) x 100

Application: Café Coquette

States :

Café Coquette, a small trendy café, wants to evaluate its financial performance on the sale of its special Sunday brunch. The cost of sourcing all the ingredients for a brunch is €18. The selling price of this brunch is €40 including VAT. The applicable VAT rate is 5,5%.

Work to do :

  1. Determine the selling price excluding tax of the brunch.
  2. Calculate the unit margin on the brunch.
  3. Evaluate the margin rate made by the café for each brunch sold.
  4. Calculate the brunch markup rate.
  5. Analyze the impact of a 5% reduction in the tax-inclusive price on the margin.

Proposed correction:

  1. Let’s calculate the sales price excluding tax (HT):

    PV HT = PV TTC ÷ (1 + VAT)

    PV excluding tax = €40 ÷ 1,055 = €37,91

    The selling price excluding tax for the brunch is €37,91.

  2. The unit margin is determined as follows:

    Unit margin = PV HT – Supply cost

    Unit margin = €37,91 – €18 = €19,91

    The unit margin is €19,91.

  3. Let's use the formula for the margin rate:

Margin rate = ((PV HT – Supply cost) ÷ Supply cost) x 100

Margin rate = ((€37,91 – €18) ÷ €18) x 100 = 110,61%

The margin rate achieved is 110,61%.

  1. For the markup rate, the formula is:

    Markup rate = ((PV HT – Supply cost) ÷ PV HT) x 100

    Brand rate = ((€37,91 – €18) ÷ €37,91) x 100 = 52,52%

    The brunch markup rate is 52,52%.

  2. A 5% reduction in the price including tax would reduce the price including tax from €40 to €38. Let's recalculate:

    New PV excluding VAT = €38 ÷ 1,055 = €36,02

    New Unit Margin = €36,02 – €18 = €18,02

    A decrease in the selling price directly impacts the margin. Although it is still positive, a greater reduction could make the business less profitable. Other optimization measures will have to be considered.

Formulas Used:

Title Formulas
PV HT Calculation PV HT = PV TTC ÷ (1 + VAT)
Unit margin Unit margin = PV HT – Supply cost
Margin rate Margin rate = ((PV HT – Supply cost) ÷ Supply cost) x 100
Brand taxes Markup rate = ((PV HT – Supply cost) ÷ PV HT) x 100

Application: Sweet Flavor Bakery

States :

Boulangerie Saveur Sucrée wants to evaluate the profitability of its almond croissants. The total cost price for each croissant is €0,80. They are sold at a price of €2 including tax. The applicable VAT is 5,5%.

Work to do :

  1. Calculate the selling price excluding tax of each croissant.
  2. Determine the unit gross margin per croissant.
  3. What is the margin rate on these croissants?
  4. Calculate the markup rate of croissants.
  5. Discuss the potential implications of a VAT rate increasing from 5,5% to 10%.

Proposed correction:

  1. Let’s calculate the sales price excluding tax (HT):

    PV HT = PV TTC ÷ (1 + VAT)

    PV excluding tax = €2 ÷ 1,055 = €1,90

    The selling price excluding tax is therefore €1,90.

  2. The gross margin per unit per croissant is calculated by:

    Gross unit margin = PV excluding tax – Cost price

    Gross unit margin = €1,90 – €0,80 = €1,10

    The gross margin per unit is €1,10.

  3. For the margin rate:

Margin rate = ((PV HT – Cost price) ÷ Cost price) x 100

Margin rate = ((€1,90 – €0,80) ÷ €0,80) x 100 = 137,50%

The margin rate is 137,50%.

  1. The markup rate is calculated with:

    Markup rate = ((PV HT – Cost price) ÷ PV HT) x 100

    Brand rate = ((€1,90 – €0,80) ÷ €1,90) x 100 = 57,89%

    The markup rate is 57,89%.

  2. Moving from 5,5% to 10% VAT would have an impact on the selling price excluding VAT:

    NV PV excluding tax = €2 ÷ 1,10 = €1,82

    This variation would reduce the margin and the markup rate. Increasing the price including VAT could be a solution, but could also influence customer perception and demand.

Formulas Used:

Title Formulas
PV HT Calculation PV HT = PV TTC ÷ (1 + VAT)
Gross unit margin Gross unit margin = PV excluding tax – Cost price
Margin rate Margin rate = ((PV HT – Cost price) ÷ Cost price) x 100
Brand taxes Markup rate = ((PV HT – Cost price) ÷ PV HT) x 100

Application: Vegetalicious Restaurant

States :

Vegetalicious Restaurant is known for its innovative vegetable-based dishes. It wants to analyze the margin made on its superfood salad dish. The cost of purchasing the ingredients is €7. The sales price including tax is set at €18 with a VAT of 5,5%.

Work to do :

  1. Determine the selling price excluding tax of the salad.
  2. Calculate the gross margin applied to this dish.
  3. What is the margin rate of superfood salad?
  4. Calculate the markup rate of the dish.
  5. Consider what effect a 5% increase in ingredient cost would have on the profitability of the dish.

Proposed correction:

  1. Let’s calculate the selling price excluding tax:

    PV HT = PV TTC ÷ (1 + VAT)

    PV excluding tax = €18 ÷ 1,055 = €17,06

    The selling price excluding tax of the salad is therefore €17,06.

  2. The gross margin is calculated as follows:

    Gross margin = PV excluding tax – Purchase cost

    Gross margin = €17,06 – €7 = €10,06

    The gross margin is €10,06.

  3. Let's calculate the margin rate:

Margin rate = ((PV HT – Purchase cost) ÷ Purchase cost) x 100

Margin rate = ((€17,06 – €7) ÷ €7) x 100 = 143,71%

The margin rate of superfood salad is 143,71%.

  1. For the mark rate:

    Markup rate = ((PV HT – Purchase cost) ÷ PV HT) x 100

    Brand rate = ((€17,06 – €7) ÷ €17,06) x 100 = 58,97%

    The mark rate of the dish is 58,97%.

  2. If the cost of ingredients increases by 5%, the new cost will be €7 x 1,05 = €7,35.

    New gross margin = €17,06 – €7,35 = €9,71

    The increase in cost reduces the margin. Vegetalicious must consider strategies to preserve its profitability, such as slightly adjusting the selling price or looking for new suppliers.

Formulas Used:

Title Formulas
PV HT Calculation PV HT = PV TTC ÷ (1 + VAT)
Gross margin Gross margin = PV excluding tax – Purchase cost
Margin rate Margin rate = ((PV HT – Purchase cost) ÷ Purchase cost) x 100
Brand taxes Markup rate = ((PV HT – Purchase cost) ÷ PV HT) x 100

Application: Snack Le Rapide

States :

Snack Le Rapide is a small neighborhood restaurant that mainly serves sandwiches. Each sandwich costs €1,50 to stock up on. It is sold for €5 including tax and the current VAT is 10%. The manager wants to assess the competitiveness of his products.

Work to do :

  1. Calculate the selling price excluding tax of a sandwich.
  2. Determine the unit margin made on each sandwich.
  3. What is the margin rate obtained by the snack bar?
  4. Calculate the markup rate of sandwiches.
  5. Present an analysis of the effect of a reduction of €0,50 on the sales price including tax.

Proposed correction:

  1. To determine the selling price excluding VAT:

    PV HT = PV TTC ÷ (1 + VAT)

    PV excluding tax = €5 ÷ 1,10 = €4,55

    The selling price excluding tax of a sandwich is therefore €4,55.

  2. The unit margin achieved is:

    Unit margin = PV HT – Supply cost

    Unit margin = €4,55 – €1,50 = €3,05

    The unit margin is €3,05.

  3. For the margin rate:

Margin rate = ((PV HT – Supply cost) ÷ Supply cost) x 100

Margin rate = ((€4,55 – €1,50) ÷ €1,50) x 100 = 203,33%

The margin rate obtained is 203,33%.

  1. Let's calculate the markup rate:

    Markup rate = ((PV HT – Supply cost) ÷ PV HT) x 100

    Brand rate = ((€4,55 – €1,50) ÷ €4,55) x 100 = 67,03%

    The markup rate is 67,03%.

  2. If the sales price including VAT decreases by €0,50, the new price will be €4,50. Then:

    New PV excluding VAT = €4,50 ÷ 1,10 = €4,09

    New unit margin = €4,09 – €1,50 = €2,59

    A price reduction can increase demand, but also decrease net margin. The decision should be made by evaluating customer reaction and local market dynamics.

Formulas Used:

Title Formulas
PV HT Calculation PV HT = PV TTC ÷ (1 + VAT)
Unit margin Unit margin = PV HT – Supply cost
Margin rate Margin rate = ((PV HT – Supply cost) ÷ Supply cost) x 100
Brand taxes Markup rate = ((PV HT – Supply cost) ÷ PV HT) x 100

Application: Pizzeria La Dolce Vita

States :

La Dolce Vita is an artisanal pizzeria that wants to analyze its margin on a special truffle pizza. The cost of making a pizza is €10, and it is sold for €25 including VAT. The applicable VAT is 10%.

Work to do :

  1. Calculate the selling price excluding tax of a pizza.
  2. Determine the unit margin per pizza.
  3. Evaluate the margin rate of the special pizza.
  4. Calculate the markup rate of this pizza.
  5. Suggest a reflection on the impact of a move to 8% VAT on the net margin.

Proposed correction:

  1. Let’s calculate the selling price excluding tax:

    PV HT = PV TTC ÷ (1 + VAT)

    PV excluding tax = €25 ÷ 1,10 = €22,73

    The selling price excluding tax of a pizza is €22,73.

  2. The unit margin per pizza is calculated as follows:

    Unit margin = PV excluding tax – Manufacturing cost

    Unit margin = €22,73 – €10 = €12,73

    The unit margin is €12,73.

  3. The margin rate is calculated by:

Margin rate = ((PV HT – Manufacturing cost) ÷ Manufacturing cost) x 100

Margin rate = ((€22,73 – €10) ÷ €10) x 100 = 127,30%

The margin rate is 127,30%.

  1. For the mark rate:

    Markup rate = ((PV HT – Manufacturing cost) ÷ PV HT) x 100

    Brand rate = ((€22,73 – €10) ÷ €22,73) x 100 = 56,00%

    The markup rate of pizza is 56,00%.

  2. With a VAT of 8%, let's recalculate:

    NV PV excluding tax = €25 ÷ 1,08 = €23,15

    New unit margin = €23,15 – €10 = €13,15

    A VAT reduction increases the net margin. The pizzeria can consider temporary promotions or increase its investments in quality with the savings made.

Formulas Used:

Title Formulas
PV HT Calculation PV HT = PV TTC ÷ (1 + VAT)
Unit margin Unit margin = PV excluding tax – Manufacturing cost
Margin rate Margin rate = ((PV HT – Manufacturing cost) ÷ Manufacturing cost) x 100
Brand taxes Markup rate = ((PV HT – Manufacturing cost) ÷ PV HT) x 100

Application: Bistro The Flavors of Yesteryear

States :

Les Saveurs d'Antan is a bistro offering traditional dishes. They want to examine the margin of one of their flagship desserts, the chocolate cake. The total cost of the ingredients for this dessert is €3,50. It sells for €9 including tax with a VAT of 5,5%.

Work to do :

  1. Calculate the selling price excluding tax of the dessert.
  2. Determine the unit margin on the cake.
  3. What is the margin rate associated with dessert?
  4. Calculate the markup rate of the cake.
  5. Analyze the impact of a 10% decrease in ingredient costs on margin.

Proposed correction:

  1. Let’s calculate the selling price excluding tax:

    PV HT = PV TTC ÷ (1 + VAT)

    PV excluding tax = €9 ÷ 1,055 = €8,53

    The selling price excluding VAT of the chocolate cake is €8,53.

  2. The unit margin is calculated as follows:

    Unit margin = PV excluding tax – Cost of ingredients

    Unit margin = €8,53 – €3,50 = €5,03

    The unit margin is €5,03.

  3. Let's calculate the margin rate:

Margin rate = ((PV HT – Cost of ingredients) ÷ Cost of ingredients) x 100

Margin rate = ((€8,53 – €3,50) ÷ €3,50) x 100 = 143,71%

The margin rate is 143,71%.

  1. The markup rate is determined by:

    Markup rate = ((PV HT – Cost of ingredients) ÷ PV HT) x 100

    Brand rate = ((€8,53 – €3,50) ÷ €8,53) x 100 = 59,00%

    The cake's markup rate is 59,00%.

  2. If the cost of ingredients decreases by 10%, the new cost will be:

    New Cost of ingredients = €3,50 x 0,90 = €3,15

    New Unit Margin = €8,53 – €3,15 = €5,38

    A cost reduction directly increases the net margin, strengthening the profitability of the dessert. The bistro could decide to continue optimizing costs or reinvest these savings in additional promotions to attract more customers.

Formulas Used:

Title Formulas
PV HT Calculation PV HT = PV TTC ÷ (1 + VAT)
Unit margin Unit margin = PV excluding tax – Cost of ingredients
Margin rate Margin rate = ((PV HT – Cost of ingredients) ÷ Cost of ingredients) x 100
Brand taxes Markup rate = ((PV HT – Cost of ingredients) ÷ PV HT) x 100

Application: Rotisserie The Golden Chicken

States :

The Rotisserie Le Poulet Doré is famous for its quality roast chicken. Each chicken has a supply cost of €8. The sale price is €20 including VAT with a VAT of 5,5%.

Work to do :

  1. Calculate the selling price excluding tax of a chicken.
  2. Determine the unit margin earned on each chicken.
  3. What is the margin rate for roast chicken?
  4. Calculate the markup rate of the product.
  5. Consider the potential impact of a 15% increase in the sales price including VAT on sales.

Proposed correction:

  1. The selling price excluding tax is calculated by:

    PV HT = PV TTC ÷ (1 + VAT)

    PV excluding tax = €20 ÷ 1,055 = €18,96

    The selling price excluding tax of a chicken is €18,96.

  2. The unit margin is calculated as follows:

    Unit margin = PV HT – Supply cost

    Unit margin = €18,96 – €8 = €10,96

    The unit margin earned is €10,96.

  3. Let's calculate the margin rate:

Margin rate = ((PV HT – Supply cost) ÷ Supply cost) x 100

Margin rate = ((€18,96 – €8) ÷ €8) x 100 = 137,00%

The margin rate for chicken is 137,00%.

  1. For the mark rate:

    Markup rate = ((PV HT – Supply cost) ÷ PV HT) x 100

    Brand rate = ((€18,96 – €8) ÷ €18,96) x 100 = 57,82%

    The markup rate is 57,82%.

  2. If the sales price including tax increases by 15%, it will become €23:

    New PV excluding VAT = €23 ÷ 1,055 = €21,80

    New margin = €21,80 – €8 = €13,80

    Although the increase improves the margin, it must be considered in relation to the price sensitivity of customers. Too high a price could reduce demand, so it is crucial to know the market perception.

Formulas Used:

Title Formulas
PV HT Calculation PV HT = PV TTC ÷ (1 + VAT)
Unit margin Unit margin = PV HT – Supply cost
Margin rate Margin rate = ((PV HT – Supply cost) ÷ Supply cost) x 100
Brand taxes Markup rate = ((PV HT – Supply cost) ÷ PV HT) x 100

Application: Zen Fusion Cuisine

States :

Cuisine Fusion Zen is a modern canteen focused on healthy dishes, merging different cuisines from around the world. To assess its competitiveness, they want to analyze the profitability of their vegetable curry. The cost of purchasing the ingredients is €5. Their curry is sold at a VAT-inclusive price of €15 while VAT is 5,5%.

Work to do :

  1. Calculate the selling price excluding VAT for the curry.
  2. What is the gross unit margin achieved per dish?
  3. Evaluate the margin rate for vegetable curry.
  4. Calculate the markup rate of the dish.
  5. Estimate the financial impact if the purchase cost increases by 20% without changing the selling price.

Proposed correction:

  1. To calculate the selling price excluding VAT:

    PV HT = PV TTC ÷ (1 + VAT)

    PV excluding tax = €15 ÷ 1,055 = €14,22

    The selling price of the curry excluding tax is €14,22.

  2. Let’s calculate the gross unit margin:

    Gross unit margin = PV excluding tax – Purchase cost

    Gross unit margin = €14,22 – €5 = €9,22

    The gross unit margin achieved is €9,22.

  3. Margin rate assessment:

Margin rate = ((PV HT – Purchase cost) ÷ Purchase cost) x 100

Margin rate = ((€14,22 – €5) ÷ €5) x 100 = 184,40%

The margin rate is 184,40%.

  1. Calculation of the markup rate:

    Markup rate = ((PV HT – Purchase cost) ÷ PV HT) x 100

    Brand rate = ((€14,22 – €5) ÷ €14,22) x 100 = 64,83%

    The mark rate of the dish is 64,83%.

  2. If the purchase cost increases by 20%, it goes to €6:

    New gross unit margin = €14,22 – €6 = €8,22

    This decrease in margin requires Cuisine Fusion Zen to review its strategy. It would be necessary to study an adjustment of the selling price or to reduce other costs to compensate for the increase.

Formulas Used:

Title Formulas
PV HT Calculation PV HT = PV TTC ÷ (1 + VAT)
Gross unit margin Gross unit margin = PV excluding tax – Purchase cost
Margin rate Margin rate = ((PV HT – Purchase cost) ÷ Purchase cost) x 100
Brand taxes Markup rate = ((PV HT – Purchase cost) ÷ PV HT) x 100

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