In this section:
Application: The Healthy Gourmet
States :
Le Gourmet Sain, an organic restaurant, wants to analyze the performance of its flagship dishes to optimize its menu. During the last month, "Le Plat Végétarien Deluxe" sold 400 copies. The sales price excluding tax (HT) of each dish is €15, and the purchase price excluding tax of the ingredients needed to prepare it is €9. The restaurant would like to calculate the total margin on this dish and analyze the impact of a possible price increase.
Work to do :
- Calculate the unit margin of the “Deluxe Vegetarian Dish”.
- Determine the total margin made on this dish during the month.
- Calculate the margin rate for this dish.
- If the net selling price is increased by 10%, what will the new unit margin be?
- Analyze the impact of this price increase on the competitiveness of the dish compared to the competition.
Proposed correction:
-
Calculate the unit margin of the “Deluxe Vegetarian Dish”.
The unit margin is the difference between the selling price excluding VAT and the purchasing price excluding VAT.
Unit margin = PV excluding tax – PA excluding tax = €15 – €9 = €6.
Le Gourmet Sain makes a margin of €6 on each “Deluxe Vegetarian Dish” sold. -
Determine the total margin made on this dish during the month.
The total margin is obtained by multiplying the unit margin by the quantity sold.
Total margin = Unit margin x quantity sold = €6 x 400 = €2.
The restaurant made a total margin of €2 on this dish for the past month. -
Calculate the margin rate for this dish.
The margin rate is calculated using the following formula:
Margin rate = ((PV HT – PA HT) ÷ PA HT) x 100.
Margin rate for this dish = ((€15 – €9) ÷ €9) x 100 = (6 ÷ 9) x 100 = 66,67%.
The margin rate for this dish is 66,67%.
-
If the net selling price is increased by 10%, what will the new unit margin be?
New PV excluding VAT = PV excluding VAT + (PV excluding VAT x increase in %) = €15 + (€15 x 0,10) = €16,50.
New unit margin = New PV excluding tax – PA excluding tax = €16,50 – €9 = €7,50.
With the 10% increase, the new unit margin will be €7,50. -
Analyze the impact of this price increase on the competitiveness of the dish compared to the competition.
An increase in margin helps improve the profitability of the dish. However, if the price becomes significantly higher than that of similar competitors, this could lead to a drop in sales. It is important for “Le Gourmet Sain” to monitor competitor prices to ensure that the “Deluxe Vegetarian Dish” remains competitive.
Formulas Used:
| Title | Formulas |
|---|---|
| Unit margin | PV HT – PA HT |
| Total margin | Unit margin x quantity sold |
| Margin rate | ((PV HT – PA HT) ÷ PA HT) x 100 |
| New sale price | PV HT + (PV HT x increase in %) |
| New unit margin | New PV HT – PA HT |
Application: Tech on Demand
States :
Tech à la Carte is an electronic gadget store looking to improve its pricing strategies. One of their flagship products, the “Smart Hub,” sells 200 units per month. The purchase cost excluding tax for each device is €45, while its selling price is €99 excluding tax. The store is considering offering a 10% promotional discount and wants to assess the impact on its margin.
Work to do :
- Determine the current unit margin on the “Smart Hub”.
- Calculate the total margin generated by this product in a typical month.
- Find the current margin rate of the “Smart Hub”.
- What will be the new selling price excluding VAT after the 10% promotional discount?
- Evaluate the impact of the promotion on total margin if sales increase by 30% due to the discount.
Proposed correction:
-
Determine the current unit margin on the “Smart Hub”.
The unit margin is calculated as follows:
Unit margin = PV excluding tax – PA excluding tax = €99 – €45 = €54.
Currently, Tech à la Carte makes a margin of €54 on each “Smart Hub”. -
Calculate the total margin generated by this product in a typical month.
Total margin = Unit margin x quantity sold = €54 x 200 = €10.
In a typical month, the total margin on the “Smart Hub” amounts to €10. -
Find the current margin rate of the “Smart Hub”.
Let's use the margin rate formula:
Margin rate = ((PV HT – PA HT) ÷ PA HT) x 100.
Margin rate = ((€99 – €45) ÷ €45) x 100 = (54 ÷ 45) x 100 = 120%.
The current margin rate of the “Smart Hub” is 120%.
-
What will be the new selling price excluding VAT after the 10% promotional discount?
New PV HT = PV HT – (PV HT x discount) = €99 – (€99 x 0,10) = €89,10.
The selling price excluding VAT after discount will be €89,10. -
Evaluate the impact of the promotion on total margin if sales increase by 30% due to the discount.
Quantity sold after increase = 200 x (1 + 0,30) = 260 units.
New unit margin with promotion = €89,10 – €45 = €44,10.
New total margin = €44,10 x 260 = €11.
Although the unit margin is reduced, the increase in sales could bring the total margin to €11, an increase from the previous margin.
Formulas Used:
| Title | Formulas |
|---|---|
| Unit margin | PV HT – PA HT |
| Total margin | Unit margin x quantity sold |
| Margin rate | ((PV HT – PA HT) ÷ PA HT) x 100 |
| New sale price | PV HT – (PV HT x discount) |
| Quantity sold after increase | quantity x (1 + increase in %) |
| New unit margin | New PV HT – PA HT |
Application: Exclusive Beauty
States :
Beauté Exclusive, a chain of beauty salons, is studying the profitability of its facial care services. Each treatment is sold at €60 excluding VAT while the cost of the products used comes to €20 excluding VAT per treatment. During the last quarter, 500 treatments were performed. In order to improve competitiveness, the salon is considering lowering its selling price by €5. You are responsible for analyzing the impact of this change.
Work to do :
- Calculate the current unit margin for each treatment.
- Determine what the total quarterly margin is for this service.
- Calculate the current markup rate of care.
- What will the new markup rate be if the selling price excluding tax drops to €55?
- Discuss the strategic implications of a price drop for Beauté Exclusive.
Proposed correction:
-
Calculate the current unit margin for each treatment.
Unit margin = PV excluding tax – PA excluding tax = €60 – €20 = €40.
Currently, Beauté Exclusive makes a margin of €40 per facial treatment. -
Determine what the total quarterly margin is for this service.
Total margin = Unit margin x quantity sold = €40 x 500 = €20.
Over the quarter, the total margin is €20 for facial treatments. -
Calculate the current markup rate of care.
Mark rate = ((PV HT – PA HT) ÷ PV HT) x 100.
Markup rate = ((€60 – €20) ÷ €60) x 100 = (40 ÷ 60) x 100 = 66,67%.
The current markup rate is 66,67%.
-
What will the new markup rate be if the selling price excluding tax drops to €55?
New markup rate = ((€55 – €20) ÷ €55) x 100 = (35 ÷ 55) x 100 = 63,64%.
If the sale price is adjusted to €55, the markup rate will be reduced to 63,64%. -
Discuss the strategic implications of a price drop for Beauté Exclusive.
The reduction in selling price could make Exclusive Beauty’s services more attractive to consumers and potentially increase sales volume. However, the lower markup rate requires that additional sales volume offset the loss in unit margin to maintain total profitability.
Formulas Used:
| Title | Formulas |
|---|---|
| Unit margin | PV HT – PA HT |
| Total margin | Unit margin x quantity sold |
| Brand taxes | ((PV HT – PA HT) ÷ PV HT) x 100 |
| New mark rate | ((New PV HT – PA HT) ÷ New PV HT) x 100 |
Application: Garden House
States :
Maison des Jardins is a store specializing in gardening tools. One of their star products is the “Turbo Mower,” which sells for €250 excluding VAT. The purchase price excluding VAT from the supplier is €150. On average, 150 units of this product are sold each month. However, Maison des Jardins wants to offer a bundle that will reduce the individual price to €230 excluding VAT. Analyze the impact on the margin.
Work to do :
- What is the current unit margin for “Turbo Mower”?
- Calculate the total monthly margin without discount.
- Determine the current margin rate for this product.
- What would be the margin rate with the bundled offer at €230 excluding tax?
- Analyze the effect of the bundled offer on the financial balance of Maison des Jardins.
Proposed correction:
-
What is the current unit margin for “Turbo Mower”?
Unit margin = PV excluding tax – PA excluding tax = €250 – €150 = €100.
The margin per mower is currently €100. -
Calculate the total monthly margin without discount.
Total margin = Unit margin x quantity sold = €100 x 150 = €15.
Each month, the total margin generated by the “Turbo Mower” is €15. -
Determine the current margin rate for this product.
Margin rate = ((PV HT – PA HT) ÷ PA HT) x 100.
Margin rate = ((€250 – €150) ÷ €150) x 100 = (100 ÷ 150) x 100 = 66,67%.
The margin rate on the mower is 66,67%.
-
What would be the margin rate with the bundled offer at €230 excluding tax?
New margin rate = ((€230 – €150) ÷ €150) x 100 = (80 ÷ 150) x 100 = 53,33%.
The margin rate would drop to 53,33% with the bundled offer. -
Analyze the effect of the bundled offer on the financial balance of Maison des Jardins.
The lower margin rate due to the bundle could be offset by increased sales if enough customers are attracted to the discount. Maison des Jardins must estimate the additional sales volume required to maintain their financial targets and assess whether the discount also promotes increased customer loyalty.
Formulas Used:
| Title | Formulas |
|---|---|
| Unit margin | PV HT – PA HT |
| Total margin | Unit margin x quantity sold |
| Margin rate | ((PV HT – PA HT) ÷ PA HT) x 100 |
| New margin rate | ((New PV HT – PA HT) ÷ PA HT) x 100 |
Application: Studio Cubik
States :
Studio Cubik, a design company, offers an online training course specializing in graphic design at a price of €500 excluding VAT per registration. The costs associated with setting up this training are €200 excluding VAT per participant. In the last quarter, 80 participants took this training course. Studio Cubik is considering increasing the price to €550 excluding VAT. Study the effects of this increase on their margins.
Work to do :
- Calculate the current unit margin achieved per participant.
- What is the current quarterly total margin for training?
- What is the current markup rate applied to this training?
- If the price increases to €550 excluding VAT, what will the new unit margin be?
- Analyze the potential impact of the price increase on the attractiveness of the training.
Proposed correction:
-
Calculate the current unit margin achieved per participant.
Unit margin = PV excluding tax – PA excluding tax = €500 – €200 = €300.
For each participant, Studio Cubik makes a margin of €300. -
What is the current quarterly total margin for training?
Total margin = Unit margin x quantity of participants = €300 x 80 = €24.
The total margins generated during the quarter are €24. -
What is the current markup rate applied to this training?
Mark rate = ((PV HT – PA HT) ÷ PV HT) x 100.
Markup rate = ((€500 – €200) ÷ €500) x 100 = (300 ÷ 500) x 100 = 60%.
The current mark rate on training is 60%.
-
If the price increases to €550 excluding VAT, what will the new unit margin be?
New unit margin = New PV excluding tax – PA excluding tax = €550 – €200 = €350.
With the price increase, the unit margin will increase to €350. -
Analyze the potential impact of the price increase on the attractiveness of the training.
Increasing the price can improve the perception of value while increasing profitability per participant. However, it risks decreasing the potential participant base if the perceived price becomes too high relative to the competition. Studio Cubik may need to offer value additions to the training to justify this increase.
Formulas Used:
| Title | Formulas |
|---|---|
| Unit margin | PV HT – PA HT |
| Total margin | Unit margin x quantity of participants |
| Brand taxes | ((PV HT – PA HT) ÷ PV HT) x 100 |
| New unit margin | New PV HT – PA HT |
Application: L'Envolée Bookstore
States :
L'Envolée bookstore recently increased its stock of a bestseller called "Évasion Lointaine". Currently, each book is sold for €20 excluding VAT, while the purchase price from the publisher is €12. The bookstore sells about 300 copies each month. It is considering offering a special discount of €18. Examine the impact on its margins.
Work to do :
- Calculate the current unit margin on “Distant Escape”.
- What is the current monthly total margin for this book?
- Determine the existing margin rate for this book.
- With the promotional price of €18, what will the new margin rate be?
- Discuss the potential impact of the promotional offer on L'Envolée's overall strategy.
Proposed correction:
-
Calculate the current unit margin on “Distant Escape”.
Unit margin = PV excluding tax – PA excluding tax = €20 – €12 = €8.
Each book sold by L'Envolée brings a margin of €8. -
What is the current monthly total margin for this book?
Total margin = Unit margin x number of books sold = €8 x 300 = €2.
Per month, L'Envolée generates €2 in margin on this bestseller. -
Determine the existing margin rate for this book.
Margin rate = ((PV HT – PA HT) ÷ PA HT) x 100.
Margin rate = ((€20 – €12) ÷ €12) x 100 = (8 ÷ 12) x 100 = 66,67%.
The margin rate for the book is 66,67%.
-
With the promotional price of €18, what will the new margin rate be?
New margin rate = ((€18 – €12) ÷ €12) x 100 = (6 ÷ 12) x 100 = 50%.
The promotional offer would reduce the margin rate to 50%. -
Discuss the potential impact of the promotional offer on L'Envolée's overall strategy.
Price reduction can boost sales and increase store traffic, but it also reduces unit margin. L’Envolée should assess whether the increase in sales volumes will offset the reduction in margin. A well-executed promotional campaign could also strengthen customer engagement.
Formulas Used:
| Title | Formulas |
|---|---|
| Unit margin | PV HT – PA HT |
| Total margin | Unit margin x number of books sold |
| Margin rate | ((PV HT – PA HT) ÷ PA HT) x 100 |
| New margin rate | ((New PV HT – PA HT) ÷ PA HT) x 100 |
App: Fitness Unlimited
States :
Fitness Unlimited is a fitness center that serves a diverse clientele. Their monthly memberships are priced at $40 excluding VAT, with an average cost per member of $15 excluding VAT. They currently have 500 active members. In order to acquire more members, there are plans to lower the membership to $35. Consider the impact on their bottom line.
Work to do :
- Determine the current unit margin per subscription.
- Calculate the current monthly total margin with 500 subscribers.
- What is the markup rate on the current subscription?
- What would be the new break-even point in terms of number of subscribers if the price is reduced to €35?
- Assess the strategic implications for Fitness Unlimited of such a price reduction.
Proposed correction:
-
Determine the current unit margin per subscription.
Unit margin = PV excluding tax – PA excluding tax = €40 – €15 = €25.
Fitness Unlimited takes a €25 margin per subscription. -
Calculate the current monthly total margin with 500 subscribers.
Total margin = Unit margin x number of subscribers = €25 x 500 = €12.
The total margin per month amounts to €12 for all subscribers. -
What is the markup rate on the current subscription?
Mark rate = ((PV HT – PA HT) ÷ PV HT) x 100.
Markup rate = ((€40 – €15) ÷ €40) x 100 = (25 ÷ 40) x 100 = 62,5%.
The subscription currently has a markup rate of 62,5%.
-
What would be the new break-even point in terms of number of subscribers if the price is reduced to €35?
New unit margin = €35 – €15 = €20.
Break-even point = Total monthly cost ÷ New unit margin = €12 ÷ €500 = 20 subscribers.
With the price drop, Fitness Unlimited will need to attract 625 subscribers to reach the current break-even point. -
Assess the strategic implications for Fitness Unlimited of such a price reduction.
Lowering the subscription price may open the doors to a larger customer base, thus bringing in more members. However, this would result in a necessary increase in the number of subscribers to maintain or improve their profitability. While relaxing their pricing policy, Fitness Unlimited must ensure that they do not compromise their service offering.
Formulas Used:
| Title | Formulas |
|---|---|
| Unit margin | PV HT – PA HT |
| Total margin | Unit margin x number of subscribers |
| Brand taxes | ((PV HT – PA HT) ÷ PV HT) x 100 |
| New unit margin | New PV HT – PA HT |
| Break even | Total Monthly Cost ÷ New Unit Margin |
Application: Local Crafts
States :
Artisanerie du Coin sells handmade pottery for €60 excluding VAT, with a production cost of €35 excluding VAT per piece. Having sold 200 pieces in the last month, the shop wants to test a new manufacturing method that reduces the cost by €10. Study this innovation on the margin.
Work to do :
- What is the current unit margin per pottery?
- Calculate the total margin made last month.
- Calculate the current margin rate.
- If the production cost decreases by €10, what would be the new unit and total margin?
- Analyze the potential impact of this cost reduction on Artisanerie du Coin’s business strategy.
Proposed correction:
-
What is the current unit margin per pottery?
Unit margin = PV excluding tax – PA excluding tax = €60 – €35 = €25.
Artisanerie du Coin currently makes a margin of €25 per pottery. -
Calculate the total margin made last month.
Total margin = Unit margin x quantity sold = €25 x 200 = €5.
Last month, a total margin of €5 was made on pottery. -
Calculate the current margin rate.
Margin rate = ((PV HT – PA HT) ÷ PA HT) x 100.
Margin rate = ((€60 – €35) ÷ €35) x 100 = (25 ÷ 35) x 100 = 71,43%.
The current margin rate is 71,43%.
-
If the production cost decreases by €10, what would be the new unit and total margin?
New production cost = €35 – €10 = €25.
New unit margin = €60 – €25 = €35.
New total margin = €35 x 200 = €7.
With the new cost, the unit margin would increase to €35, and the total margin to €7. -
Analyze the potential impact of this cost reduction on Artisanerie du Coin’s business strategy.
Reducing production costs can significantly improve profit margin without adjusting the selling price. Artisanerie du Coin could reinvest these increased profits into marketing initiatives or offer strategic discounts to further boost sales.
Formulas Used:
| Title | Formulas |
|---|---|
| Unit margin | PV HT – PA HT |
| Total margin | Unit margin x quantity sold |
| Margin rate | ((PV HT – PA HT) ÷ PA HT) x 100 |
| New production cost | Former PA HT – cost reduction |
| New unit margin | PV HT – New production cost |
Application: Mediterranean Flavors
States :
Saveurs Méditerranéennes is an online food store. It sells an assortment of fine olives at a price of €12 excluding VAT per unit, with a purchase price of €7. With 800 units sold per month, the store is considering launching a loyalty program offering a €1 discount per unit from the third order. Analyze the potential impact on their margins.
Work to do :
- Calculate the current unit margin on each can of olives.
- What is the total monthly margin without the loyalty program?
- Determine the current markup rate for olives.
- If 30% of sales benefit from the loyalty program, what will the new total margin be?
- Discuss the benefits and risks associated with implementing the loyalty program.
Proposed correction:
-
Calculate the current unit margin on each can of olives.
Unit margin = PV excluding tax – PA excluding tax = €12 – €7 = €5.
Each box of olives sold generates a margin of €5. -
What is the total monthly margin without the loyalty program?
Total margin = Unit margin x quantity sold = €5 x 800 = €4.
Without the program, the monthly margin is €4. -
Determine the current markup rate for olives.
Mark rate = ((PV HT – PA HT) ÷ PV HT) x 100.
Markup rate = ((€12 – €7) ÷ €12) x 100 = (5 ÷ 12) x 100 = 41,67%.
The current markup rate is 41,67%.
-
If 30% of sales benefit from the loyalty program, what will the new total margin be?
Quantity with discount = 30% of 800 = 240 units.
New unit margin for these sales = €12 – €1 – €7 = €4.
Margin contribution with reduction = €4 x 240 = €960.
Margin contribution without reduction = €5 x (800 – 240) = €2.
New total margin = €960 + €2 = €800.
With the program, the total margin would be €3, a decrease due to the discounts offered. -
Discuss the benefits and risks associated with implementing the loyalty program.
Launching a loyalty program can increase customer retention and drive future sales by building customer loyalty. However, it will reduce the margin on some orders and may require effective management to ensure that increased volume offsets reduced unit margins.
Formulas Used:
| Title | Formulas |
|---|---|
| Unit margin | PV HT – PA HT |
| Total margin | Unit margin x quantity sold |
| Brand taxes | ((PV HT – PA HT) ÷ PV HT) x 100 |
| Quantity with discount | % sales benefiting from the program x quantity sold |
| New unit margin | PV HT – reduction – PA HT |