Summary
App: Gourmet Delights
States :
Gourmet Delights is a delicatessen specializing in high-quality organic products. Due to the rise of competition from new players in the market, the company has decided to review its pricing strategy. They aim to obtain a better margin rate on a flagship product: organic coffee beans. Currently, the purchase price excluding tax (PA HT) is €8 per kg and the sales price excluding tax (PV HT) is €12 per kg. Management also wants to assess the impact of the potential increase in cost on the final sales price to maintain the current margin rate.
Work to do :
- Calculate the current margin rate for organic coffee beans.
- What would be the selling price excluding tax to achieve a markup rate of 30%?
- If the purchase price increases by 20%, while wanting to keep the same margin rate, what should the new selling price excluding tax be?
- Determine the overall margin if the quantity sold during the month is 500 kg.
- Discuss the strategic implications of the purchase price increase for Gourmet Delights and propose possible solutions to maintain their competitiveness.
Proposed correction:
-
The margin rate is calculated using the formula: ((PV HT – PA HT) ÷ PA HT) x 100).
Substituting, ((12 – 8) ÷ 8) x 100 = 50%.
So the current margin rate is 50%. -
To obtain a markup rate of 30%, we use the formula: PV HT = PA HT ÷ (1 – Markup rate).
Substituting, 8 ÷ (1 – 0,30) = €11,43.
The selling price excluding VAT should be €11,43 to achieve a mark-up rate of 30%. -
If the PA HT increases by 20%, the new PA HT is 8 x 1,20 = €9,60.
To maintain the same margin rate of 50%, PV HT = PA HT x (1 + Margin rate).
Replacing, 9,60 x (1 + 0,50) = €14,40.
The new selling price excluding VAT should be €14,40.
-
The overall margin is the unit margin multiplied by the quantity sold.
Unit margins = PV HT – PA HT = 12 – 8 = 4 €.
Overall margin = 4 x 500 = €2.
The overall margin for 500 kg sold is therefore €2. -
Increasing the purchase price can reduce Gourmet Delights' competitiveness if the selling price increases too much. It is imperative to consider solutions such as increasing operational efficiency, introducing new product lines or negotiating with suppliers to preserve margins without increasing the final price too much.
Formulas Used:
| Title | Formulas |
|---|---|
| Margin rate | ((PV HT – PA HT) ÷ PA HT) x 100 |
| Selling price excluding tax | PA HT ÷ (1 – Mark rate) |
| New selling price excluding VAT | PA HT x (1 + Margin rate) |
| Overall margin | Unit margin x Quantity sold |
Application: Luna Fashion
States :
Luna Fashion is a family business specializing in boho chic women's clothing. The main items in their collection include dresses and accessories. Luna Fashion wants to analyze its profitability to determine if it is worth increasing the production of certain items. Currently, the cotton dress has an AP HT of €30 and a PV HT of €50. Luna sells an average of 200 dresses per month but wants to optimize its costs and increase its profits to face new competition.
Work to do :
- Calculate the current margin rate of the cotton dress.
- What selling price excluding VAT would be required for a 25% markup rate?
- If Luna Fashion sells 150 dresses at a 10% discount rate, what is the decrease in the overall margin?
- Estimate the break-even point in number of dresses if monthly fixed costs amount to €1.
- Analyze the prospects of increasing dress production with respect to storage and distribution capacity.
Proposed correction:
-
The margin rate is calculated using the formula: ((PV HT – PA HT) ÷ PA HT) x 100).
Substituting, ((50 – 30) ÷ 30) x 100 = 66,67%.
Luna Fashion has a margin rate on cotton dress of 66,67%. -
To obtain a markup rate of 25%, we use the formula: PV HT = PA HT ÷ (1 – Markup rate).
Substituting, 30 ÷ (1 – 0,25) = €40.
The selling price excluding tax should be €40 for a mark-up rate of 25%. -
Without discount, the overall margin is €20 x €150 = €3.
With a 10% discount, the PV excluding tax becomes 50 x (1 – 0,10) = €45.
New unit margin = 45 – 30 = €15.
New overall margin = 15 x 150 = €2.
The decrease in the overall margin is 3 – 000 = €2.
-
The break-even point is reached when total margins cover fixed costs.
Threshold = Fixed costs ÷ Unit margin = 1 ÷ 500 = 20 dresses.
Luna Fashion needs to sell at least 75 dresses to break even. -
Increasing production poses challenges in terms of storage and logistics. Luna Fashion must assess its current warehousing capacity and determine whether additional investments are necessary. Distribution can also be optimized through new logistics partnerships to ensure rapid supply.
Formulas Used:
| Title | Formulas |
|---|---|
| Margin rate | ((PV HT – PA HT) ÷ PA HT) x 100 |
| Selling price excluding tax | PA HT ÷ (1 – Mark rate) |
| New overall margin | New unit margin x Quantity sold |
| Break even | Fixed costs ÷ Unit margin |
Application: TechFix Solutions
States :
TechFix Solutions is a company that offers repair and upgrade services for electronic devices. They are currently aiming to expand their business by focusing on the spare parts they sell to customers. A popular part is a phone screen with an AP excluding VAT of €40 and a PV excluding VAT of €85. The company wants to understand how to adjust their pricing policy to maximize revenue while maintaining good customer relations.
Work to do :
- Calculate the current markup rate for the phone screen.
- If the VAT rate is 20%, what is the sales price including VAT of the screen?
- Determine the overall margin for 300 screens sold.
- How much must the net selling price increase to achieve an additional margin of €10 per screen?
- Analyze the impact of frequent price changes on TechFix Solutions customer loyalty.
Proposed correction:
-
The markup rate is calculated using the formula: ((PV HT – PA HT) ÷ PV HT) x 100).
Substituting, ((85 – 40) ÷ 85) x 100 = 52,94%.
The current markup rate for the screen is 52,94%. -
The sales price including tax is calculated using the formula: PV excluding tax x (1 + VAT rate).
Replacing, 85 x (1 + 0,20) = €102.
The sales price of the screen including VAT is €102. -
The unit margin is 85 – 40 = €45.
The overall margin for 300 screens is 45 x 300 = €13.
TechFix Solutions would have an overall margin of €13 for 500 screens.
-
To obtain an additional margin of €10, the new unit margin becomes €45 + 10 = €55.
New PV HT = PA HT + New margin = 40 + 55 = 95 €.
The new PV excluding tax must be €95 for an increased margin. -
Frequent price changes can negatively impact customer perception, making them reluctant to return due to lack of stability. TechFix Solutions must adopt a transparent communication strategy to explain the reasons for price adjustments, in order to maintain a relationship of trust with its customers.
Formulas Used:
| Title | Formulas |
|---|---|
| Brand taxes | ((PV HT – PA HT) ÷ PV HT) x 100 |
| Sales price including tax | PV excluding VAT x (1 + VAT rate) |
| Overall margin | Unit margin x Quantity sold |
| New PV HT | PA HT + New margin |
Application: BioNurture
States :
BioNurture is a small start-up specializing in the online sale of nutritional products from organic farming. A particularly popular product is their powdered algae supplement, sold at a price of €20 excluding VAT and a PV of €36 excluding VAT. The company is currently analyzing its options to increase its profitability by adjusting its prices or increasing its sales volumes.
Work to do :
- Calculate the markup on the powdered seaweed supplement.
- What would be the new selling price excluding tax to achieve a margin rate of 100%?
- What is the overall margin per 1 units sold?
- If sales increase by 20%, while maintaining the same net sales, what will the new overall margin be?
- Evaluate the impact of a 5% price reduction policy on total sales and propose alternative strategies to increase profitability.
Proposed correction:
-
The margin rate is calculated using the formula: ((PV HT – PA HT) ÷ PA HT) x 100).
Substituting, ((36 – 20) ÷ 20) x 100 = 80%.
The current margin rate is 80%. -
To obtain a margin rate of 100%, we use the formula: PV HT = PA HT x (1 + Margin rate).
Replacing, 20 x (1 + 1,00) = €40.
The PV excluding tax should be €40 to reach a margin rate of 100%. -
The unit margin is 36 – 20 = €16.
Overall margin for 1 units: 000 x 16 = €1.
The overall margin is €16 per 000 units sold.
-
With a 20% increase, new sales would be 1 x 000 = 1,20 units.
New overall margin = 16 x 1 = €200.
The new overall margin would be €19. -
A 5% price reduction might temporarily increase sales, but it might also reduce the perceived value of the products. Roughly, a new HT PV would be 36 x (1 – 0,05) = €34,20. It would be wise to focus on adding customer-perceived value, such as better packaging or promotions on multiple products, rather than reducing prices.
Formulas Used:
| Title | Formulas |
|---|---|
| Margin rate | ((PV HT – PA HT) ÷ PA HT) x 100 |
| New PV HT for 100% margin | PA HT x (1 + 1,00) |
| Overall margin | Unit margin x Quantity sold |
| New overall margin | Unit Margin x New Quantity Sold |
App: Oceanic Adventure
States :
Oceanic Adventure, a tour operator specializing in eco-friendly cruises, wants to maximize the profitability of its sea excursions. One of the most popular packages has a HT PA of €1 and sells for a HT PV of €500. To remain competitive while maximizing profits, Oceanic Adventure is considering different pricing strategies.
Work to do :
- What is the current cruise package margin rate?
- What would be the sales price including tax with a VAT rate of 5,5%?
- If Oceanic Adventure wants to apply a 7% discount on the HT PV, calculate the new HT selling price and the unit margin.
- Determine the overall margin for a total of 50 cruises sold after applying the discount.
- Discuss possible strategies Oceanic Adventure could adopt to maintain its high prices while increasing customer satisfaction.
Proposed correction:
-
The margin rate is calculated using the formula: ((PV HT – PA HT) ÷ PA HT) x 100).
Substituting, ((2 – 400) ÷ 1) x 500 = 1%.
The current margin rate is 60%. -
The sales price including tax is calculated as follows: PV excluding tax x (1 + VAT rate).
Substituting, 2 x (400 + 1) = €0,055.
The sales price including tax would be €2. -
With a 7% discount, the new PV excluding tax is 2 x (400 – 1) = €0,07.
New unit margin = 2 – 232 = €1.
After discount, the new PV excluding tax is €2 with a unit margin of €232.
-
Total margin after discount = 732 x 50 = €36.
The overall margin for 50 cruises with discount is €36. -
To maintain high prices while increasing customer satisfaction, Oceanic Adventure could offer value-added services such as expert guides, exclusive excursions or unique culinary experiences. Transparent communication about the ecological sustainability of cruises can also increase customer loyalty.
Formulas Used:
| Title | Formulas |
|---|---|
| Margin rate | ((PV HT – PA HT) ÷ PA HT) x 100 |
| Sales price including tax | PV excluding VAT x (1 + VAT rate) |
| New PV excluding tax with discount | PV HT x (1 – Discount) |
| Overall margin with discount | New unit margin x Quantity sold |
Application: Urban Pulse Electronics
States :
Urban Pulse Electronics, a city centre electronics store, is interested in the impact of its graphics tablet sales on its profits. The AP of a graphics tablet is €180 excluding VAT and it sells for €300 excluding VAT. The company wants to evaluate the possibility of introducing short-term promotions to boost its sales while ensuring that its profitability is not eroded.
Work to do :
- Calculate the margin rate on the sale of a graphics tablet.
- If the company offers a 15% promotion, what is the new selling price excluding VAT?
- What is the unit margin after applying the promotion?
- Estimate the quantity to be sold to achieve an overall margin of €9 at this new price.
- Explain the advantages and disadvantages of short-term promotions for Urban Pulse Electronics' strategy.
Proposed correction:
-
The margin rate is calculated using the formula: ((PV HT – PA HT) ÷ PA HT) x 100).
Substituting, ((300 – 180) ÷ 180) x 100 = 66,67%.
The current margin rate is 66,67%. -
With a 15% promotion, the new PV excluding tax becomes 300 x (1 – 0,15) = €255.
The new selling price excluding VAT is €255 after application of the promotion. -
After promotion, the unit margin is 255 – 180 = €75.
The new unit margin is therefore €75.
-
For an overall margin of €9, quantity = Overall margin ÷ Unit margin.
Substituting, 9 ÷ 000 = 75.
Urban Pulse Electronics needs to sell 120 tablets to reach that margin. -
Short-term promotions can quickly increase sales and clear excess inventory. However, they can reduce the perceived value of products and train customers to only buy on sale. Urban Pulse Electronics should therefore use promotions sparingly and instead focus on differentiation and loyalty to improve its sales strategy.
Formulas Used:
| Title | Formulas |
|---|---|
| Margin rate | ((PV HT – PA HT) ÷ PA HT) x 100 |
| New PV excluding VAT after promotion | PV HT x (1 – Promotion) |
| Quantity for target margin | Overall Margin ÷ New Unit Margin |
App: GreenFresh Market
States :
GreenFresh Market is an organic food retailer looking to increase its market share. One of its flagship products, organic olive oil, is purchased at a HT AP of €7 and sold at a HT PV of €12. The goal is to optimize margins while remaining competitive in the face of growing competition.
Work to do :
- Calculate the markup rate on organic olive oil.
- If GreenFresh Market wants to reduce its price by 5% to improve competitiveness, what will be the new selling price excluding VAT?
- Determine the new margin rate after price reduction.
- If the average monthly sales are 800 bottles, calculate the new monthly overall margin after price reduction.
- Explore strategic alternatives that GreenFresh Market could consider to consolidate its market position without lowering its prices.
Proposed correction:
-
The markup rate is calculated using the formula: ((PV HT – PA HT) ÷ PV HT) x 100).
Substituting, ((12 – 7) ÷ 12) x 100 = 41,67%.
The current markup rate is 41,67%. -
With a 5% price reduction, the new PV excluding tax will be 12 x (1 – 0,05) = €11,40.
The new selling price excluding VAT is €11,40. -
After reduction, the new margin rate is ((11,40 – 7) ÷ 7) x 100.
Substituting, ((11,40 – 7) ÷ 7) x 100 = 62,86%.
The new margin rate is 62,86%.
-
New unit margin = 11,40 – 7 = €4,40.
New monthly overall margin = 4,40 x 800 = €3.
The overall margin is €3. -
Rather than lowering prices, GreenFresh Market could focus on building brand recognition through marketing campaigns that emphasize the superior quality of its products. Diversifying its distribution channels, such as online sales or partnerships with other retailers, could also help solidify its market position.
Formulas Used:
| Title | Formulas |
|---|---|
| Brand taxes | ((PV HT – PA HT) ÷ PV HT) x 100 |
| New PV HT after reduction | PV excluding VAT x (1 – Price Reduction) |
| New margin rate | ((New PV HT – PA HT) ÷ PA HT) x 100 |
| New overall margin | New unit margin x Quantity sold |
Application: Ecology and Escape
States :
Ecologie et Evasion is a travel agency dedicated to sustainable tourism. It offers an eco-safari package with a gross price of €3 and a gross price of €600. In order to increase its profitability while maintaining the authenticity of its offers, the agency is exploring several strategies to adjust its prices and improve its services.
Work to do :
- Calculate the margin rate for the eco-safari package.
- What is the sales price including tax with a VAT rate of 5,5%?
- If the agency applies a 10% promotion on the PV excluding VAT, calculate the new unit margin.
- Calculate the overall margin for 40 eco-safaris sold after applying the promotion.
- Analyze the sustainability of the agency's current pricing strategy and suggest potential improvements.
Proposed correction:
-
The margin rate is calculated using the formula: ((PV HT – PA HT) ÷ PA HT) x 100).
Substituting, ((5 – 500) ÷ 3) x 600 = 3%.
The margin rate of the package is 52,78%. -
The sales price including tax is calculated: PV excluding tax x (1 + VAT rate).
Substituting, 5 x (500 + 1) = €0,055.
The price including VAT is €5. -
With a 10% promotion, the new PV excluding tax will be 5 x (500 – 1) = €0,10.
New unit margin = 4 – 950 = €3.
The new unit margin is €1.
-
Overall margin = New unit margin x Quantity sold = 1 x 350 = €40.
The overall margin for 40 packages after promotion is €54. -
Competition in the sustainable tourism sector requiring attention and authenticity can be intensified by thoughtful pricing. Ecologie et Evasion could explore strategic alliances to further enhance its offerings and adopt an informed marketing strategy, strengthening traveler loyalty and trust in the long term.
Formulas Used:
| Title | Formulas |
|---|---|
| Margin rate | ((PV HT – PA HT) ÷ PA HT) x 100 |
| Sales price including tax | PV excluding VAT x (1 + VAT rate) |
| New PV excluding VAT after promotion | PV HT x (1 – Promotion) |
| Overall margin with promotion | New unit margin x Quantity sold |
Application: Health & Herbal
States :
Health & Herbal is a company dedicated to selling natural health solutions online. One of their star products is a detox infusion, purchased at a HT PA of €4 and sold at a HT PV of €10. Operating in an increasingly competitive market, Health & Herbal is evaluating the relevance of its prices and the implementation of new marketing strategies to drive its growth.
Work to do :
- What is the margin rate on detox infusion?
- For a VAT rate of 20%, what is the sales price including tax of an infusion?
- If Health & Herbal decides to lower the selling price excluding VAT by €1, what will the new margin rate be?
- Determine the quantity of units to sell to achieve an overall margin of €10 with the new price.
- Discuss innovative marketing strategies that Health & Herbal could adopt to increase its market momentum, regardless of price changes.
Proposed correction:
-
The margin rate is calculated using the formula: ((PV HT – PA HT) ÷ PA HT) x 100).
Substituting, ((10 – 4) ÷ 4) x 100 = 150%.
The margin rate for the detox infusion is 150%. -
The sales price including tax is calculated using the formula: PV excluding tax x (1 + VAT rate).
Replacing, 10 x (1 + 0,20) = €12.
The price including tax for the infusion is €12. -
By lowering the PV excluding tax by €1, the new price is €9.
The new margin rate is: ((9 – 4) ÷ 4) x 100 = 125%.
The new margin rate is 125%.
-
New unit margin = 9 – 4 = €5.
Quantity required = Overall margin ÷ New unit margin = 10 ÷ 000 = 5 units.
Health & Herbal needs to sell 2 units to achieve an overall margin of €000. -
To maintain a strong market position, Health & Herbal could develop partnerships with wellness influencers, organize online educational workshops on the benefits of infusions, and expand its margin through an engaging loyalty program, thus strengthening its market presence without relying solely on pricing.
Formulas Used:
| Title | Formulas |
|---|---|
| Margin rate | ((PV HT – PA HT) ÷ PA HT) x 100 |
| Sales price including tax | PV excluding VAT x (1 + VAT rate) |
| New margin rate | ((New PV HT – PA HT) ÷ PA HT) x 100 |
| Quantity for sale for 10€ | Overall Margin ÷ New Unit Margin |