Case 1: I purchase a product: list price 78 euros; they apply a 25% discount; how much do I get if I sell it at the same price as the list price?
We’ve got two options: first the discount is applied to a list price with VAT excluded taxable income.
If we make a whole price sale, in other words VAT included list price, the margin profit we get is the same as the applied discount that is 25% and the markup is 33,33%. The margin profit is 19,50 euros.
This calculation is independent from the VAT applied value and the margin stay the same, 25%.
Let’s see the second option: the discount is applied to the list price that is VAT included:
If the VAT value is equal to 22%, you can notice that the margin profit will be lower, equal to 8,49%, the mark up will be 9,28% with a 5,43 euros margin profit.
The situation changes as the VAT value changeswe can get a margin up to 22% if the VAT is equal to 4%. Therefore if we apply the same discount to products with different VAT value, our profitability will vary. Link
Case 2: I purchase a product: list price 78 euros VAT included. they apply a 34% discount. how much do I get if I sell it at a price of 96 euros? what would happen if I sold it at a price of 90 euros in order to be more competitive?
In case of selling at the list price, the profit will be: 19,48% margin, 24,20 % markup, 15,33 euros margin. If I reduced the price to 90 euros in oreder to be more competitive, both the margin would decrease (14,11%) and the markup and the margin in euros. Link
Case 3: I purchase a product: list price 132 euros: they apply a 15% + 10 + 10 discount. how much do I get if I sell it at 130 euros?. If I wanted a 2 point higher markup, how much should I sell it to?
In this example we start from a price list VAT included as happens in the retail shops.
We apply our in sequence set of discounts: in discount field 1 we will insert: 15 or 15,00, in discount fields 2 and 3 we will insert the corresponding discount value. As we can see at the end of the calculation, we will receive a 31,15% discount which doesn’t correspond to 15+10+10=35. We will pay our product 98 euros + VAT.
If we sell the product at 130 euros (a lower amount than in the price list), we have a 17,25% markup, a 15,68 euros margin and a 14,71% margin.
Now let’s suppose that we want to get a 2 point markup increase on the same product by applying the same discount: I just have to insert the new value (19,25= 2 point more than the prevoius one) in the “markup %” field. Click on “GO” and the app will make calculation: we can see that we have to sell the product at a price of 132.21 euros and that we wil get an higher margin. Link
Case 4: I purchase a product: list price 78 euros. They aooly a 25% discount plus 5+2 discount in goods. How much do I get if I sell the product at the price list?.
Let’s start from the price list VAT included (22% VAT selected from the control panel) and insert 78 euros in the list field. Insert 25% applied discount in the discount 1 field.
We still have to add the discount in goods: move on “Discount in goods” field and press 5 on the left one and 2 on the right one.
Click on “GO” to display the results: the selling prices appear automatically as the price is equal to price list.
How much is left? According to this set discount, we will get a 52,98% markup, 22,14 euros of margin and a 34,63% margin.
Let’s try to modify the selling price at 70 euros and you will see that the profit will decrease. Link
Case 5: freelance with a 2% pension fund. We have a product which costs 23 euros on the list (10% purchaseVAT/ 22% selling VAT) and a 36% discount. Since It’s going to expire soon, they offer a 5+3 discount. How much margin do I get for each sell?
Let’s start to insert data check what’s going to happen:
After inserting the price list and a 36% discount, we can see that the margin we get is not so high without any other discount: 3,76 euros margin and 20,35% margin.
Let’s insert another discount, 5+3, and examine whay’s going to happen: we get a 50,22% margin in other words 9,28 euros for each sell.
Since it ‘s going to expire soon, I can decide to sell the product at a reduced price of 18 euros: what’s going to happen?. Is it still convenient to me? More or less than the previous promotion sales?.
Despite of the considerable discount we applied, 5 euros each package, I can see that my profit is still higher than the normal market situation. I can get a 36,38% margin instead of a 20,35% as usual.
On balance I can push the costumer to go further with his purchase without decreasing my actual margin. Link
Thanks to M&R we can realise this situation and make the right choice.