Working with Numbers

Click here for the Basic Margin Model

Promotional Margin Models

To use the Promotional Margin models, just select the model you want (Special Offer; X for £Y (fixed price multi-buy) or X for Y (cheapest free multi-buy) then fill in the green cells. select the discount from the drop down menu on the left hand side ie Half Price, Save 25%, Save 1/3 or Other (with the “Other” option you’ll need to specify the discount in the white field below it. Then simply input the Standard cost and Standard retail price in the green fields and the click on the “Without Vat” radio button if the product does not attract VAT or the “With Vat” button if it does.

If you want to promote the product in question, and you want to maintain the margin while the product is being promoted (ie you will get funding from a supplier to run the promotion) then you will have to work out the promotional margin. There are a number of ways the promotion can be funded

1. a reduced cost from the supplier for the duration of the promotion (not best for the supplier if not all goods are sold on promotion during the promotional dates).
2. weekly invoices either sent to or deducted from the suppliers’’ account based on the promotional volume sold (incorrect margin would be reported as the funding wouldn’t be embedded into the promotion and calculating and raising the invoices would be a very manual process for the Buyer).
3. trigger funding – indeed, some suppliers will only agree to this (rather than a reduced cost) where multi-buy promotions are concerned.

Trigger funding is a concept best explained with a Multi-buy promotion. If you ran a 2 for £5 promotion on Chocolate boxes which cost £5 each, resulting in a 50% discount, for example, a supplier may not want to fund stock which was bought at full price, as they would be simply enhancing your margin. This is a fair argument. They may therefore only want to “fund” the promotion when two products are actually purchased at the same time, which would result in the offer being “triggered”. The funding amount would be described as a “trigger” and we’ve created calculators which work out what the “trigger” would be depending on the offer type.

The three main offer types are:

Special Offer / Temporary Price Reduction – this is where a product is simply reduced in price eg Half Price, Save 1/3, Save 25%, etc.

X for £Y multi-buy – this is where a customer can buy two products for a fixed price such as the 2 for £5 deal described above.

X for Y multi-buy – this is where a customer can buy a given number of units for the price of a lower number of units. Eg 3 for 2, Buy One Get One Free, 6 for 5, etc.

VATable and non-VATable products:

VAT affects margin – it is lower when a product has VAT.

In the UK, VAT is applied to products that are considered luxuries. So things like Children’s books, many different types of food such as milk, bread, butter, peas, broccoli, etc will all be VAT-free.

However, toilet paper (yes, really, toilet paper!!), ice cream, juice, and books for adults, amongst other things, are VAT-able. So if you buy the Fifty Shades of Grey books (ahem!), you will pay VAT! But if you buy the Harry Potter books, you won’t!

Standard Margin Model / Profit Margin Calculator

To use the Standard Margin model, simply fill in the Cost and Retail of the product in question (see green cells below) then click on the “Std (non-vatable) Margin” radio button, if the product does not have VAT or the “Vatable Margin” radio button if it does have VAT.

At first glance, margin may seem a strange word or even concept. However, margin is basically profit divided by revenue, then expressed as a percentage. So you if you made £100 in sales, and £20 in profit, selling some chocolate, or whatever you fancy, then your profit margin would be £20 divided by £100 which is equally to 0.2 or 20%, when expressed as a percentage. This is what is defined as Sales Margin ie profit / revenue.

Price Margin is a similar concept, but it applies to a specific product. Some professionals confuse the calculation for Price Margin with a common method for calculating percentage differences (method 1 on this page: https://workingwithnumbers.com/how-to-work-out-percentages/). Hence the reason we’ve clarifying the differences here. Let’s say you have a product that costs £1 per unit, and you want to sell it for £3. If the product is VAT free (more on that later!), then your Price Margin will be calculated as follows: (retail price – cost price) divided by retail price ie (£3 – £1) / £3 = 0.666667 or 66.7%, which is a pretty good margin. Anything above 50% is considered to be good. You can test this out using the basic margin model below.