Rekenen in centen in plaats van procenten: "You cannot bring percentages to the bank."

QUIZ 

Imagine you own a store or webshop.

The store has an average Gross Margin of 55%

minus Selling, General and Administrative operating expenses of 53%

equals a Net Profit 2%. 

In the store you are selling two comparable products. 

You sell the same Quantity, the same number of units of both.

One is a sustainable product, the customers pay you €4 for selling it and then you pay the factory €2 per unit for supplying it.

The factory charges €1 for the other product. At what selling price would it be as (un)profitable as the sustainable product? 

	Factory gets	Customer pays
Sustainable product	€ 2	€ 4
Other product	€ 1	€ x ?

What price would the customer have to pay for the Other Product for it to have the same margin and to be equally profitable as the Sustainable product? \\

€ x  =  ........ ? 

Why? .................................

CHEATSHEET

The answer is simple. It is based on counting money:

Sustainable product €4 Selling Price - €2 Buying Price = €2 contribution margin. (#Deckungsbeitrag db)

The product that is bought for €1 has to be sold for €1+ €2 contribution margin = €3 to result in the same net profit.

The math: Store Net Profit = € Margin per unit x Quantity sold - € Store Expenses

-----------------------------------------------------

Many stores use the following suboptimal percentage math:

Net Profit = Sales x (Gross Margin % - Expenses %)

The sustainable product has a margin % of 50% (€2/€4) and the other product would be considered equally profitable when sold with the same margin for €2 (€1/€2 = 50%)

In reality it is not equally profitable, it only generates half the cash flow because…..

“You cannot take percentages to the bank.” 

KEY: "Opportunity based costing": When weighing assortment options instead of comparing margin %s to expense %s or attempting to allocate expenses to SKU's the German Deckungsbeitrag framework considers "Opportunitieitskosten" of the relative Deckungbeitrag. 

Murphy USA stores (ticker MUSA) use this framework. Hornbach and others do not.

 For our white paper by C&A colleagues et al see: www.profitperx.com 

As far as I know, a paper on the use of Deckungsbeitrag in retail management whilst ignoring Sales (Gross Merchandise Value) and Gross Margin %  has never been published in an academic journal. 

Today, 2025 I am working to change this lack of knowledge. All help is welcome.

Ansgar John Brenninkmeijer  +31629547689  www.linkedin.com/in/ansgarjohn/