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So, what's the margin?

Posted on 2011-03-07
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Last Modified: 2012-06-27
I have some knowns and unknowns and can't seem to do the calculus.  So, I'm going to take a break and in the meantime see if I can't get some help.

I have the following data:  Volume, Total Margin, % Sold thru Channel A, and % Sold thru Channel B.  I need to determine unit and total margin for both Channels. I also know that my $/unit margin for Channel A is twice what it is for Channel B.

E.g., Volume = 100 units, %A = 50% @ $.50/unit, %B = 50% @ $.25/unit.  So 50 units sold Channel A @ $25 and 50 units sold Channel B @ 12.5, for a total Margin of $37.5

Now, if I have Volume = 100 units and %A = 75%, %B = 25% and I know my total margin is $100, what is my margin for Channel A and Channel B on a per unit and total basis?

Can someone create a formula based on %A and %B sold for X Total Volume and Y Total Margin, what would be the unit and total margin for Channel A and for Channel B?  What if the margin relationship changes and that relationship is Z?  E.,g., now unit margin A = 2 * unit Margin B

Thanks -

Dave
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Question by:dlmille
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Expert Comment

by:Dave Brett
ID: 35064061
> Now, if I have Volume = 100 units and %A = 75%, %B = 25% and I know my total margin is $100, what is my margin for Channel A and Channel B on a per unit and total basis?

It's not solvable for two unknowns. There are an infinite amount fo solutions

Until you fix say A or B margin, then you can't calculate the other

Cheers
Dave
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Accepted Solution

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jimyX earned 400 total points
ID: 35064841
Since there is a relation it's possible and solvable:

Volume = 100 units -> let's assume it's n
%A = 50% @ $.50/unit -> let's assume x = $/unit A
%B = 50% @ $.25/unit -> let's assume y = $/unit B

x * (n * %A) + y * (n * %B)
0.5 * (100 * 50%) + 0.25 (100 * 50%)
25 + 12.5
= 37.5

Total Margin is $37.5

Volume = 100 units -> n
%A = 75% @ x $/unit
%B = 25% @ y $/unit
Total Margin = $100
(x * (n * 75%) + (y * (n * 25%)) = 100
The relationship between x and y is: x = y + y
((y+y) * (n * 75%)) + (y * (n * 25%)) = 100
((y+y) * (100 * 75%)) + (y * (n * 25%)) = 100
((y+y) * 75) + (y * 25) = 100
75y + 75y + 25y = 100
y(75+75+25) = 100
y = 100 / 175
y = 0.57142857142857142857142857142857
Then y + y = x = 1.1428571428571428571428571428571

Now let's apply this on the first example:
Volume = 100 units -> let's assume it's n
%A = 50% @ $.50/unit -> let's assume x = $/unit A
%B = 50% @ $.25/unit -> let's assume y = $/unit B

(x * (n * 50%) + (y * (n * 50%)) = 37.5
x = y + y
((y+y) * (100 * 50%) + (y * (100 * 50%)) = 37.5
((y+y) * 50) + (y * 50) = 37.5
50y + 50y + 50y = 37.5
y(150) = 37.5
y = 0.25
x = 0.25+0.25
Then (x=0.5) (y=0.25)
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Assisted Solution

by:jimyX
jimyX earned 400 total points
ID: 35065098
here is the formula:
Math.xls
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Author Comment

by:dlmille
ID: 35065360
Thanks - it looks right but let me validate tomorrow when I get back to work and apply "Real" numbers :)  Brain is fried tonite!!!

Much Appreciated - will try to close out or ask questions, soonest!

Would you kindly modify the formula if the relationship between A and B unit margin is X?

Dave
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Expert Comment

by:Dave Brett
ID: 35065947
> I also know that my $/unit margin for Channel A is twice what it is for Channel B.

Had missed this rather important line.
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Assisted Solution

by:Dave Brett
Dave Brett earned 100 total points
ID: 35066033
For a generica solution:

A*Margin1+B*Margin2 = C
which in your case
1) A*Margin1+(1-A)*Margin2 = C
2) MArgin1 = X*Margin2

so putting 2 in 1

A*Margin1+(1-A)*Margin1/X = C

rearranging gives your generic solution for Margin1
Margin1 = C/(A+(1-A)*1/X)

so for example 1
Margin1 = 100/(75%+(1-75%)*1/2)
             = 1.14
Then using (2)
Margin2 =1/X * Margin 1
            = 1/2 *1.14
            = 0.57


Dave
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Author Comment

by:dlmille
ID: 35066059
@jimyX - Sorry, I only just now looked at your written formulas.  Appears the relationship between A & B margin is readily apparent in your formulas.

Will revert tomorrow.


If A margin is a multiple of B margin (written AmultB), and A sales volume is written Avolume, B sales volume is wrtten Bvolume then
A unit margin = B unit margin X AmultB

B unit margin in the spreadsheet = =B30/(((B24*B25%)*AmultB)+(B24*B26%))

So... B unit margin = Total Margin / ((Avolume * AmultB) + (BVolume))

Correct?

Dave
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Expert Comment

by:jimyX
ID: 35070521
Exactly.
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Author Closing Comment

by:dlmille
ID: 35071248
JimyX was first and complete with spreadsheet.  brettdj helped see the same approach in a different light.  Excellent collaboration and thanks!
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