If you work in sales, or you are interested in retail, you will probably appreciate our simple markdown calculator. It will help you to determine the retail markdown and the markdown percent, or the actual selling price in the relation of the former.
If you are not sure what do these terms mean, keep reading to discover their definitions and a step-by-step tutorial of how to calculate the markdown price.
What is markdown?
Markdown is a reduction of the product price based on the inability to sell it at the initial price or the original selling price. In other words, markdown is the difference between the original retail price and the actual selling price. For example, a shirt in a clothing shop can have an initial selling price of $50. If almost no one wants to buy it at this price, it is common that a markdown (for example of 20%) is introduced.
After the markdown, the shirt costs only $40, and while the shop owner will have a lower profit on each sold shirt, he might actually sell more shirts than before. In this way, the retailer can turn the merchandise into cash faster, thus increasing the cash flow. (Learn more in the discounted cash flow calculator.)
Markdown is a bit different from a discount, which is usually offered to a specific group of people, such as students or frequent buyers. While markdowns are offered to everyone, discounts make customers feel they are treated in a special way.
Markdown calculation process
As we would like to keep this topic simple, we designed the markdown calculator by including only the most relevant variables. All you have to do is to input the initial or original selling price and set one of the three other values.
- Original selling price — The initial price, which is subject to the markdown.
- Actual selling price — The price of the product after introducing the markdown.
- Markdown — The value that corresponds to the price reduction of a particular product, from the customer perspective, it is the amount of money saved when buying the product.
- Markdown percent — It is the percentage lowering of the price of your product.
How to use this markdown calculator – an example
Let's assume you have a shoe shop and purchased 20 pairs of three different (blue, green, and red) colors from the same model. After a month, you realize that customers buy mostly blue and green ones, but the stock of red ones remains untouched. As you don't want to keep this product on your shelves forever, you decide to use a markdown.
The original selling price for all three kinds was $50, and you decided to introduce a 25% markdown for the red shoes.
- Begin with calculating by setting the original selling price, which is
- Then, set the markdown percent, which is
- After this, you immediately get the markdown amount and the actual selling price, which are
What is the markdown price formula?
To compute markdown given the original price and the new price, you need to apply the formula:
Markdown = Original price - Actual price. For instance, if the original price was $100 and the price the good is actually sold for is $80, then the markdown equals $20.
How do I calculate the markdown percentage?
To compute the markdown percentage, follow these steps:
- Determine the difference between the initial and the actual selling price.
- Divide the result from Step 1 by the actual selling price.
- Express the result from Step 2 as percentage.
- That's it! Don't hesitate to verify the result in an online markdown calculator.
How do I calculate markdown price if the price changed from $200 to $160?
The markdown is $40. To arrive at this answer, recall that markdown is the difference between the original and the actual price:
Markdown = Original price - Actual price.