A markdown is a cut from an item's original selling price. Markdown % = (original price − new price) ÷ original price. Markdown dollars = (original price − new price) × units sold at the new price. A $12 cheese marked to $9 is a 25% markdown, and selling 20 of them at $9 is $60 of markdown dollars. The number that matters to a store is what the markdown does to margin: the item still costs what it cost, so margin after the markdown = (new price − cost) ÷ new price. That same cheese, bought at $6.60, makes 45% at $12 and 27% at $9. A markdown isn't the opposite of a markup either: markup is figured on cost, markdown on the selling price. For a food store, most markdowns are about dates, not fashion: mark down early enough that short-dated stock sells at some margin instead of going in the bin at none. In the example below, a specialty food store works out its markdowns on cheese and pantry goods nearing their dates.
The short version
- Markdown % = (original price − new price) ÷ original price.
- Markdown dollars = price cut × units sold at the cut price.
- Margin after the markdown = (new price − cost) ÷ new price.
- Markup is figured on cost; markdown on the selling price.
- For food, mark down by date: early enough to sell, so it isn't thrown away.
- Track markdown dollars by item: the same items every month point to ordering too much.
- TaroStack forecasts what will expire unsold, by lot, before it's a markdown. More below.
The formulas
| Measure | Formula | Example |
|---|---|---|
| Markdown % | (Original − new) ÷ original | ($12 − $9) ÷ $12 = 25% |
| New price for a markdown % | Original × (1 − markdown %) | $12 × 0.75 = $9 |
| Markdown dollars | (Original − new) × units sold at the new price | $3 × 20 = $60 |
| Margin after the markdown | (New price − cost) ÷ new price | ($9 − $6.60) ÷ $9 = 27% |
| Markdown % of sales | Markdown dollars ÷ sales | For the month |
Markup on cost is in markup percentage formula, and what a department should earn in grocery store profit margins by department.
An example: a specialty store's short-dated shelf
Camel's Back Provisions, a made-up specialty food store in Boise, Idaho, marks down anything within its last week, and deeper in its last two days. October's markdowns:
| Item | Cost | Original | Marked to | Markdown | Sold marked down | Markdown $ | Margin after |
|---|---|---|---|---|---|---|---|
| Aged gouda, cut wedge | $6.60 | $12.00 | $9.00 | 25% | 20 | $60.00 | 27% |
| Fresh mozzarella, 8 oz | $3.20 | $6.50 | $4.50 | 31% | 14 | $28.00 | 29% |
| Sourdough crackers | $2.10 | $5.50 | $3.75 | 32% | 9 | $15.75 | 44% |
| Salami, sliced to order, per lb | $11.00 | $24.00 | $16.00 | 33% | 6 lb | $48.00 | 31% |
| October | $151.75 |
Every markdown still made money: the deepest kept 27%. The gouda came up three months in a row, so the store now orders gouda wedges every two weeks instead of monthly, and cuts smaller. The month's sales were about $34,000, so markdowns ran 0.4% of sales. The store's own startup and margins are in how to open a specialty food store.
Get the calculator
Download the markdown calculator. One sheet: type each item's cost, original price, new price and how many sold at the new price; the markdown %, markdown dollars, margin before and after, and the month's total and its share of sales fill in. It's an ordinary Excel file with no macros, and it works in Google Sheets, LibreOffice and Numbers.
Where this stops working
The calculator counts markdowns after they happen. The useful view is a week earlier: which lots will reach their dates before they sell, at the rate they're selling, while there's still time to mark them down or move them.
How TaroStack does it
TaroStack shows what's going to expire unsold before it becomes a markdown.
The expiring-stock forecast. For every lot, TaroStack works out how much will still be left on its date at the rate you're really selling it, and what that's worth.
First-expired-first-out. Sales and picks take the lot that expires first by default, so the oldest gouda goes before the newest.
Waste by reason. What doesn't sell is written off with its reason, expired or damaged, so waste can be reported by item and reason.
| The job | Spreadsheet | In TaroStack |
|---|---|---|
| What will expire unsold | Found on the shelf | The expiring-stock forecast |
| Which wedge goes first | Whoever reaches | First-expired-first-out |
| What was thrown away, and why | A note, sometimes | Waste by reason and item |
| Ordering less of what expires | A hunch | Reorder points from real use |
Lots, expiry and the expiring-stock forecast are on every plan, from $49 a month. The first 30 days are free, with no credit card. If you'd like a hand setting up, ask, and we'll do it with you.