Markdown Calculator

A markdown is a permanent reduction of the ticket price of merchandise, taken against gross margin at the point of sale. It differs from a temporary promotion (where the ticket returns to original after the event) in that the new price becomes the working shelf price until the next markdown or until the SKU sells through. Markdowns are the single largest controllable line item on the retail P&L after cost of goods, which is why serious retailers plan them by category and season rather than reacting to aged inventory ad-hoc. The Markdown Pricing Guide covers the full framework.

Markdown % = ((Original Selling Price − Markdown Price) ÷ Original Selling Price) × 100. Example: a $120 coat marked down to $80 has a markdown of ((120 − 80) / 120) × 100 = 33.3 percent. Always use the ORIGINAL selling price as the denominator, not the markdown price. Using the markdown price inflates the reported number and does not reconcile with the finance team’s P&L calculation.

They are often used interchangeably in casual conversation but mean different things in retail accounting. A discount is typically a temporary price reduction (promotional coupon, member pricing, sale event) with the ticket returning to the original price afterward. A markdown is a permanent reduction of the ticket price. In P&L terms, discounts show up in promotion expense or contra-revenue; markdowns show up as a direct reduction of gross margin on the SKU. Store operators tend to talk in discount language. Buyers and merchandisers talk in markdown language.

Markup is the percentage ADDED on top of cost to reach the selling price. Markdown is the percentage TAKEN OFF the original selling price. Markup happens at the buy (setting the initial ticket). Markdown happens later in the season (reducing that ticket). A retailer can have a 100 percent markup (keystone pricing) and a 40 percent end-of-season markdown on the same SKU. The Gross Margin vs Markup Guide covers the pricing math in more depth.

It varies by category and business model. Fast fashion: 30 to 45 percent of net sales are markdown dollars. Mainstream apparel: 15 to 25 percent. Home decor: 10 to 20 percent. Consumer electronics on new launches: 8 to 15 percent (higher on end-of-life). Grocery and consumables: near zero except for spoilage and clearance corners. Off-price and discount retailers structurally run higher because their model is built around opportunistic markdown buys. Benchmark against direct competitors, not cross-category averages.

Weekly sell-through rate against a target curve is the primary trigger. When actual STR sits 10 to 15 percentage points below the target curve at any milestone (25 percent, 50 percent, 75 percent of the season), most category managers trigger the first markdown. Waiting for aged inventory to force a clearance event is almost always more expensive than an earlier, shallower move. The compound cost of extra carrying weeks plus the deeper eventual markdown depth typically exceeds a proactive 15 to 20 percent reduction taken 3 to 4 weeks earlier.

A markdown reduces the selling price but leaves the cost side unchanged, so it directly compresses gross profit dollars and gross margin percent. Example: a $120 coat with a $55 cost has a pre-markdown gross margin of 54.2 percent. Mark it down to $80 and the new gross margin is (80 − 55) / 80 = 31.2 percent. That is a 23-percentage-point margin compression. Every markdown is a bet that the incremental unit velocity will more than offset the margin lost per unit. Track this alongside the Gross Margin Calculator to see whether the trade-off is still working.

A planned markdown is one built into the seasonal open-to-buy at PO time. The buyer knows a fraction of the buy will need to clear at reduced margin by end of season and prices the initial ticket accordingly. An unplanned markdown is a reaction to a sell-through miss that was not in the plan. The margin impact per unit is often similar; the strategic difference is that planned markdowns are absorbed by the initial ticket structure, while unplanned markdowns cut into expected margin dollars. Best-in-class retailers plan 60 to 75 percent of expected markdown dollars into the initial buy and manage the remaining 25 to 40 percent tactically during the season.

GMROI measures gross profit dollars per average inventory dollar across the year. Every markdown reduces the gross profit numerator, which drags GMROI down. But a well-timed markdown that clears inventory faster also reduces the average inventory denominator, which lifts turnover. Whether GMROI ends the year higher or lower depends on which effect dominates: margin compression or inventory release. Proactive markdowns that trigger against sell-through misses usually lift GMROI because the inventory reduction outpaces the margin loss. Reactive clearance events usually pull GMROI down because the depth is too aggressive.

Four repeat across teams. Using markdown price as the denominator instead of original price (inflates the reported percentage). Waiting for aged inventory to force a clearance event instead of triggering off sell-through misses. Applying blanket markdown depth across a category instead of SKU-level based on class and velocity. And celebrating high markdown dollars as a win without checking whether they came from planned tickets absorbed at buy time or unplanned reactions eating into expected margin. The Markdown Pricing Guide covers each with a specific fix.