Markdown Calculator

You are running a lemonade stand, but it’s cloudy and windy, so you are struggling to sell your zingy lemonade.

After some thought, you come to the natural conclusion that to increase demand, you need to lower the price.

This is where the markdown enters the stage, and more importantly, our calculator comes in handy.

Markdown Definition

When you calculate a markdown, you determine how much an item’s selling price has decreased. Markdowns are typically expressed as a percentage of the item’s original price, directly relating to the cost reduction.

Think of it as the discount’s cousin.

For example, if you have an item priced at $50 and the markdown percent is 20%, the reduction would be $10.

Here’s a quick breakdown:

Original Price	Markdown Percent	Reduction	New Sale Price
$50	20%	$10	$40

Retailers use markdowns to entice customers or clear out inventory. They can be seasonal or related to promotional events.

Not to be confused with a percentage discount given at the point of sale, markdowns usually reflect a new permanent price until further reductions are applied or the item is sold out.

Markdown Formula

The basic formula for calculating a markdown is:

Markdown % = (Original Price - Actual Price) / Original Price * 100

• Original Price: The initial price at which the product is listed.
• Actual Price: The reduced price of the product after markdown.

To find the markdown in currency, not percentage:

Markdown $ = Original Price - Actual Price

Here’s how you can apply this:

1. Identify Original Price: Determine the initial price of your product.
2. Decide on Actual Price: Establish the new price you will offer customers.
3. Calculate Markdown: Use the formulas above to find the markdown percentage or dollar amount.

Markdowns directly impact your gross margin, the difference between the cost of goods sold and the sales revenue.

Remember, the larger your markdown, the more significantly it can affect your profit margins. So check with our markup calculator to ensure your markdowns don’t compromise your financial goals.

Markdown Example Calculation

To understand how a markdown calculator works, imagine you’re a retailer looking to calculate the markdown on a sweater.

Initial Factors:

• Original Selling Price (OSP) of the sweater: $50
• Markdown Percentage (MD%): 20%

Markdown calculation:

1. Convert your MD% to a decimal: 20% = 0.20
2. Multiply OSP by the MD rate: $50 * 0.20 = $10
3. Subtract the markdown amount from OSP to find the Sale Price (SP): $50 - $10 = $40

Using this markdown, your sweater’s new price is $40.

Markdown Table:

Description	Calculation	Result
Original Price	$50	$50
Markdown Rate	20/100	0.20
Markdown Amount	$50 * 0.20	$10
Sale Price	$50 – $10	$40

By applying the markdown, you’ll affect various financial aspects:

• Inventory and Cash Flow: Your inventory will move faster, possibly improving cash flow, as you would increase the demand for the product.
• Revenue and Profit Margin: Your revenue per sweater will be lower, but you might maintain or even improve overall profit margins by increasing sales volume.