Retailers use markdowns to clear seasonal stock, respond to competitors or make room for new arrivals. The price cut is the easy part; the harder question is what it does to profit. This calculator computes the markdown price or percentage and, if you add your unit cost, shows the margin before and after, the deepest markdown you can take before selling at a loss, and the extra sales volume needed to earn the same gross profit.
How to use the markdown calculator
- Choose whether you know the markdown % or the new price.
- Enter the original retail price and the markdown percentage or new price.
- Optionally enter the unit cost to see margins, and the number of units being marked down to see total markdown dollars.
- The tape shows the result; the markdown ladder table shows the price and margin at 10% to 70% off.
Markdown formulas
Worked example
A sweater retails for $60 and costs the store $24. The buyer marks 150 units down by 30%.
Markdown price = 60 × 0.70 = $42.00; markdown per unit = $18; total markdown dollars = 150 × 18 = $2,700
Margin before = (60 − 24) ÷ 60 = 60%; margin after = (42 − 24) ÷ 42 = 42.86%
Gross profit per unit falls from $36 to $18, so the store must sell 36 ÷ 18 − 1 = 100% more units to earn the same gross profit
Deepest markdown before selling at cost = (60 − 24) ÷ 60 = 60%
How markdowns erode margin
For an item with a 50% initial margin (cost $50, price $100):
| Markdown | New price | Gross profit | Margin | Extra units needed |
|---|---|---|---|---|
| 10% | $90 | $40 | 44.4% | 25% |
| 20% | $80 | $30 | 37.5% | 67% |
| 30% | $70 | $20 | 28.6% | 150% |
| 40% | $60 | $10 | 16.7% | 400% |
| 50% | $50 | $0 | 0% | — (no profit) |
The relationship is steep. Every additional 10 points of markdown removes the same $10 of profit per unit, but because the remaining profit shrinks, the sales lift required grows rapidly.
Markdown strategy notes
- Early, shallow markdowns often beat late, deep ones. Moving slow sellers at 20% off in mid-season can avoid 60% clearance prices later.
- Markdown cancellations — raising the price back after a promotion — are recorded separately in retail accounting. Track net markdowns, not just gross.
- Markdowns versus margin targets. Retail planners set the initial markup high enough to absorb expected markdowns, shrinkage and employee discounts and still hit the maintained margin. The margin calculator helps set that starting price.
- Units matter. If inventory would otherwise go unsold, any price above salvage value still recovers cash. Combine this with the break-even calculator when fixed costs are involved.
For a one-off customer discount rather than a planned markdown, use the discount calculator.
Results are planning estimates based on the costs you enter and do not include sales tax, shrinkage or vendor markdown allowances.
Frequently asked questions
How is a markdown percentage calculated?
Divide the amount of the price reduction by the original retail price and multiply by 100. Cutting a $60 item to $42 is an $18 markdown, and 18 ÷ 60 = 30%.
What is the difference between a markdown and a discount?
A markdown is a permanent or seasonal reduction of the retail price set by the retailer, recorded in its books as markdown dollars. A discount is usually a temporary price reduction for a customer or promotion. The arithmetic is the same.
How does a markdown affect gross margin?
The cost stays the same while the price falls, so the gross margin percentage falls faster than the price. A 30% markdown on an item with a 60% margin drops the margin to about 43%, and halves the gross profit per unit.
How much more do I need to sell after a markdown?
To keep the same gross profit dollars, unit sales must rise by the original gross profit per unit divided by the new gross profit per unit, minus 1. If profit per unit falls from $36 to $18, you need to sell twice as many units — a 100% increase.