Download - The Truth About Markups & Markdowns

The Truth About Markups & Markdowns

Paul EricksonSenior Vice President

[email protected]

initial markup (IMU)

difference between markup & margin

markup• initial markup and

maintain markup• retail aspect• from buyer’s perspective

margin• initial margin and

gross margin• accounting aspect• from business owner’s

perspective

retail method of calculation

retail method of calculation

original selling price - cost / original selling price

• Example: $100 - $40 / $100 = 60%

keysto

ne

pricin

g?

Zizzybaloobah/Fickr

“…I multiple the cost by

2.2…”

“…that’s what I always price

it at…”

“…I double the cost and then add

a $1 or $2…”

three key elements

markdownsoperating expenses

desired net profit

three key elements

IMU formula

IMU = (markdown% +

operating expense % + desired net profit %) / 100% + markdown%

.06 + .40 + .20

1.0 + .20

= .55

markdowns =20%

operating expenses =

40%

desired net profit =

6%

IMU 52.5% 55%

MDS 20% 20%

MMU 43% = $430K 46% = $460K

EXP 40% = $400K 40% = $400K

NET 3% = $ 30K 6% = $ 60K

annual sales $1,000,000

52.5% 55% $9.00 cost $9.00 cost

$19.00 retail $19.99 retail

pricing for profit

psychology of pricing

competitive pricing

competitive pricing

multiple pricing

discountpricing

loss leaders

know yourcompetition

customerservice

competitive pricing

know yourcompetition

customerservice

multiple pricing

discountpricing

loss leaders

steering clear of cost-base pricing


determine price when

writing order

decide on price before

knowingcost

determine price when

writing order


knowingcost


then makedecisionto buy

=determine price when

writing order


knowingcost


initial markup review

initial markup review

rightproductprice?

determine each product

categoryseparately

steer clear of cost-base

pricing

use psychologicalpricing when

possible

key expensesgo up, so should IMU

markdowns

Advertising 3.3%

Occupancy cost 8.0%

Payroll 19.5%

Markdowns 23.6%

Expense Percents

Retailers are losing over $200 billion a year due to markdowns.

--United States Census Bureau & National Retail Federation

decision making

best laid plans of mice and men

the calculation

markdown percent calculation

total retail markdown $net sales

(sales after markdowns)

= 25% $ 20$ 80

Example:

the good and the bad

the good

keeps inventory

fresh

assures good cash

flow

cost of doing

business

the bad

higher than other expenses on the income

statement

raises the cost of goods sold and result in a net

loss

four factors

four factors

current on

hand

current rate

of sale

desired stock turn

season’s end

seasonal system

seasonal system

give time for

acceptance

season’s time line

season ending

deadline

root causes of excessive markdowns

root causes

poorbuying

too large

assortments

duplication overbuying

1. 70% of your sales come from inventory less than 3 months old

2. Recognize short shelf life

3. Recognize slow sellers in season

Overbuying

Do not advertise % or specific $ offat this time!

“Just Reduced”

psychological pricing

math of psychological pricing

original price: $38.00

25% off

original price: $98.00

20% off


$29.99


$79.99

= $28.50

= 21% off

= $78.00

= 18% off

same message?

25% off plus “take an additional 15% off” = 40% off

=36.25%

50% off plus “take an additional 20% off” = 70% off

=60%

markdown rules

markdown rules

planplanplan

use a budget…don’t be

under

price points not

percentages

learn from every

markdown

pay your tuition

markdown truths

markdown truth #1

• Always explain to your customer why the items are marked down

markdown truth #2

• Overbuying is the number one cause of excessive markdowns

markdown truth #3

• Your first markdown is the cheapest!

markdown truth #4

• The price you paid has nothing to do with the markdown price

markdown truth #5

• Learn from every markdown

markdown truth #6

• Always keep your markdown items at the back of the store!

markdown truth #7

• Nurture your customers who do not shop you on price alone

• commit to lean inventories• maintain liquidity• avoid the last buy• use an open-to-buy plan

and follow it

final word on markdowns

Thank you!Paul Ericksonwww.rmsa.com

[email protected]

[email protected]

http://www.rmsa.com/

Download - The Truth About Markups & Markdowns

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