Retail Math Formulas

Retail math is often used in various ways by store owners, logistics managers, vendors, retail buyers and others. It is used to evaluate inventory purchasing plans, analyze sales, add on markup and apply markdown pricing to plan stocks.

Each of the components required for the use of retail math are carried in within EDI documents traded between retailer and manufacturer (Supplier) with few exceptions. While there is some argument within industry segments as to terminology and formulas – these are the most common.

We use these formulas (And others) to help companies measure and thereby manage business activities and increase profits. See our Reporting Solutions and Charge Back Avoidance solutions for more information.

 

Average Inventory
Average Inventory (Month) = (Beginning of Month Inventory + End of Month Inventory) ÷ 2

Basic Retailing Formula
Cost of Goods + Markup = Retail Price
Retail Price – Cost of Goods = Markup
Retail Price – Markup = Cost of Goods

Break-Even Analysis
Break-Even ($) = Fixed Costs ÷ Gross Margin Percentage

Breakeven = Fixed Costs / (Revenue – Variable Costs)

Contribution Margin
Contribution Margin = Total Sales – Variable Costs

Cost of Goods Sold
COGS = Beginning Inventory + Purchases – Ending Inventory

Gross Margin
Gross Margin = Total Sales – Cost of Goods

Gross Margin Return on Investment
GMROI = Gross Margin $ ÷ Average Inventory Cost

Initial Markup, Initial Markup % = (Expenses + Reductions + Profit) ÷ (Net Sales + Reductions) Inventory

Turnover (Stock Turn or inventory turn)
Turnover = Net Sales ÷ Average Retail Stock

Maintained Markup
MM $ = (Original Retail – Reductions) – Cost of Goods Sold
MM % = Maintained Markup $ ÷ Net Sales Amount

Margin %
Margin % = (Retail Price – Cost) ÷ Retail Price

Markdown % = $ Markdown / $ Net Sales

Markup
Markup $ = Retail Price – Cost
Markup % = Markup Amount ÷ Retail Price

Markup cancellation = Reduction from original markup %

Net Sales
Net Sales = Gross Sales – Returns and Allowances

Open to Buy
OTB (retail) = Planned Sales + Planned Markdowns + Planned End of Month Inventory – Planned Beginning of Month Inventory

Planned Stock = planned monthly sales X Sales Stock ratio

Reductions
Reductions = Markdowns + Employee Discounts + Customer Discounts + Stock Shortages

Sales per Square Foot
Sales per Square Foot = Total Net Sales ÷ Square Feet of Selling Space

Sell Through
Sell through%= units sold/(units + on hand inventory)

Shrinkage = Difference between book and physical inventory

Stock to Sales Ratio
Stock-to-Sales = Beginning of Month Stock ÷ Sales for the Month

Turnover = net sales for period / average stock for period

Weeks of Stock
Inventory divided by average weekly sales for a given period of time.