Retail math is 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 stock purchases, sales and any number of other calculations.
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 seem to be 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 $ = 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 = 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.