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
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.