Rate of Markdown Calculator
Determine the percentage decrease from the original selling price.
What is the Rate of Markdown?
In retail and business accounting, a markdown is a reduction in the original selling price of an item. The rate of markdown expresses this reduction as a percentage of the original price. This metric is essential for retailers to track how much revenue is being sacrificed to clear inventory, manage seasonal shifts, or respond to competitor pricing.
How to Calculate Rate of Markdown
The formula for calculating the markdown rate is straightforward. You compare the difference between the initial price and the final sale price against the initial price.
The Formula:
Rate of Markdown = ((Original Price - Sale Price) / Original Price) × 100
Example Calculation
Scenario: A department store is clearing out winter coats. A coat originally priced at $200.00 is marked down to $140.00.
- Markdown Amount: $200.00 – $140.00 = $60.00
- Calculation: ($60.00 / $200.00) = 0.30
- Rate of Markdown: 0.30 × 100 = 30%
Why Markdowns Occur
Businesses utilize markdowns for several strategic reasons:
- Inventory Clearance: Moving "dead stock" to make room for new arrivals.
- Discontinued Items: Selling off products that will no longer be manufactured or stocked.
- Competitive Pricing: Matching a competitor's lower price during a price war.
- Perishable Goods: Reducing prices on items near their expiration date to recoup costs.
Markdown vs. Discount
While the terms are often used interchangeably, there is a technical difference. A markdown is a permanent reduction in the retail price of an item, usually because it cannot sell at the original price. A discount is often a temporary reduction (like a 20% off coupon or a weekend sale) designed to incentivize a quick purchase or reward loyalty.