What it means
A product's original price is based on expected demand and margin. When sales lag, keeping the full price can preserve unit margin but leave too many units unsold, while cutting price too early can sacrifice revenue from customers who would have paid more.
Markdown cadence balances those risks across the selling window. A schedule might start with a modest reduction, then deepen it if the stock still does not move, but the plan needs checkpoints.
Track units sold at each price, remaining inventory, gross margin and the deadline by which the stock loses relevance. Seasonal clothing faces a different clock from a timeless household item.
The percentage should be calculated from the actual selling price base and reflected clearly in the system. If an item was already discounted, another "20% off" may apply to the current price rather than the original price, so staff and customers need accurate labels.
Confusing stacked offers can cause disputes. Markdowns affect cash and inventory value, because clearing stock frees shelf space and money for faster sellers.
A sale below cost can still be commercially sensible in some circumstances, but it should be an explicit decision, with finance reviewing any inventory valuation impact under the applicable accounting rules. A price cut does not repair unsafe goods.
Managers should also watch how customers respond over time, because if every product is marked down on a predictable Friday, some buyers may delay purchases. Brands may have contractual price rules for certain goods, and promotions can shift demand from full-price items, so assess total category contribution.
A cadence is a decision framework, not a fixed calendar. Review actual sell-through at each stage and stop, accelerate or change the plan when the evidence calls for it.
In practice
Real-world examples.
Example
A fashion shop reduces a slow-moving winter coat by 15% in January, reviews two weeks of sales and only then decides whether to deepen the reduction.
Example
A homeware store keeps a classic lamp at full price longer than a seasonal colour because the lamp has a longer selling window and lower expiry risk.
Example
A retailer's promotion increases sales of a marked-down item but pulls customers away from a higher-margin substitute. The manager measures the whole category's gross contribution.
Formula
Calculation
Markdown percentage = (Original selling price - New selling price) / Original selling price x 100
Gross margin after markdown = (New selling price - Unit cost) / New selling price x 100
Worked example. A jacket originally sells for $200 and costs the retailer $110. The shop lowers the price to $160.
- Markdown = (200 - 160) / 200 x 100 = 20%.
- Gross margin at the new price = (160 - 110) / 160 x 100 = 31.25% before other costs.
- If 100 jackets sell at $160, the simple gross profit is 100 x $50 = $5,000. Compare that with realistic units that might sell at $200, not with an imaginary full-price sellout.
- Stacked offers need care: a further 20% off the $160 price gives $128, which is ($200 - $128) / $200 x 100 = 36% off the original price, not 40%. Labels should say which base each percentage uses.Case study
Seen in the real world.
This illustrative and entirely fictional example follows Fern & Thread, an invented clothing shop. It carried 400 spring jackets into late season. The owner refused to discount because each full-price sale earned a good margin. After six weeks, only 40 sold.
Storage space was needed for the next range. A last-minute 50% clearance moved many units, but recovered less cash than hoped. The following season, Fern planned review dates before buying. It set initial sales targets, checked stock by size each week and used a smaller early markdown on colours that lagged, while keeping popular sizes at full price.
It stopped reordering weak variants and tracked total category margin as well as unit sell-through. Not every slow product needs an immediate discount. Fern created a plan with data and time to act, instead of discovering the problem when only a deep clearance remained.
Watch out
Common mistakes.
- Waiting until the selling window has almost closed, then using a deep discount without comparing earlier, smaller reductions.
- Applying the same markdown to every size, colour and product when their demand and remaining stock differ.
- Celebrating higher unit sales without checking gross margin, cannibalisation and inventory valuation. More units sold can still mean less total contribution.
Questions
People also ask.
Is a markdown the same as a promotion?
A markdown lowers the selling price, often to move slow or ageing stock. A promotion can include other tactics and may be temporary. The accounting and customer label should match what actually happened.
How often should prices be reviewed?
It depends on product life and sales speed. A fast seasonal range may need weekly checks; a durable item may need less frequent review. Set review points before the stock becomes urgent.
Does a markdown always mean selling at a loss?
No. A lower price may still exceed unit cost. Calculate gross margin at the new price and account for other selling costs before deciding.
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