Set the decision boundary before using the numbers
Inputs and records to align
- One SKU or coherent stock group and a defined review horizon. (not complete)
- Usable units available after reservations, damage and shrinkage. (not complete)
- Current net price and proposed markdown prices. (not complete)
- Avoidable selling, payment, handling and fulfilment cost by option. (not complete)
- Lower, base and higher units-sold scenarios for each timing option. (not complete)
- Holding, later-markdown, disposal and residual-recovery assumptions kept visible. (not complete)
Build one transparent decision model
Markdown option contribution = units sold × (net markdown price - avoidable selling cost per unit - product cost per unit) - option-specific period cost
- units sold
- Units sold under the named timing and price scenario (units per horizon) — observed result or labelled scenario
- net markdown price
- Revenue per unit after included tax, discount and refund treatment (CU per sold unit) — price record or scenario
- option-specific period cost
- Incremental holding, handling, promotion or disposition cost for the option (CU per horizon) — business record or scenario
Cash released from stock is useful but not identical to contribution. Compare both views without adding them together.
- Reconcile sellable stock and its cost boundary.
- Define at least two timing and price options.
- Calculate unit and total contribution for each option.
- Add option-specific holding, promotion and disposition costs.
- Inspect cash released and residual stock separately.
- Set a review trigger for remaining units rather than extending the markdown indefinitely.
Worked example: markdown now or wait
Invented “sell now” case: 80 units at 28 CU net price, 18 CU product and avoidable selling cost per unit, plus 120 CU campaign cost.
| Line | Calculation | CU |
|---|---|---|
| Unit contribution | 28 - 18 | 10 |
| Contribution before campaign | 80 × 10 | 800 |
| Campaign cost | entered option cost | (120) |
| Sell-now contribution | 800 - 120 | 680 |
| Case | Changed input | Result | Decision signal |
|---|---|---|---|
| Low sell-through | 50 units | 380 | Retain residual-stock plan |
| Base | 80 units | 680 | Compare with wait case |
| Deeper markdown | 80 units × 6 CU less 120 | 360 | Check whether volume response is supported |
Review the operational trade-offs before acting
- Using discount percentage without calculating retained contribution.
- Assuming a deeper markdown produces a known volume lift.
- Ignoring residual units after the horizon.
- Treating inventory cash released as profit.
- Comparing different unit counts without showing them.
- Omitting payment, handling, promotion or disposal costs.
Decision questions
- Should I markdown as soon as sell-through slows?
- Compare the contribution and residual-stock consequences of acting now and waiting; one slow period is not a universal trigger.
- What is the recovery target?
- Set a business-specific contribution, cash-release or stock-exit objective and keep those measures separate.
Sources and methodology
- Markdown Profitability methodology — Margin101: Price, units, contribution and recovery mechanics.
- Retail Sell-Through methodology — Margin101: Stock-flow and horizon boundary.
Test the editable scenario
- Retail Markdown Profitability & Recovery Planner
Choose markdown depth and sell-through while recovering inventory cash
- Retail Sell-through Planner
Set a sell-through target before markdown or replenishment decisions
- Inventory Turnover Planner
Measure inventory turnover and target working-capital change