Markdown calculator
About this calculator?
A markdown is a reduction in the price and value of an asset based on the failure to sell a product/service at its original selling price. It is the difference between the original selling price and the actual (current) selling price.
Markdowns can benefit businesses by boosting sales and these are most commonly used when a business cannot sell a product/service at its present price. Even though generating a reduced profit may motivate customers/clients to purchase more products/services, the result can be that a business may convert items into cash more quickly, enhancing cash flow.
Discounts
A markdown is not the same as a discount, a markdown reflects value, whereas sales discounts are lower rates given for certain reasons, such as seasonality, client loyalty, or demography, such as discounts for students or pensioners. A markdown is a price reduction to reflect a decreased market value, whereas a sales discount does not affect a product's/service's worth. While markdowns are available to everyone, discounts give customers/clients the impression that they are being treated differently.
Price reductions are included in both markdowns and sales discounts, although for different reasons. A discount makes a product or service more appealing to customers by lowering the price. Each unit has a smaller profit margin after a markdown, but overall sales revenues are higher since more units are sold.
Pricing strategy
A pricing strategy requires that the business values a product/service correctly. According to supply and demand theory, if a commodity's price is too high, fewer units will be sold. As a result, if a business overestimates a product's/service’s market worth, it will struggle to sell it. In contrast, if the product's/serivce’s price is too low, it may become unprofitable.
When businesses undervalue or overvalue a product/service, markups and markdowns are utilized. A markdown lowers the price of a product/service to reflect the price that customers/clients are ready to pay; it is thus a product/service devaluation.
If sales do not improve after the first price reduction, it may be required to keep lowering the price of a product/service until it sells at a profit. Between markdowns, there should be ample time to adequately assess the impact of the new price.
Clearance
If a business does not intend to resupply product/service assets, it may be more cost-effective to sell the item at a discount than to pay for storage/upkeep. Clearance markdowns increase sales by lowering the price of a product/service, allowing surplus inventory/time to be sold faster.
Unsatisfactory results
If a product/service is delivered in a damaged/incomplete state, it is unlikely to sell for the same price as a product/service that is not in a damaged/incomplete state. As a result, it is a usual practice to lower the price of any damaged/incomplete products/services.
Competition
Competitive markdowns, also known as price matching, occur when a business lowers the price of a product/service to match that of its competitors. If two businesses sell the same product/service at different prices, the higher-priced business is more likely to sell less.
Investment
Although the term 'markdown' is most commonly associated with a price drop, it may also be applied to investing and brokerage. The difference between the amount a broker or investor pays for an asset and the price they sell it for is known as the markdown. This form of discount might be classified as a commission.
The end-goal.
The end-goal of utilising this calculator is to allow you to determine the markdown cost and percentage from known original and actual product/service pricing. Also, the original selling price can be identified from the actual selling price and markdown percentage.
Necessary terms.
Original Selling Price: This is the initial price and value of a product/service, which is subject to the markdown.
Actual Selling Price: This is the current price and value of a product/service, after introducing the markdown.
Markdown: This is a reduction in the price and value of a product/service from its original selling price to the actual selling price. From a customer/client perspective, this is money saved when purchasing a product/service.
Markdown Percentage: This is the percentage lowering of the price of a product/service.
The formula.
Markdown
Markdown: MN
Original Selling Price: OSP
Actual Selling Price: ASP
MN = OSP - ASP
Markdown Percentage
Markdown Percentage: MP
Markdown: MN
Actual Selling Price: ASP
MP = (MN / ASP) * 100
Markdown
Markdown: MN
Markdown Percentage: MP
Actual Selling Price: ASP
MN = (MP / 100) * ASP
Original Selling Price
Original Selling Price: OSP
Markdown: MN
Actual Selling Price: ASP
OSP = MN + ASP
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