Markup is what you add to unit cost to set the ticket price. Markdown is what you take off that ticket price once the season is running. They point in opposite directions and use different bases — markup against cost, markdown against retail — which is why the same percentage means two different things. This guide gives both formulas, a conversion table between markup and margin, and a worked example of what each markdown depth costs in maintained margin.
Markup
(retail − cost) ÷ cost
An $18 cost item ticketed at $49 carries a 172% markup on cost, or a 63.3% initial markup on retail. Markup is a buying and pricing decision: it sets the ceiling on what the class can earn.
Markdown
(original retail − new retail) ÷ original retail
Cutting that $49 ticket to $34.30 is a 30% markdown. Markdown is a selling decision: it trades margin for sell-through so the season ends near your target stock level.
Because markdown comes out of margin rather than cost, its effect is amplified. On the example above, a 30% price cut removes 47% of the gross profit per unit. That asymmetry is the whole reason markdown timing is planned rather than improvised.
Side by side
| Markup | Markdown | |
|---|---|---|
| What it measures | Amount added to unit cost to reach the ticket price | Amount taken off the ticket price after it is set |
| Base of the percentage | Unit cost (or retail, when quoted as initial markup on retail) | Original ticket price |
| When it happens | At buy and pricing time, before the season starts | During the season, as sell-through pace dictates |
| Effect on margin | Creates planned margin | Erodes planned margin, in exchange for units |
| Formula | (retail − cost) ÷ cost | (original retail − new retail) ÷ original retail |
| Reported as | Initial markup, IMU% | Markdown dollars, markdown %, maintained margin |
Markup is measured against cost, margin against retail. A 100% markup is a 50% margin. Quoting markup where a margin is expected is the most common arithmetic error in a markdown review, and it always flatters the plan.
| Markup on cost | Equivalent margin on retail | Unit cost | Ticket price |
|---|---|---|---|
| 25% | 20.0% | $18.00 | $22.50 |
| 50% | 33.3% | $18.00 | $27.00 |
| 100% | 50.0% | $18.00 | $36.00 |
| 150% | 60.0% | $18.00 | $45.00 |
| 172% | 63.3% | $18.00 | $49.00 |
| 200% | 66.7% | $18.00 | $54.00 |
To convert: margin = markup ÷ (1 + markup). To go the other way: markup = margin ÷ (1 − margin).
Worked example
One item: $18 unit cost, $49 ticket price, 172% markup on cost. Each row shows the price after the markdown, the gross profit left per unit, the margin achieved on that sale, and the erosion in percentage points against the 63.3% initial markup.
| Markdown | Selling price | Gross profit / unit | Margin achieved | Erosion |
|---|---|---|---|---|
| Full price | $49.00 | $31.00 | 63.3% | 0.0 pts |
| 15% off | $41.65 | $23.65 | 56.8% | 6.5 pts |
| 30% off | $34.30 | $16.30 | 47.5% | 15.8 pts |
| 50% off | $24.50 | $6.50 | 26.5% | 36.8 pts |
| 60% off | $19.60 | $1.60 | 8.2% | 55.1 pts |
Read the last two rows before setting a clearance depth: below roughly 55% off, this item stops contributing meaningful profit, and the decision becomes cash recovery versus carrying the units forward.
At buy time you control cost and ticket price. Initial markup decides how much room the class has for markdowns later: a thin initial markup leaves almost no cadence to work with, no matter how well timed the breaks are.
Once the goods are on the floor, cost is fixed and the only lever is price against remaining weeks. Markdown depth and date determine how many units clear and what the season keeps.
Neither markup nor markdown alone tells you how the season went. Maintained margin measures margin against revenue actually realized, so it reflects the whole schedule including leftover units and salvage.
The planner works from all three: enter unit cost and ticket price to fix the markup, add up to six markdown dates and rates, then read maintained margin, ending stock, and cash recovered as a range. For choosing the cadence itself, see the retail markdown strategy guide.
Different field, different meaning
In software, “Markdown” is a plain-text formatting syntax and a “markup language” is a tagging system such as HTML or XML — that comparison is about writing documents, not pricing. Everything on this page refers to the retail pricing terms: markup as the amount added to cost, markdown as a reduction off retail.
Answers
Enter cost, ticket price, and up to six markdown dates. The planner returns maintained margin, ending stock, and cash recovered as a slow/planned/fast range you can print.
