How the Markdown Planner Works
Core definitions
All calculators on this site use the same merchandising definitions. Where a term has multiple meanings, we use the one most common in retail planning and open-to-buy practice.
| Term | Definition |
|---|---|
| Original price / Ticket price | The price before any markdown is applied. |
| Markdown rate | The percentage taken off the original price. A 25% markdown on $80 gives a $60 sale price. |
| Markdown amount | Original price × markdown rate. |
| Sale price | Original price × (1 − markdown rate). |
| Unit cost | Landed cost of one unit, including freight and duty where applicable. |
| Gross margin | (Sale price − unit cost) / sale price. |
| Maintained margin | Total gross profit after markdowns divided by total revenue after markdowns. |
| Sell-through rate | Units sold in a period divided by units available at the start of the period. |
| Weeks of supply | Ending inventory divided by average weekly sales. |
| GMROI | Gross margin return on inventory investment: gross profit dollars / average inventory cost. |
Source framing: standard retail merchandising math as taught in open-to-buy and retail planning courses. The formulas are documented here so they can be verified, not hidden.
The markdown schedule model
The planner treats a markdown calendar as a sequence of periods, each defined by start and end dates and a markdown rate. The model then simulates unit sales during each period using a weekly sell-through assumption you can edit.
Geometric depletion
For each period, the remaining stock is reduced by a weekly rate, compounded over the number of weeks. If the period is 2 weeks long and the weekly sell-through rate is 15%, the model sells:
units_sold = starting_units × (1 − (1 − weekly_rate) ^ weeks) ending_units = starting_units − units_sold
This is a geometric depletion model. It is conservative because it applies the same rate to the remaining stock rather than assuming the same absolute number of units will sell every week. It also lets the model react to a markdown rate change: if the rate rises, the same weekly percentage consumes the remaining stock faster.
Worked example
A simple two-period markdown plan
A 12-week season with 500 units on hand, $40 unit cost, and $80 original price. The plan is two markdowns: 20% off for 6 weeks, then 40% off for the remaining 6 weeks.
| Input | Value |
|---|---|
| Starting units | 500 |
| Unit cost | $40 |
| Original price | $80 |
| First markdown | 20% off for 6 weeks |
| Weekly sell-through (first period) | 12% |
| Second markdown | 40% off for 6 weeks |
| Weekly sell-through (second period) | 18% |
First period units sold = 500 × (1 − (1 − 0.12)^6) ≈ 500 × (1 − 0.54) ≈ 230. Ending units after period 1 = 270. Second period units sold = 270 × (1 − (1 − 0.18)^6) ≈ 270 × (1 − 0.30) ≈ 189. Ending units = 81.
Revenue is the sum of (units sold × sale price) for each period. Maintained margin is (total revenue − total cost of units sold) / total revenue. Cash recovered is simply total revenue. Margin erosion is the difference between the margin that would have been earned if every unit sold at full price and the actual maintained margin.
Sensitivity bands
Because sell-through assumptions are assumptions, the planner outputs a slow / planned / fast range instead of a single number. By default the spread is 30%: the slow path uses the planned weekly rate × 0.70, and the fast path uses the planned weekly rate × 1.30.
You can change the spread in the planner. A smaller spread is appropriate when you have recent, comparable sell-through data; a larger spread is appropriate for new categories or volatile demand.
Limitations and assumptions
- The model assumes markdowns are applied instantly across the whole remaining stock.
- It does not model size/color sell-through separately; the input is total units per price level.
- It does not include shipping, return rates, or shrink. Add those to your unit cost manually if they are material.
- The sensitivity band is symmetric around the planned rate; it is not a probability distribution.
The purpose of the model is to compare schedules and stress-test assumptions, not to forecast exact results. Always pair it with your own transaction data and judgment.
Calculator formulas
All standalone calculators on this site use the same formulas as the main planner. Where a calculator has a benchmark table (e.g., typical GMROI by category), the ranges are sourced from published retail planning benchmarks and are labeled with their basis.
If you find a discrepancy between a guide and the planner, the planner is the source of truth: the formulas are implemented in the code and run on your browser inputs.
Where to go next
- Markdown planner
Model a full schedule and compare scenarios.
- How to calculate a markdown
Single markdown math and common mistakes.
- About
Who built this and why.
- Contact
Questions, corrections, or feature requests.
Answers