Retail Math Formulas

Retail math is often used in various ways by store owners, managers, retail buyers and other retailing employees. It is used to evaluate inventory purchasing plans, analyze sales figures, add on markup and apply markdown pricing to plan stocks.

Although there are computer programs and other tools available, performing these retail math calculations often requires familiarity with formulas. Use the following equations and retail math formulas to track merchandise, measure sales performance and help create pricing strategies.

Acid-Test Ratio

Acid-Test Ratio = Current Assets - Inventory ÷ Current Liabilities

Average Inventory

Average Inventory (Month) = (Beginning of Month Inventory + End of Month Inventory) ÷ 2

Basic Retailing Formula

Cost of Goods + Markup = Retail Price Retail Price - Cost of Goods = Markup Retail Price - Markup = Cost of Goods

Break-Even Analysis

Break-Even ($) = Fixed Costs ÷ Gross Margin Percentage

Contribution Margin

Contribution Margin = Total Sales - Variable Costs

Cost of Goods Sold

COGS = Beginning Inventory + Purchases - Ending Inventory

Gross Margin

Gross Margin = Total Sales - Cost of Goods

Gross Margin Return on Investment

GMROI = Gross Margin $ ÷ Average Inventory Cost

Initial Markup

Initial Markup % = (Expenses + Reductions + Profit) ÷ (Net Sales + Reductions)

Inventory Turnover (Stock Turn)

Turnover = Net Sales ÷ Average Retail Stock

Maintained Markup

MM $ = (Original Retail - Reductions) - Cost of Goods Sold MM % = Maintained Markup $ ÷ Net Sales Amount

Margin %

Margin % = (Retail Price - Cost) ÷ Retail Price

Markup

Markup $ = Retail Price - Cost Markup % = Markup Amount ÷ Retail Price

Net Sales

Net Sales = Gross Sales - Returns and Allowances

Open to Buy

OTB (retail) = Planned Sales + Planned Markdowns + Planned End of Month Inventory - Planned Beginning of