How to build a markdown plan

Markdowns are decided early and paid late

Almost every markdown traces back to a decision made months before the price was cut — an overbuy, a broken size run, a delivery that landed after its selling window. By the time the markdown is taken, the question is not whether to spend the margin but how efficiently. That is the case for planning it: the spend is largely committed at the buy; the plan only decides whether it is spent deliberately or discovered late.

Planned and reactive markdown differ in one structural way: weeks. A planned first touch lands while the style still has trading weeks in front of it, so a modest depth has time to work and the response can be read before the next step. A reactive markdown is taken after the weeks have been spent waiting, so the depth is dictated by the calendar and the response cannot change anything. Same stock, same season — the plan is the difference between choosing a price and accepting one.

Seven steps, in order

The first three steps happen pre-season, alongside the sales plan and the buy. The last four are the in-season discipline that keeps the budget describing reality.

1. 1

   Budget markdowns pre-season, inside the sales plan

   Markdown is a planned line of the sales plan and the WSSI, not a contingency fund. Size the budget from two directions: top-down, as the gap between the intake margin the buy carries and the maintained margin the season has to deliver; and bottom-up, from last season’s actual markdown by category, adjusted for what has genuinely changed. Where the two disagree, the disagreement is the finding.

2. 2

   Phase the budget across the season

   A markdown budget entered as one seasonal total cannot be traded against. Spread it across the periods with the weight at the back — little or nothing while the range is establishing, a modest mid-season shape around planned events, and the largest share against the exit. The phased line is what the WSSI carries and what actuals reconcile against.

3. 3

   Set exit dates working back from the season end

   Every style gets a date by which its inventory must be gone, set by when the space and the open-to-buy are needed for the next season — not by when the style stops selling. Work backwards from that date through the clearance weeks each step of the ladder needs, and the latest possible first-markdown date falls out. A markdown without an exit date is a discount, not an exit.

4. 4

   Define the in-season triggers before the season starts

   Agree the tests pre-season so the weekly decision is read off the plan rather than argued each Monday. The two workhorses: sell-through against the weeks elapsed, and forward cover against the trading weeks remaining. When cover exceeds the weeks left to sell it, the surplus is already committed to clearance — the only open question is the price it clears at.

5. 5

   Ladder the depth

   Plan each style’s path through successive price steps rather than a single cut. The first touch has one job — to visibly change the sell rate — and each later step is sized from the response to the one before. The shallow-and-early versus deep-and-late trade is argued in full below; the ladder is where that decision becomes dates and depths.

6. 6

   Book the spend in the WSSI and reconcile weekly

   At retail value a markdown devalues on-hand stock the moment it is taken: closing stock = opening stock + intake − sales − markdowns. Book actual markdown against the planned line every week. Unbooked markdown leaves closing stock overstated and forward cover flattered — which switches off the very triggers the plan depends on.

7. 7

   Reforecast the budget as the season trades

   The budget is a season total to manage, not a set of period allowances to use or lose. When one category overspends, the difference has to come from somewhere — another category’s budget, the maintained margin, or a deliberate decision to carry stock out. Re-solve the remaining periods on the same cadence as the sales reforecast, so the markdown line always describes what is still intended rather than what was once hoped.

Phasing the budget across a six-month season

The same illustrative six-month season used in the receipt-flow guide, in thousands of retail dollars. Sales peak in month four; the markdown budget for the season is 145 against 1,500 of planned sales, and the phasing question is where those 145 belong.

Read the shape rather than the figures. Months one and two carry nothing — the range is establishing, and markdown spend there would be re-pricing goods that have not yet had their full-price chance. Months three and four carry a modest mid-season allowance for the first touches on identified underperformers, while the sales peak absorbs them. Months five and six carry more than three-quarters of the budget, because that is where the exits live: the phasing is back-loaded not because markdowns should be late, but because the deliberate, dated exits concentrate at the end even when the first touches start early.

The markdown-as-percent-of-sales row is the sanity check: it should climb steeply toward the exit and sit near zero at the start. A flat percentage across the season means the budget was divided, not phased. And the cumulative row is the line the WSSI reconciles against in-season — at any week, budget minus cumulative actual is the spend remaining against the stock still to clear.

Sell-through, forward cover, and the weeks that remain

A trigger is a pre-agreed test that converts the weekly trading meeting from a debate into a read-out. The two that carry most of the weight are complements: sell-through against weeks elapsed asks is this style behind?, and forward cover against weeks remaining asks can what is left still sell at this price? The first is the early warning; the second is the commitment test.

An illustrative trigger read. A style received 800 units for a sixteen-week window. At the end of week six it has sold 180 — 30 a week, a 22.5% sell-through with 620 units left. At the current rate the remaining ten weeks absorb 300 units, leaving 320 — two-fifths of the buy — at the exit date. Cover of roughly twenty weeks against ten weeks remaining means the surplus is already committed to clearance; the only decision still open is the price it clears at, and every week of delay narrows the range of prices available.

One refinement matters more than any threshold: the denominator should be the forward forecast, not the trailing rate. Dividing stock by what sold recently assumes next week resembles last week, and on seasonal demand that assumption fails exactly at the turns — flattering cover going into a peak, hiding overstock coming out of one. This is the difference between trailing weeks-of-supply and forward cover, and it is why the trigger belongs on the WSSI’s forward cover line rather than on a standalone weeks-of-supply report.

Laddering the depth: shallow-and-early versus deep-and-late

There are two coherent shapes for a style’s path down the price ladder. Shallow-and-early starts sooner, takes a modest first cut across the affected range while many trading weeks remain, reads the response, and deepens on a schedule. Deep-and-late holds full price longer, accepts a slower rate through the middle of the season, then cuts hard close to the exit. Both are defensible; mixing them by accident — waiting late and then cutting shallow — is the one indefensible combination, because it spends the weeks and then spends the margin without clearing the stock.

The trade runs like this. Early-and-shallow buys time: each step is small, the response to one step sizes the next, and a misjudged touch can be corrected while weeks remain. Its costs are real — margin given on units that would have sold anyway, and a customer base that learns to wait if the cadence becomes predictable. Deep-and-late protects the full-price window and the integrity of the opening price; its cost is concentration. The entire clearance lands in a few weeks, the required depth is set by the calendar rather than chosen, and there is no second reading — if the deep cut does not produce the rate the exit date needs, nothing else can be done inside the season.

This site’s recommendation — as a reasoned position, not a benchmark — is to err earlier and shallower than feels comfortable, with a first touch deep enough to visibly change the sell rate. The reasoning is the asymmetry of the failure modes: the cost of an unnecessary early touch is bounded at the markdown on units that would have sold regardless, while the cost of a late touch compounds — fewer remaining weeks raise the depth required, and past a point the price is set by salvage value rather than by anyone’s plan. A touch too small to change the rate fails both ways at once, which is why “shallow” is a statement about starting early, never about cutting invisibly. To see what any given depth does to margin per unit and the volume it must earn back, use the markdown calculator and the break-even markdown calculator.

Working back from the season end

The exit date is not when a style stops selling — it is when the space, the open-to-buy, and the customer’s attention are needed for what comes next. That makes it a calendar fact, knowable pre-season, and it is why the markdown plan is built backwards the same way a T&A calendar is: start from the date the inventory must be gone, allow the final clearance step the weeks it needs at a realistic cleared-price rate, allow each earlier step enough weeks to work and be read, and the latest viable first-touch date falls out of the arithmetic.

Two consequences follow. First, the first-touch date is usually earlier than instinct suggests, because instinct works forward from “the style is struggling” while the calendar works backward from “the rail is needed.” Second, a style that misses its latest first-touch date has not gained time — it has silently traded a laddered exit for a single deep cut, whether or not anyone decided that. Tracking each style’s position against its ladder dates is what turns the exit from an event at season end into a managed descent across it.

Reconciling markdown spend in the WSSI

In a retail-value WSSI, a markdown is a devaluation event: the moment the price drops, every unit on hand is worth less at retail, and the stock identity extends to closing stock = opening stock + intake − sales − markdowns. The markdown line carries the phased pre-season budget as plan, and actual spend is booked against it in the week it is taken — no unit needs to move for the line to move.

The reconciliation matters because every downstream figure inherits it. A markdown taken at the till but never booked leaves closing stock overstated, which overstates forward cover, which silences the next trigger — the plan stops firing precisely because it was acted on. The reverse error, booking planned markdown that was never executed, understates stock and invites intake the season does not need. Weekly reconciliation of the markdown line is what keeps the two numbers that drive in-season decisions honest: the cover on the stock line, and the spend remaining in the budget.

The full walkthrough of the grid — including how the markdown line reads against intake and cover week by week — is in how to read a WSSI. And because markdown devalues stock, the markdown plan feeds straight back into open-to-buy: planned markdowns are a line in the OTB formula itself, so a markdown budget that moves in-season moves the buying room with it.

Six ways a markdown plan fails

• ✓Markdown spend is largely committed at the buy — the plan decides whether it is spent deliberately with weeks in hand or discovered late with none.
• ✓Budget pre-season from the gap between intake margin and the maintained-margin target, checked against last season’s actuals by category; phase it with the weight at the exit.
• ✓Give every style an exit date worked backwards from the season end; the ladder’s weeks then set the latest viable first-touch date.
• ✓Trigger on pre-agreed tests — sell-through against weeks elapsed, forward cover against weeks remaining — with the forward forecast as the denominator, never the trailing rate at a seasonal turn.
• ✓Ladder the depth from a first touch big enough to change the sell rate; this site recommends erring earlier and shallower because the late failure mode compounds and the early one is bounded.
• ✓Book every markdown in the WSSI the week it is taken — closing stock = opening + intake − sales − markdowns — and reforecast the remaining budget as the season trades.

• What is a WSSI? — the grid the markdown line lives in →
• How to read a WSSI — the weekly reconciliation walkthrough →
• How to set open-to-buy — planned markdowns are a line in the OTB formula →
• Markdown — the glossary definition →
• Forward cover — the trigger denominator, defined →
• Markdown calculator — price and margin impact of a cut →
• Break-even markdown calculator — the unit lift a depth must earn back →
• Markdown optimization strategies on RetailNorthstar — the pricing-strategy side →

Frequently asked questions

What is a markdown plan?

A markdown plan is the pre-season budget and in-season playbook for permanent price reductions: how much markdown spend the season carries, phased by period inside the sales plan; the triggers that release it, based on sell-through and forward cover; the depth ladder each style steps down; and the exit date each style must be cleared by. It sits inside the merchandise plan and reconciles in the WSSI, where markdowns reduce the retail value of closing stock.

How do you set a pre-season markdown budget?

From two directions at once. Top-down: the buy lands with an intake margin, the season has a maintained-margin target, and the gap between the two is the markdown the plan can afford — so the budget is derived from the margin structure rather than invented. Bottom-up: last season’s actual markdown by category, adjusted for what has genuinely changed in the buy, the calendar, or the assortment. There is no universal correct percentage — any specific figure would be a made-up benchmark — and the useful signal is where the two builds disagree, because that gap is either margin risk or an unexamined assumption.

When should you take the first markdown on a style?

When the pre-agreed trigger fires, and the workhorse trigger is forward cover against remaining trading weeks: if the stock on hand represents more weeks of forward sales than the season has left, the surplus cannot sell at the current price and the choice is only what price it clears at. Sell-through against weeks elapsed is the earlier, softer signal. The trigger should use the forward forecast rather than the trailing rate, because at seasonal turns the trailing rate is wrong in exactly the weeks the decision is made.

Should the first markdown be shallow or deep?

The honest answer is that it is a trade-off, not a rule. This site’s recommendation is a first touch taken earlier and broader than feels comfortable, deep enough to visibly change the sell rate, with later steps sized from the response — because the failure modes are asymmetric. The cost of an unnecessary early touch is bounded: some margin given on units that would have sold anyway. The cost of holding out and being wrong compounds: fewer weeks remain, so the required depth grows, and the endgame price is set by the calendar rather than chosen. That is a reasoned recommendation, not a benchmark.

What is an exit date in markdown planning?

The date by which a style’s inventory must be gone — set by when the space, the open-to-buy, and the customer’s attention are needed for the next season, and worked backwards from the season end rather than forwards from when the style struggles. From the exit date, the weeks each ladder step needs determine the latest viable first-markdown date. Styles without exit dates are how clearance racks become permanent.

How do markdowns show up in a WSSI?

As their own line, at retail value. The stock identity extends to closing stock = opening stock + intake − sales − markdowns: when a price is cut, the retail value of every unit on hand drops by the reduction, and that devaluation is booked in the week it happens even though no unit moved. The WSSI carries the planned markdown line from the pre-season budget and reconciles actuals against it weekly, so the remaining budget — the number that matters in-season — stays honest.

What is the difference between a markdown and a promotion?

A markdown is a permanent reduction in the retail price, taken to clear inventory, and it permanently devalues the stock on hand in the WSSI. A promotion is a temporary reduction — an event with an end date, after which the price returns — planned to drive volume rather than to exit inventory. The two are budgeted and booked differently, and blending them in one line hides which margin was spent clearing mistakes and which was spent buying demand.