How to calculate initial markup (IMU)

• ✓IMU % = (retail − cost) ÷ retail. Markup on cost puts the same markup over cost, so 60.0% on retail is 150.0% on cost — state the basis every time.
• ✓Required IMU = (MMU % + reductions %) ÷ (100% + reductions %), with reductions measured against net sales. A 52.0% target with 20.0% reductions needs 60.0%, not 72.0%.
• ✓Cost means landed cost: FOB plus freight, insurance, duty, brokerage, agent commission and inland freight. The same ticket reads 69.5% on FOB and 60.0% landed.
• ✓A class IMU is total retail less total cost, over total retail. Averaging style IMUs — simply, by units or by cost — gives a different answer, and the wrong one.
• ✓IMU is set once, but cumulative markup on what has actually landed is read every month; a shortfall there is margin lost before any markdown is taken.

One markup, two bases, four rearrangements

Initial markup is retail minus cost. As a percentage it can be written over either number, and the versions answer different questions:

• IMU % (markup on retail) = (retail − cost) ÷ retail
• Markup on cost = (retail − cost) ÷ cost
• Retail for a target IMU = cost ÷ (1 − IMU %)
• Cost ceiling at a fixed ticket = retail × (1 − IMU %)

Take a washed-twill overshirt landed at $24.00 and first-ticketed at $64.00. The markup is $40.00. On retail it is 40.00 ÷ 64.00 = 62.5%; on cost it is 40.00 ÷ 24.00 = 166.7%. Both describe the same unit correctly. Retail-method planning runs on markup on retail, because that is the figure that ties directly to margin and to the cost complement — the 0.375 left when 62.5% is taken from one, and the multiplier that converts a plan held at retail into inventory at cost.

The last two rearrangements are the ones that do the work at a buying desk. Pricing a new style to a 60.0% IMU on its $24.00 landed cost gives 24.00 ÷ 0.40 = $60.00. Holding a $64.00 ticket that the price architecture has already fixed, the most the unit can cost and still carry 60.0% is 64.00 × 0.40 = $25.60 — a ceiling the sourcing team can take into a vendor negotiation, instead of a margin target it has no way to act on.

Converting between the two bases needs only the markup itself: markup on cost = IMU ÷ (1 − IMU), and IMU = markup on cost ÷ (1 + markup on cost). The table below is that arithmetic and nothing more — a conversion, not a range to aim for:

Two things are worth reading off it. Markup on cost is always the larger number, and the gap widens as the markup rises — 26.7 points apart at 40.0% on retail, 163.3 points apart at 70.0% — so a figure quoted on the wrong basis is wrong by more on a richer range. And keystone, doubling the cost, is 100% on cost and 50% on retail: a buyer who works to keystone and a buyer who works to a 50% markup on retail are describing the same price, while one who works to a 2.5× multiple is at 60.0% on retail. Whichever way a vendor, an agent or a buying office speaks, the plan holds markup on retail and converts at the boundary.

The vocabulary drifts as well as the basis. “Margin” is used for markup on retail, “markup” for markup on cost, and “markon” for either, so the same spoken “sixty” can mean 60.0% on retail from a buyer and 37.5% on retail from a vendor quoting on cost. The defence is mechanical rather than verbal: carry the two dollar figures, retail and cost, beside every percentage, and the basis can always be recomputed from them.

Seven steps, in order

Steps three and six are arithmetic. The other five decide whether the arithmetic describes the range that will actually be bought — the wrong margin definition, a reduction left out or an FOB cost gives a correct division of the wrong numbers.

1. 1

   Fix the margin target and say what it contains

   Start from the maintained markup the merchandise plan needs for the class, and write down which reductions sit above it. In the textbook convention, markdowns, employee and promotional discounts and shrink are all reductions. If the target arrives as a gross margin, convert it back to maintained markup by taking out cash discounts earned and adding back workroom costs.

2. 2

   Plan the reductions in dollars

   Take the markdown budget from the markdown plan, the discount spend from the promotional calendar and the shrink provision from the stock ledger, in dollars, for the same class and period. Express the total as a percentage of planned net sales, which is the base the formula expects.

3. 3

   Solve the required IMU

   Required IMU = (MMU % + reductions %) ÷ (100% + reductions %). In dollars it is maintained markup plus reductions, over net sales plus reductions. Do not add the two percentages: that measures initial markup dollars against net sales instead of against original retail.

4. 4

   Build landed cost for every style

   First cost plus ocean or air freight, cargo insurance, import duty, customs brokerage, buying-agent commission and inland freight to the DC — every cost the house capitalises into inventory. An IMU struck on the FOB quote overstates the markup by everything it leaves out.

5. 5

   Price each style against its cost ceiling

   Set the ticket inside the price architecture, then test landed cost against retail × (1 − required IMU). A style above its ceiling is re-costed, re-ticketed, or carried knowingly below the line with the shortfall recovered elsewhere in the class.

6. 6

   Blend the class at retail dollars

   Add retail and landed cost across every line and compute one figure: (total retail − total cost) ÷ total retail. Compare it with the required IMU and, once part of the buy is committed, solve the markup the open purchases must carry.

7. 7

   Track cumulative markup as receipts land

   Each month, re-read the markup on opening stock plus receipts to date at the costs actually invoiced. Freight, duty and exchange rates move after the ticket is set, and cumulative markup is where that movement shows before the season’s margin does.

Run the seven steps on one style, the oxford shirt from the landed cost section below. The class it belongs to needs a 52.0% maintained markup (step one). Its reductions are planned at $80,000, 20.0% of net sales (step two). The required IMU is (52.0 + 20.0) ÷ 120.0 = 60.0% (step three). The shirt lands at $23.60 against an $18.00 FOB (step four). At its $59.00 price point the cost ceiling is 59.00 × 0.40 = $23.60, and it lands exactly on it (step five). The class it sits in is blended at retail dollars and tested against the same 60.0% (step six). And when the ocean freight doubles after the ticket is set, its landed cost becomes $24.70, and the cumulative markup on its receipts is where the 58.1% it now carries shows up (step seven). Each step uses a number the one before it produced, which is the reason for the order.

IMU vs maintained markup vs gross margin

The three are taken at different moments in the life of the same units, and each one absorbs a different set of events. Initial markup is a pricing decision, maintained markup is a trading outcome, and gross margin is an accounting result, and treating any two of them as interchangeable is how a margin conversation goes in circles.

The class worked through below carries all three. It is ticketed at a 60.0% IMU, takes $80,000 of reductions on $400,000 of net sales and keeps a 52.0% maintained markup. Add $3,840 of cash discounts — 2% earned on $192,000 of invoiced cost — take off $1,600 of workroom costs, and gross margin is $210,240, or 52.6% of net sales. Three correct numbers, the first 7.4 points above the last, and none of them a mistake.

Where shrink sits is a convention, and both are in use. The textbook retail-math convention counts shrink as a reduction, so it sits inside maintained markup, which is how this guide treats it. The margin bridge guide on this site books it one step lower, between maintained markup and realized gross margin, beside write-offs and non-resaleable returns. For setting an IMU the rule is the same under either convention: every reduction that sits between the first ticket and the margin being targeted goes into the reductions line, once. Target maintained markup under the bridge convention and shrink is not in the reductions; target realized margin and it has to be, along with anything else the house books between the two. In this guide’s class, leaving the $6,000 shrink provision out of the reductions solves the requirement at (52.0 + 18.5) ÷ 118.5 = 59.5% instead of 60.0%, and with the shrink still taken, maintained markup closes at 51.4% instead of 52.0%.

Cash discounts deserve a sentence of their own, because they are the one item that moves margin up. A discount for paying a vendor invoice early is earned after the goods are bought and has nothing to do with the ticket, so IMU is struck on billed cost, before it. Costing at the net invoice — folding the expected discount into the cost used for pricing — raises the IMU on paper, and then the same dollars are counted a second time when gross margin adds the discount back.

Where the margin target comes from

A required IMU is only as sound as the maintained markup it starts from, and that figure is not a convention. It is the gross margin the class has to earn to cover its share of operating expenses and the profit the plan commits to, converted back to maintained markup. No published IMU decides it, and this guide offers none: an IMU borrowed from another business arrives with that business’s cost base, its reductions and its expense structure attached, and none of those transfer.

The chain runs from the bottom of the plan to the top. Operating expenses plus planned profit give the gross margin the class needs. Removing cash discounts and adding back workroom costs gives maintained markup. Adding reductions gives the initial markup dollars, and dividing by original retail gives the IMU. For the class in this guide: a $210,240 gross margin, less $3,840 of cash discounts, plus $1,600 of workroom costs, is a $208,000 maintained markup; plus $80,000 of reductions is $288,000 of initial markup on $480,000 of original retail — 60.0%. Written as one line, the textbook form:

• IMU % = (gross margin + workroom costs − cash discounts + reductions) ÷ (net sales + reductions)
• (210,240 + 1,600 − 3,840 + 80,000) ÷ (400,000 + 80,000) = 288,000 ÷ 480,000 = 60.0%

Each input has a different owner, and that is the practical value of writing the chain out. Finance owns the expense and profit lines; the markdown plan owns the markdowns; sourcing owns the payment terms that produce cash discounts; operations owns the workroom line. A change in any one of them moves the IMU the buyer has to price to. A deeper promotional calendar raises it. A richer early-payment discount lowers it slightly. A fulfilment cost moved into operating expenses raises the gross margin the class needs, and the IMU with it — a decision taken in a finance meeting that lands on every ticket in the range.

A directional range has one honest use before that work is done. The directional gross margin and markdown ranges on the planning benchmarks page — unsourced orientation figures, not targets — can frame a new category that has no plan of its own yet. They stop being the reference the moment the category has an expense line, a profit commitment and a markdown budget, because from then on the required IMU can be derived instead of guessed.

The IMU a margin target and planned reductions require

The plan supplies the maintained markup the class needs and a view of the reductions the range will take. The required IMU is what the two together imply:

• Required IMU = (maintained markup $ + reductions $) ÷ (net sales $ + reductions $)
• Required IMU % = (MMU % + reductions %) ÷ (100% + reductions %)

The dollar form shows why it works. Net sales plus reductions is the original retail of the goods — what they would have rung up had every unit, including the ones shrink takes, sold at its first ticket. Maintained markup plus reductions is that original retail less the cost of the goods. The formula is the ordinary IMU, (retail − cost) ÷ retail, with the season’s reductions added back on top of net sales; the percentage form is the same thing with every line divided by net sales.

A class plans $400,000 of net sales at a 52.0% maintained markup, which is $208,000. The markdown plan budgets $64,000, the promotional calendar $10,000 of employee and promotional discounts, and the stock ledger carries a $6,000 shrink provision. Reductions total $80,000, or 20.0% of net sales. Required IMU = (208,000 + 80,000) ÷ (400,000 + 80,000) = 288,000 ÷ 480,000 = 60.0%; in percentage form, (52.0 + 20.0) ÷ 120.0 = 60.0%. The goods cost $192,000, which is 40.0% of their $480,000 original retail.

Read the last two columns together. Every line has two percentages because there are two bases, and the bottom line shows the error the formula exists to prevent: initial markup dollars are 72.0% of net sales and 60.0% of original retail. Adding the target to the reductions — 52.0 + 20.0 — produces the first of those and labels it the second. On a $24.00 landed cost, a 72.0% IMU is an $85.71 ticket, where 60.0% needs $60.00.

Setting the IMU at the target itself fails in the other direction. Ticket the same goods at 52.0%, take the same reductions as a share of original retail, and maintained markup lands at 42.4% — 9.6 points under a plan that was never wrong about its reductions, only about where it left room for them. An IMU set at the target margin has no room in it, and the first markdown puts the season under plan.

The reductions assumption is the input that moves. Hold the 60.0% IMU and let markdowns run $20,000 over budget on the same goods: net sales fall to $380,000 against the same $192,000 of cost, and maintained markup is 188,000 ÷ 380,000 = 49.5%. The grid below solves the required IMU across a range of reduction levels for three maintained-markup targets. It is arithmetic, not a range to aim for:

Two features of the grid matter in planning. Each five points of extra reductions needs less than five points of extra IMU: at a 52.0% target, moving from 20% to 25% reductions lifts the requirement 1.6 points, from 60.0% to 61.6%, because the reductions are added to the base as well as to the markup. And the requirement is carried on the ticket the customer sees first. A class planning 30% reductions needs 63.1%, and every point of it has to survive the price architecture; taking the reductions down — less depth, shallower and earlier markdowns — moves the requirement without touching a price.

Where the reductions come from matters as much as how big they are. Build them in dollars from the documents that already hold them: the markdown budget from the markdown plan, the discount spend from the promotional calendar, and the shrink provision from the stock ledger the retail inventory method runs on. A reductions percentage carried forward from last year inherits last year’s balance of full-price and promotional selling; restating it in dollars against this year’s sales plan is what shows that a deeper promotional calendar raises the IMU the buy has to carry before a single unit is costed.

How much markdown room an IMU leaves

The IMU is also the ceiling on markdown depth. A unit with a 60.0% markup on retail can be marked down 60% before it sells at its landed cost, because the reduced price is then exactly the cost. Short of that, the markup left on the reduced price follows from the same two numbers:

• Markup on the reduced price = (IMU − markdown depth) ÷ (1 − markdown depth)
• Break-even markdown depth = IMU (on landed cost)

At a 60.0% IMU, a unit sold at 40% off still earns 33.3% on its reduced price; at a 50.0% IMU the same markdown leaves 16.7%, and half price leaves nothing. A thinner IMU does not just start lower — it runs out of room sooner, so the markdown ladder a range can afford is set at costing, months before anyone chooses a first markdown. The break-even markdown calculator finds the depth where margin per unit reaches zero, and the markdown calculator prices a single cut.

The markup on a marked-down unit is not the maintained markup, which blends the units sold at each price by their net sales. Sell 70% of a 60.0% IMU style at its first ticket and 30% at 40% off: per dollar of original retail, net sales are 0.70 + 0.30 × 0.60 = 0.88, cost is 0.40, and maintained markup is 0.48 ÷ 0.88 = 54.5%. The full-price units earn 60.0% and the marked-down units 33.3%, weighted by the net sales each produces. Run the other way, the reductions are 0.12 ÷ 0.88 = 13.6% of net sales, and (54.5 + 13.6) ÷ 113.6 returns the 60.0% the style was ticketed at — the same identity as the section above, read from the trading side.

This is why the markdown plan and the IMU are one decision rather than two. The depth of the ladder, the share of units expected to sell on it, and the exit date that forces the last step together set the reductions; the reductions set the required IMU; and the IMU sets how deep the ladder can go before units sell at a loss. A range priced first and marked down later, with no plan connecting the two, discovers that circle at the season close.

High-low against everyday pricing: same goods, different IMU

A pricing strategy changes the IMU without changing the business underneath it, so comparing IMUs across strategies compares tickets, not margins. Take a sweater landed at $24.00. A high-low strategy tickets it at $80.00 and promotes it at 30% off for much of its life: IMU (80 − 24) ÷ 80 = 70.0%. An everyday-price strategy tickets it at the promoted price, $56.00, and holds it there: IMU (56 − 24) ÷ 56 = 57.1%.

If every unit sells at $56.00 either way, the two ranges keep the same 57.1% maintained markup from IMUs 12.9 points apart. The high-low range gets there through reductions of 42.9% of net sales — $24.00 of promotion on every $56.00 of sales — and the formula agrees: (57.1 + 42.9) ÷ 142.9 = 70.0%. A high IMU on a range that rarely sells at its ticket is a reductions plan, not a margin.

The difference between the strategies lives in the units that do sell at the ticket. Sell 20% of the high-low units at $80.00 and 80% at $56.00, and net sales are $60.80 a unit for a maintained markup of (60.80 − 24.00) ÷ 60.80 = 60.5% — 3.4 points above the everyday range, provided the volume holds while the ticket is high. That proviso is the whole decision, and neither IMU contains it. When a plan compares classes run on different pricing strategies, compare maintained markup and the reductions behind it, and read IMU only within a strategy.

Size-run depth as a planned reduction

In apparel and footwear, part of the reductions is decided at the buy, by the size run. Every door that carries a style has to present it in enough sizes to sell, so the buy puts units into the tail sizes in line with the size curve and the presentation minimum rather than with demand alone — and tail sizes that outlast the core clear below ticket.

A style ticketed at $50.00 on a $20.00 landed cost carries a 60.0% IMU. Of its 1,200 units, the two tail sizes take 180. If half of those 90 units clear at 50% off and everything else sells at the ticket, the tail clearance is 90 × $25.00 = $2,250 of reductions on $57,750 of net sales — 3.9% of net sales, and a maintained markup of 58.4% with no seasonal markdown taken at all. That share is set by the size curve and the door count, so it belongs in the reductions plan from the day the buy is cut, rather than left to surface in the exit markdown.

The lever runs the other way too. Cutting a style’s door count, or carrying a shorter run in low-volume doors, takes tail units out of the buy and out of the reductions. The minimum buy depth guide works the floor below which a size run breaks, and how to calculate size curves builds the curve the tail share comes from. Both are inputs to the IMU through the reductions line, as much as they are inputs to the buy.

Landed cost: what belongs underneath the markup

An initial markup is only as accurate as the cost under it. The cost in an IMU is landed cost — every cost the house capitalises into inventory — not the first cost on the vendor’s quote, and the gap between the two is markup that exists on the costing sheet and nowhere else. A worked style: an oxford shirt costed at $18.00 FOB and ticketed at $59.00.

The duty line is the one to check first. The 16% here is a placeholder for the arithmetic: real duty depends on the tariff classification, fibre content and country of origin of the specific product, and it is charged on the customs value, so it moves with the FOB price. The buying-agent commission is the line easiest to leave out, because the agent invoices it separately from the factory.

Each layer takes its bite. The FOB alone reads 69.5%; freight and insurance take it to 67.5%, duty to 62.6%, brokerage and commission to 60.7%, and inland freight to the 60.0% the unit actually carries. 9.5 points of the FOB markup do not exist once the unit is on the floor. Against the class requirement solved above, the cost ceiling at a $59.00 ticket is 59.00 × 0.40 = $23.60, so this style lands exactly on it with no headroom. Double the ocean freight to $2.20 and landed cost is $24.70: the IMU falls to 58.1%, and holding 60.0% would need a $61.75 ticket that the price architecture may not offer.

The policy rows are where two houses with identical goods report different IMUs. Capitalise DC handling and the cost base rises; expense it, and the IMU reads higher with the same handling paid. Either is defensible; what breaks the plan is a cost base that changes definition between the costing sheet, the stock ledger and the margin report. The GMROI guide shows the same policy reaching the inventory denominator, and the landed cost calculator builds the per-unit figure from FOB, freight and duty. The landed cost glossary entry has the short definition.

Currency is the last moving part. A cost quoted in a vendor’s currency is converted at a rate the plan has to choose — the budget rate the line was costed at, or the rate on the day the invoice is paid. The difference flows straight into landed cost, and an IMU struck at a budget rate the actual rate has overtaken is overstated by the same mechanism as one struck on FOB. Write the rate on the costing sheet next to the duty assumption, and re-read both when the goods land.

Blended IMU across a mixed-margin class

A class holds styles at different markups on purpose. Core styles carry a rich markup on a low cost; an opening price point carries a thin one to hold a price the customer compares; a statement piece sits between. The class IMU is a ratio of totals — total retail less total cost, over total retail — so it is weighted by retail dollars, not by the number of styles or units. Four illustrative styles:

The class carries $183,600 at retail on $67,800 of cost: (183,600 − 67,800) ÷ 183,600 = 115,800 ÷ 183,600 = 63.1%. These are the answers the other ways of combining the same four figures return:

Against the 60.0% the class requires, the methods hand down four verdicts. The simple average says the class is short. Weighting by units says it is badly short, because 3,000 of the 6,900 units are the opening-price tee at 40.0%. Weighting by cost says it barely clears. Only the retail-weighted figure is the markup the class was bought at, because only it reproduces the class’s own totals: 63.1% of $183,600 is the $115,800 of markup the four styles actually carry. Ratios combine by adding numerators and adding denominators, and a weighted mean of ratios equals that only when each ratio is weighted by its own denominator — here, retail.

The same arithmetic makes mix a markup lever as strong as any ticket. Leave every style’s IMU exactly where it is and double the opening-price tee to 6,000 units: the class falls to 60.4%. Triple it to 9,000 and the class is at 58.3%, under its requirement, with no style re-costed and no ticket changed. A class IMU can miss its plan through depth decisions alone, which is why re-cutting quantities late in the buy means re-solving the class IMU at the same time. The buy plan template carries cost, retail and a (retail − cost) ÷ retail margin on every line; for the class figure, sum its cost and retail columns and take one minus their ratio, rather than averaging the margin column.

Good-better-best architecture builds this in deliberately. The entry price point exists to hold a comparison and carries the thinnest markup, the top tier carries the richest, and the middle carries the volume. The planning question is never whether each tier clears the class requirement on its own — the entry tier is not meant to — but whether the retail-weighted blend of the three does, at the depths the buy plan actually commits.

The markup the remaining purchases must carry

A class is not always bought in one sitting. Some styles are committed early — long-lead programmes, factory minimums, carryover reorders — and the rest of the open-to-buy is spent later. The question then is not the class IMU but the markup the uncommitted part has to carry for the class to land on plan:

• Markup required on open purchases = 1 − (planned total cost − committed cost) ÷ (planned total retail − committed retail)

Plan the four-style class at $183,600 of purchases at retail and the 60.0% requirement, which allows $73,440 of cost. Styles B, C and D are committed first, at $52,200 of cost on $126,000 of retail — 58.6% between them, under the requirement on their own. That leaves $57,600 of retail to buy and $21,240 of cost to buy it with, so the open purchases must carry 1 − 21,240 ÷ 57,600 = 63.1%, and style A has to land at or below 21,240 ÷ 2,400 = $8.85 a unit.

The open-purchase markup is the number to hand the buyer who has not yet placed the orders, because it is the only one they can still act on. The committed 58.6% is history, and the class 60.0% is a target the committed styles have already pulled down. Here the core tee, costed at $6.50, carries 72.9% and clears with room to spare. Had the committed styles landed further under — freight on the opening-price tee, a duty change on the jacket — the figure required of the remaining buy would rise with every dollar, and the last styles in the buying calendar would carry the whole correction.

Two cautions. The calculation assumes the planned retail total holds: cut a committed style’s depth and the denominator changes for both parts, so re-run it whenever quantities move. And the required markup on the open purchases can become unreachable — above anything the price architecture or the vendor base can deliver. At that point the honest move is to re-plan the class margin, rather than ticket the last styles at a markup the customer will not pay and then plan the markdowns that follow.

Cumulative markup: IMU on what has actually landed

IMU is struck on paper. Once goods arrive, the markup that matters is the one on the stock actually available to sell: cumulative markup, the markup on retail across opening stock plus every receipt to date, at the costs actually invoiced.

• Cumulative markup = (total retail − total cost) ÷ total retail, across opening stock plus receipts to date

It is the same ratio-of-totals arithmetic as the class blend, run on the stock ledger instead of the buy plan. Mid-season, the class holds:

Opening stock carries 58.0% and the season’s receipts 61.0%, and together they give 1 − 119,700 ÷ 300,000 = 60.1%. One minus the cumulative markup is the cost complement, 0.399 here — the figure the retail inventory method uses to turn the retail position into inventory at cost. A cumulative markup drifting below the required IMU while sales run on plan means margin has been lost at receipt, before any markdown is taken, and the cause is in the cost column: a freight, duty or exchange-rate movement after the ticket was set, or receipts running heavier in the thin-markup styles than the plan.

Read it monthly, beside the plan. A one-point miss on IMU costs more than a point of maintained markup, because it is lost on original retail and measured on net sales. At 59.0% instead of 60.0%, the class from the working-backward example carries $196,800 of cost instead of $192,000, and maintained markup falls from 52.0% to 50.8%: 1.2 points from one point of IMU, the ratio of $480,000 of original retail to $400,000 of net sales.

Closing a markup gap in-season, in cost order

When cumulative markup runs under the requirement, the gap is in the cost column, and the levers that close it differ in what they spend and in how long they stay available. Work them in the order that spends least and expires first — the same discipline the GMROI guide applies to inventory.

Re-cost the uncommitted purchases first. Orders not yet placed can still move: a different port, a consolidated shipment, a vendor that quotes a lower first cost on the same specification, a slower mode for goods that can wait. Nothing is spent at retail, and every dollar recovered lowers the cost the open purchases carry. The lever expires the day the order is placed.

Re-mix the open purchases second. The open-purchase calculation above says what markup the remaining buy must carry, and shifting the remaining open-to-buy toward the styles that carry more of it closes the gap without touching a ticket. The constraint is the assortment: the richer styles have to be ones the range needs, or the markup recovered on paper comes back as reductions on stock the customer did not want.

Re-ticket future receipts third. Goods not yet on the floor can still take a new first ticket — a price-point move on a reorder, or the next delivery of a carryover style — and that is a pricing decision rather than a markdown cancellation, because no customer has seen the old price. Goods already ticketed are a different matter, covered under re-tickets below.

Take the reductions down fourth. Fewer or shallower promotional events, a later first markdown on styles selling at plan, tighter shrink control in the doors where it runs high: each lowers the reductions the IMU was solved against, and so lowers the requirement. It spends sales risk rather than markup, which is why it comes after the cost levers.

Re-plan last. If none of the above closes the gap, the honest output is a revised class margin and a re-solved open-to-buy at cost, not a requirement the remaining buy cannot meet. A markup target the remaining purchases cannot reach is not reached by pricing past the customer; it is dealt with by planning the shortfall in the open, where finance can see it before the close rather than after it.

From a class IMU to style tickets

A required IMU is a class figure; tickets are set style by style, inside a price architecture that already has its price points. The two meet at the cost ceiling. With the ticket fixed by the architecture, the most a style can cost and still carry the requirement is retail × (1 − required IMU), and that is the figure that goes to the vendor.

Price points round, and rounding moves the markup. A style landed at $24.00 needs $60.00 to carry 60.0% exactly. If the architecture’s points are $59 and $69, the $59.00 ticket carries (59 − 24) ÷ 59 = 59.3% and the $69.00 ticket 65.2%. Rounding a ticket down is a markup decision, not a formatting one: take $59.00 and the style needs a $23.60 cost to carry the class requirement, so the shortfall becomes a sourcing ask; take $69.00 and the markup is there, carried by a ticket that now sits in the next tier up.

Neither choice is wrong in isolation. What breaks a class is making the choice style by style without re-blending: twenty styles each rounded down by a fraction of a point is a class that misses its IMU with no single decision anyone can point to. Price each style, then re-run the retail-weighted blend, and treat any gap as a mix or cost question for the whole class rather than a re-pricing exercise on whichever style was costed last.

Carryover, reorders and re-tickets

A style bought more than once carries more than one IMU. The first order was costed at one landed cost; a reorder is costed at whatever first cost, freight and duty are when it is placed; and carryover stock from last season keeps the cost it was received at. The style’s cumulative markup is the retail-weighted blend of all of them, which is how a reorder can lower a style’s markup with no ticket changing.

Take the core tee from the class above. Its first buy cost $6.50 against a $24.00 ticket: 72.9%. A reorder costed 10% higher, at $7.15, carries (24.00 − 7.15) ÷ 24.00 = 70.2% at the same ticket, and moving the reorder to a $26.00 ticket restores 72.5%. A reorder is a markup decision as well as a depth decision, because the cost it is placed at sets the markup on every unit it brings in.

Re-ticketing stock already on hand is a different instrument. In a retail-method stock ledger a price increase on goods on hand is recorded as an additional markup, and a later reversal of it as a markup cancellation; both move the retail column rather than the cost column. A planner reading a rising cumulative markup should check where it came from — cheaper receipts, or re-tickets on stock already owned. The first is a cost improvement; the second is a pricing decision with a customer attached, and it changes a price that customer has already seen.

Carryover deserves its own line in the plan. Stock carried into a new season holds its old cost, and if it was marked down before the carry, its retail is already reduced. Blended into the new season’s receipts, it pulls the cumulative markup toward its own figure. Planning the carryover at its actual cost and current retail, rather than at the new season’s planned IMU, is what keeps the opening line of the cumulative markup honest.

IMU when a brand sells wholesale and direct

A brand selling one style through wholesale accounts and its own direct channel prices it twice, and so carries two initial markups on the same landed unit. On the wholesale line the brand’s selling price is the wholesale price, so its markup is struck on that; the account then strikes its own markup on the retail it tickets. On the direct line the brand is the retailer, and its markup is struck on its own ticket. One style, landed at $24.00:

The brand earns (60 − 24) ÷ 60 = 60.0% on the wholesale price. The account, ticketing at $128.00, earns (128 − 60) ÷ 128 = 53.1% on its own retail. The brand’s direct channel, at the same $128.00 ticket, carries (128 − 24) ÷ 128 = 81.3%. Blended at the brand’s own selling prices, 2,000 wholesale units and 800 direct units are $222,400 of revenue at original prices on $67,200 of cost: 69.8%. Move to 1,400 units in each channel and the same style, at the same cost and the same two prices, blends to 74.5%.

The richer direct markup is not a richer business on its own: the direct channel carries fulfilment, returns and marketing that the wholesale price leaves with the account, and those sit below gross margin where an IMU never sees them. A blended IMU that rises because the mix moved toward direct describes the mix, not the pricing, and it has to be read beside the expense lines that moved with it. The reductions differ too. Wholesale reductions arrive as markdown money, chargebacks and co-op deductions taken by the account; direct reductions are the brand’s own markdowns and promotions. Each channel’s required IMU is solved against its own reductions.

The wholesale and DTC planning guide works through one buy against both channels and reconciles it to the two margin statements this produces, and the margin bridge lays out the wholesale deductions line by line.

Own brand against a bought-in brand

An own-brand range can carry a higher IMU than the branded range beside it, and the difference is easy to read as pure margin. It is not. The oxford shirt costed above lands at $23.60 against a $59.00 ticket: 60.0%. A branded shirt bought at $30.00 to sit at the same $59.00 ticket carries (59.00 − 30.00) ÷ 59.00 = 49.2%. The 10.8-point gap is the margin the brand would have kept, and it arrives with the costs and risks the brand used to carry.

Those costs land in different places, so the comparison has to be made on one basis. Design, sampling and fit approvals sit in operating expenses and never touch the IMU. Compliance testing sits in landed cost, and factory minimums show up later as reductions on depth the range did not need. Markdown money, co-op and return-to-vendor rights — which a branded vendor may provide and an own-brand factory does not — would have lowered the branded range’s reductions or its cost. Solve each range’s required IMU against its own reductions and its own cost base, and the honest comparison is between the margins each one keeps, not the markups each one is ticketed at.

The private-label planning guide covers the substitution — own-brand units replace branded ones rather than adding to them — and the trade it works through, where own-brand tickets set below the brand raise the margin rate while margin dollars per unit fall.

Drop-ship, consignment and marketplace: markup without owned stock

Not every line in a class is bought into inventory, and the IMU arithmetic changes when it is not. On a drop-ship line the retailer tickets the item and pays the vendor a cost per unit when it sells, and the vendor may add a per-order fee for fulfilment; the fee is part of the cost of that unit and belongs in the base the markup is struck on. The retailer holds no stock, so there is nothing of its own to mark down, and the reductions that matter are cancellations, promotions and whatever the returns terms leave with the retailer.

Consignment and memo goods sit on the retailer’s floor but remain the vendor’s property until they sell. The markup is struck on the consignment cost at the sale, and who bears a markdown is a contract term rather than a planning assumption. Marketplace listings carry no markup at all: the operator earns a commission on the sale, which is a revenue share, not (retail − cost) ÷ retail.

Blending any of the three into an owned-inventory class IMU mixes different measurements into one ratio. Report them as their own lines with their own basis — drop-ship markup, consignment markup, marketplace commission — and keep the class IMU to goods the house bought. The drop-ship planning guide covers the same channel from the supplier’s side, where it is planned as an availability policy rather than a receipt quantity.

Where IMU sits in the merchandise plan

IMU is the exchange rate between the two currencies a plan runs in. Sales, stock and open-to-buy are planned at retail; purchases are committed at cost. The planned IMU converts one into the other:

• Planned purchases at cost = planned purchases at retail × (1 − planned IMU)

The four-style class plans $183,600 of purchases at retail; at a 60.0% IMU that is $73,440 at cost, the figure the sourcing team commits against. If the markup the class actually lands at slips to 58.0%, the same retail buy needs $77,112 of cost — $3,672 more cash for the same retail, before a unit sells. An IMU shortfall shows up in the cash plan before it shows up in the margin line, because open-to-buy at cost is spent the moment an order is placed.

It reaches the other ratios the same way. The cost complement — one minus the IMU — is the multiplier that values stock at cost, so it sits in the denominator of GMROI: a richer IMU lowers inventory at cost for the same retail position and raises gross margin dollars on the same sales. And because open-to-buy is solved at retail and committed at cost, the IMU assumption sits inside every open-to-buy conversion a buyer makes. A seasonal plan carries it by month rather than once, because receipts land at different costs through the season — early deliveries costed on one freight contract, later ones on the next — so the month a receipt lands in decides the rate its open-to-buy is converted at. A plan that carries one IMU for the year while receipts run at a different cumulative markup is converting at a stale rate — which is the case for reading cumulative markup monthly, beside the open-to-buy, rather than at the season close.

The maintained markup the plan is finally judged on is a trading outcome, but every input to it after the first ticket — the reductions, the cost movements, the mix — was either planned into the IMU or was not. For the case where landed cost keeps moving through the season rather than holding at costing, planning margin on a moving cost base on RetailNorthstar takes the cost side further.

Reading the season back: plan against actual

At the close, the plan’s IMU and its reductions meet what actually happened, and a maintained-markup miss splits into the two causes the plan separated at the start: the cost under the ticket, and the reductions taken off it. The class plan against an illustrative actual, for the same goods at the same tickets:

The goods landed at $196,800 of cost — freight ran over, so cumulative markup came in at 59.0% against a 60.0% plan — and took $89,000 of reductions against $80,000, with markdowns $8,000 over and shrink $1,000 over. Maintained markup came in at 194,200 ÷ 391,000 = 49.7%: 2.3 points under plan and $13,800 short.

Attribute the miss in dollars, which add; percentage points depend on the order they are taken in. In dollars the split is exact in either order: $4,800 of cost and $9,000 of reductions make the $13,800. In points, taking cost first gives the IMU 1.20 and the reductions 1.13; taking reductions first gives the reductions 1.10 and the IMU 1.23. The total is 2.33 either way and neither split is wrong — which is why a margin bridge publishes its order and holds it from one season to the next.

The split also assigns the miss to owners. The $4,800 of cost belongs to sourcing and logistics, the $8,000 of markdowns to merchandising and the markdown plan, and the $1,000 of shrink to store operations. Next season’s required IMU is solved from the same three inputs, and the reconciliation is what tells the plan which of them to change: a freight assumption that ran a point light, a markdown budget that was short, or both.

Reviewing a costing sheet: five questions

A costing sheet arrives as finished numbers. Five questions, asked in order, establish whether its IMU means what it says. Each one maps to a specific way the figure can be right as arithmetic and wrong as a plan.

1. Is every markup on retail? Any figure above 100% can only be on cost. Look for vendor or agent sheets that say “markup” with no basis, and convert them before they reach the plan.
2. Is the cost landed? Check that freight, insurance, duty, brokerage, agent commission and inland freight are all present, what rate each was estimated at, and which exchange rate converted the FOB.
3. Which reductions does the requirement leave room for? The required IMU on the sheet should cite the markdown budget, discount plan and shrink provision it was solved from, as a share of net sales.
4. Is the class figure retail-weighted? Re-compute it as one minus total cost over total retail. If it differs from the figure on the sheet, the sheet averaged percentages.
5. What is already committed? Once part of the buy is placed, the sheet should show the markup the open purchases must carry, not only the class total the committed styles have already moved.

None of the five needs a model. Each needs the sheet to carry its own basis — cost definition, exchange rate, reductions source, weighting, commitment status — so that a reader can check the figure instead of trusting it. A sheet that cannot answer them is a pricing proposal, not a costing.

The questions are worth asking three times, because the answers change. At costing, they test the proposal. At order placement, they test what was actually committed — the cost on the purchase order rather than the quote, and the open purchases that remain. When the goods land, they test the invoice: the freight that was actually paid, the duty that was actually assessed and the exchange rate that actually applied. The figure that survives all three is the one the cumulative markup will show.

What an IMU cannot see

IMU is a ratio struck on two numbers before anything happens, which is what makes it clean, and also what makes it blind in three specific ways. Each blindness has a companion measure that covers it, so the useful unit is a small panel rather than a single markup.

It cannot see how many units sell at the ticket. A 70.0% IMU on a range that clears half its units at 60% off keeps a 57.1% maintained markup; a 60.0% IMU that sells through at the ticket keeps 60.0%. Full-price sell-through and the markdown rate are what see the difference, and the reductions input on the IMU calculator is the place to test it before a price is set.

It cannot see the expenses below gross margin. A direct channel earns a richer markup and carries fulfilment, returns and marketing below the line, so an IMU rising on channel mix says nothing about whether the business earns more. The class profit and loss answers that; the markup does not.

It cannot see the inventory the markup is earned on. Two classes at the same IMU can need very different depth to earn it, and the return on that depth is GMROI’s question — gross margin dollars over average inventory at cost, with the cost complement from the IMU in the denominator. The working panel is IMU for what the range was designed to earn, maintained markup for what it kept, sell-through for how much of it sold at the ticket, and GMROI for what the inventory returned.

Seven ways an IMU figure misleads

Each produces a number that divides correctly. None shows up as a spreadsheet error; each shows up months later as a maintained markup under plan that nobody priced wrong on purpose.

What moves initial markup in each vertical

The formula does not change. What changes is which costs sit in the base, where the reductions concentrate, and how much of the ticket the house controls — so an IMU is compared within a vertical, on one cost definition. Apparel is the reference case.

• IMU calculator — price one style, or solve a ticket to a target IMU →
• Landed cost calculator — build the cost underneath the markup →
• Markdown calculator — the price and margin of a single cut →
• Break-even markdown calculator — how deep a markdown can go →
• How to build a margin bridge — from IMU to realized gross margin →
• How to build a markdown plan — the reductions an IMU leaves room for →
• The retail inventory method — cumulative markup and the cost complement in the stock ledger →
• How to calculate GMROI — where the cost complement becomes the denominator →
• How to build a buy plan — cost, retail and margin on every line →
• Retail math formulas — the wider formula reference →
• Initial markup (IMU) — glossary definition →
• Maintained markup (MMU) — glossary definition →
• Landed cost — glossary definition →
• Gross margin — glossary definition →
• The initial markup formula on RetailNorthstar →
• Planning margin on a moving cost base on RetailNorthstar →

Frequently asked questions

What is IMU in retail?

IMU (initial markup) is the difference between a style’s first ticketed retail price and its landed cost, as a percentage of that retail price: (retail − cost) ÷ retail. A style landed at $24.00 and ticketed at $64.00 carries an IMU of 62.5%. It is the markup a range is bought at — fixed at costing and ticketing, before any markdown, discount or shrink — and it is set above the maintained markup the plan needs, so that what survives those reductions still meets it.

How do you calculate initial markup?

For one style, subtract landed cost from the first ticket and divide by the ticket. For a class, add retail and cost across every line and divide once — (total retail − total cost) ÷ total retail — so the result is weighted by retail dollars. In this guide’s four-style class that is 115,800 ÷ 183,600 = 63.1%, where a simple average of the four style IMUs reads 59.4%.

How do you calculate the IMU needed to hit a margin target?

Required IMU = (maintained markup % + reductions %) ÷ (100% + reductions %), with reductions — markdowns, employee and promotional discounts, and shrink — as a percentage of net sales. A 52.0% maintained markup with reductions of 20.0% of net sales needs (52.0 + 20.0) ÷ 120.0 = 60.0%. Adding the two percentages gives 72.0%, which overprices; ticketing at the 52.0% target lands maintained markup at 42.4%.

What is the difference between initial markup and maintained markup?

Initial markup is struck on the first ticket before the season, against original retail. Maintained markup is what the units that sold actually earned at the prices they got: net sales less cost of goods sold, over net sales. The gap between them is the season’s reductions. In this guide’s class, a 60.0% IMU and $80,000 of reductions on $400,000 of net sales leave a 52.0% maintained markup.

Is initial markup the same as gross margin?

No. Initial markup is measured before every reduction; gross margin is measured after them, and after the adjustments that are not reductions. In the textbook convention, gross margin is maintained markup plus cash discounts earned on vendor invoices, less workroom costs. In this guide’s class, $3,840 of cash discounts and $1,600 of workroom costs turn a 52.0% maintained markup into a 52.6% gross margin, against a 60.0% IMU.

Should IMU be calculated on landed cost or FOB?

On landed cost: first cost plus freight, insurance, import duty, customs brokerage, buying-agent commission and inland freight to the DC — every cost the house capitalises into inventory. In this guide’s example, a $59.00 ticket reads 69.5% against an $18.00 FOB and 60.0% against the $23.60 landed cost the unit actually carries. The 9.5-point difference is markup that exists only on the costing sheet.

How do you convert markup on cost to markup on retail?

Markup on retail = markup on cost ÷ (1 + markup on cost), and markup on cost = markup on retail ÷ (1 − markup on retail). A 150% markup on cost is 60.0% on retail; keystone, 100% on cost, is 50.0% on retail; a “60% markup” quoted on cost is 37.5% on retail. Planning runs on markup on retail because it ties directly to margin and to the cost complement.

How does shrink affect initial markup?

Shrink is a reduction: goods that leave without a sale still carried their original retail and their cost. In the textbook convention it sits inside maintained markup, so the shrink provision belongs in the reductions the required IMU is solved against. In this guide’s class, $6,000 of shrink is part of the $80,000 of reductions behind the 60.0% requirement; leave it out and the requirement solves to (52.0 + 18.5) ÷ 118.5 = 59.5%.

What is a good initial markup?

There is no universal figure, and this guide offers none. The IMU a class needs is derived from its own plan: the gross margin that covers its share of operating expenses and planned profit, converted to maintained markup, plus the reductions the range is expected to take. In this guide’s illustrative class, a 52.0% maintained markup and reductions of 20.0% of net sales require 60.0%. An IMU borrowed from another business carries that business’s costs, reductions and expenses with it.

What is cumulative markup?

Cumulative markup is the markup on retail across opening stock plus all receipts to date, at the costs actually invoiced: (total retail − total cost) ÷ total retail. It is the IMU the class has actually received rather than the one it planned, and one minus it is the cost complement the retail inventory method uses. In this guide’s example, opening stock at 58.0% and receipts at 61.0% give a cumulative markup of 60.1%.