How to calculate maintained markup

• ✓MMU % = (net sales − cost of goods sold) ÷ net sales. The knitwear class: (500,000 − 225,000) ÷ 500,000 = 55.0%. The denominator is net sales, not original retail (45.8%) and not cost (122.2%).
• ✓MMU and IMU are one identity: MMU % = IMU % − reductions % × (100% − IMU %), and IMU % = (MMU % + reductions %) ÷ (100% + reductions %). 62.5% IMU with reductions of 20.0% of net sales keeps 55.0%; 55.0% with 20.0% needs 62.5%.
• ✓Reductions are a percentage of net sales. The same $100,000 is 20.0% of net sales and 16.7% of original retail; use the wrong one and the required IMU solves to 61.4%, and the goods keep 53.7%.
• ✓Gross margin adds cash discounts earned and subtracts workroom costs: 55.4% against 55.0% here. Cumulative markup is struck on all goods handled before reductions: 62.5%. Neither is the maintained markup.
• ✓Add dollars, divide once. Three styles averaging 58.3% kept 55.0%. Read season-to-date MMU against the season-to-date plan, with reductions to date beside the budget phased the same way.

One subtraction, in dollars and in percent

Maintained markup compares what the goods brought in with what they cost. Written out, the forms a planner uses are:

• Maintained markup $ = net sales − cost of goods sold
• Maintained markup % = (net sales − cost of goods sold) ÷ net sales × 100
• Net sales = original retail of the goods sold − reductions
• Cost of goods sold = landed cost of every unit that left stock in the window
• Cost complement on net sales = cost of goods sold ÷ net sales = 100% − MMU %

Take the knitwear class that runs through this guide. Over its season it sold goods that carried $600,000 of original ticket value. It gave up $100,000 of that in reductions — permanent markdowns, point-of-sale promotions, employee discounts, shrink and damages — and so rang $500,000 of net sales. The goods it sold, and the goods it lost, had cost $225,000 landed. Maintained markup is 500,000 − 225,000 = $275,000, and 275,000 ÷ 500,000 = 55.0%. The whole class, on one table:

Two columns, and the difference between them is most of this guide. Maintained markup is read down the net-sales column; initial markup is read down the original-retail column, and every figure in the table has a different value in each. The $275,000 the class kept is 55.0% of what it rang and 45.8% of what the tickets said; the $375,000 markup the goods were bought at is 62.5% of the tickets and 75.0% of what rang. The percentages are only comparable with each other inside a column, and a margin conversation that moves between the columns without saying so produces two correct figures that disagree by more than nine points.

The dollar figure and the percentage answer different questions, and both are kept. Maintained markup dollars are what pays the operating expenses and the planned profit the merchandise plan was built to cover, and a season that holds its percentage while net sales fall short has not delivered its dollars. The percentage is what makes one class comparable with another, this season with last, and the plan with the outcome. A class that lifts its maintained markup percentage by taking fewer reductions on fewer sales has usually lost dollars; a class that drops its percentage to clear a deep buy may have protected them. Read the two together, and read the percentage against the dollars the plan needed rather than on its own.

The vocabulary drifts more than the arithmetic. “Maintained markup”, “maintained markon”, “MMU” and “realised markup” all mean this ratio. “Gross margin” is close to it and is not it — the difference is the subject of a later section. “Margin on marked-down goods” is the markup on the units that sold below ticket only, one component of the blended figure. And “markup” on its own, spoken by a vendor, is often markup on cost — the class’s $275,000 over its $225,000 of cost is 122.2% — which is a different ratio on the same two numbers and never the maintained markup a plan carries. A figure on a report should carry three things beside it: the level, the window, and whether the cost underneath it is landed or invoice.

What belongs in reductions, and what does not

A reduction is anything that lowers the retail value of the goods without a matching sale at that value. The original retail of the goods sold, less every reduction, is net sales; so the reductions list is the bridge between the initial markup and the maintained markup, and anything left off it makes the two fail to reconcile. The class’s $100,000 breaks down like this:

Markdowns are the largest reduction and the one with a budget, which is why the others get forgotten. A permanent markdown re-tickets the unit, and the difference between the old and new ticket on every unit then sold is a reduction. A point-of-sale promotion leaves the ticket alone and takes the difference at the register, and it is a reduction of exactly the same kind. Employee, loyalty and friends-and-family discounts are reductions taken at the register against a sale. Shrink is a reduction of a different kind: the retail value left stock with no sale at all, so the whole ticket is the reduction, and the cost of the missing units stays in cost of goods sold because the goods are gone. Damages, write-offs and non-resaleable returns follow the shrink treatment — the retail value is gone and the cost is charged.

What does not belong is as important. Customer returns of resaleable units are not reductions: they reverse a sale, so they come out of gross sales to give net sales and the unit goes back to stock at its ticket. Cash discounts earned for paying a vendor invoice early reduce the cost of the goods, not their retail value, and they sit between maintained markup and gross margin rather than inside the reductions. Workroom and alteration costs are an expense. Inbound freight is part of landed cost and so is already in cost of goods sold. Outbound shipping to a customer is an operating expense. Sales tax never touches either side. Vendor markdown money and chargebacks reduce what the goods cost or offset what the markdowns cost, depending on house policy, and they belong to the margin bridge below maintained markup unless the plan explicitly nets them into the reductions.

Two adjustments move the original retail rather than reducing it, and they are kept apart from reductions. An additional markup raises the ticket after the goods were first priced; a markup cancellation takes some or all of an additional markup back off. Both change the original retail the initial markup is measured on, so they belong in the cumulative markup on the goods, not in the reductions between it and the maintained markup. A class that raises tickets in-season and books the later cancellation as a markdown will show reductions it never took.

Where shrink sits is a convention, and both are in use. The textbook retail-math convention, followed here and in the initial markup guide, counts shrink as a reduction inside maintained markup. The margin bridge on this site books it one step lower, between maintained markup and realised gross margin, beside write-offs and non-resaleable returns. Either works as long as the plan, the initial markup and the maintained markup all use the same one — a required IMU solved with shrink in the reductions and a maintained markup reported with shrink below it will never reconcile, and the gap will be read as a trading miss when it is a definition.

Six steps, in order

Step four is the subtraction. The other five decide whether the subtraction describes what the goods actually earned — an invoice cost against a landed IMU, a reduction left off the list or a class average gives a correct division of the wrong numbers.

1. 1

   Fix the level and the window

   Decide whether the figure is for a style-color, a class, a department or a channel, and over which dates — a month, the season to date, or the whole season after the exit. Write both beside the figure. A maintained markup without its level and window cannot be compared with a plan, with last year, or with itself a month later.

2. 2

   Take net sales as they rang

   Net sales are gross sales at the prices customers actually paid, less customer returns. They already sit below the original tickets by every markdown, promotion and discount taken, so nothing is added back. Sales tax, gift-card breakage and shipping income stay out.

3. 3

   Take the cost of the goods that left

   Cost of goods sold is the landed cost — merchandise invoice plus inbound freight, duty, brokerage and handling — of every unit that left stock during the window, whether it left through a sale, through shrink or as a write-off. Use the same cost basis the initial markup was struck on, or the comparison between the two is meaningless.

4. 4

   Subtract and divide, on net sales

   Maintained markup $ = net sales − cost of goods sold. Maintained markup % = that figure ÷ net sales × 100. The denominator is net sales, never original retail and never cost: 275,000 ÷ 500,000 = 55.0% for the knitwear class, not 275,000 ÷ 600,000 = 45.8% and not 275,000 ÷ 225,000 = 122.2%.

5. 5

   Reconcile it to the initial markup through the reductions

   List the reductions the window took — markdowns, promotions, employee discounts, shrink, damages — and express them as a percentage of net sales. Check that IMU % − reductions % × (100% − IMU %) returns the maintained markup you measured. If it does not, a reduction is missing from the list, a cost basis is mixed, or the reductions were measured on the wrong base.

6. 6

   Aggregate in dollars, read against plan in points and dollars

   Build class, department and total figures by adding net sales and cost across the lines and dividing once; never average the percentages. Then read the figure against the planned maintained markup for the same level and window, with the gap in points and in dollars, and with reductions to date beside the reductions budget so that a timing difference is not mistaken for a margin difference.

Run the six steps on the knitwear class at the season close. The level is the class across all doors and the window is the four-month season after the exit (step one). It rang $500,000 of net sales, after returns and after every markdown, promotion and discount (step two). The goods that left stock — sold, lost to shrink or written off — had a landed cost of $225,000, the same landed basis the 62.5% initial markup was struck on (step three). Maintained markup is 500,000 − 225,000 = $275,000, and 275,000 ÷ 500,000 = 55.0% (step four). Its reductions were $100,000, or 20.0% of net sales, and 62.5 − 20.0 × 0.375 = 55.0 reconciles to the measured figure, so nothing is missing from the list (step five). Its three styles kept 50.0%, 55.0% and 70.0%, summed to the class figure at their net-sales weights, and the class closed on its 55.0% plan with reductions on budget (step six). Each step uses something the one before it established, which is the reason for the order.

From IMU to MMU and back: one identity, derived

Initial markup and maintained markup are not two measures that happen to be related. They are one identity, read from either end, with the reductions as the only thing between them. Write original retail as R, cost as C, reductions as D and net sales as N = R − D. Initial markup is (R − C) ÷ R; maintained markup is (N − C) ÷ N; and r is reductions as a share of net sales, D ÷ N. Then:

• MMU = (R − D − C) ÷ N = (R − C) ÷ N − D ÷ N
• (R − C) ÷ N = (R − C) ÷ R × R ÷ N = IMU × (N + D) ÷ N = IMU × (1 + r)
• MMU = IMU × (1 + r) − r = IMU − r × (1 − IMU)
• Rearranged: MMU + r = IMU × (1 + r), so IMU = (MMU + r) ÷ (1 + r)

Maintained markup is the initial markup less the reductions multiplied by the cost complement — reductions times (100% − IMU %). The multiplier is what makes the identity unintuitive. Reductions of 20.0% of net sales do not cost 20 points of markup; they cost 20.0% of the cost complement, because every dollar of reduction is a dollar of retail given up on goods whose cost is already fixed, and only the cost share of that retail dollar was ever going to be margin. On goods bought at 62.5% the cost complement is 37.5%, so 20.0% of reductions costs 20.0 × 0.375 = 7.5 points: 62.5 − 7.5 = 55.0%. The same reductions on goods bought at 50.0% would cost 10.0 points, and on goods bought at 75.0% only 5.0.

The inverse is the planning direction, and it is the one the initial markup guide works from: the IMU a maintained-markup target requires is (MMU % + reductions %) ÷ (100% + reductions %). For the class, (55.0 + 20.0) ÷ 120.0 = 62.5%. In dollars the same equation is (maintained markup $ + reductions $) ÷ (net sales $ + reductions $) = (275,000 + 100,000) ÷ (500,000 + 100,000) = 375,000 ÷ 600,000 = 62.5%, and the dollar form shows why it works: net sales plus reductions is the original retail, and maintained markup plus reductions is original retail less cost. Adding the two percentages instead — 55.0 + 20.0 = 75.0% — measures the initial markup dollars against net sales rather than against original retail, which is the 75.0% in the net-sales column of the first table, and it overprices every unit.

Both directions on one dataset, so that they can be seen to agree. Forward, from the ticket: the class was bought at 62.5% and gave up 20.0% of net sales, so 62.5 − 20.0 × (1 − 0.625) = 62.5 − 7.5 = 55.0%, and 55.0% of $500,000 is the $275,000 it kept. Backward, from the plan: the class needed 55.0% and expected 20.0% of reductions, so (55.0 + 20.0) ÷ 120.0 = 62.5%, and 62.5% of $600,000 of original retail is the $375,000 of initial markup the goods were bought with, which is $225,000 of cost. The two directions are one equation, and a plan that solves the IMU with one set of numbers and measures the MMU with another has changed a number somewhere in between.

The practical use of the identity is the reconciliation in step five. A measured maintained markup that does not match IMU − r × (1 − IMU) is telling the planner one of four things: a reduction is missing from the list, so r is understated; the cost in the maintained markup is on a different basis from the cost in the initial markup; the reductions were measured against original retail rather than net sales, which the next section takes up; or the original retail itself moved through additional markups and cancellations that were not carried into the IMU. Each of those is a definition error, and it is found by the reconciliation and by nothing else — the measured figure on its own is simply a number.

Reductions on net sales, not original retail

The reductions percentage in the identity is reductions divided by net sales. The same dollars can also be divided by original retail, and plenty of reports do — a markdown rate quoted as a share of the ticket value sold is a natural thing to compute — but the two are different numbers and the formulas are different too. For the class, $100,000 of reductions is 100,000 ÷ 500,000 = 20.0% of net sales and 100,000 ÷ 600,000 = 16.7% of original retail. Writing d for the original-retail version:

• r (on net sales) = d ÷ (1 − d) · 16.7% ÷ 83.3% = 20.0%
• d (on original retail) = r ÷ (1 + r) · 20.0% ÷ 120.0% = 16.7%
• On net sales: MMU = IMU − r × (1 − IMU) · 62.5 − 20.0 × 0.375 = 55.0%
• On original retail: MMU = (IMU − d) ÷ (1 − d) · (62.5 − 16.7) ÷ 83.3 = 55.0%

Both forms return 55.0% when each is given its own base. The error is not in choosing a base; it is in measuring on one and computing on the other, and it is the single most common way a correctly measured class fails to reconcile. Drop the 16.7% into the net-sales form and the required IMU solves to (55.0 + 16.7) ÷ 116.7 = 61.4% rather than 62.5%. Ticket the goods at 61.4%, take reductions of the same 20.0% of net sales, and the class keeps 61.4 − 20.0 × 0.386 = 53.7%, 1.3 points under a plan whose arithmetic looked right at every step. Drop the 20.0% into the original-retail form instead and a class that kept 55.0% reads (62.5 − 20.0) ÷ 80.0 = 53.1%, and a buyer is asked to explain 1.9 points that were never lost.

Net sales is the convention in the maintained-markup identity because net sales is the denominator of the maintained markup itself. Every term in MMU = IMU − r × (1 − IMU) is then on one base or converts cleanly to it, and the required-IMU formula falls out by rearrangement. The original-retail form is equally valid and is the one to use when the reductions come off a report that quotes them against ticket value — a markdown rate on gross sales, say — provided the whole calculation is kept in that form. What cannot be done is to pick the formula from memory and the percentage from whichever report is open.

The gap between the two bases grows with the reductions. At 10.0% of net sales the original-retail figure is 9.1%, less than a point apart; at 20.0% it is 16.7%; at 50.0%, which a clearance-heavy class can reach, it is 33.3%, and using one for the other moves the required IMU by several points. A reductions figure on a report should say which base it is on. Where it does not, recompute it from the dollars: reductions dollars over net sales dollars, both of which the report usually carries somewhere.

MMU, IMU, cumulative markup and gross margin

Four markup and margin figures describe the same goods, and a margin conversation that does not name which one it is using goes in circles. Initial markup is struck on the first ticket, cumulative markup on all the goods handled, maintained markup on the goods that sold, and gross margin on the goods that sold after the cost adjustments that are not reductions. For the knitwear class they are 62.5%, 62.5%, 55.0% and 55.4% — four correct numbers, and none of them a mistake.

The order matters more than the definitions. Initial markup comes first, at the costing sheet. Cumulative markup comes next, as deliveries land at their actual costs and tickets, and it is the figure the open-to-buy converts at. Maintained markup comes as the goods sell, and gross margin comes last, when the vendor invoices have been paid and the discounts earned on them are known. Each one can be reconciled to the one before it by a named line: the delivery cost and ticket variances between IMU and cumulative markup, the reductions between cumulative markup and maintained markup, and the cash discounts and workroom costs between maintained markup and gross margin. The margin bridge is that reconciliation written as one statement, from the first ticket to the realised margin, with an owner on each line.

Which one a plan targets is a decision, and it has to be made once. A plan that sets a gross margin target and hands the buyer a required IMU solved from maintained markup has a gap between the two that nobody owns — the cash discounts and workroom costs — and whether the gap helps or hurts depends on the class. The next two sections take the two neighbours of maintained markup in turn: gross margin, which sits below it, and cumulative markup, which sits above.

When MMU and gross margin can be treated as one number, and when not

In the textbook convention, gross margin is maintained markup plus the cash discounts earned on vendor invoices, less workroom and alteration costs, all over net sales. For the knitwear class: the invoiced merchandise cost was $205,000, the vendors’ terms allowed a 2% discount for prompt payment and the business took it, earning $4,100; the class spent $2,100 on alterations and re-ticketing in the workroom. Gross margin is 275,000 + 4,100 − 2,100 = $277,000, or 277,000 ÷ 500,000 = 55.4%, against a 55.0% maintained markup.

• Gross margin $ = maintained markup $ + cash discounts earned − workroom costs
• Gross margin % = gross margin $ ÷ net sales · (275,000 + 4,100 − 2,100) ÷ 500,000 = 55.4%

Many brands treat the two as the same number, and on a class like this one they can: 0.4 points on $500,000 is $2,000, inside the noise of a season. Treating them as one is safe when the lines between them are small, stable and the same sign every season — when the business takes the same cash discounts on the same terms every year and has no workroom to speak of — and when the plan, the required IMU and the reported figure all use the same one of the two. In that case the choice is a naming decision and the plan can carry whichever name finance prefers.

It stops being safe in four situations. When cash discounts are material and variable: a business that sometimes pays early and sometimes does not will see gross margin move with the treasury calendar while maintained markup does not, and a plan targeting gross margin will read a trading problem into a payment decision. When vendor allowances, markdown money and chargebacks are booked between the two lines, which is where many retailers put them and which can move a class by points, not tenths — and which can be negative in a season where chargebacks exceed allowances. When workroom and alteration costs are a real cost of selling the category, as in tailored clothing, bridal, fine jewelry and furniture, where the cost of finishing or delivering the piece sits between the ticket margin and the margin the business keeps. And when a plan carries the target as one and the buyer solves the required IMU from the other, because the identity in this guide runs through maintained markup and will not reconcile to a gross margin target without the bridge lines put back in.

The test is mechanical. Build the bridge once, for the class, with every line between maintained markup and gross margin named and valued: cash discounts, workroom, allowances, chargebacks, whatever the house books there. If the net of those lines is under a point and has been for several seasons, use one name and note which. If it is not, carry both figures, target one of them explicitly, and solve the required IMU from maintained markup after converting the target — a gross margin target of 55.4% on this class is a maintained-markup target of 55.0%, because 55.4 − 0.8 + 0.4 = 55.0. The gross margin entry carries the short definition; the GMROI guide shows where the gross margin dollars go next, over the inventory that earned them.

MMU against cumulative markup

Cumulative markup is the markup on everything the class has handled in the period — the opening stock and every receipt since — at original retail and at cost, before any reduction. It is an initial markup measured on a pool rather than on a costing sheet, and it is the figure the stock ledger carries. Suppose the knitwear class’s $600,000 of goods came in as $100,000 of opening stock at $40,000 of cost, a 60.0% markup carried over from last season, and $500,000 of receipts at $185,000 of cost, 63.0%. Cumulative markup is (100,000 + 500,000 − 40,000 − 185,000) ÷ 600,000 = 375,000 ÷ 600,000 = 62.5%:

• Cumulative markup % = (cumulative original retail − cumulative cost) ÷ cumulative original retail
• Opening stock: (100,000 − 40,000) ÷ 100,000 = 60.0% · Receipts: (500,000 − 185,000) ÷ 500,000 = 63.0% · Together: 62.5%
• Add a late receipt of 50,000 at 22,000 cost (56.0%): (650,000 − 247,000) ÷ 650,000 = 62.0%

Cumulative markup moves with every delivery and never with a sale; maintained markup moves with every sale and never with a delivery. A late receipt costed higher than planned pulls the cumulative markup from 62.5% to 62.0% the day it lands, before a unit of it sells, and the maintained markup to date does not change at all. A deep promotion pulls the maintained markup down the week it runs, and the cumulative markup does not move. Reading the two together is how a planner tells a cost problem from a reductions problem: a maintained-markup miss with cumulative markup on plan was reductions; a miss with cumulative markup under plan was at least partly cost, and the initial markup guide works through how the two causes are separated at the season close.

The two meet at the exit. Once every unit the class handled has sold, been lost or been written off, the goods in the cumulative markup and the goods in the maintained markup are the same goods, and the identity holds between them exactly: maintained markup is the cumulative markup less reductions times the cumulative cost complement. Before the exit they are on different goods — cumulative markup on everything received, maintained markup on the part of it that has sold — and the gap between them is partly reductions and partly the mix of what has sold so far against what is still in stock. That is why a mid-season maintained markup is read against a mid-season plan rather than against the cumulative markup directly.

Cumulative markup also does a job maintained markup cannot. One minus the cumulative markup is the cost complement of the pool, and it is the ratio the retail inventory method uses to value closing stock at cost and the ratio the open-to-buy converts at when a retail plan is committed in cost dollars. A plan that holds one IMU for the season while the cumulative markup drifts as receipts land is converting its open-to-buy at a stale rate, and the maintained markup that finally arrives will carry the difference as an unexplained cost variance. The retail inventory method calculator runs the ledger arithmetic.

Style, class and department: always at retail weights

One style at one cost has one maintained markup. A class has as many as it has styles, and one more that is the class’s own, and the class figure is not the average of the styles. The knitwear class holds three styles — a merino crewneck bought deep that took most of the markdowns, a cotton cardigan and a lambswool beanie that held its ticket:

The three styles kept 50.0%, 55.0% and 70.0%, which average 58.3%. The class kept 55.0%, because the crewneck at 50.0% is $300,000 of the $500,000 of net sales and the beanie at 70.0% is $100,000. Three and a third points separate the right answer from the average, and they separate it in the direction that flatters: the average says the class is three points over plan when it is on it. Add net sales across the styles, add cost across them, and divide once. A percentage is never averaged across styles, classes, doors or channels unless it is weighted by the net sales it was calculated on — and weighting by net sales is the same thing as adding the dollars.

The same table shows why the class initial markup is not the average either. The styles were bought at 60.0%, 60.9% and 72.7%, an average of 64.5%; the class was bought at 62.5%, weighted by original retail this time rather than net sales, because that is the base initial markup is on. The two weights differ — the crewneck is 60.0% of net sales and 62.5% of original retail, because it took a larger share of the reductions — so a class whose styles have different reductions rates has different weights for its IMU and its MMU, and the identity between the two still holds at class level only when both are built from the summed dollars. Blending the class IMU is the initial markup guide’s subject; the point here is that the maintained markup inherits the same rule.

One level up, a department is its classes’ net sales and cost added and divided once:

Knitwear and denim both kept 55.0% and wovens kept 48.0%; the average is 52.7% and the department kept 51.8%, because wovens is $1,000,000 of the $2,200,000. The gap is smaller than at style level and it is still a point, which on $2,200,000 of net sales is $22,000 of margin that a report built on averages would say exists. Where the classes inside a department have very different cost complements, the gap between a weighted and an averaged figure is itself information: a department maintained markup running well below the average of its classes says the low-markup classes are where the sales are, which is a mix question for the next plan rather than a markdown question for this one.

Inside one style: full-price and marked-down units

A style’s maintained markup is itself a blend. The merino crewneck was ticketed at $75.00 on a $30.00 landed cost, a 60.0% initial markup, and sold 5,000 units: 3,000 at the ticket and 2,000 after a 50% markdown at $37.50. Each group has its own markup, and the style’s figure is the two weighted by the net sales each produced:

The full-price units kept (75.00 − 30.00) ÷ 75.00 = 60.0%, the initial markup intact. The marked-down units kept (37.50 − 30.00) ÷ 37.50 = 20.0%: the markdown took $37.50 of a $45.00 markup off every one of them. The style kept (225,000 + 75,000 − 150,000) ÷ 300,000 = 50.0%. The average of the two percentages, 40.0%, is wrong because it weights the two groups equally; weighting by unit count, 44.0%, is wrong because 2,000 units at $37.50 produce a third of the net sales that 3,000 units at $75.00 do, not two-thirds. Weighting by net sales is the only weighting that returns the style’s maintained markup, because net sales is the denominator of the maintained markup.

Read from the trading side, the same identity appears. Of the crewneck’s $375,000 of original retail, $225,000 sold at the ticket and $150,000 of ticket value sold for $75,000, so reductions were $75,000, 25.0% of the $300,000 of net sales. Then 60.0 − 25.0 × (1 − 0.60) = 60.0 − 10.0 = 50.0%, and (50.0 + 25.0) ÷ 125.0 returns the 60.0% the style was ticketed at. The markdown depth and the share of units that took it are what set r, and r and the initial markup are what set the maintained markup. Two styles with the same initial markup and the same markdown depth keep different maintained markups if different shares of their units reach the markdown, which is why the maintained markup is a sell-through outcome as much as a pricing one.

The split is also the read that sets next season’s price. Full-price maintained markup — the units sold at the ticket only — says whether the ticket was right for the demand at it. Total maintained markup says what the season kept. A style whose full-price units kept 60.0% and whose total kept 50.0% was priced correctly and bought too deep, or bought correctly and sold through too slowly; a style whose full-price units kept 48.0% because the ticket was cut mid-season was priced wrong from the start. The sell-through guide takes the same split in units; the markdown calculator gives the price and margin of one cut, and the break-even markdown calculator the extra units a cut has to sell to hold margin dollars flat.

Period against season-to-date maintained markup

Maintained markup can be taken over any window, and two windows do almost all of the work. Period maintained markup — usually monthly — divides that month’s net sales less that month’s cost of goods sold by that month’s net sales. Season-to-date maintained markup adds every month since the season opened and divides once. They answer different questions. The monthly figure says what the goods selling now are keeping; the season-to-date figure says what the season has kept so far, and on a seasonal class the two part company by design. Here is the knitwear class, month by month, on its plan:

Three things are worth reading off it. First, the monthly figure falls through the season — 61.2%, 59.8%, 53.8%, 44.1% — because the reductions are back-loaded: 3.4% of net sales in month 1, 49.1% in month 4, when the clearance markdowns are taken and nearly half of what rings is a reduction against the ticket. Nothing went wrong in month 4. The plan put the reductions there, because that is when a seasonal class clears, and the month’s 44.1% is the plan’s own figure.

Second, the season-to-date figure falls more slowly, from 61.2% to 55.0%, because it is a running total and the early months’ full-price sales are still in it. At the end of month 2 the class has kept 60.4% — 5.4 points above the season plan of 55.0% — and it is exactly on plan. A planner who reads the month-2 figure against the season total sees a class that is over-delivering by five points, with two months of clearance still to come. The season-to-date figure is read against the season-to-date plan, which is 60.4% at that point, and against nothing else.

Third, the cost column tracks the original retail column at a constant 37.5%, because the goods were all bought at 62.5% and the cost of a unit does not change when its ticket does. That is what makes the maintained markup fall as reductions rise: the cost of the goods sold in month 4 is 63,750 ÷ 170,000 = 37.5% of their original retail and 63,750 ÷ 114,000 = 55.9% of their net sales, and the difference is the $56,000 of reductions. Where receipts land at different costs through the season, the cost column stops tracking original retail at one rate, and a month’s maintained markup moves for a cost reason as well as a reductions reason — which is the case for reading cumulative markup monthly beside it.

Longer windows sit between the two. A quarter’s maintained markup is the quarter’s months added and divided once — months 3 and 4 together kept (70,000 + 50,250) ÷ (130,000 + 114,000) = 120,250 ÷ 244,000 = 49.3% — and a life-to-date figure on a carryover style adds last season in as well. Whatever the window, the rule is the same: net sales inside it, the cost of the goods that left inside it, and the window written beside the figure. A monthly 44.1%, a quarterly 49.3% and a season 55.0% are all correct for the same class in the same month.

Building the planned maintained markup by month

The monthly plan in the table above is not a separate forecast of margin. It falls out of three things the merchandise plan already holds for the class: the phased sales plan at original retail, the phased reductions budget, and the cost complement the goods are bought at. For each month, net sales are original retail sold less the month’s reductions, cost of goods sold is original retail sold times the cost complement, and the maintained markup is the difference over the net sales. The season-to-date line is the months added and divided once. Because the curve is built from the reductions phasing, it falls when the markdowns are planned to land, exactly as the actual figure does — and a plan drawn as a flat 55.0% every month puts every clearance month’s dip into the variance.

• Planned net sales for the month = planned original retail sold − planned reductions
• Planned cost of goods sold for the month = planned original retail sold × (100% − planned IMU %)
• Planned MMU % for the month = (planned net sales − planned cost) ÷ planned net sales
• Month 3: (160,000 − 30,000 − 160,000 × 0.375) ÷ 130,000 = 70,000 ÷ 130,000 = 53.8%

Two of the three inputs come from plans that already have owners. The sales plan at original retail is the sales plan the sales-plan method builds, restated before reductions; the reductions budget and its phasing are the markdown plan, with promotions, employee discounts and the shrink provision added to the markdown line. The third, the cost complement, is one minus the IMU the class was bought at — a single figure where the whole class lands at one markup, and a monthly figure where receipts land at different costs through the season, in which case the cost line is built from the receipt plan at each delivery’s own cost rather than from one complement.

The far end of the curve is the planned season figure, and it is the figure the plan was solved from, so a curve that does not close on it has an error in one of its inputs. The knitwear class’s months add back to 500,000 of net sales and 225,000 of cost, and 275,000 ÷ 500,000 is the 55.0% the required IMU was solved against. That check is worth running when the plan is built: a reductions budget phased to 98,000 instead of 100,000, or a month of sales entered at net instead of original retail, closes the curve a few tenths off the plan, and the gap then appears in-season as a variance against the wrong number.

Where no class-level reductions phasing exists — a new class with no history, or a range planned only in total — the next-best curve is last year’s reductions shape for a comparable class, restated onto this season’s exit date and markdown calendar. That is a proxy and should be labelled as one. What should not be used is last year’s monthly maintained markup on the same month number with no adjustment for this year’s calendar, which compares this year’s class with last year’s markdown dates.

Reading maintained markup against plan in-season: early and late reductions

A season-to-date maintained markup read against its season-to-date plan still needs one more figure beside it before it can be acted on: reductions to date against the reductions budget phased the same way. A maintained-markup gap in-season is almost always a reductions-timing gap first and a margin gap second, and the reductions line is what tells the two apart. Two reads of the knitwear class against the plan above:

The early read. At the end of month 2 the class has taken $26,000 of reductions against a phased budget of $14,000, because a promotion planned for month 3 was pulled into month 2. Net sales to date are $244,000 instead of $256,000 — the units sold are the same, but $12,000 of them rang below ticket — and the maintained markup to date is 58.5% against 60.4% planned, 1.9 points behind. Whether that is a problem depends on what happens to the $12,000. If the month-3 promotion was simply moved, the remaining reductions budget is $74,000 rather than $86,000, and if months 3 and 4 clear on that, the season closes on its 55.0%. If the pulled-forward promotion was in addition to the month-3 one — if months 3 and 4 still take their planned $86,000 — the season’s reductions are $112,000, net sales $488,000, and the maintained markup (488,000 − 225,000) ÷ 488,000 = 53.9%, 1.1 points under plan. The read is not the 1.9 points; it is the question of whether the remaining budget has been cut to match.

The late read is the dangerous one, because it looks like good news. At the end of month 3 the class has taken $29,000 of reductions against a budget of $44,000 and kept 59.6% to date against 58.2% planned — 1.3 points ahead. It has also sold $130,000 of original retail in month 3 instead of $160,000. The $30,000 of ticket value the plan expected to clear in month 3 is still in stock, and month 4 now has $200,000 to clear instead of $170,000, in the same four weeks and after the same exit date. Here is how the season closes under three assumptions:

If the $15,000 of month-3 reductions not taken is simply taken in month 4 — $71,000 on $200,000 of original retail — the season closes at exactly its plan, 55.0%, and the 1.3 points the class was ahead at month 3 were timing. That is the generous case, and it assumes the extra $30,000 of stock clears at the same depth as the plan’s month-4 goods. It usually does not: the more stock a class carries into its last month, the deeper the cut it needs to clear it by the exit, and the lower the sell-through on the cut it takes. At $80,000 of month-4 reductions, month 4 keeps 37.5%, net sales are $491,000 and the season closes at 266,000 ÷ 491,000 = 54.2%, under a plan the class was ahead of four weeks earlier. A reductions underspend with a sales shortfall beside it is deferred, not saved, and the figure that shows the difference is sell-through, not maintained markup.

Four figures, read together every month, make the in-season maintained markup honest: the season-to-date figure against its phased plan; reductions to date against the phased budget; sales to date at original retail against plan, which says whether the units are leaving; and the stock still on hand at original retail against the weeks left to the exit, which says what the remaining reductions will have to clear. The markdown plan guide covers how the remaining budget is re-phased when a month runs over or under; the reforecast guide covers how the balance of the season is re-projected once it is; and the sell-through guide carries the unit read that tells a saved reduction from a deferred one.

The first month’s read: what it can and cannot say

The first maintained-markup read of a season is also the least informative one, and it is the one most likely to be over-read in either direction. In month 1 the knitwear class kept 61.2% on 3.4% of reductions, and that figure is almost entirely the initial markup: with reductions that small, the identity returns a maintained markup within 1.3 points of the 62.5% the goods were bought at, whatever the season goes on to do. A month-1 figure near the IMU says the goods were costed and ticketed as planned. It says nothing yet about the reductions, because the reductions have not happened.

An early read is a question about cost, not yet about margin. What it can confirm is that the cumulative markup on the receipts that have landed matches the plan — that the landed cost came in where the costing sheet said, that the tickets went on at the planned price points, and that no additional markup or cancellation has moved the original retail. A month-1 maintained markup a point or more under the IMU with reductions near zero is a cost or ticketing variance, and it is the cheapest time to find one: a freight overrun on the first delivery can still be negotiated out of the second, and a mis-ticketed style can be re-ticketed before most of its units sell.

What the early read cannot do is forecast the season’s figure from the season-to-date one, because the reductions that decide the season are back-loaded by design. A planner who projects 61.2% forward, or who reads it as six points over a 55.0% plan, is reading a curve that has not yet turned. The useful early signals for where the season will close sit in other figures — full-price sell-through against its plan curve, stock on hand against the weeks to the exit, the share of units that have already taken a promotion — and the sell-through guide carries them. The maintained markup joins them as evidence once the reductions begin, which for a seasonal class is the month the first markdowns are planned.

The reason to take the early read at all is that the cost side is fixed early and the reductions side is not. By the time the maintained markup is a reliable measure of the season, every unit has been bought and most have been ticketed; the levers that are still open are the markdown budget, its phasing and the exit date. A planning team that waits for the maintained markup to be certain about the cost will find it certain about a cost that can no longer be changed.

Maintained markup dollars against the rate

The maintained markup percentage is the comparable figure and the dollars are the figure the business lives on, and the two can move in opposite directions in the same month. The clearest case is the last month of a season, when the decision is whether to clear the stock or carry it. Holding the rate by not taking a markdown does not keep the margin; it moves the reduction into next season and leaves the cost in stock. Suppose the knitwear class holds back $40,000 of original retail from its month-4 clearance — the crewneck’s slowest sizes — and packs it away rather than marking it down. Month 4 sells $130,000 at original retail instead of $170,000, takes $35,000 of reductions instead of $56,000, and rings $95,000 of net sales against $48,750 of cost: $46,250 kept, 48.7% against the plan’s 44.1%.

• Season as planned: net sales 500,000 − cost 225,000 = 275,000 · 55.0%
• Season with 40,000 held back: net sales 481,000 − cost 210,000 = 271,000 · 56.3%
• Still in stock: 40,000 at original retail, 15,000 at cost, to be cleared next season

The season’s rate rises 1.3 points, from 55.0% to 56.3%, and the season’s dollars fall by $4,000, from $275,000 to $271,000. The $15,000 of cost in the packed-away units has not been earned back at all; it will be, or will not be, next season, at whatever those units can be sold for after a season in a carton, and whatever reduction that takes will land in next season’s figure against a ticket set this season. A maintained markup read on the rate alone would call the held-back season the better one. Read on the dollars, with the stock position beside it, it is the worse one, and the gap between the two readings is exactly the cost sitting in the carryover.

The same tension runs the other way at the point of a markdown. A deeper cut lowers the rate on every unit that takes it and can raise the dollars if it sells enough more units before the exit — the break-even markdown calculator gives the unit lift at which the dollars hold. Below that lift the cut costs dollars and rate together; above it the cut costs rate and earns dollars; and only the stock still on hand, the weeks left, and the sell-through at the current price say which side of the line a given style is on. A markdown plan built to protect the rate takes its cuts too late and too shallow, carries stock past the exit, and gives the rate back in the end anyway, in the next season’s figure.

The plan should therefore carry maintained markup in both forms, and the in-season read should state both. The dollars tie to the gross margin dollars the plan committed to cover operating expenses and profit, and they are what a shortfall in net sales costs even when the rate holds. The rate ties to the initial markup and the reductions, and it is what a definition error or a reductions overrun shows up in. A class that is on rate and short on dollars has a sales problem; a class that is on dollars and short on rate has a reductions or cost problem that the volume is covering; and a class that is short on both is the ordinary case of a season that did not sell, where the reductions overran because the units stayed.

Stores, ecommerce, outlet and wholesale

The formula is the same in every channel; the net sales and the cost are not built the same way, and a channel comparison that ignores the differences compares definitions rather than margins. State the base for each channel, and add channels to a total by adding dollars, exactly as with styles and classes.

Stores are the reference case: net sales after returns, markdowns taken at the ticket change or the register, shrink from the count, cost at landed. Ecommerce differs in two ways. Its returns arrive weeks after the sale, so the latest weeks’ net sales are provisional for as long as the return window runs, and a maintained markup for those weeks drifts down after the fact as resaleable units come back and their sales reverse. And its non-resaleable returns — worn, damaged, out of season — are a reduction at retail with the cost charged, so a channel with a high return rate carries a reductions line that stores do not, and its maintained markup sits below its store figure on identical pricing. Report recent ecommerce maintained markup as provisional, or on a lag, rather than letting it be revised silently.

Outlet is where the cost basis most often goes wrong. Goods transferred from full-price doors to an outlet move at a marked-down retail — the crewneck’s remaining units at $37.50, say — but their landed cost is still $30.00, and the outlet’s maintained markup is computed on that cost, not on the transfer retail. If 800 units go to outlet and sell there for $27,000 in total, $33.75 a unit on average, the outlet kept (27,000 − 24,000) ÷ 27,000 = 11.1% on them. Under the retail method, the markdown to the transfer retail is booked in the sending channel’s ledger as a reduction and the outlet receives the goods at the reduced retail; under a cost-based ledger the outlet simply inherits the cost. Either way, the business’s maintained markup on those units is 11.1%, and an outlet figure that reads higher because it was computed against the transfer retail rather than the landed cost is describing the outlet’s pricing, not the margin the units earned.

Wholesale changes the retail. A brand selling the crewneck to an account at $37.50 — keystone to the account’s $75.00 ticket — on its $30.00 landed cost carries a wholesale initial markup of (37.50 − 30.00) ÷ 37.50 = 20.0%, and its reductions are the account’s deductions: off-invoice discounts, markdown allowances, returns-to-vendor, compliance chargebacks. Those come out of the brand’s net sales, so from the brand’s side they are reductions in exactly the sense this guide uses, while from the retailer’s side the same dollars are income booked below maintained markup in the margin bridge. Deductions of 3% of wholesale sales take the brand’s net to $36.38 a unit and its maintained markup to (36.38 − 30.00) ÷ 36.38 = 17.5%. The account’s own maintained markup on the same unit is on its $37.50 cost and its $75.00 ticket, and the two figures have nothing to do with each other except the goods.

A brand that sells wholesale and direct therefore has two maintained markups on one style, on two retails and one cost, and one blended figure that depends on the channel mix more than on either channel’s trading. The channel figures are read against their own plans, the blend against the planned mix, and a blended maintained markup that moved because the mix shifted toward wholesale is a mix variance, not a margin one. Planning one buy against both demand signals is the subject of how to plan wholesale and DTC together; booking attainment and fill rate on the sell-in side are in the sell-in calculator.

Carryover stock and pack-away

A unit that enters the season from last season carries last season’s cost and, usually, a ticket decision: hold the old ticket, re-ticket to this season’s price architecture, or mark it down to clear. Whichever is chosen, the reduction it takes lands in this season’s maintained markup, against a cost this season did not set. The knitwear class opened with $100,000 of carryover at original retail and $40,000 of cost, a 60.0% markup from last season. Suppose it sold through this season for $80,000 of net sales, taking $20,000 of reductions, and the new receipts — $500,000 at $185,000 of cost — sold for $420,000 after $80,000 of reductions:

• Carryover: (80,000 − 40,000) ÷ 80,000 = 50.0%
• New receipts: (420,000 − 185,000) ÷ 420,000 = 56.0%
• Class: (500,000 − 225,000) ÷ 500,000 = 55.0%

The class kept 55.0%; the goods it bought this season kept 56.0%, and the goods it inherited kept 50.0%. A buyer judged on the class figure is carrying a point of last season’s decision, and a required IMU solved from the class figure for next season would price this season’s styles against a reductions rate that includes clearing somebody else’s stock. Split the figure: carryover against the carryover plan, which should have been written when the pack-away decision was made, and new receipts against the season plan. The sell-through guide makes the same split in units, for the same reason.

Pack-away is the decision that creates next season’s carryover, and it is a maintained-markup decision made with incomplete information. The case for it is that a unit sold at a 50% markdown now keeps 20.0% while the same unit sold at the ticket next season keeps 60.0%; the case against is the cost of holding it — storage, handling, the working capital — and the chance that it does not sell at the ticket next season either, and clears at a deeper markdown then, a year older. The previous section’s held-back $40,000 is that bet. What makes it honest is writing down, at the time, the maintained markup the packed-away units are expected to keep next season and the reductions they are expected to take, so that next season’s figure can be read against a plan rather than absorbing the units as an unexplained drag.

Continuity items take carryover to its limit, because the stock never belongs to a season. Their maintained markup is read over a rolling window — a quarter, a half — against a replenishment plan, and the reductions that matter are shrink, damages and the occasional promotion rather than a seasonal exit. Mixing continuity items and seasonal styles in one class figure blends a near-IMU maintained markup with one that takes a clearance, and the blend moves with the mix. Read the two groups separately, as how to plan a replenishment program sets out for the stock side.

Shrink, returns and the cost of what left

Three movements that are not sales account for most of the disagreements between two people calculating the same maintained markup. Each has a defensible treatment, and the treatment matters less than holding it constant between the plan, the initial markup and the report.

Shrink leaves stock with no sale against it. Its retail value is a reduction — the knitwear class’s $7,500 is 1.5% of net sales and part of the 20.0% — and the cost of the missing units stays in cost of goods sold, because cost of goods sold is the cost of everything that left, not only of what rang. At the class’s 37.5% cost complement, $7,500 of shrink at retail is $2,813 of cost inside the $225,000. Where a business books the shrink cost below gross margin as an operating loss instead, cost of goods sold is $222,188 and the same class reads 55.6%, half a point higher on identical trading. Shrink is also booked from a physical count rather than continuously in most stores, so a count month can move a door’s cost of goods sold overnight; a sudden drop in a door’s maintained markup in a count month is checked against the count before it is read as a markdown problem.

Customer returns reverse a sale. A resaleable return comes out of gross sales to give net sales and goes back to stock at its ticket, so neither the net sales nor the cost of goods sold of the period includes it once it is back — which means the maintained markup for a week is provisional until that week’s return window closes, and more so in ecommerce. A non-resaleable return is a different event: the sale is reversed, the unit cannot be sold again, and its ticket value is a reduction and its cost a charge, exactly like shrink. A channel that nets both kinds of return the same way overstates its reductions if it treats resaleable returns as losses, and understates them if it puts non-resaleable units back into stock at ticket. Planning for both is the subject of how to plan for returns.

Transfers and returns to vendor move cost out of a location without a sale. On a location’s maintained markup a transfer out removes the units from both numerator and denominator — they will sell, or not, somewhere else — and a transfer in arrives at its cost, so that the receiving location’s figure is on the real cost of the goods and not on the retail they were moved at. A return to vendor removes the units and their cost from the business entirely, usually with a credit at the invoice cost; the units never sold, so they never enter net sales, and the only trace they leave in the maintained markup is the freight and handling that was spent on them and not recovered, which lands in cost of goods sold or in expense according to house policy. At style level across the business, transfers cancel; at door level, where transfers are the point, the treatment is the difference between a door that reads 50% and one that reads 55%.

How maintained markup reaches open-to-buy and the merchandise plan

Maintained markup is usually read class by class after the fact, but every term in it is already a line in the merchandise plan before the season opens, and the open-to-buy carries them. The planned reductions in the maintained-markup identity and the planned reductions in the open-to-buy formula are the same line: open-to-buy = planned end-of-period stock + planned sales + planned reductions − beginning-of-period stock − on order, and the reductions a class plans to take are what it has to buy stock to cover, because a unit sold at half price still has to be bought at full cost.

The knitwear class’s month 3 plans $130,000 of net sales and $30,000 of reductions. At retail, the open-to-buy for the month has to fund both — $160,000 of stock at original retail leaves through sales and reductions — and when that receipt budget is converted to cost for the purchase order it is multiplied by the cost complement the plan assumed, 37.5%, giving $60,000 of cost. That complement is one minus the planned initial markup, and the planned initial markup was solved from the planned maintained markup and the planned reductions. So a change to the maintained-markup plan moves through the identity into the IMU, through the IMU into the cost complement, and through the cost complement into every open-to-buy conversion the class makes. Raise the planned reductions by two points and, with the maintained markup held, the required IMU rises, the complement falls, and the same retail receipt budget buys fewer units at cost.

The dollars run the other way, from the top of the plan down. The gross margin dollars a class is planned to earn are its share of the operating expenses and the planned profit; converting them to maintained markup removes the cash discounts and adds back the workroom costs; and the maintained markup dollars divided by the planned net sales is the rate the class has to keep. The class’s $275,000 is that figure. Miss the net sales and the rate can hold while the dollars fall short; miss the rate and the dollars fall short even when the sales plan is met. The plan should carry both, and the in-season read should say which one is at risk.

The arithmetic of the receipt budget is in how to set open-to-buy and the open-to-buy calculator; the definition, including the reductions term, is in what is open to buy; and the weekly view of the stock the plan is funding is the WSSI, read in how to read a WSSI. Maintained markup tells the planner what the goods kept; the open-to-buy tells them what the plan bought to let them keep it.

What a maintained-markup read should change

Maintained markup is read so that something can be decided, and most of what it decides is for the next season rather than this one, because by the time the figure is final the goods have gone. In-season, the maintained markup to date, with reductions and sell-through beside it, decides whether the remaining markdown budget is held, cut or released, and in which styles. After the season, the final figure splits into its causes, and each cause has an owner and a lever:

The most consequential decision a maintained markup makes is next season’s initial markup, and it should not be made from the percentage alone. A class that kept 53.9% against a 55.0% plan because reductions ran at $112,000 — 23.0% of net sales instead of 20.0% — can respond in two ways: raise the required IMU to (55.0 + 23.0) ÷ 123.0 = 63.4% and price the next range higher, or hold the IMU at 62.5% and buy to a depth and an exit that keep reductions at 20.0%. The first is a pricing answer to a buying problem, and if the reductions were caused by depth it raises the ticket on a range that already needed markdowns to move. The reconciliation says which cause it was, and the lever follows the cause.

Every one of these decisions changes a number elsewhere in the merchandise plan. A deeper markdown budget raises the required IMU or lowers the planned maintained markup; a lower planned maintained markup lowers the gross margin dollars the plan commits to, which is where the plan started; a change in the class mix changes the cost complement the open-to-buy converts at. The margin bridge is where the final maintained markup is reconciled line by line to the realised margin; the initial markup guide is where the next season’s required IMU is solved from what this season kept.

Reviewing a maintained-markup report: six questions

A maintained-markup report arrives as finished percentages. Six questions, asked in order, establish whether those percentages mean what they appear to. Each one maps to a specific way the figure can be right as arithmetic and wrong as a reading.

1. What is the denominator? Net sales, and only net sales. A maintained markup over original retail reads 9.2 points low on this class (45.8% against 55.0%); over cost it reads above 100%. Any figure that does not sit between the full-price and the marked-down unit margins of the goods in it is on the wrong base.
2. Which cost, and is it the same cost the IMU used? Landed or invoice, stated on the report, and matched to the initial markup it is compared with. A landed IMU beside an invoice-cost MMU understates the erosion by the freight share; the reverse overstates it.
3. Does it reconcile to the IMU through the reductions? Recompute IMU − r × (1 − IMU) with reductions on net sales. If it does not return the reported figure, a reduction is missing, a base is mixed, or the original retail moved.
4. How were the totals built? Recompute one class or department total as summed net sales less summed cost over summed net sales. If it differs from the report, the report averaged percentages.
5. What is the window, and what is the plan for the same window? Month, season to date or season, with the season-to-date plan beside the season-to-date actual. A figure compared with the season total mid-season is not a variance.
6. Are reductions to date and sell-through to date on the same page? Without them, a maintained markup ahead of plan cannot be told from reductions deferred into the last month, and a figure behind plan cannot be told from a promotion pulled forward.

None of the six needs a model. Each needs the report to carry its own definitions — denominator, cost basis, reductions list and base, aggregation, window, plan — so that the reader can check the figure instead of trusting it. A report that cannot answer them is a list of percentages, and the decisions taken from it inherit whatever definitions happened to be used in the export.

Eight ways a maintained-markup figure misleads

Each produces a number that divides correctly. None shows up as a spreadsheet error; each shows up as an initial markup set a point too low, a markdown budget released too late, or a margin conversation about a definition.

What changes about maintained markup in each vertical

The formula does not change. What changes is where the reductions come from, when they land, and which units leave stock without a sale — so a maintained markup is compared within a vertical, on one definition. Apparel is the reference case.

• Maintained markup calculator — MMU in dollars and percent, the implied IMU, and the IMU a target needs →
• IMU calculator — price one style, or solve a ticket to a target IMU →
• How to calculate initial markup — the required IMU, landed cost and the class blend →
• Markdown calculator — the price and margin of a single cut →
• Break-even markdown calculator — the unit lift a cut has to earn →
• How to build a markdown plan — the reductions budget and its phasing →
• How to build a margin bridge — from IMU to realised gross margin, line by line →
• How to calculate sell-through rate — the unit read beside the margin read →
• The retail inventory method — cumulative markup and the cost complement in the ledger →
• How to calculate GMROI — where the margin dollars go next →
• Retail math formulas — the wider formula reference →
• Maintained markup (MMU) — glossary definition →
• Initial markup (IMU) — glossary definition →
• Gross margin — glossary definition →
• Markdown — glossary definition →

Frequently asked questions

How do you calculate maintained markup?

Maintained markup $ = net sales − cost of goods sold, and maintained markup % = (net sales − cost of goods sold) ÷ net sales × 100. In this guide’s example, a knitwear class rang $500,000 of net sales against $225,000 of cost of goods sold: maintained markup is $275,000, or 275,000 ÷ 500,000 = 55.0%. The denominator is net sales, not original retail and not cost.

What is the difference between initial markup and maintained markup?

Initial markup is the markup on the first ticket, measured against original retail before any reduction: (original retail − cost) ÷ original retail. Maintained markup is the markup the goods actually kept, measured against net sales after markdowns, promotions, discounts, shrink and damages: (net sales − cost of goods sold) ÷ net sales. In this guide’s class the same goods carried a 62.5% initial markup and kept a 55.0% maintained markup; the 7.5-point gap is the reductions, 20.0% of net sales, multiplied by the cost complement of 37.5%.

How do you get from IMU to maintained markup?

Maintained markup % = IMU % − reductions % × (100% − IMU %), with reductions expressed as a percentage of net sales. In this guide’s example, 62.5 − 20.0 × (100 − 62.5) ÷ 100 = 62.5 − 7.5 = 55.0%. The inverse, which solves the IMU a maintained-markup target needs, is IMU % = (MMU % + reductions %) ÷ (100% + reductions %): (55.0 + 20.0) ÷ 120.0 = 62.5%. The two are one identity read from either end.

Are reductions a percentage of net sales or of original retail?

In the maintained-markup formulas, net sales. The same $100,000 of reductions in this guide’s class is 20.0% of $500,000 of net sales and 16.7% of $600,000 of original retail, and the formula that uses one is wrong with the other. Used in the net-sales formula, the 16.7% solves the required IMU at 61.4% instead of 62.5%, and the goods then keep 53.7% instead of 55.0%. To convert, reductions % of net sales = reductions % of original retail ÷ (100% − reductions % of original retail).

What is the difference between maintained markup and gross margin?

Gross margin = maintained markup + cash discounts earned on vendor invoices − workroom and alteration costs, all over net sales. In this guide’s class, a $275,000 maintained markup plus $4,100 of cash discounts less $2,100 of workroom costs is a $277,000 gross margin: 55.4% against 55.0%. Where those two lines are small, the figures are close enough to be used as one; where vendor allowances, chargebacks or alteration costs are material, they are not, and the plan has to say which one the target is.

What is the difference between maintained markup and cumulative markup?

Cumulative markup is the markup on all the goods handled in a period — opening stock plus receipts — at their original retail, before any reduction: (cumulative retail − cumulative cost) ÷ cumulative retail. Maintained markup is the markup on the goods that sold, at the prices they sold for. In this guide’s class, $600,000 of goods handled at $225,000 of cost is a 62.5% cumulative markup; the same goods, sold for $500,000 after $100,000 of reductions, kept a 55.0% maintained markup.

How do you calculate maintained markup for a class or a department?

Add net sales across the styles or classes, add cost of goods sold across them, and divide once. Never average the percentages. In this guide’s example, three styles that kept 50.0%, 55.0% and 70.0% average 58.3%, but the class kept $275,000 on $500,000 of net sales — 55.0% — because the 50.0% style is three-fifths of the sales. A three-class department at 55.0%, 48.0% and 55.0% averages 52.7% and kept 51.8%.

How does shrink affect maintained markup?

Shrink is a reduction at retail: the goods left stock with no sale, so their whole ticket value is lost from net sales, and their cost stays in cost of goods sold because the goods are gone. In this guide’s class, $7,500 of shrink at retail is 1.5% of net sales and part of the 20.0% of reductions behind the 55.0% maintained markup; the $2,813 those units cost is part of the $225,000 of cost of goods sold. Book the shrink cost below gross margin instead and the same class reads 55.6% — a definition, not a trading difference.

How do you calculate season-to-date maintained markup?

Add net sales for every month since the season opened, add cost of goods sold for the same months, subtract and divide once — never average the monthly percentages. In this guide’s class, month 1 kept $71,000 on $116,000 (61.2%) and month 2 kept $83,750 on $140,000 (59.8%); season to date at the end of month 2 is (71,000 + 83,750) ÷ (116,000 + 140,000) = 154,750 ÷ 256,000 = 60.4%. Read it against the season-to-date plan for the same two months, not against the season total.

What is a good maintained markup?

There is no universal figure, and this guide offers none. The maintained markup 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 — and a good result is one at or above that plan for the same level and window, with reductions at or under the budget phased the same way. In this guide’s illustrative class, the plan was 55.0% and the goods kept 55.0%.