Math Formulas Commonly used in the Retail Supply Chain

Just like the title states, these are basic formulas used throughout the retail supply chain to manage inventory, measure sales, etc.

Average Inventory

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

Basic Retailing Formula

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

Break-Even Analysis

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

Contribution Margin

Contribution Margin = Total Sales - Variable Costs

Cost of Goods Sold

COGS = Beginning Inventory + Purchases - Ending Inventory

Gross Margin

Gross Margin = Total Sales - Cost of Goods

Gross Margin Return on Investment

GMROI = Gross Margin $ ÷ Average Inventory Cost

Initial Markup Initial Markup % = (Expenses + Reductions + Profit) ÷ (Net Sales + Reductions) Inventory Turnover (Stock Turn or inventory turn)

Turnover = Net Sales ÷ Average Retail Stock

Maintained Markup

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

Margin %

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

Markup

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

Net Sales

Net Sales = Gross Sales - Returns and Allowances

Open to Buy

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

Reductions

Reductions = Markdowns + Employee Discounts + Customer Discounts + Stock Shortages

Sales per Square Foot

Sales per Square Foot = Total Net Sales ÷ Square Feet of Selling Space

Stock to Sales Ratio

Stock-to-Sales = Beginning of Month Stock ÷ Sales for the Month

You can find more information like this at www.retailedi.com

Jim Cantrell. Jim Cantrell is a Founder and contributing author for retailedi.com

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