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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