How to calculate it
Price reduction = (original price − new price) ÷ original price × 100
- Enter the original and proposed selling prices on the same tax basis, plus the relevant unit cost.
- Calculate the price reduction as the difference between prices divided by the original price.
- Compare gross margin at each price. Then estimate whether additional sales, clearance value or avoided holding costs justify the lower profit per unit.
Illustrative example
A 20% cut changes margin more than 20%
An item priced at $100 costs $50. A proposed $80 selling price is a 20% reduction. Gross profit falls from $50 to $30 per unit, and gross margin falls from 50% to 37.5% of selling price.
To preserve the same $500 gross profit from ten full-price sales, the retailer would need about 17 sales at the new $30 unit profit, assuming the same cost and no other effects. That is a useful test, not a demand forecast. Check the remaining season and whether the cut takes sales from another line.
Check before acting
- Compare prices and unit cost on a consistent tax, discount and returns basis.
- Check whether a markdown clears slow stock or simply reduces margin on units that would have sold anyway.
Questions about this calculation
- Is markdown percentage the same as margin loss?
- No. Markdown percentage measures the price cut against the original price. Margin percentage uses gross profit divided by the selling price, so it changes differently.
- Can this calculator predict sales uplift?
- No. It shows price and unit-margin arithmetic. Estimate uplift from comparable tests, timing and the stock you need to clear.
- What if the new price is below unit cost?
- The result will show a negative gross margin. Check whether clearance, disposal or another commercial constraint makes that deliberate before committing the price.
← All free retail tools