Enter the original price, the markdown and your unit cost. You get the sale price, the margin left after the markdown, and how many extra units you must sell to earn the same gross profit.
The markdown is applied to price, but the damage lands on profit per unit, which falls much faster than price because cost does not move. That asymmetry is the whole reason markdowns are more expensive than they look.
The two words sit one letter apart and point in opposite directions.
Markup is how much you add to cost to set a price, expressed as a percentage of cost. The markup calculator works it.
Markdown is how much you take off an existing price, expressed as a percentage of that price.
The trap between them is that the percentages are measured against different bases. A 20 percent markdown on a product with a 20 percent margin does not leave a smaller margin, it leaves none at all. Worse, marking a product down 20 percent and then back up 20 percent does not return it to the original price. It returns it to 96 percent of the original, because the second 20 percent is calculated on a smaller number.
| Markdown | Profit per unit left | Extra volume to match profit |
|---|---|---|
| 10% | $19.32 | +31% |
| 15% | $16.30 | +56% |
| 20% | $13.28 | +91% |
| 25% | $10.27 | +147% |
| 30% | $7.25 | +250% |
| 42% | $0.00 | not possible |
The relationship is not linear. Each additional five points of markdown costs more volume than the five before it, because profit per unit is approaching zero. At a markdown equal to your margin, no volume increase can recover the profit, because each additional sale contributes nothing.
This is why low-margin retailers treat markdowns as a clearance tool rather than a promotional one. The volume response a 20 percent markdown needs at 42 percent margin is available for some products in some weeks. The response a 30 percent markdown needs almost never is.
The calculator measures a markdown against continuing to sell at full price. That is the wrong comparison when full price is no longer selling.
Stock that will not move at full price has a different alternative: holding it. Holding costs warehouse space, ties up cash that the inventory turnover calculator makes visible, and for seasonal or perishable goods, lets value decay toward zero. Against that alternative, recovering any cash above the cost of disposal is a gain.
So the useful question is not whether the markdown matches full-price profit, it is whether the markdown beats doing nothing. For fresh stock, it rarely does. For stock past its season, it usually does, and the right markdown is the smallest one that clears the stock before the next buying cycle.
Where markdowns go wrong is when they become a sales habit applied to healthy stock, which trains customers to wait and makes the price elasticity of the whole range look worse than it is.
A markdown equal to your margin leaves nothing. No volume increase can recover it.
The first trap is judging a markdown by units sold. A promotion that lifted units by 80 percent at 20 percent off still lost money, because at a 42 percent margin it needed a 91 percent lift just to break even. Measure gross profit, not volume.
The second is forgetting advertising. If the markdown is promoted with paid media, the cost per sale has not fallen while the profit per sale has halved. A campaign that was profitable at full price can become unprofitable on the same ROAS, which the break-even ROAS calculator will show.
The third is the round trip. Reverting from a markdown means raising the price by more than the original cut to get back, and customers who saw the lower price notice.
The last is stacking. A markdown combined with a discount code combined with free shipping can push the effective price below cost without anyone noticing, because each was approved separately.
Markup is added to cost to set a price, as a percentage of cost. Markdown is taken off an existing price, as a percentage of that price. They use different bases, which is why a 20 percent markdown and a 20 percent markup do not cancel out.
Divide old profit per unit by new profit per unit and subtract one. At a 42 percent margin, a 20 percent markdown needs about 91 percent more volume just to keep gross profit flat.
When the alternative is holding stock that will not sell at full price. Then the comparison is against warehouse cost, tied-up cash and decaying value, not against full-price profit.
Because the second percentage is calculated on the reduced price. A 20 percent markdown followed by a 20 percent increase leaves you at 96 percent of the original.
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