Markdown Calculator
Markdown calculator for retail pricing. Enter original price and sale price or discount rate to see markdown amount and percentage, with clean totals.
Markdown Calculator
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The discount, measured properly
A markdown is a deliberate reduction in a retail price. Not a negotiation, not a voucher, an actual change to what the item sells for.
This calculator takes the price it used to be and the price it is now, and gives you two things: the markdown in money, and the markdown as a percentage.
Simple arithmetic, and the reason it is worth a page is not the arithmetic. It is what that percentage does to the profit on the item, which is far more than most people running the sale expect. A 20 percent sign in the window sounds like giving away a fifth. On a typical retail product it gives away closer to two fifths of the profit, and there is a section below that shows exactly how.
Two prices in
- Original selling price. What the item was priced at before the reduction.
- Actual selling price. What it is priced at now.
Press Calculate and you get the markdown in money and the markdown percent.
The second price has to be lower than the first, which is what makes it a markdown rather than a price rise. Neither figure carries a currency symbol, so the amount comes back in whatever units you put in, which makes it equally usable in dollars, rupees or pounds.
One thing to be consistent about: use prices excluding sales tax or VAT for both, or including for both. Mixing them gives you a percentage that describes nothing in particular.
Why the original price is the base
Two lines of arithmetic.
Markdown = original price - actual price
Markdown percent = markdown ÷ original price × 100
The denominator is the original price, and that is the convention everywhere in retail. When a shop advertises 30 percent off, the 30 percent is measured against the old price, which is what the customer is comparing against.
Worth noticing because it is the opposite habit from markup, which measures against cost. Three percentages, three different denominators, all describing prices:
- Markup divides by cost.
- Margin divides by selling price.
- Markdown divides by the original selling price.
It also explains an asymmetry that catches people out. Take 30 percent off a price and you do not get back to where you started by adding 30 percent on. A 100 item marked down 30 percent is 70, and adding 30 percent to 70 gives 91. To return to 100 from 70 you need to add 42.86 percent, because you are now working from a smaller base. The way down and the way up are not the same journey.
A jacket, marked down
A jacket cost the shop 60 and was priced at 100. That is a 40 percent margin, or a 66.67 percent markup, whichever way your business talks.
The season turns and it goes on sale at 80.
Markdown: 100 minus 80 = 20. Markdown percent: 20 ÷ 100 = 20 percent.
So far so unremarkable. Now look at what happened to the profit.
At 100, the jacket earned 40. At 80, it earns 20. The price fell by a fifth, and the profit on it fell by half.
That is the whole thing in one line. Discounts come out of the price, but the cost does not move, so the entire reduction is taken out of the profit. A fifth off the price was two fifths of the money you were making.
What a discount does to your margin
Same jacket, cost 60, original price 100, and the markdown dialled up step by step:
| Markdown | New price | Profit per unit | New margin | Share of margin gone |
|---|---|---|---|---|
| 10% | 90.00 | 30.00 | 33.33% | 16.7% |
| 20% | 80.00 | 20.00 | 25.00% | 37.5% |
| 25% | 75.00 | 15.00 | 20.00% | 50.0% |
| 30% | 70.00 | 10.00 | 14.29% | 64.3% |
| 40% | 60.00 | 0.00 | 0.00% | 100.0% |
| 50% | 50.00 | -10.00 | -20.00% | selling at a loss |
Read down the last column. Ten percent off costs you a sixth of your profit. Twenty five percent off costs you half of it. Forty percent off costs you all of it.
The relationship is not proportional and it accelerates, because every unit of price you give up comes entirely out of the shrinking pile of profit rather than being shared with the cost. The cost sits at 60 the whole way down, indifferent to your sale.
The rule worth memorising
Look at the 40 percent row again. The jacket carried a 40 percent margin. A 40 percent markdown put the price at exactly 60, which is exactly the cost, and the profit at exactly zero.
That is not a coincidence about jackets. It is arithmetic, and it holds for every product:
A markdown equal to your margin percentage wipes out your profit entirely.
Which gives you something you can do in your head on a shop floor. If your margin is 40 percent, then 40 percent off is your break-even and anything beyond it is money out the door. If your margin is 25 percent, a quarter off already gets you to zero, and the 30 percent sale everyone else is running would be selling at a loss.
It also explains why discount patterns differ so much between shops. A business running 60 percent margins can advertise 50 percent off and still make something. A business running 25 percent margins cannot go past a quarter off without paying customers to take stock away. Same sign in the window, completely different consequence, and the difference is invisible from the pavement.
So before setting a markdown, work out the margin on the item. The margin calculator will give it to you from the cost and the original price, and it prints the markup alongside it.
How many more you have to sell to stand still
The argument for a sale is usually volume. Lower the price, sell more of them, come out ahead. Sometimes that works. It is worth knowing what "more" actually has to mean.
The jacket earns 40 at full price. Sell 100 of them and you have 4,000 of gross profit. Now discount, and ask how many you need to sell to reach the same 4,000:
| Markdown | New price | Profit per unit | Units needed | Increase required |
|---|---|---|---|---|
| 10% | 90 | 30 | 133 | +33% |
| 15% | 85 | 25 | 160 | +60% |
| 20% | 80 | 20 | 200 | +100% |
| 25% | 75 | 15 | 267 | +167% |
| 30% | 70 | 10 | 400 | +300% |
Twenty percent off requires double the units just to break even against where you were.
Thirty percent off requires four times the units. Not thirty percent more, four times as many.
Very few discounts move volume like that. Which does not make markdowns wrong, it makes the volume argument wrong most of the time. If you are marking down, it is usually better to be honest that you are choosing cash and clearance over profit, rather than telling yourself the extra sales will cover it.
Worth adding: these numbers assume every extra sale is a new one. In practice a share of them are customers who would have paid full price and simply waited, which makes the real hurdle higher than the table shows.
When marking down is the right call anyway
None of the above is an argument against ever discounting. It is an argument for knowing the price of it. There are several situations where paying that price is clearly correct.
Stock that has stopped selling. Unsold inventory is not neutral. It occupies space, ties up money you could be spending on things that move, and quietly loses value as it ages. Converting it to cash at a reduced price beats holding it for a full price that is not coming.
Seasonal and perishable goods. Anything with a date on it, literal or effective. Winter coats in March, produce near its sell-by, last year's model. The value falls whether or not you cut the price, so the question is only how much you recover on the way down.
Space that could earn more. A shelf holding slow stock at full price may be worth more holding fast stock at a normal price. The comparison is not the discount against the full price, it is the discount against what else that space could be doing.
Retailers measure the whole exercise as the share of potential full price value actually achieved across a season. Which reframes it usefully: a well timed markdown that clears the range is a better outcome than a stubborn full price that leaves you holding stock at the end of it.
One rule the tax people care about
If you value inventory using the retail method, markdowns are not simply a matter of what you decided to charge. There is a condition.
Under the Internal Revenue Service's rules for the retail method, a markdown counts when determining the retail selling price of goods on hand only if the goods were actually offered to the public at the reduced price. Markdowns that are not based on a real reduction in the retail price, such as ones claimed for depreciation or obsolescence, are not allowed.
In plain terms: you cannot mark stock down on paper to reduce its book value while continuing to sell it at the old price. The reduction has to be real and available to customers.
There is a further wrinkle worth knowing if it applies to you. Businesses using the retail method with LIFO must adjust retail selling prices for markdowns as well as markups. Those not using LIFO may, if they have consistently done so, adjust for markups only. Changing that practice is not something to do casually.
Most small retailers will never touch any of this, since it only bites if you are using the retail method to value inventory. If you are, it is worth a conversation with your accountant before a large clearance, because the timing and the documentation matter.
Questions people ask
How do I work out a markdown percentage?
Subtract the new price from the original, divide by the original, and multiply by 100. From 100 down to 80 is 20 divided by 100, which is 20 percent.
Is the percentage taken off the original or the new price?
The original. That is the retail convention and it is what a customer compares against when they see the sign.
How much does a discount cost me in profit?
Far more than the percentage suggests, because the cost does not fall with the price. On an item costing 60 and priced at 100, a 20 percent markdown halves your profit per unit, from 40 to 20.
At what discount do I stop making money?
When the markdown percentage equals your margin percentage. A product with a 40 percent margin breaks even at 40 percent off, and anything deeper is a loss.
Will selling more make up for it?
Rarely, at least on the arithmetic. A 20 percent markdown on a 40 percent margin product needs double the unit sales to reach the same gross profit, and a 30 percent markdown needs four times.
Is a markdown just a markup in reverse?
No, because they use different bases. Markup measures against cost, markdown measures against the original selling price. Taking 30 percent off and then adding 30 percent back does not return you to the original price.
What percentage brings a discounted price back to the original?
More than you took off, since you are now working from a smaller base. Going from 100 to 70 is a 30 percent markdown, and getting from 70 back to 100 takes an increase of 42.86 percent.
Should I use prices with or without sales tax?
Either, as long as you are consistent across both boxes. The percentage is unaffected when both prices are on the same basis, and meaningless when they are not.
References
The definition of a price markdown as a deliberate reduction in retail selling price, used to increase rate of sale or to clear seasonal and obsolete merchandise, and the framing of performance as the share of potential full price value realised across a season, follow standard retail practice. The condition that markdowns are recognised for the retail inventory method only where goods were actually offered to the public at the reduced price, that markdowns based on depreciation or obsolescence are not allowed, and the differing treatment under LIFO, come from Internal Revenue Service Publication 538. The treatment of gross profit as receipts less cost of goods sold follows IRS Publication 334.
- Internal Revenue Service, Publication 538: Accounting Periods and Methods. https://www.irs.gov/publications/p538
- Internal Revenue Service, Publication 334: Tax Guide for Small Business. https://www.irs.gov/publications/p334
- US Chamber of Commerce, Pricing Markups Explained: Definition and Similar Terms. https://www.uschamber.com/co/start/strategy/what-are-pricing-markups
- Corporate Finance Institute, Markup: How to Calculate Markup and Markup Percentage. https://corporatefinanceinstitute.com/resources/accounting/markup/
Olga Chernova is an equity research analyst and final year Economics and Finance student at the American University in Bulgaria, with hands on experience in valuation and financial modeling. She has passed CFA Level I and contributed to a 2nd place team in the 2025-2026 CFA Institute Research Challenge in Bulgaria. At Eon Tools, she reviews finance tools.