Retail Math Formulas for the Fashion Industry

Wholesale Fashion Marketplace



Retail Math Definition

Retail math is used to create purchasing plans for inventory levels,  determine markup and markdown amounts, implement pricing strategies and ultimately analyze sales performance.


Acid-Test Ratio / Quick Ratio

The acid test ratio retail math formula measures how well a business can cover its short-term debt without having to sell off any inventory. A ratio of one to one says that a business can pay its current liabilities without selling inventory. Therefore this business can be quickly liquidated.

Acid-Test Ratio = Current Assets – Inventory ÷ Current Liabilities

Average Inventory

The average inventory retail math calculation compares the inventory at one time period over another. This number is typically calculated in terms of month or 13 month mark for fiscal year.

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


Average Inventory fiscal year= Beginning of month inventory + 1st month+…..12 month)/13

Break-Even Analysis

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

This retail math formula shows how much sales volume is needed to cover all costs before you can start generating a profit.

Contribution Margin

Contribution Margin = Total Sales – Variable Costs

Cost of Goods Sold (COGS)

COGS = Beginning Inventory + Purchases – Ending Inventory

Gross Margin

Gross Margin = Total Sales – Cost of Goods

Gross Margin Return on Investment (GMROI)

GMROI = Gross Margin $ ÷ Average Inventory Cost

Initial Markup

Initial Markup % = (Expenses + Reductions + Profit) ÷ (Net Sales + Reductions)

Inventory Turnover

Turnover = Net Sales ÷ Average Retail Stock

This retail math formula shows the number of times that a retailer will turn over inventory in a year. Most turn inventory 2 to 4 times a year.

Maintained Markup

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

Margin %

Margin % amount = (Retail Price – Cost) ÷ Retail Price


Markup $ amount = Retail Price – Cost
Markup % amount = Markup Amount ÷ Retail Price

Net Sales

Net Sales = Gross Sales – Returns and Allowances

Open to Buy

Open to Buy= Planned Sales + Planned Markdowns + Planned End of Month Inventory – Planned Beginning of Month Inventory

Percentage of Increase or Decrease

% Increase/Decrease = Difference Between Two Figures ÷ Previous Figure

Quick Ratio

See Acid Test Ratio

Retail Price

Cost of Goods + Markup = Retail Price


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

Sales per Square Foot

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


Shrinkage= Book Inventory- Physical Inventory.

This retail math formula brings to attention inventory that has disappeared, been stolen or is not part of physical inventory but is documented on the books.

Sell-Through Rate

Sell-Through % = Units Sold ÷ Units Received

Stock Turn

Turnover = Net Sales ÷ Average Retail Stock

Stock to Sales Ratio

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


Luxury Wholesale Marketplace

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