The Mysteries Behind Initial Markup:
Pricing Strategies To Improve Your
Bottom Line
Paul Erickson, RMSA
Paul Erickson
Senior Vice President
www.rmsa.com
Info@rmsa com
[email protected]
initial markup (IMU)
difference between markup & margin
markup
p
margin
g
• initial markup and
maintained markupp
• retail aspect
• from buyer’s perspective
• initial margin and
ggross margin
g
• accounting aspect
• from business owner’s
perspective
i
retail method of calculation
retail method of calculation
original selling price - cost /
original selling price
• Example: $100 - $40 / $100 = 60%
Zizzybaloobah/Fickr
“…that’s what
I always price
it at…
at…”
“…I multiple
the cost by
2.2…”
“…II double the
cost and then add
a $1 or $2…”
three key elements
three key elements
operating
markdowns
kd
expenses
desired
net profit
three key elements
operating
markdowns
kd
expenses
desired
net profit
three key elements
operating
markdowns
kd
expenses
desired
net profit
IMU formula
IMU =
(markdown % +
operating expense % +
d i d nett profit
desired
fit %) /
100% + markdown%
markdowns =
20%
operating
p
g
expenses =
40%
.06 + .40 + .20
1.0 + .20
= .55
55
desired
net profit =
6%
annuall sales
l $1,000,000
$1 000 000
IMU
52.5%
55%
MDS
20%
20%
MMU
43% = $430K
46% = $460K
EXP
40% = $400K
40% = $400K
NET
3% = $ 30K
6% = $ 60K
pricing
i i for
f profit
fi
52.5%
$9.00 cost
$19.00 retail
55%
$9.00 cost
$19.99 retail
psychology
h l
off pricing
i i
competitive
titi pricing
i i
competitive pricing
multiple
pricing
discount
pricing
know your
competition
p
loss
leaders
customer
service
competitive pricing
multiple
pricing
discount
pricing
know your
competition
p
loss
leaders
customer
service
competitive pricing
multiple
pricing
discount
pricing
know your
competition
p
loss
leaders
customer
service
competitive pricing
multiple
pricing
discount
pricing
know your
competition
p
loss
leaders
customer
service
competitive pricing
multiple
pricing
discount
pricing
know your
competition
p
loss
leaders
customer
service
steering
t i clear
l off
cost-base
tb
pricing
i i
steering clear of cost-base pricing
decide on
price before
knowing
cost
determine
price when
writing
iti order
d
steering clear of cost-base pricing
decide on
price before
knowing
cost
determine
price when
writing
iti order
d
steering clear of cost-base pricing
decide on
price before
knowing
cost
determine
price when
writing
iti order
d
=
then make
d i i
decision
to buy
i iti l markup
initial
k review
i
initial markup review
right
i ht
product
price?
determine
each product
category
separately
use
psychological
pricing
p
g when
possible
steer
t
clear
l
off
cost-base
pricing
key expenses
go up, so
should IMU
initial markup review
right
product
price?
determine
steer
t
clear
l
off
each product
cost-base
category
pricing
separately
use
psychological
pricing
p
g when
possible
key expenses
go up, so
should IMU
initial markup review
right
product
price?
determine
each product
category
separately
use
psychological
pricing
p
g when
possible
steer
t
clear
l
off
cost-base
pricing
key expenses
go up, so
should IMU
initial markup review
right
product
price?
determine
each product
category
separately
steer
t
clear
l
off
cost-base
pricing
use
key expenses
psychological
go up, so
pricing
p
g when
should IMU
possible
initial markup review
right
product
price?
determine
each product
category
separately
steer
t
clear
l
off
cost-base
pricing
use
key expenses
psychological
go up, so
pricing
p
g when
should
IMU
possible
outdoorindustry.org/OU
Inventory Turnover – Three Steps to Purchasing Smarter,
Turning More and Making More Money – Recorded Session
Shoulder-Season Discounting Strategies – The Eight Truths
of Markdowns – Recorded Session
The Mysteries Behind Initial Mark-up – Pricing Strategies to
Improve
p
Your Bottom Line – Recorded Session
The True Measure of Retail – GMROI – and What it Takes to
Grow It – February 28
Thank You.
You
outdoorindustry.org/OU
Paul Erickson
RMSA Retail Solutions
www.rmsa.com
perickson@rmsa com
[email protected]