Retail math is considered an integral part of a good retail manager’s skill set. It can be found on some companies pre-employment screening tests.
Calculation of a few commonly used profitability indicators:
Gross Margin:
GM % = (Selling Price – Cost) x 100 / Selling Price
Example: You sold an item for $49.95, and the cost of the item is $30.00.
GM % = (49.95 – 30.00) x 100 / 49.95 = 39.94%
Mark Up:
Mark Up % = (Selling Price – Cost) x 100 / Cost
Using the above example,
Mark Up % = (49.95 – 30.00) x 100 / 30.00 = 66.5%
Weeks of Stock:
Inventory (at retail) divided by average weekly sales for a given period of time.
So, if you have $8,000.00 worth of inventory in one product, and your total sales of that product for the past 6 weeks is $12,000.00 the calculation would look like this:
$12,000.00 divided by 6 = average weekly sales of $2,000.00
$8,000.00 divided by $2,000.00 = 4
This means that if you did not replenish your inventory and sales continued at the same pace, you would deplete your inventory of that product to zero within 4 weeks.
Gross Margin Return on Inventory Investment (GMROII):
GMROII = GM% x (Sales / Avg. Inventory)
Example: Still using the same numbers from Gross Margin calculation, assume that the store’s net sales over a period of 12 months is 24M and during this time it carries an average inventory of 6M. Then:
GMROII % = 39.94 x (24 / 6) = 159.76%
