What metrics can you use to measure the success of markdown and clearance decisions?

1 Sell-through rate

The sell-through rate is the percentage of units sold in a given period compared to the initial inventory. It indicates how fast your products are moving and how well they match the demand. A high sell-through rate means that your products are selling well and that your markdown and clearance decisions are effective. A low sell-through rate means that your products are not selling well and that you may need to adjust your pricing, promotion, or merchandising strategies. You can calculate the sell-through rate for each product, category, or store, and compare it to your benchmarks or goals.

2 Gross margin return on investment

The gross margin return on investment (GMROI) is the ratio of gross margin dollars to average inventory cost. It measures how much profit you are generating from your inventory investment. A high GMROI means that your products are profitable and that your markdown and clearance decisions are maximizing your margins. A low GMROI means that your products are not profitable and that your markdown and clearance decisions are eroding your margins. You can calculate the GMROI for each product, category, or store, and compare it to your industry standards or targets.

3 Markdown percentage

The markdown percentage is the percentage of the original price that is reduced by a markdown. It reflects how much you are discounting your products to stimulate sales. A high markdown percentage means that you are offering deep discounts and that your markdown and clearance decisions are attracting customers. A low markdown percentage means that you are offering minimal discounts and that your markdown and clearance decisions are preserving your brand value. You can calculate the markdown percentage for each product, category, or store, and compare it to your competitors or expectations.

4 Markdown efficiency

The markdown efficiency is the ratio of the incremental sales generated by a markdown to the lost margin dollars due to the markdown. It measures how effective your markdown and clearance decisions are in increasing sales without sacrificing too much profit. A high markdown efficiency means that your markdown and clearance decisions are driving sales and that you are optimizing your markdown depth and timing. A low markdown efficiency means that your markdown and clearance decisions are not driving sales and that you are over-discounting or under-discounting your products. You can calculate the markdown efficiency for each product, category, or store, and compare it to your historical data or objectives.

5 Clearance rate

The clearance rate is the percentage of units sold at clearance prices in a given period compared to the initial inventory. It indicates how well you are clearing your excess or obsolete inventory and how efficiently you are managing your inventory turnover. A high clearance rate means that you are selling your clearance products quickly and that your clearance decisions are freeing up space and cash for new products. A low clearance rate means that you are selling your clearance products slowly and that your clearance decisions are creating inventory obsolescence and shrinkage. You can calculate the clearance rate for each product, category, or store, and compare it to your industry norms or plans.

6 Here’s what else to consider

This is a space to share examples, stories, or insights that don’t fit into any of the previous sections. What else would you like to add?