Running a business, e-commerce or retail, entails you looking through many different things. Apart from marketing and operations, you also have to have a good look at the costs, the pricing, markdowns or markups. As this is a complex process, it also affects your production, stocking and pricing. If you’re looking to understand what retail markup and markdowns are, then you’re in the right place.

Retail Pricing: Everything to Know About Markdowns

When you run a retail business, pricing and costing will play an important role. Whether you’re acquiring goods from other organisations or producing them in a facility, all the costs that go into creating one product will be your base cost. Then, you sell it at a percentage higher than your actual cost, which is called “mark-up.”

When you’re calculating your base price, you use all the resources and operations costs. To calculate these costs, you use total expenses, and then divide it by the number of products acquired or produced. Doing so leads to the cost of one product.

How does Retail Pricing Work?

In the simplest words, retail pricing refers to the price a consumer pays for an end product. This cost includes operating costs, fees and taxes. Additionally, retail, manufacturing and distribution prices are different.

Here is what this means:

Retail pricing includes two markups – the price for the distributor and manufacturer.
Sellers factor in different aspects, such as storage, costs of storage, and other operational costs as they set the retail prices.
Both internal and external factors affect the overall cost.
Sometimes, retailers will offer best-sellers at a loss in order to attract many shoppers.
Internal factors for a retailer are those costs that they have control over. For example, this includes costs such as labour costs, retail shipping fees, overhead costs, and money spent on ads and marketing. These costs help a business owner set a baseline for costs.
External factors for such pricing are mainly all those things that are beyond the control of the business owner or the business. For example, macro trends of the region, regional choices, economy and customer purchasing power.

Understanding Markdown Pricing in Retail

Markdowns are typically a very conscious reduction in prices by the business owner. The reduction is done on the original selling price. The reason why businesses and retailers do this is to either recover some costs associated with slow-moving or old products or to simply clear these kinds of products out to make room for new ones.

Retail Markdowns and Importance

Markdowns are an essential part of any business, simply because it offers you many benefits. To understand this, let’s discuss an example. Imagine you have a business, assume you sell winter coats. You place an order for winter coats or produce them from scratch as per your demand forecast. However, your forecast was wrong, and you ordered too many.

With more products and less demand, you are overstocked. In this situation, you will bring the cost down to induce fast movement of these products. You could offer flash sales, holiday sales or discounts, in general.

Here’s why markdowns help when you’re overstocked:

It helps you reduce holding costs, which allows you to free up holding costs.
Markdowns help you make space for more season-appropriate products.
Markdowns allow you to attract more and new customers. In such a case, even if your business loses some money on some of the products, you can be sure that you will attract new customers, which will have long-term value.

Retail Markdowns: Winning Strategies

Using some strategic methods to navigate overstocking will help you cut costs, and profit as well as maximise other benefits, like customer loyalty, acquisition and interest.

Here are a few ways to avoid risks:

1. Sales and Inventory Management One of the best ways to avoid overstocking and risk losing money is to have a good look at your inventory. Closely monitor your inventory and sales data, this will help you to know and pinpoint how much more you need to produce or order. Furthermore, it will help you make informed decisions in the future.
2. Markdown Pricing as a Strategy You can use the product lifecycle to plan product markdowns, it can help you extend the sales of your products. You can use the inventory data to keep track of the units in your inventory, and when it starts declining start implementing markdowns so that you can cycle it out.
3. Avoid Mass Markdowns
Be careful of mass markdowns. Offering sales or promos on your products all the time may decrease the “perceived” value of your brand. Instead, try cycling your inventory to have discounts on different products, so that your offerings are still attractive without lowering your brand value.

Markdowns in Retail: Turn Overstocked into Optimised With a 3PL

If you’re looking for a profitable way to use markdowns, then you not only need a strong inventory management system but also a good 3PL (third-party logistics company) to help you plan your inventory.

Trusting a logistics company, like Carrabba’s Group, helps you manage your business’ inventory and allows you to plan and strategise your inventory levels, thereby helping benefit in the long run. Additionally, real-time inventory tracking allows you to know what product was replaced, how many times and how your products are moving so that you can decide when to produce or buy more products.

At Carrabba’s Group, we prioritise providing tailor-made solutions to your business and ensure you get real-time updates. To get in touch with us, and enjoy easy inventory management, storage and transportation, give us a call at 0383361179.