Mark down now or hold for later?

How the calculation works

markdownFutureValue = markdownPrice * markdownSales + salvagePerUnit * (stockUnits - markdownSales) - markdownHoldingCost

waitFutureValue = laterPrice * laterSales + salvagePerUnit * (stockUnits - laterSales) - laterHoldingCost

markdownAdvantage = markdownFutureValue - waitFutureValue

For stock already owned, its historical acquisition cost is common to both strategies and cancels from this forward-looking comparison. This is future recoverable value, not accounting profit.

A worked example

You hold 1,000 units. Marking down to €40 sells 900 units; holding at €50 sells 650. Unsold stock has a €5 terminal value, and waiting costs €500 while the markdown strategy has no additional holding cost. Future value is €36,500 for markdown versus €33,750 for waiting: a €2,750 markdown advantage.

Use it carefully

• Expected unit sales under each strategy cannot exceed stockUnits.
• Use the same terminal date and net terminal value convention in both strategies.
• Net terminal value can be negative if disposal incurs a cost. All inputs and results must be finite.
• Enter selling prices net of variable selling costs when those costs are material, or add them consistently to the strategy costs.
• Expected sales are assumptions. Compare conservative and optimistic sell-through cases before making a decision.
• If the strategies involve different new purchases, different salvage values or material cash timing, extend the model before comparing them.

Common questions

Why is the original inventory cost absent?

The stock has already been bought, and the same acquisition cost is incurred in both alternatives. Subtracting it from both values leaves their difference unchanged.

Does the tool find the optimal markdown?

It compares the two scenarios you enter. Finding an optimal markdown also requires a demand model, inventory constraints and the relevant time horizon.

Related calculations

Further context: Shopify: markdowns and inventory decisions. Equations and examples were independently prepared for this calculator.