Fundamental Retail Math Formulas

Table of Contents

These formulas will help you evaluate your sales and inventory utilization, so you stay on top of your merchandise planning. (Pro tip: Keep this page bookmarked so you can get a quick refresher whenever you need!) If you're unsure what some of these terms mean, check out our list of basic retail terms to know to refresh your knowledge.

Sales Metrics

Average Dollar Sales (ADS)

The average dollar transaction during a period of time.

ADS = Net Sales $ / Number of Transactions

Average Order Value (AOV)

The average amount a customer spends on a transaction. This gives a good sense of the customers' appetite to spend per visit at your store or website.

AOV = Net Sales / Number of Transactions

Average Unit Cost (AUC)

The average amount you've paid per unit of inventory.

Sales AUC  = COGS / Units Sold
Inventory AUC = Inventory at Cost / Units OH

Average Unit Retail (AUR)

The average selling price of an item.

Sales AUR = Net Sales $ / Units Sold
Inventory AUR = Retail Inventory / Units OH

Cost of Goods Sold (COGS)

The cost of the inventory that was sold within a specified time period. This is typically the largest cost a retailer incurs, so it is really important that you track this closely. It typically comes from the accounting system.

COGS = (BOP Inventory + Net Purchases + Cost of Labor + Materials and Supplies + Other Costs) - EOP Inventory

Gross Sales

Also known as top-line or gross revenue.

The total proceeds of all the sales within a time period. This typically comes from the accounting system.

Initial Markup (IMU)

The difference between the cost of an item and the initial ticket price. For example, if the cost of getting an item is $10 and the product is priced at $17, then the initial markup will be $7. The Initial Markup Percentage gives the same metric as a percentage of the ticket price. Going with the earlier example, the IMU% would be 70%.

IMU = Ticket$ - Cost$
IMU% = (Ticket$ - Cost$) / Ticket$ * 100%

Maintained Mark-Up (MMU)

The difference between the cost of an item and the maintained price. Often, prices drop after a couple weeks or months of an item being sold. In this case, the maintained mark-up is a better way to judge the profitability of an item than the initial mark-up. MMU is essentially the profit you generate from an item after all markdowns, allowances and cancellations have been accounted for.

MMU = IMU Retail $ - Markdowns at Cost - Other Costs
MMU% = Maintained Margin Dollars / Net Sales Retail * 100

Net Sales

The amount of sales generated after removing discounts, returns and allowances from the gross sales.

Net Sales = Gross Sales - (Discounts + Returns + Allowances)

Units per Transaction (UPT)

Also known as average basket size.

Average number of units sold per transaction. This is an important metric to keep an eye on over time, and also while designing the cart and checkout experiences. This number will vary drastically over different categories and will be larger in general merchandise and groceries categories and smaller in larger ticket categories like home, fashion and electronics.

UPT = Units Sales / Number of Transactions

Productivity Metrics

Sell Through (ST)

The percent of inventory sold in a given period time. Mostly commonly a week. This is an important metric to watch for products in seasonal categories, such as fashion and home. Typically, you will want to look of sell-through in two ways: full-price sell-through and overall sell-through. Full-price sell-through is the percentage of the goods that were sold at full-price (without markdown or promotion) and the overall sell-through is the percentage of the goods that were sold regardless of promotional strategies.

ST = Units Sold / BOP Units On Hand * 100

Gross Margin

The revenue you retain after accounting for the cost of your products.

Gross Margin = Gross Sales - COGS
Gross Margin % = (Gross Sales - COGS) / Gross Sales * 100

Gross Margin Return on Investment (GMROI)

The gross margin dollars returned for every dollar invested in inventory. This is used as a measure of productivity of a particular category or SKU, i.e. investment area and makes a great benchmark between product groups or even between companies.

GMROI = Gross Margin $ / Average Inventory at Cost

Growth Metrics

Build

A measure of growth on any metric from one period to the other. It is typically used to factor in week-over-week or month-over-month changes

Build = Total Sales / Previous Total Sales

Comparable Store Sales (Comps)

A comparison of sales for stores that have been open more than a year. This helps you keep track of growth or decline across stores between two periods. This is a very important metric to track the organic growth of a retailer in existing channels over time. This differs from overall sales growth in that new store or channel additions are not included in Comps.

Comps = Total Sales / Previous Same Store Total Sales - 1 * 100

Inventory Metrics

Average Inventory

The average amount of inventory a retailer holds over time. This is calculated in cost, units, or retail value for any period of time. It is calculated by averaging the beginning of period cost over multiple periods.

Average Inventory = (Sum or all BOP inventory + EOP Inventory of the last period) / Number of Periods Used

Beginning of Period Inventory (BOP)

The total inventory a retailer owns at the beginning of a period. Owned inventory will directly impact the sales you can expect to achieve, since you can't sell products you don't have. BOP Inventory can be calculated in units, costs, or retail dollars. When calculated in units, it's referred to as BOP Units, etc. If you choose to look at BOP on a monthly basis, the metric is called Beginning of Month Inventory and if you choose to look at BOP on a weekly basis, the metric is called Beginning of Week Inventory.

End of Period Inventory (EOP)

The total inventory a retailer owns at the end of a period. The EOP of a period, equals the BOP of the next period, since the retailer's inventory carries over to the next period. EOP Inventory can be calculated in units, costs, or retail dollars. If you choose to look at EOP on a monthly basis, the metric is called End of Month Inventory and if you choose to look at EOP on a weekly basis, the metric is called End of Week Inventory.

EOP (Period 1) = BOP (Period 2)

Stock to Sales (S/S)

The number of weeks of inventory on hand. This is based on prior weeks' sales. This is one of the most important inventory metrics to look at and is generally calculated on a monthly basis. It shows how much inventory was needed to achieve the sales generated within the period. The higher this number is, the higher the inventory overhead for the business will be. Like most inventory metrics, this will be a category dependent metric and will be lower in fast moving categories (like consumables and groceries categories) and higher in discretionary categories like (home, fashion and electronics).

S/S = Inventory at BOP / Prior Week Sales

Turn

The number of times the average inventory is sold and replaced during a specific time period. This measures how fast you are able to move through your stock and gives a sense of inventory productivity. Turn is a metric that is closely followed at the top level, and it is important track it for individual categories. Some categories like fast moving consumer goods or groceries will have higher turn numbers compared to high ticket items.

Turn = Cost of Goods Sold / Average Inventory (Cost$ or Units)

Weeks of Supply (WOS)

The number of weeks a given amount of inventory will last at the current rate of sale. The WOS number you target will depend on many things, including product category and lead time. For example, for products with low lead times, retailers will want to target low weeks of supply, since they know that they can replenish products rapidly as needed. For products with high lead times, or those that you cannot replenish but still have a long season ahead, you will want to keep Weeks of Supply close to the number of sale weeks remaining for that product.

WOS = On-Hand Inventory Units / Average Weekly Unit Sales

Feels like a lot to monitor?

That’s because it is. Toolio helps you crunch these numbers so you can save time, reduce errors, remove guesswork, and focus on the fun stuff. If you want to see how it works, request a demo of Toolio.When you’re working with billions of data points, it’s hard to know exactly how to use that information in order to offer your customers the right products, in the right place, at the right time, for the right price. That’s why we’ve created this list of the most important retail math formulas that you should constantly be monitoring.

Eytan Daniyalzade
CEO & Co Founder