Retail Dogma

Retail Math Formulas Cheat Sheet

This is a cheat sheet for the most important retail math formulas used in retail & e-commerce businesses. Each retail math formula is explained in more details with examples in the article linked to it.

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Practice using different retail math formulas on simulated store data and scenarios. Practice creating a full financial budget, an OTB budget and performing a P&L analysis.​

RETAIL MATH FORMULAS BY CATEGORY

The Sales Equation

The sales equation for retail & ecommerce businesses

Learn More: The Sales Equation

Sales = Traffic x Conversion x ATV

ATV

Average Transaction Value aka. AOV (Average Order Value)

Learn More: ATV

ATV = Total Sales ÷ No. of Transactions

IPC

Items per Customer aka. UPT (Units per Transaction)

Learn More: UPT

IPC = Total Quantity Sold ÷ No. of Transactions

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Conversion

Measures the number of customers who bought out of the total number of customers who visited the store

Learn More: Conversion

Conversion = No. of Transactions ÷ Traffic x 100

Traffic

Measures the number of customers who entered the store

Traffic = Total number of visits to the store

SPSF

Sales per Square Foot

Learn More: SPSF

SPSF = Sales ÷ Area in Square Feet

LFL Growth

Like for Like Growth aka. Comps

Measures growth (%) of this year (TY) over last year (LY) for the same stores that traded for the same period. 

Learn More: Same Store Sales

LFL (%) = (TY - LY) ÷ LY x 100

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Gross Margin

Gross Margin aka. Gross Profit %

Learn More: Gross Margin

Gross Margin (%) = (Sales - Cost) ÷ Sales x 100

Markdown

Percentage of reduction on the original price

Learn More: Markdowns

Markdown (%) = (Original Price - Sale Price) ÷ Original Price x 100

Markup

The amount added to the cost price to set the sale price

Learn More: Markup

Markup (%) = (Sale Price - Cost Price) ÷ Cost Price x 100

Open to Buy (OTB)

Open to Buy calculates how much inventory to purchase, in order to fulfill the planned sales budget and have enough stock cover.

Learn More: OTB

Opening Stocks + Intakes (Purchases) - Sales = Closing Stocks

GMROI

Gross Margin Return on Investment

Learn More: GMROI

GMROI = Gross Profit ($) ÷ Average Inventory Cost($)

Sell Thru

Sell Through Rate 

Learn More: Sell Through Rate

Sell Thru (%) = No. of units sold ÷ No. of units received x 100

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Aging Inventory

Measures the % of inventory that has aged (depending on when you consider aging, e.g above 1 year) out of total inventory at hand(SOH).

Learn More: Aging Inventory

Aging (%) = Aging Inventory at Cost ÷ Total Stock at Cost x 100

Inventory Turnover

Inventory Turnover Ratio (IT) measures how many times a company has turned its inventory during a certain period (e.g 1 year).

Learn More: Inventory Turnover

IT= COGS ÷ Average Inventory at Cost

DSI

Days Sales in Inventory aka. Days Inventory measures how many days it takes the company to sell its inventory.

Learn More: DSI

DSI= (Average Inventory at Cost ÷ COGS ) x 365

Shrinkage

Shrinkage aka. Stock Loss can be calculated either at cost value or at retail value (Cost to Cost, Retail to Retail or Cost to Retail)

Learn More: Shrinkage

Shrinkage % = (Value of Lost Stock ÷ Total Sales for the period ) x 100

Forward Stock Cover

measures how long the current stock on hand will cover future forecasted sales periods.

Learn More: Forward Stock Cover

Forward Stock Cover = SOH ÷ Average Forward COGS

EBITDA

Earnings Before Interest, Taxes, Depreciation & Amortization

EBITDA = Net Profit + Interest + Taxes + Depreciation + Amortization

Net Profit Margin

Percentage of Net profit out of total sales

NP % = (Net Income ÷ Revenue ) x 100

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