What is Maintained Markup?
Maintained markup or MMU in short, refers to a change brought about to the price of a product where the price is lowered to a new price that is a little above the cost of the product. This is carried out when an ecommerce owner has not been able to sell a product and it has remained unsold for a while. When a product reaches a store for sale, there is a price tag fixed to it which is set beforehand. We call it the initial markup price above cost. MMU is lower than the initial markup; it is based on actual sales and not on planned or ‘hoped-for’ sales.
In retail, a lot of thought and careful planning goes into developing pricing strategies and setting the ideal markup price. While there are no ideal markup benchmarks in place, most businesses go with a 50% markup.
The initial versus maintained markup is a pricing difference that you will often get to see in the retail environment. A retailer in all likelihood would prefer to sell their products at the initial markup price, but the maintained markup is known to be a better indicator of how much profits the retailer would make.
How to calculate Maintained Markup?
Calculating the maintained markup is fairly simple. You have all the information at hand.
The basic formula to calculate the maintained markup is:
Maintained Markup = Actual Retail Price – Cost / Actual Retail Price.
As MMU is usually expressed in percentage. Multiply the result obtained with 100 in order to express it as a percentage.
In other words, maintained markup is the actual selling price minus the cost of the product.
Here is an example to understand the calculation a little better. Let’s assume you have an online boutique selling dresses and the price of a dress is $ 100, its cost is $ 40.
The initial markup as the definition goes would be Original price - Cost ÷ Original Price = 100 - 40 ÷ 100 = 0.6 or 60%.
Now the retailer decides to change the price to $60. So what would the maintained markup be in this case?
Going by the formula, it’s (Actual Selling Price – Cost ÷ Actual Selling Price) x 100, which is 60 - 40 ÷ 60= 0.33 or 33%.
Now that was rather easy to compute, was it not?
Why is maintained markup important to ecommerce retailers?
When it comes to markup pricing, maintained markup is considered to be one of the most important retail pricing strategies.
So what exactly is markup? A markup is the percentage increase or decrease of price. Factors such as cost of goods sold, operating expenses, and expected profits are to be taken into consideration prior to fixing the initial markup.
But the maintained markup is done with the intention of clearing up unsold products. Online sellers need to know the kind of demand that exists for their product in the market and set the price based on the information they’ve gathered.
The maintained markup is always lower than the initial markup as a result of which the profits tend to be lower. Hence the initial markup should be fixed in such a way that there is a reasonable amount of profit even at the maintained markup price.
What are the advantages of maintained markup?
Maintained markup is extremely beneficial to an ecommerce business. Let’s take a quick look at a few of its advantages:
- Helps clear slow-moving products: The two common examples of products that tend to become slow-moving with time are footwear and wholesale apparel. When a retailer drops the price from the initial markup to the maintained markup, chances are that these unsold products will move out faster and get sold.
- There will always be a profit margin. Maintained markup is lower than the initial markup but always above the cost. Retailers can be assured of a fair return as there will always be a considerable amount of profit on the product.
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