Markdown — Definition, Formula & Examples
A markdown is the amount by which a seller lowers the original selling price of an item. It is usually expressed as a dollar amount or as a percentage of the original price.
A markdown is the difference between the original selling price and the reduced selling price of a good or service, where the markdown percentage equals the ratio of that difference to the original price, multiplied by 100.
Key Formula
Where:
- = The original selling price before the reduction
- = The markdown rate expressed as a decimal (e.g., 25% = 0.25)
How It Works
Stores use markdowns when they want to clear out inventory, match a competitor, or run a sale. To find the markdown amount, subtract the new (reduced) price from the original price. To find the markdown percentage, divide the markdown amount by the original price and convert to a percent. The sale price can also be found directly: multiply the original price by .
Worked Example
Problem: A store originally sells a jacket for $80. The manager marks it down by 30%. What is the sale price?
Find the markdown amount: Multiply the original price by the markdown rate.
Subtract from the original price: Take the markdown amount away from the original price to get the sale price.
Answer: The sale price of the jacket is $56.
Why It Matters
Markdown calculations appear throughout 7th-grade ratio and percent standards (7.RP.A.3) and on state assessments. Retailers, buyers, and e-commerce analysts use markdowns daily to set clearance prices and forecast profit margins.
Common Mistakes
Mistake: Confusing markdown with markup. Students sometimes add the percentage to the price instead of subtracting it.
Correction: A markdown reduces the price (multiply by ), while a markup increases it (multiply by ). Check whether the problem describes a price going down or up.