Margin Neutral Holiday Tree

Hype This!

Just in time for the holidays, Hyperficial has provided a handy chart for merchants and planners to help stay margin neutral during the holidays as they promote and markdown.

The decisions behind what product to discount and how deep blend math, statistics, and brand strategy. Under-performing products may need some price cuts to get a lift in sales without overly sacrificing margin dollars and compromising brand integrity. Leaving the marketing and brand decisions to the people who do that sort of thing, the basic question becomes: If you offer a discount, how many more units do you need to sell to generate the same margin dollars?

Example: 1 unit sold of a $100 shoe at 50% margin at full price = 2.5  units sold at 30% off.

Assuming you aren’t selling diamonds or printer ink, most apparel stores will have product mix with margins of 40 to 80%. At those margins, 30% seems to be the sweet spot, with realistic builds and doesn’t look too promotional or desperate. Anything bigger should be reserved for the higher margin products, anything lower might not catch the eye of the consumer (I for one don’t get out of bed for anything less than 20% off).

margin neutral table

How to use the table: The intersection of the initial margin and the planned discount is the unit multiple needed to stay margin neutral. For instance, at 60% margin item at 50% off will need a 6x to generate the same margin dollars, and a 12x lift at 55% off, a Christmas miracle indeed.

 

The table is handy, but the graph is striking: each margin series peaks at the point where discount = margin, then drops negative as you sell at below cost. If you squint and tilt your head, the Margin neutral holiday tree appears, with leaves so unchanging.

Margin neutral graph

Margin neutral graph, or a Christmas tree.

Still don’t see it, maybe this will help:

grinch tree, margin neutral tree

They can’t take our margin dollars

Other sources:

The Dirty Secret of Discounts – WSJ

Rachel Bilson at TJ Maxx- Huffington Post

Anatomy of a Markdown – CNBC

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