MARKDOWN || BUSINESS MATHEMATICS

WOW MATH

21 Sept 202112:44

Summary

TLDRThis video lesson delves into the concept of markdown in business, a strategy where the original selling price is reduced to match competitor prices or clear old stock. The presenter explains how to calculate markdown, which is the difference between the original and new selling prices, and introduces formulas for markdown, markdown rate, and new selling price. Examples are provided, including markdown calculations for a vehicle, a cell phone, and pants, as well as a detailed scenario involving a sweater's price changes over time. The video aims to educate entrepreneurs on pricing strategies to boost sales and clear inventory.

Takeaways

🔢 A markdown is the difference between the original selling price and the new selling price, used by entrepreneurs to adjust prices for various reasons.
💼 Markdowns help businesses compete with rivals by meeting or undercutting their prices, as illustrated in the example of a sahabila offer.
📉 They are also used to clear old or slow-moving stock, ensuring inventory turnover and cash flow.
📋 The basic formula for markdown is Original Selling Price - New Selling Price.
📊 Another formula to calculate markdown is Original Selling Price * Markdown Rate, which helps in planning and financial analysis.
📈 The formula for the new selling price is Original Selling Price - (Original Selling Price * Markdown Rate).
📊 The markdown rate is calculated by dividing the markdown by the original selling price and multiplying by 100 to get a percentage.
🚗 An example provided was a vehicle with an original price of 1,890,500, reduced to 1,512,400, resulting in a markdown of 378,100.
📱 Another example involved a cell phone with an original price of 28,500, discounted to 18,525, showing a markdown of 9,975.
👖 A pair of pants originally priced at 4,680 pesos was sold at a 25% markdown, leading to a new selling price of 3,510 after the discount.
⌚ A complex scenario with a wristwatch involved multiple markdowns and markups, demonstrating how price adjustments can accumulate over time.

Q & A

What is a markdown in business?
-A markdown in business is the difference between the original selling price and the new selling price, often used by entrepreneurs to reduce prices to meet competitors or clear old stocks.
Why do businesses use markdowns?
-Businesses use markdowns to compete with rivals' prices, to clear out old or slow-moving stock, or to attract customers by offering discounts.
What is the formula for calculating markdown?
-The formula for calculating markdown is: Markdown = Original Selling Price - New Selling Price.
How do you calculate the markdown rate?
-The markdown rate is calculated by dividing the markdown amount by the original selling price and then multiplying by 100 to get the percentage.
What is the formula to find the new selling price after a markdown?
-The formula to find the new selling price after a markdown is: New Selling Price = Original Selling Price - Markdown.
What is the markdown amount for a vehicle originally priced at 1,890,500 pesos and sold at 1,512,400 pesos?
-The markdown amount for the vehicle is 378,100 pesos.
If a cell phone originally priced at 28,500 pesos is sold for 18,525 pesos, what is the markdown amount?
-The markdown amount for the cell phone is 9,975 pesos.
What is the new selling price of pants originally priced at 4,680 pesos when they are sold at a 25% markdown?
-The new selling price of the pants after a 25% markdown is 3,510 pesos.
How do you calculate the markdown rate for a wristwatch sold for 4,477.50 pesos when its original price was 5,970 pesos?
-The markdown rate for the wristwatch is 25%, calculated as (Markdown Amount / Original Selling Price) * 100.
What is the final selling price of an item originally priced at 40 pesos, marked up by 60%, then marked down by 25%, marked up by 30%, and finally marked down by 20%?
-The final selling price of the item after all the markups and markdowns is 49.92 pesos.
What is the markdown amount for an item originally priced at 64 pesos when it is marked down by 25%?
-The markdown amount for the item is 16 pesos, calculated as 64 pesos * 25%.

Outlines

00:00

📈 Understanding Markdown Strategy in Business

This paragraph introduces the concept of markdown in business as a strategy to reduce the prices of goods to match competitors or clear old stock. The markdown is calculated by finding the difference between the original selling price and the new selling price. The paragraph explains the importance of markdown for entrepreneurs and provides formulas for calculating markdown, markdown rate, and new selling price. An example is given where a vehicle's original price is significantly reduced, illustrating the markdown calculation process.

05:01

💼 Practical Examples of Markdown Calculation

The second paragraph delves into practical examples of calculating markdown and new selling prices using the provided formulas. It covers scenarios such as a cell phone's price reduction, important pants being sold at a 25% markdown, and a wristwatch's price reduction. Each example shows the step-by-step calculation of the markdown amount and rate, reinforcing the understanding of markdown's application in business. Additionally, a complex scenario involving multiple price adjustments over time for a wheat dreamer is presented, demonstrating how markdowns and markups can be applied sequentially.

10:02

🔢 Sequential Pricing Adjustments and Final Calculations

The final paragraph continues with the complex example from the previous paragraph, detailing the sequential pricing adjustments for a wheat dreamer over different months. It shows how a 25% markdown in July is followed by a 30% markup in September, and then another 20% markdown. The paragraph concludes with the calculation of the final selling price after all adjustments, providing a comprehensive example of how businesses might manage pricing strategies over time. The paragraph ends with a call to action for viewers to engage with the content by liking, subscribing, and staying updated for more video tutorials.

Mindmap

Keywords

💡Markdown

Markdown refers to the reduction in the original selling price of a product to a new selling price. It is a common strategy used by businesses to increase sales volume, either to compete with rivals or to clear out old stock. In the video, markdown is explained as the difference between the original selling price and the new selling price, and it is used to illustrate how businesses can adjust their pricing strategy to meet market demands or to sell off inventory that isn't moving as quickly.

💡Original Selling Price

The original selling price is the initial price at which a product is offered for sale. It serves as the starting point for any price reductions or markdowns. In the context of the video, the original selling price is compared to the new selling price after markdown to determine the amount of reduction and the markdown rate, as seen in the examples where prices of a vehicle and a cell phone are discussed.

💡New Selling Price

The new selling price is the price at which a product is sold after a markdown has been applied. It is the result of the business's decision to reduce the original selling price to stimulate sales or clear inventory. The video provides examples of how to calculate the markdown by subtracting the new selling price from the original selling price, which helps in understanding the financial impact of such a pricing strategy.

💡Markdown Rate

The markdown rate is the percentage by which the original selling price is reduced to arrive at the new selling price. It is a critical metric for businesses to evaluate the effectiveness of their pricing strategy. The video explains how to compute the markdown rate by dividing the markdown amount by the original selling price and multiplying by 100. This rate helps businesses determine how much they need to reduce prices to achieve their sales objectives.

💡Competitive Pricing

Competitive pricing is a strategy where businesses set their prices in response to the prices of their competitors. The goal is to offer products at a price that is attractive to consumers compared to what the competition offers. In the video, this concept is mentioned as one of the reasons businesses might use markdowns, to meet the prices of competitors and thus retain or gain market share.

💡Clearing Old Stocks

Clearing old stocks refers to the process of selling off inventory that has been sitting for a long time and may not be selling well. Businesses often use markdowns as a way to clear out these stocks to make room for new products or to free up capital. The video script mentions this as a reason for markdowns, highlighting the strategic use of price reductions to manage inventory effectively.

💡Calculating Markdown

Calculating markdown involves determining the difference between the original selling price and the new selling price. This calculation is essential for businesses to understand the financial implications of their pricing decisions. The video provides formulas for calculating markdown, which is the basis for understanding the cost and revenue aspects of price reductions.

💡Markup

A markup is the increase in price above the cost price or the original selling price. It is the opposite of a markdown and is used to increase the selling price for various reasons, such as to cover additional costs or to increase profit margins. In the video, an example is given where a product is first marked up and then marked down, illustrating the dynamic nature of pricing strategies.

💡Final Selling Price

The final selling price is the price at which a product is sold after all markdowns, mark-ups, and other pricing adjustments have been made. It reflects the culmination of a business's pricing strategy and is the price that consumers see and react to. The video script includes an example where a series of price changes, including markups and markdowns, lead to a final selling price, demonstrating the complexity of pricing decisions.

💡Price Reduction

Price reduction is the act of lowering the price of a product. It is a marketing strategy that can be used to attract more customers, increase sales volume, or clear out old inventory. The video discusses price reduction as a key component of markdowns, showing how businesses can strategically lower prices to meet their sales goals.

💡Pricing Strategy

Pricing strategy refers to the process of setting the price of a product or service, taking into account factors such as cost, market conditions, and competition. It is a fundamental aspect of business management that can significantly impact profitability and market position. The video script discusses various aspects of pricing strategy, including markdowns and markups, to provide a comprehensive view of how businesses can manage their prices effectively.

Highlights

Definition of markdown in business as the difference between the original and new selling price.

Markdown used to meet competitors' prices and clear old stock.

Formula for markdown: original selling price minus new selling price.

Calculating markdown from a given markdown rate.

Formula for new selling price: original selling price minus markdown.

Computing the markdown rate: markdown divided by original selling price times 100.

Example calculation of markdown for a vehicle.

Example calculation of markdown for a cell phone.

Example of calculating markdown and new selling price for pants with a 25% markdown rate.

Example of finding the markdown and markdown rate for a wristwatch.

Complex example involving multiple markdowns and markups on a wheat dreamer.

Final selling price calculation after a series of markdowns and markups.

Practical application of markdown formulas in business scenarios.

Importance of understanding markdown for inventory management and pricing strategies.

Encouragement to like, subscribe, and hit the bell button for more video tutorials.