Clearing stock
Which stock should I discount first?
Start with stock that isn’t selling at all, and within it the products with the most cash tied up. Stock that still sells, only too slowly, comes after that, and it usually needs less reordering rather than a discount. Leave out anything new.
The order to work in
- Stock with no sale in 90 days, most cash first. Multiply units by cost price on each product and start at the top. Nothing here is selling, so a discount gives away no margin you would have earned. Here’s how to make that list from your exports.
- Stock that sells, but too slowly, most cash first. That’s more than a year of stock at the rate it sells. Stop reordering and let it run down, and mark it down only if you need the cash sooner.
Two things stay off the list. Anything you added in the last 90 days isn’t dead, it’s new. And a product you’ve run out of holds no cash, so there’s nothing to get back.
A product with no cost price can’t be ranked. Keep it at the bottom of its group, with no value beside it rather than €0, until you find what it cost.
What that looks like
| Product | Units | Cost | Cash |
|---|---|---|---|
| Not selling at all | |||
| Wool coat, navy, M | 12 | €54 | €648 |
| Canvas tote, black | 30 | €9.50 | €285 |
| Linen shirt, white, L | 8 | no cost price | no value |
| Selling too slowly | |||
| Leather belt, brown | 80 | €14 | €1,120 |
The belts hold the most cash and still come last. They’re selling, so they need less reordering before they need a lower price.
How much should I take off?
First work out what the discount has to do. It comes straight off your margin, so you have to sell more units to make the same profit:
Units needed = margin ÷ (margin − discount)
Both are shares of the full price, and the answer is how many times as many units you need to sell. A made-up example: a jacket sells for €100 and cost you €50, so you keep €50. Take 30% off and it sells for €70. It still cost €50, so you keep €20. To earn the same €50, you need to sell 2.5 jackets for every one you sold before.
Try your own margin
You need to sell
2.5 times as many
50 ÷ (50 − 30) = 2.5
Nothing here leaves your browser.
| Margin | Discount | Units needed |
|---|---|---|
| 50% | 20% | 1.7 times as many |
| 50% | 30% | 2.5 times as many |
| 40% | 30% | 4 times as many |
| 50% | 50% | no profit at any volume |
When is a discount worth it?
That sum is the bar for stock that’s already selling, where a discount mostly gives away margin you would have earned.
Stock that hasn’t moved has no sales to protect. Say 60 of those jackets haven’t sold in 90 days. At full price they bring in €0. At 30% off, if they all sell, that’s €4,200 back in the bank for the stock that does sell.
Same 30%, very different decision. And if a discount won’t shift it, you can still bundle it, send it back to the supplier or write it off.
See this order in the tour’s Clearance list, on an example shop. It starts at 180 days rather than 90: there’s no official cut-off.