Retail markdowns can be the difference between stale inventory and steady cash flow. When used with intention, they let you adapt to real-world sales patterns — whether clearing aging stock, responding to customer expectations, or staying competitive — while still hitting your revenue targets.
Learn what counts as a markdown, when and how to use one, and why price reductions are an excellent strategy for improving your bottom line.
At the most basic level, a markdown is a price reduction applied to a product to help it sell faster. Unlike promotions or conditional discounts (like senior or employee discounts), markdowns are straightforward, unconditional price cuts, and can be temporary or permanent.
For example, a grocery store might mark down perishable items nearing expiration, while a liquor store may slash prices on leftover holiday gift sets.
Not all retail markdowns serve the same purpose. Choose the markdown approach that fits the situation, depending on your goals and the type of inventory you’re managing.
The most common types of markdowns retailers use are:
These are short-term drops that create urgency and increase turnover. Examples include weekend sales, buy one, get one (BOGO) promotions, or coupons. In a convenience store, for instance, you might run a Friday-only energy drink promo to increase foot traffic.
You risk losing customers if your competitors offer the same items at a lower price. Price matching or short-term competitive markdowns can help you retain business. Tobacco retailers often do this to retain loyal buyers who shop around. For example, you could $1 off a popular cigar brand for the weekend if a nearby shop drops its price first.
These are often used for clearance or discontinued items. If you’ve got excess inventory or slow-moving stock keeping units (SKUs), marking down items permanently can help free up shelf space and reduce holding costs. For grocers, this might look like a discount on near-expiration items that aren’t turning over fast enough.
Implementing markdowns without solid numbers can upset your entire pricing strategy. If you don’t run the math, you risk shrinking your margins without realizing it. So, how do you know if a discount makes sense?
Start with a simple formula:
(Original Price – Sale Price) / Original Price x 100 = Markdown %
Let’s say you’re discounting a six-pack of sparkling water from $12 to $9 — that’s a 25% retail markdown.
Now check your cost of goods sold (COGS) — what you paid to make, acquire, and stock that item. In this case, it was $7.50. Since that’s your break-even point, the $9 discount still leaves you with a $1.50 profit per unit.
If your price dips below your COGS, you’re taking a loss. While that might be an acceptable trade-off when clearing expired or unsellable stock, it shouldn’t be your go-to strategy.
Your point of sale (POS) system can help you make pricing decisions based on actual numbers. With access to real-time margin data and sales trends, you can choose discounts that protect profit instead of undercutting it.
There’s more to markdown success than putting a discount sticker on a product and hoping it sells. Use these pricing strategies to do it right:
Use your POS system to review your inventory aging reports, sell-through rates, and category-level sales. If a specific item hasn’t moved in 30 days, it may be time to lower the price.
For example, a convenience store notices that it hasn’t sold a case of a certain bottled coffee drink in weeks. Markdown optimization kicks in — they discount it by 20%, and sales finally pick up.
Timing can affect the success of a markdown. U.S. non-grocery retailers lose roughly $300 billion annually to markdowns, most of which are due to misjudged demand and timing issues.
The best times to reduce the price of your goods depend on your industry. Grocers often reduce prices on fresh goods in the evening to clear out products before closing, while liquor retailers tend to drop prices on seasonal stock immediately after a holiday rush to make room for new inventory.
If markdowns follow a pattern, customers catch on quickly, and many will wait to make a purchase until they know a discount is coming. That habit can quickly undercut your full-price sales.
Switch up the timing and rotate which items get marked down, and avoid announcing discounts too far in advance to keep shoppers engaged and prevent pricing fatigue.
Small changes in how prices are framed can influence buying behavior. Use odd pricing like $3.99 to make items feel more affordable. Show savings directly — “Was $10, now $7.50,” gives customers a clear sense of value.
Bundles, such as “three for $5,” are also an excellent marketing tactic to increase overall basket sizes, especially in high-turnover categories like snacks and drinks.
You don’t have to discount the same products across all sales channels. If a product moves well online or at one store but not another, apply the markdown only where needed.
For vape retailers, this might mean discounting menthol cartridges by $2 at a suburban store where they’re not selling, while maintaining the full price online or at a high-traffic location. Tailored pricing helps you optimize your markdowns by location and customer behavior.
Pricing decisions work best when they’re grounded in numbers. With a reliable POS system, you have the tools to identify what’s moving and what’s not, and how markdowns affect your margins in real time.
Your POS system should help you:
The more insight you have into sales patterns and margin fluctuations, the easier it is to make timely, targeted, and impactful changes.
Retail markdowns clear space on your shelves, while giving you control over how and when products move. With some planning and the correct data, you can mark down strategically, protect your margins, and give customers a reason to come back.
Want to optimize your markdown pricing strategies? POS Nation connects small retailers with purpose-built POS systems designed for their industry. With solutions available for liquor stores, convenience shops, tobacco retailers, and grocers, you can apply markdowns intentionally, track what’s working, and match retail pricing to your goals.
Try our Build and Price tool to explore options that fit your business, and see how POS software can turn data into dollars.