Need help with Walmart analytics? Our team is here to support you! For a free consultation, click to set up a call with 5G Consulting.
Whether you’re new to retail math calculations or just need a refresher on a few terms, this list of commonly used formulas will help. Simply click on a term to jump to the section you need:
Acid-Test Ratio
Formula: Current assets – Inventory / Current liabilities
Use: The acid-test ratio calculates if and how a business could meet their short-term financial obligations if all sales ceased. This formula is commonly used by financial institutions in determining how easily a business could be liquidated.
Average Dollar Sales (ADS)
Formula: Total Sales Revenue / Number of Transactions
Use: The average dollar sales calculation shows the relationship between average amount spent versus number of transactions. ADS can help gauge how much the average customer spends per visit. This formula can help determine how well your business is converting foot-traffic or site visits into sales.
Average Unit Retail (AUR)
Formula: Net sales (or total revenue) / number of units sold
Use: AUR tells you the average selling price of an item over a set time period. It is used to gauge item performance and sales strategies across multiple areas or categories.
Break-Even Point
Formula: Fixed costs / (selling price per unit – variable cost per unit)
Use: The break-even point shows the minimum sales a business needs to cover its costs. This formula is imperative for setting pricing, projecting sales targets, and operating the business profitably.
Conversion Rate
Formula: (Number of people who took desired action / total audience) × 100
Use: Conversion rate shows you the percentage of potential customers who completed a specific action (clicking a link or button, filling out a form, downloading a file, etc.). The conversion rate helps you decide which marketing channels produce the best results. You will also see parts of the marketing process that slow or stop potential sales.
Cost of Goods Sold (COGS)
Formula: (Beginning inventory + purchases) – ending inventory
Use: COGS gives you the cost of producing or acquiring your items before marking them up for sale (i.e., packaging, shipping, raw materials, labor, etc.). Using this formula in your planning will show you cost-saving opportunities. It also helps you calculate other metrics like gross profit.
EBITDA
Formula: Net Income + Taxes + Interest Expense + Depreciation and Amortization
Use: EBITDA, which stands for Earnings Before Interest, Taxes, Depreciation, and Amortization, measures a company’s profitability and operating performance. It shows how much profit a company generates before accounting for financing costs (interest), taxes, and the depreciation and amortization of assets.
GMROI
Formula: Gross profit / average inventory costs
Use: GMROI (Gross Margin Return on Investment) calculates how much profit is made for each dollar invested in inventory. It uses all product-related costs to show the inventory profitability. GMROI is very important in evaluating product performance by detailing which products give you the most profit per inventory dollar.
Gross Margin
Formula: (Net sales – gross profit) × 100
Use: Gross margin is formulated to present profit as a percentage of net sales. Gross margin is a very important retail math calculation because it helps you manage costs.
Gross Profit
Formula: Revenue – COGS
Use: Gross profit is the amount leftover when you subtract the cost of goods sold from your total revenue. It tells you how much money you have after paying for a product’s expenses.
Inventory Turnover
Formula: Net sales / Average retail stock
Use: The inventory turnover calculation shows a vendor how many times the retailer sells and replaces its inventory.
Margin
Formula: (Retail price – cost) / Retail price
Use: Margin shows you the amount of gross profit your company earns after selling your items or services.
Markdown
Formula: (Original Price – Sale Price) / Original Price x 100
Use: The markdown on an item is the percentage decrease in price for the item after the price has been lowered.
Markup
Formula: (Retail Price – Cost) / Cost x 100
Use: The markup on an item is the percentage increase from its cost to its selling price.
Net Sales
Formula: Gross sales – Returns and allowances
Use: Net sales shows a business’s total revenue less all discounts, returns, and allowances for damaged or missing products.
Open to Buy
Formula: Planned sales + Planned markdowns + Planned end of month inventory – Planned beginning of month inventory
Use: The open to buy calculation is used to help companies manage and replenish inventory. It shows the difference between the amount of inventory a business needs versus the amount available.
Operating Expense Ratio
Formula: (Operating expenses / Net sales) x 100
Use: The operating expense ratio formula shows how much of a company’s net sales goes toward operating expenses. This calculation is used for financial planning, annual budgeting, and helps companies improve their operations to grow profit.
Sell Through Rate
Formula: (Number of units sold / initial inventory quantity) x 100
Use: Calculating the sell through rate is imperative in understanding the selling efficiency of items. This formula is a must for proper inventory management. When used in supply chain planning, it helps retailers adjust inventory levels to lower holding costs and identify the best assortment of products.
Shrink or Shrinkage
Formula: [(Recorded inventory – actual inventory) / recorded inventory] × 100
Use: Shrink (usually caused by theft, processing mistakes, damaged freight, fraud, or administrative errors) happens anytime the actual physical inventory is less than what reporting shows.
Stock Turn Rate
Formula: Cost of goods sold / average inventory value
Use: Stock turn rate helps in planning restocking strategies. This calculation aids retailers in holding a healthy amount of stock and keeping holding costs down. In the long term, understanding the stock turn rate can help avoid overstocks or outs.
Weeks On Hand (WOH)
Formula: Current Inventory / Average Weekly Sales (or use)
Use: The weeks on hand metric shows how long current inventory will last based on the average weekly sales or use. The lower the WOH, the more efficient the inventory management. A high WOH may indicate excess inventory or supply chain issues.
Learn More From 5G!
Our team at 5G Consulting helps suppliers each week with their supply chain, ecommerce, lowering deductions, and more. Questions about retail math formulas or how our team can elevate your business? A consultation is absolutely FREE!