How do you calculate the initial markup percentage for a new product line?

2 How to calculate IMU for a new product line?

To calculate the IMU for a new product line, you need to know two things: the COG and the planned retail price, or PRP, for each product. The COG includes the purchase price, freight, duty, and any other costs associated with acquiring or producing the products. The PRP is the price you intend to sell the products at, based on your target market, positioning, and value proposition. The formula for IMU is:

IMU = (PRP - COG) / COG x 100%

For example, if you buy a dress for $50 and plan to sell it for $150, your IMU is:

IMU = ($150 - $50) / $50 x 100% = 200%

This means you are marking up the dress by 200% above the cost, or by $100.

3 How to set the optimal IMU for a new product line?

When deciding on the optimal IMU for a new product line, there is no one-size-fits-all answer as it depends on various factors such as target market, competitive landscape, product category, quality, and demand. However, some guidelines to consider are researching industry standards and benchmarks for the product category and segment, evaluating your target customer's price sensitivity and willingness to pay, setting an IMU that allows you to achieve desired sales volume and gross profit while covering expenses and overheads, and considering inventory and markdown strategy. This will ensure you offer value and quality without overpricing or underpricing your products, as well as give you enough room to adjust prices in case of slow sales or seasonal changes without eroding profit margin.

4 How to monitor and adjust IMU for a new product line?

Once you have set the IMU for a new product line, it is important to monitor and adjust it regularly based on sales performance and market feedback. To evaluate and optimize your IMU, you may want to consider the sell-through rate, markdown percentage, and gross margin return on investment. A high sell-through rate indicates strong demand and customer satisfaction, whereas a low sell-through rate means slow sales and excess inventory. If your markdown percentage is high, this could mean high price sensitivity and competition, in which case you may want to decrease your IMU. Additionally, if your GMROI is low, this could indicate low productivity and profitability; thus, increasing your IMU may be beneficial. On the other hand, if your GMROI is high, you may want to maintain or optimize your IMU.