Focus on initial markup for retail success.
If you’re an independent retailer looking to boost profits, there’s one critical number you need to focus on: initial markup (IMU).
Understanding and optimizing IMU is the key to sustainable success in your store.
Let’s dive into what IMU is, why it matters, and how you can use it to grow your business.
Understanding IMUIMU is the percentage difference between the cost of an item and its selling price. It’s the markup you assign to a product when pricing it for sale. IMU ensures that your pricing covers both your operating expenses and profit goals. Without the right IMU, even high sales volumes can leave you struggling to make ends meet.
For example, if an item costs you $40 and you price it at $80, it means your IMU is 50% (the markup represents 50% of the selling price). We recommend that you work to get the average IMU for your whole store to 60%. To do this, you want to use a 2.5x multiplier (cost x 2.5).
"Understanding and optimizing IMU is the key to sustainable success in your store."
IMU covers operating costs, ensuring your pricing accounts for rent, salaries, utilities and other expenses. It also drives profitability. A higher IMU means higher gross margins, giving you breathing room for promotions and markdowns.
When your prices are set correctly from the start, you’re not relying solely on sales volume to stay afloat.
Increasing IMUThere are some strategies to increase your markup that will have an immediate impact on your sales. First, update pricing on any products with an IMU of lower than 55%.
As new shipments arrive, raise your prices on the new products and match any products already in the store. Train your staff to focus on selling value, not price. When your team communicates the benefits of a product, customers are less likely to resist higher prices.
Every store has some items where you can’t increase your IMU because of MAP pricing (pet food, books, etc.), which is why we look at your IMU as an average for the whole store. It’s imperative that you find products that you can get more than 60% IMU on to compensate.
Take actionFinally, calculate IMU for your top 10 products. Identify at least one product where you can increase the price based on perceived value.
I offer a free guide to ensure your pricing aligns with your profit goals. Mastering your initial markup is the first step to taking control of your store’s profitability. Start today and watch your profits grow!
Cathy Donovan Wagner helps store owners scale sales past 7 figures. Check out her Richer Retail Podcast: www.retailmavens.com/richerpodcast.
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