Setting the initial markup unit (IMU) of an item isn’t always science. In fact, it’s more of an art in most cases. However, your goal shouldn’t be to get the highest markup possible. Instead, you should think of ways to maximize the bottom line of your retail operation.
Put simply, an extremely high IMU could reduce your sale, while an extremely low IMU won’t help you generate adequate sales for covering operational costs.
Key Points When Setting an IMU
- Calculate and manage IMUs for different items, specifically by classification and category in your inventory. You might get an IMU of 40% in some categories, while you could get as high as 70% on some. Be wary of positioning your business as an expensive shop in the marketplace.
- Buy at “closeouts.” Many vendors put their items on sale at the end of every season so they could move their inventory along and introduce other seasonal items. Purchasing closeouts would enable you to buy items at heavily discounted prices, while still allowing you to use the same IMU. For instance, if an item was priced at $50 and you bought it at $20 during a closeout, you could still sell it at $40 or sell it as a sale item (about $30) and still get profit. This is because your IMU depends on the closeout price, not the $50 original cost.
- Consider new suppliers. If you sell the same items as your competitors, you should also implement the same selling prices. If you sell unique items, you could use a higher IMU because you’re not competing with anyone or everyone.
- If you implement competitive pricing, which is simply pricing items lower than the price offered by your competitors, consider competitor price monitoring software and related solutions to help you.
Your set initial markup price could make or break your business bottom line. The survival of your retail operation depends significantly on the price at which you purchase items from vendors and how much you sell those items to your customers.