A Retailer’s Guide to Margin: What Retailers Need to Know to Build a Profitable Business

There is no word more important in retail than margin.

It’s the number that determines whether your business fuels your life… or slowly drains it.

And yet, it’s also one of the most misunderstood concepts among store owners.

If you’ve ever felt like you’re “busy,” selling plenty of product, and still wondering where the money went — this is where the answer lives.

What Gross Margin Really Means

In retail, we often talk about Maintained Markup (MMU). In accounting terms, that’s your gross margin.

Gross margin is the difference between what you sell your inventory for and what that inventory costs you. We always express it as a percentage because it tells us how much of every sales dollar stays in the business.

Calculating gross margin

If a store has a 48% gross margins, here’s what that means in real life:

For every $100 a customer spends:

  • $52 goes to pay for the inventory

  • $48 is left to cover everything else — payroll, rent, marketing, systems, profit, and your paycheck

This is the math that determines whether your store can grow sustainably.
And if you want a richer business — one that supports you instead of stressing you — this is the lever you must learn to pull.

The Fastest Way to Increase Margin

The most effective way to increase gross margins is to increase Initial Markup (IMU).

Initial markup measures the potential profit built into your pricing before markdowns ever happen.

IMU Formula:
Initial MarkUp % = [(Retail Price – Cost)/Retail Price] x 100

This is where leadership shows up — because pricing is a decision, not a hope. Scared of raising your prices? Check out this post.

Why Richer Retailers Should Aim for a 65% IMU

Let’s look at two store owners with the same annual sales and the same markdown behavior.

Both stores do $400,000 in annual sales.

Clare prices inventory at a 55% IMU (cost of product ÷ 0.45)
Brooke prices inventory at a 65% IMU (cost of product ÷ 0.35)

After markdowns:

  • Clare maintains a gross margin of approximately 43%

  • Brooke maintains a gross margin of approximately 50%

Now look at the difference.

For every $100 in sales:

  • Clare keeps $43 to run her business

  • Brooke keeps $50

That’s $7 more per $100 — without selling a single additional item.

Over a year:
$400,000 × 7% = $28,000

Brooke ends the year with $28,000 more, simply because she built stronger margin into her pricing from the start.

Same effort.
Same sales volume.
Completely different financial reality.

The Key: Average Initial Markup

This does not mean every item must be priced at a 65% IMU.

Some products have fixed pricing. Others don’t.

Strong retailers manage the average initial markup across the entire store. That means intentionally balancing:

  • Items you can price higher

  • Items with tighter margins

  • Monthly reviews of cost vs. retail on incoming inventory

This is what Richer Retailers do differently: They don’t leave margin to chance.

The Margin Shortcut Smart Retailers Use

One of the easiest ways to raise your average IMU is to intentionally source items priced at 3x–4x cost.

These products carry IMUs in the 66–75% range, which gives you:

  • Protection when markdowns are necessary

  • Flexibility during slow seasons

  • A “cushion” when costs rise unexpectedly

This is strategic pricing — and it’s one of the key reasons some retailers thrive while others constantly feel behind.

If margin feels tight, the answer usually isn’t “sell more.”
It’s price smarter.

That’s how retailers stop surviving, and start leading.

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