No word is more important to retailers than Margins. If you’re building a profitable retail business, especially one that scales past a million dollars, a sustainable margin is like oxygen.

Margin is what allows you to:

But here’s the problem: it’s often misunderstood, and because of that, store owners unintentionally price in a way that keeps them stressed, cash-tight, and overworked

What is Margin?

Margin refers to the retail term Maintained Markup (MMU) which is the same as the general accounting term Gross Margin.  It is the difference between sales and cost of goods sold and is always discussed as a percentage.

Gross margin measures how much of every sales dollar a store keeps to pay for everything other than inventory. 

The Difference Margins Make

For example, if a store has a 48% gross margin, that means that out of every $100 of merchandise bought in that store, $52 goes to pay for the inventory and $48 goes to pay for everything else. 

This equation is the math that makes retailers money.  To build a more profitable business, a retailer must increase gross margin.

What Increases Gross Margin?

The best strategy to increase gross margin is to increase initial markup when pricing items.

Initial markup (IMU) measures the amount of potential profit in the retail price of inventory.  It is the difference between what an item costs from the vendor and what the retail price is that consumers pay. It is always discussed as a percentage.

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

IMU in Action

Consider two stores that are doing the same sales volume of $400,000 and taking the same percentage of annual markdowns. 

Clare uses a 50% initial markup, which means that she takes a ball with a $10 cost and marks it up to $20.  Not everything sells at full price, so the amount of gross margin that remains after considering markdowns is about 44 percent. Think of it this way.  For every $100 that she brings in, $44 goes towards paying for everything else and $56 goes to pay for her inventory.

Brooke has set her initial markup at 60 percent.  She prices that same $10 ball at $25 retail.  After markdowns, her gross margin is 55.6 percent. For every $100 that she brings in, $55.60 goes towards paying for everything else and $44.40 goes to pay for her inventory.

The Math That Makes You Money

Let’s look at that again. 

They both make $400,000 sales in a year. 

They have the same markdown percentage for the year.

Clare’s gross margin is 44%.  Brooke’s gross margin is 55.6%.

Clare puts $44 in the bank for every $100 that sells, after paying for her inventory.  

For every $100 that Brooke sells, after paying for her inventory she puts $55.60 in the bank.

After paying for her inventory, Brooke puts $11.20 more in her bank than Clare does.  

Brooke’s gross margin is higher because her initial markup is higher.

The dollar impact of a higher gross margin is determined by multiplying the sales by the gross margin percentage difference. 

$400,000 x 11.2% = $44,800

At the end of the year, Brooke has an extra $44,800 in her bank account.

Brooke banked that additional $45K because she followed the strategy of increasing her initial markup so that the average markup of her entire store is 60 percent.  The key here is that it is the AVERAGE initial markup.  Some items have their retail price determined by manufacturers.  Other items are marked up higher. Brooke has set a goal that every month she reviews the cost and retail of the inventory she has brought in so that the total of all reaches a 60 percent initial mark up.

An easy way to increase your profitability is to increase your gross margin by increasing your initial mark up. 

The shortcut to increasing initial markup is to look for items where the cost can be multiplied 3 or 4 times. This action creates an IMU of 66 to 75 percent.  The risk is minimal because even when marked down there is still so much gross margin available.

This is why richer retailers:

It’s not magic. It’s a system.

Why This Matters Even More Right Now

You have not been imagining it: The cost of doing business is rising.

So many tools that used to be one-time purchases are now subscriptions. Payroll pressure is real. Expenses keep creeping.

That’s why we’re increasingly suggesting some retailers aim closer to 65% IMU where appropriate because you deserve a business that pays you, not one that keeps you stuck.

Your Millie Moment:

  1. Choose one category where customers buy for value (not price comparison) and raise markup strategically
  2. Calculate your average IMU on what you bought this month (yes this month)
  3. Set a monthly review habit so markup becomes something you manage, not something that happens “by accident”

Because you deserve a raise.

Resources and Links: 

Join the community with ambitious store owners in our Richer Retailer Facebook Group

💚 Remember: You are not “bad at retail” because profit feels hard. You’re building something real for your community, and you deserve a business that takes care of you, too. Every time you price with intention, protect your margin, and lead with numbers instead of fear, you’re choosing freedom, one smart decision at a time. You are worth that extra $11.60. You’re worthy of rest. You are worth profit. And you are loved.