Margin vs. Turnover Rate: how to referee
Fabrice Decroo
Director of Consulting
August 17, 2026
Maintaining a high price protects the unit margin but slows sales; marking down quickly speeds up sales but erodes the margin. The right balance is calculated, not guessed.
The total annual cost of holding inventory—including capital, storage, and obsolescence—averages 20 to 30 percent of its value.
Holding onto a price for longer protects the unit margin —but slows down sales. Cutting prices quickly and aggressively speeds upsales —but erodes the margin. This guide explains how to navigate this trade-off and make informed decisions rather than choosing at random.
Two goals that pull in opposite directions
Holding onto a price for longer protects the unit margin—but slows sales, with the risk of ending the season with a large amount of leftover inventory. Marking down quickly and aggressively speeds up sales—but erodes the margin on units that might otherwise have sold at full price.
There is no one-size-fits-all answer to this trade-off: it depends on the product’s shelf life, the actual cost of keeping it in inventory, and what happens to it if it doesn’t sell in time. It is this last variable—the cost of tied-up inventory—that is most often underestimated.
Inventory tied up in inventory costs more than it seems
The listed price is only part of the equation. Inventory that remains on the shelf or in the warehouse continues to cost money every week, even if no sales have been made. According to the Council of Supply Chain Management Professionals (CSCMP), in its annual report on the state of logistics, the total cost of holding inventory—tied-up capital, storage, insurance, and obsolescence—averages 20 to 30 percent of the inventory’s value per year.
In addition to the value of the inventory, there is the total annual cost of holding it (tied-up capital, storage, insurance, obsolescence), according to the Council of Supply Chain Management Professionals—a cost that accrues every week the product remains unsold.
In practical terms, a product with a 20% margin that remains in inventory for six additional months may have already incurred, in pure carrying costs alone, more than what a reasonable price reduction would have cost in immediate margin. It is this calculation—which is rarely performed as a matter of routine—that should guide the decision to mark down a product, rather than simply the intuition that “it will eventually sell.”
What to Consider Before Making a Decision
- Actual sales rate: the percentage of inventory sold during a given period, relative to the target required to sell the inventory by the deadline.
- Weekly carrying cost: the cost, each week, of keeping the product in inventory rather than selling it.
- The disposal value if the product remains unsold: liquidation, donation, destruction—each has a very different residual cost, which must be anticipated before the end of the season.
- Price elasticity of the category: the extent to which a price reduction actually boosts sales of this specific product—a topic we've already covered in detail in our article on price elasticity.
A Simple Way to Decide
Calculate the break-even point for waiting
Compare the weekly holding cost to the expected profit margin gained by keeping the price at full price for another week.
Set a sales target, not just a price
Set the percentage of inventory that should be sold at each milestone during the season, and let the price adjust to meet that goal.
Simulate before marking
Quantify the expected impact of a price reduction on both volume AND margin—see our article on how a pricing tool works.
Review the arbitration at each milestone
Do not set a price for the entire season; instead, reassess the gap between actual and target sales at regular intervals.
The most common mistake: relying solely on the displayed margin
A pricing decision that protects the stated unit margin can, in reality, destroy more value than a more aggressive markdown—if it allows inventory to pile up and drive up carrying costs, only to be liquidated in a rush at a price far worse than what an early markdown would have achieved. Managing inventory based solely on the stated margin, without factoring in the cost of time, is tantamount to ignoring half the problem.
Before deciding whether to keep the price the same or to lower it
- Have I calculated the cost of holding this inventory over the coming weeks?
- Will my current sales rate allow me to reach zero inventory by the deadline?
- Did I simulate the impact of a price reduction on both margin AND volume, not just one of the two?
- Have I estimated the residual value if this inventory remains unsold?
Frequently Asked Questions
The questions we're asked most often before getting started.
It depends on the cost of holding inventory relative to the expected profit margin while waiting. A specific calculation—not just intuition—must determine the optimal decision on a product-by-product basis.
When factoring in tied-up capital, storage, insurance, and the risk of obsolescence—the total annual cost is estimated to be between 20 and 30 percent of the inventory's value.
Not necessarily: Achieving 100% clearance through excessive markdowns can cost more than keeping a small amount of inventory to be donated or sold in a targeted clearance sale.
Ideally, by product code, since two products in the same category may have very different sales patterns.
Sources: Council of Supply Chain Management Professionals (CSCMP), Annual State of Logistics Report — cscmp.org · Booper product data (GENIUS Promotions module, margin/volume impact simulations).
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