When you have reached this far in your project to start an apparel brand it is time for a reality check. In our article Piggy Bank Check. Get on the numbers, we talked about estimating the cost for your sportswear apparel brand. At this point you have gathered a lot more information and concrete costs. You know which garments your collection is based on, you know the price for fabrics, trims, and production including prototypes. With this new information that you didn’t possess when you started out, you can remake a more accurate budget. When making the business plan you thought of the price level you wanted to place your clothing brand at. So let’s see if that is realistic.
Your price is the sum of your costs and profit:
Cost + Profit = Price
In your budget you have all types of expense posts related to overheads, administration, samples, production, sales, and marketing. In the end it is the profit from the garment sales that should cover all those costs. Just looking at the pure production cost you have everything from pattern making to fabrics and trims. To help you keep track of all costs associated with producing each style you use a costing sheet. Here you note down the costs of all components in the garment. Fill out a costing sheet for each item already from the start. It will be a vital tool to run and adapt your business financially, so that you are in full control of the production costs. Get our costing sheet template to see all components you need to incorporate in your calculations and to be on top of your costs.
When talking to manufacturers they will give you the production cost using different terms. Let’s take a look at the most common terms so that you understand what the price covers:
CMT -Cut Make & Trim
Cut -the supplier cuts the fabric and then bundle by style, size, and color
Make -the different sewing steps
Trim -the finished products are trimmed and packed for shipment.
CMT doesn’t include fabrics, accessories and transport.
FOB -Free On Board
FOB includes all charges for making the garment and the transportation to the shipping port. It does’t include the shipping, duty, or other costs from that point on. FOB includes fabrics, accessories and in some cases product development.
COGS -Cost of Goods Sold
includes all expenses related to producing the sportswear garment. This include construction, materials, grading, and shipping.
You must make a profit, otherwise you will have an expensive hoppy and not a business. We are elaborating more on this subject in 5 Steps To Make A Profit.
The markup depends on your negotiation skills and also on the type of apparel you are making. But a typical industry example looks like this: the wholesale price is twice the production cost, and the retail price is twice the wholesale price.
When talking garment price you have to differentiate between the two following prices:
The price your retailer is buying your garment for. Since it is a business to business transaction it is mentioned without VAT.
The final price that the end customer buys the product for. This is including VAT.
How do you calculate the retail price? Read our article Sportswear Pricing Strategies to look at different options to determine you price. It takes a look at three different strategies with the advantages and disadvantages. Again, you can use the costing sheet to calculate the garment retail price based on the production costs.
Do the numbers add up for you? Does the retail price match the quality of your garment? Do the garments look the price? Go back and see if there are any costs you need and can affect in order for ends to meet. See that the price matches the product quality and that you make a profit in order to reinvest in your project. You are doing something you love so make sure your business is sustainable.
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