Garment Costing: How to know you've got a fair price.
As a fashion startup, it can be pretty overwhelming to look at a cost sheet for the first time. There’s a lot of foreign information and data for example; 2-3 currencies, different consumption measures and fabric weights etc and all you will be wanting to know is; Is this a fair price for my product?
So let me help you to break down what a cost sheet actually means by highlighting the most important sections and explaining which pieces of data you need to pull out of it.
Finally, once you feel comfortable with a costing sheet I will teach you how to know if you’re getting a fair price by showing you how to calculate your landed margin.
Once you’ve worked this out, you will then have the knowledge and confidence to go back to your supplier and challenge your cost if neccessary.
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What is my product costing sheet actually telling me? What key sections should I be looking out for?
So let’s just pretty much get stuck straight into looking at a costing sheet!
So here we go.
This is a costing sheet here’s an example of what one looks like.
So, yeah, so it’s not too scary! The top section has all of your product information – normally there’s an image to remind you of what product is, the style number, how much quantity you’re asking for, et cetera. So that’s just simply an explanatory top section.
Then the bit that you really should be studying, looking out for is this section. So as you can see the normal broken into stages.
So the first one is simply looking at the fabric.
So how much does the fabric cost and actually how much does it cost to make it? This is all about the fabric and the make the next bit is any of the added extras.
So the buttons and the zippers, um, packaging label.
So all of the added extras have gone on top of the fabric and the make to actually make your garment.
This is looking at a Chinese supplier, so always be aware of your currency, but generally, these costing sheets should convert into your currency, a local exchange rate.
So this shirt is overall costing 74 RMB. Is that good? Does that scream alarm bells immediately as a quick sanity check?
Overall it’s $29 Australian dollars to make this shirt.
You’d already be starting to think. Hmm. I knew I was thinking of selling this for 99. Therefore does a third seem reasonable?
As an immediate summary, that’s coming close to 70% margin.
That’s not too bad.
So you’d be looking at any of these entries to say, okay, a dying surcharge is your government died?
Yes. Okay. That’s not that bad.
Why is there a surcharge of 80 cents per unit? That’s not too, um, too high, so that’s okay.
So pretty much you’d be looking at the cost of any of the really high price points.
So here would be 61 RMB for the fabric. Does that seem reasonable? Is it a special fabric is polyester.
So that would be something you’d check.
And also you’d run down any of these to make sure that do you have adjusters in your design, make sure that they haven’t added something on there that wasn’t in your design spec.
So this is pretty much where line by line you would do a sanity check to make sure that everything you asked for has actually been costed and it’s reasonable.
Also, you check the overall consumption in meters to, to seem, does that seem accurate? Was there a lot of fullness in your shirt, which here we can see the pleating and there’s quite a fabric, therefore, two meters, it seems reasonable consumption?
So pretty much you just check everything you’ve asked for and check the pricing against it.
But pretty much overall, you’re looking to pull out this total cost price. So to produce this shirt it’s actually costing you $29 if you produce a thousand pieces. So that’s another kind of critical check for how many units are they quoting you for that cost price. So if you then place less, no doubt your price will go up. What is that price?
And if you’re not happy with any of them, ask a question. To find out, get, get a reason as to why also if you know that that’s high, um, cost, but the fabric, what can you do to the design to say, remove the full list, that types of the next step questions that you need to be pretty much answering.
How to know if that’s a good price for my design?
Okay, let’s move to the next step.
So now you know what a costing sheet looks like. You understand you’ve got a cost per unit. So now you need to actually understand if that’s actually a good price. So the only way to do that is to run a calculation, looking at the selling price, all of the other costs.
So the cost of freight duty, et cetera, all of the costs that it’s going to cost you to produce, to ship, to deliver that item. And check that you are making money?
So that’s the only way to actually know if that’s a fair price that you have been quoted for.
These are the costs that you now need to find out for your fashion brand:
- Duty % (check per product type)
- VAT / Taxes % (is it applicable to you?)
- Cost of freight?
- Any storage/warehouse costs?
- Any labelling/packaging costs?
- Any additional costs?
So these are pointers for you to go and find out the answers.
So this is a collection margin calculation sheet.
So what this is doing is pretty much looking at all of the costs that we just told about all of those costs are here across this top section and item by item. You’re going to now be able to work out the landed margin based on your cost of goods, plus all of the costs.
So you need to pretty much create a similar template to this. And what you’re doing is looking at the sale price. So what you think it’s worth retailing app and. Would stripping out all of your costs, actually how much money it’s going to make you, what is the landed margin in this scenario?
So this is the only way to accurately check that the cost of goods, a fair price.
Based on your proposed sell price in this scenario is 80. Your cost of goods is 49. Is that actually a fair sale price? So let’s say if you still think it’s a fair sale price, then do you need to increase your retail price to make a better margin?
So here we can see that I’ve actually given you a goal to work towards.
It’s pretty much to be profitable in your own direct to consumer sales, as well as your third party, your wholesale sales, you need a collection average of 70% margin to be profitable.
So pretty much right now, this shirt is my made-up example. You either need to increase the retail price. Or you need to decrease the actual cogs, the cost of goods.
So therefore you would revert back to this and see what you can change with the design or push back to the supplier to reduce these costs.
So this is now how you work out. Is that a fair price and how much money you’re actually making?
Finally, I want to share some costing tips with you ...
- You need to ensure that the overall collection hits a target margin and not get stuck on those that are under margin.
- Remember there will be products with high margins too!
- Use your margin calculator template as a working sheet.
- Discuss your final RRP choice with others to make sure it’s right.
- Share this sheet with your supplier and add in target cost prices for them to follow.
- Costing can takes weeks, so start the process as early as you can, and chase the costs in weekly.
Did you know that ... We produce NEW content every week on Fashion Insights?
One final thing I want to mention is we have a weekly blog called fashion insights, which is updated weekly with loads of content, for fashion startups.
So things that we discussed are;
- What steps you need to take to launch.
- What does a profitable product look like? How do you work that out? How do you actually produce it?
- How to actually launch and then how to scale immediately upon launch
- Loads of sales, marketing methods for you as a fashion startup.
So that’s just some of the topics that we cover every single week.
So definitely go and check out the links on the page.
I hope that now it’s giving you an understanding of what a product costing template a sheet looks like. And it’ll now give you the confidence to work out whether or not you have a fair price for your product in your first collection.
If you have any questions, please get in touch and yes, we will speak soon. Thank you. Bye.