Costing: In's & Out's
Costing is a crucial part of your line: if you don’t cost your line correctly, you will not make a profit. But before you can actually price your line, you need to know the costs that go into it (see list below). You need to keep your anticipated final cost in sight when determining how much to pay for sourcing and manufacturing. If you don’t lose sight of your price range throughout the production process, you will be able to cost your line successfully and ensure profit.
The recommended method of costing for a start up manufacturer is to simply make your wholesale price double your costs. This results in a 100% mark up or a 50% gross profit margin. For example, if an item costs $100 and sells for $200, the initial percentage mark up is 100% and the gross profit margin is 50% ($100 div. by $200 = 50%). Don’t lower your Gross Profit Margin to less than 40% or chances are you’ll be losing money. If you start production and manage to keep your costs even lower, your margins will increase. Be sure to monitor all costs involved with producing your product.
Costs Can Include:
- Fabric (including allowances)
- Trimmings (including allowances)
- Operational costs
- Design development
- Labels & Hangtags
- First patterns
- Production patterns
- Quality control
- Charge backs by retailers if product doesn’t sell
Within this group of costs, and for production purposes, there is a need for a separate cost sheet that applies ONLY to garments. This cost sheet shows how much it actually takes to produce the garment, from trimmings to labor.
A Basic Cost Sheet Should Have The Following Elements:
- Front and back flat sketch of garment
- Swatch of fabric and trimmings (if used)
- Materials costs
- Trimmings costs
- Labor costs
- Total costs
- Selling (wholesale) price
Learning the Costing in’s and out’s will help bring success in your fashion business!