What Scenario Should You Cost Your Fashion Product For?

As a start-up fashion brand, costing your product for the first time is one of the most challenging parts of your fashion business.

When you source a factory, you will have their costs for making both a small run of your product (i.e., 50 units) and a bigger run (i.e., 300+ units). The first season is experimental for many designers, and you might not know exactly how many orders you will get or how many units can you sell. So the big question is: Should you price your product based on the cost of a small run or the cost of a big run?

To better answer this question, let’s think about your business. As a start-up fashion brand, your first year in business is most likely going to be all about testing! This will be a test run for your concept, product, development, and production chain, etc. Realistically, you will most likely only start to see profit in your 3rd (or more) year, so these first years become about building your brand/ business, not about making money.

That same assumption should be carried into costing and pricing your fashion products. The first couple of seasons, you want to try and produce small runs, and therefore you will pay a high cost for production, resulting in your margins being far from where you would like them to be. Which by the way, is VERY NORMAL for any start-up business in any industry.

Therefore, when you cost your fashion products, you should start with deciding on your market position (in fact, that part should have been decided back when you created your business plan, but just in case you haven’t yet, now is the time to do so), and then decide on your retail price based on that market. Then open your cost sheet and cost the following two scenarios (this cost sheet format allows you to have 3 scenarios next to each other so you can see the full picture):

1. Low volume – this will reflect the cost of your fashion product in the short term when producing small runs (could be 30-50 or any other minimum units that you can do).

2. High volume – this will reflect the cost of your product in the long term down the road when your brand is built, and you will be able to produce the higher units (300 or probably more).

Now plug in your desired wholesale and retail prices into these two scenarios and see what kind of margins you get for both. 

Then look into the following:

• Make sure that when producing the lower units, you are not losing money and hopefully even make some (anywhere from 30% and up for wholesale, and 50% on DTC is typical for this stage)

• Make sure that when producing higher volume, your margins are where you need them to be so your business would be financially sustainable (normally for wholesale anywhere from 50% and up, and for DTC, 70% and up is good).

To sum this up, your goal when costing your product is to have a view of the different scenarios, your fashion business today, as well as 2-3 years from now. 

You want to make sure that your cost of production in the early stages allows you to stay in business. While at the same time, you want to see that when you build your production volume down the road, your cost will allow you to have the margins that you need to be a financially stable and profitable business. If neither of these two points is met, you will need to find a way to either adjust your product, adjust your costs, or adjust your wholesale/retail prices.

Need a cost sheet? Click here for our cost sheets. They are simple excel sheets, and they include built-in formulas for the 3 scenarios.

Need more help with costing and pricing your product? Check out our Costing workshop here or click here to book your one on one costing session.