Before your team starts designing for a new set of product proposals, they should be aware of various costing requirements for each garment. I have used a few basic ratios to come up with target costs in my career, and I always work backwards.
Start out with the retail price you plan to use for selling your garment to customers. You’ve done your Competitor Research already, so you should know at what price range other brands are selling similar pieces. From there, you can start to decide if your brand’s garment should be priced the same, higher or lower. For example, we’ll go back to our tech tee examples. If a brand you admire is selling their tech tee for $50, but you know that you want to use the latest technology in fabrics, trims and finishings, then you might decide to sell yours for $65. On the other hand, if your tech tee is going to be mostly the same as theirs, you might want to also consider selling for $50.
Once you know your ideal selling price, you’re going to divide that number by 5. This is going to give you the Target Free-on-Board (FOB) cost. FOB costs are one of the more typical costing structures you’ll experience, working with a factory. It means that they are responsible to get your products made, packaged and trucked to the nearest shipping port (or airport). Once the boxed product makes it that far, then you are responsible for it. Your Target FOB is the cost you want your design team to consider when making the garment. In the example of our tech tee at $50, we want our Target FOB to be $10 for the entire shirt. That means that all fabric, trims, packaging, labor fees to sew the garment and the factory’s profit all need to fit into that $10 figure.
Finally, you’ll also want to give your materials team (sometimes this is also your design team!) a Target fabric cost. For this, I like to simply divide my target FOB by 3. A third of the total garment cost should be coming from fabric. You’ll need to calculate your garment’s average fabric yield to come up with a price per yard though. If your tech tee average yield is one yard, that’s easy. Your fabric should be $3.33 per yard or less. If your tech tee average yield is 1.2 yards though, you should be looking for a fabric that’s closer to $2.78 per yard or less.
This will give you a rough but solid starting point for design, fabric sourcing and trim sourcing steps. Determining your target costs up front will help you to better plan your business revenue, selling strategy and growth plan from year to year. Without understanding your monetary goals, it will be very easy to veer off track of your plan and spend too much money on the production of your garments. Knowing your numbers early on in the process will help you manage and maintain them more steadily throughout production.