For apparel brands, properly pricing your garments is not easy. Total cost of production (Including shipping and overhead costs) along with where your brand sits in the market need to be factored in. This blog investigates what TO DO and what NOT TO DO when determining your pricing.
How to Properly Price your Apparel
What NOT To-Do – Keystone Markup
The keystone markup is the traditional go-to way to determine pricing for most apparel brands. The keystone markup is as follows:
However, this model is flawed in a major way – it does not account for factors outside of manufacturing like your shipping costs, tariffs, pre-production design work, or other overhead costs.
What You SHOULD Do – Absorption Pricing Model
Unlike the Keystone Markup, the Absorption Pricing model takes overhead costs and other expenses into consideration. It also adds a profit margin to each piece. Check out our product production calculators – profit & break even here!
Broken down, the Absorption model is as follows: Cost price = Production cost per unit + ((Total overheads + admin expenses) / (Number of units produced)). You then take the cost price, add your profit margin, and this makes your wholesale price. The wholesale price is then multiplied by 2 or 2.5 to get the Recommended Retail Price (RRP).
The profit margin is how much you want to make on each item sold. So, if the cost price for a piece of apparel is $10 and you want your profit margin to be 50% (which is pretty standard for apparel), then your profit margin would be $5. This would make your wholesale price $15 and your Retail Price approximately $30.
It’s important to remember that your profit margin needs to be within reason. If you are dreaming of a 75% profit margin, but your costs are relatively high, then you need to consider if your target customers will be willing to pay a high price for your items. If not, then you may need to consider a lower profit margin and/or a cheaper supply chain. In the next section we discuss where your brand fits in the market and how the cost of your items should reflect that.
Where Does Your Brand Fit in the Market?
If your brand sits at the premium end of the market, then potential customers expect to pay a high price for an item of great (perceived) value. The luxury end of the market is focused on the prestige of the brand and loyalty to it. (Comparable to: Yves Saint Laurent, Gucci, Hugo Boss)
Middle Market Pricing
This is for brands in the middle of the market where a careful mix of quality and pricing is key. If you focus on long-term relationships, this client is brand loyal. Your customers can justify the price if they see the value, so it’s always a good idea to tie quality and value into your marketing where you can. (Comparable to: J Crew, Madewell, Abercrombie & Fitch)
The low-end part of the market is focused on price over brand loyalty. Consumers shopping for budget brands are not looking for a product that will last a lifetime or elevate their social status – they want something they can afford that fills a need. (Example: Old Navy, Hanes, Kohls).
Beware of Discounting
If you are a brand that puts your items on sale often, then consider setting a higher non-sale price for your items. Once you train your customers to wait for sales to make purchases, there is no going back. Running lots of sales can also eat away at your target profit margins, so be careful.
Understanding consumer psychology is a large subject to tackle. For more on consumer psychology, Psychology Today has a variety of beneficial articles.
- Price your garments using the ABSORPTION pricing model, NOT the KEYSTONE markup
- Make sure you understand where your brand sits in the market and make sure your pricing reflects your intended market position
- Avoid discounting your items too often. Your customers will learn to only buy during sales, which can eat up your profit margins if you are not careful
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