Garment pricing is tricky, especially when you’re just starting your brand. If you’re not careful, you can price them too low and not cover your expenses, or price them too high and not sell enough.

As a fashion designer, I’ve worked with many merchandisers (the people in charge of how much clothes should cost). This experience has given me a firsthand look at how pricing works behind the scenes. 

After working for multiple apparel brands with different target markets, I’ve learned that there’s no single formula for pricing products.

So, I’m here to simplify things for you. By the time you’re done reading this guide, you’ll have a solid understanding of how garment costing works, how to keep your expenses in check, and set prices that make sense for you and your customers.

How to Calculate Garment Cost

Garment costing is the process of calculating all the expenses involved in producing a single piece of clothing. This means adding up everything you spend on materials, labor, overheads, and any extras like shipping or taxes. Costing happens even before going into production, so brands can decide if it’s worth making a style or not. This way, they can set a fair price that makes sense both for the brand and customers.

Key Components of Garment Cost

Calculating a garment’s cost goes beyond tallying manufacturing expenses. These costs can be categorized into two main groups: variable costs and fixed costs. Variable costs, such as materials, packaging, labels, and shipping, fluctuate with each produced design but are relatively straightforward to calculate per unit. On the other hand, fixed costs, like rent and designers’ salaries, remain constant regardless of production volume, and it can get tricky to determine their per-unit impact. 

Here are some typical examples of fixed and variable costs:

Variable Costs

• Raw Materials: The cost of your fabric, trims, and other materials can vary widely depending on quality, quantity, and source.
• Packaging & Labels: Tags, labels, bags, and boxes used for storage and shipping.
• Labor: Wages paid to workers for cutting, sewing, and finishing the garment.
• Finishing: Fees for additional processes like dyeing, finishing, embroidery, or other treatments.
• Shipping & Logistics: Costs associated with transporting finished garments to your warehouse and to the customer. 

Fixed Costs

• Rent & Utilities: Costs for the business space and essential services like electricity and water.
• Salaries: Wages for employees, including designers and administrative staff.
• Software Costs: Expenses for necessary software tools and subscriptions.
• Other Overhead Costs: Miscellaneous fixed expenses for operations, like insurance and legal fees.

Disclaimer: While fixed costs are essential for business operations, allocating them to individual garments can be challenging. In some cases, they may be absorbed into overhead expenses or categorized as miscellaneous costs. Additionally, certain garment pricing methods may simplify the pricing process without requiring detailed allocation of fixed costs (more on this later!).

Cost Sheet for Fashion Design (with FREE template)

Taking into account all of your listed expenses, break down your cost per piece. To make this task easier, you can check out my Guide to Cost Sheets for Fashion Design (and download my FREE Cost Sheet Template). I explain it in more detail in the guide, but here’s a quick overview of how you can use the cost sheet:

Men’s Collar Shirt Cost Sheet Sample

In my sample men’s button-down collar shirt cost sheet, the expenses are categorized into variable expenses like fabric, trim, and labor, and then you can add your other costs such as fixed costs and overheads under miscellaneous costs. This spreadsheet allows you to itemize all expenses to calculate your per piece cost. 

On the right side of each table, you’ll find space to input quantities of garments to be produced. In my sample, cost calculations are provided for quantities of 50, 150, and 500 pieces. This is because costs decrease significantly with larger production quantities. While increasing quantity isn’t the sole method to reduce costs, having these options listed helps when making decisions for a target cost.

Additionally, there’s a section for calculating garment wholesale and retail prices in the cost sheet, using a 2 to 2.3x markup (more on this later!).

How to Calculate Garment Pricing

Now that you know your garment cost, it’s time to figure out how to price it. Before I introduce each method to you, let’s familiarize a couple of important terms for the next section:

Wholesale price refers to the cost at which fashion brands, manufacturers, or distributors sell goods to retailers. It’s lower than the retail price, as retailers need to factor in their profit margin. Retail price is what the end consumer pays. The difference between wholesale and retail prices is known as the markup, and it’s how retailers make a profit.

Suppose you sell shirts on your website for $100 each and also distribute them through a retailer like Macy’s. With a 2x (wholesale to retail) markup, you’d sell each shirt to Macy’s for $50. $50 is your wholesale price. If the production cost per shirt is $25, your profit margin per shirt sold through Macy’s would be 25%. Keep in mind that the markup percentage may vary depending on the retailer, particularly for larger retailers. Additionally, not all brands opt for third-party distribution; some prefer direct-to-consumer sales through their own channels. In such cases, if you’re selling shirts for $100 on your website, your profit margin would be 75%.

Garment Pricing Methods

1. Backwards Pricing Method

The backwards pricing method starts with setting a target selling price first and then calculating the target cost it would take to achieve the desired profit margin. The target selling price can be determined in several ways, such as researching competitor prices and analyzing your or another brand’s past pricing trends. Once you have a selling price in mind, calculate the target cost by subtracting your desired profit margin.

For example, if you’re a (purely) direct to consumer brand aiming for a $100 target price to sell your denim jacket and your desired profit margin is 50%, your target cost would be [$100 / (1 + 0.50) = $66.67]. 

While this method simplifies the pricing process, hitting the target cost can be challenging in practice. You need to know your production costs well, negotiate effectively, and make strategic decisions. If your actual cost exceeds the target, you’ll need to find ways to cut costs or accept a lower profit margin.

2. Keystone Pricing Method

Keystone pricing makes use of a 2x multiplier to price garments. The retail price is set at 2x the wholesale price, and the wholesale price is 2x the garment manufacturing cost. For example, if a shirt costs $50 to produce, it would be sold to retailers for a wholesale price of $100, and then retailed to customers for $200. While a 2x-2.5x keystone markup is common in fashion, the actual markup can vary based on brand and retailer preferences.

This pricing method is particularly beneficial for brands that already have a steady demand and predictable costs, as the final price directly reflects the production expenses. So, if you’re just starting out and presumably still facing high initial launch costs, keystone pricing at 2-2.5x might lead to your final retail cost being too steep for your customers.

3. Absorption Pricing Method

The absorption pricing method offers a more comprehensive approach by factoring in all costs related to making a single product and operating the business. To apply this method, you’ll calculate the total cost per unit, considering both variable and fixed expenses, and then add your desired profit margin to get the wholesale price. Lastly, multiplying your wholesale price to 2x to get your retail price.

For example, if the variable cost per unit is $20 and the total fixed cost for producing 1000 units is $5000, you distribute the fixed cost across all units, bringing the total cost per unit to $25. With a target profit margin of 60%, the wholesale price would be calculated as [$25 / (1 – 0.6) = $62.5]. Using the keystone pricing method, you double the wholesale price to set the retail price at $125.

The absorption pricing method can be more accurate as it takes into consideration all of your costs including fixed and variable costs. However, it requires careful tracking of all your expenses. 

Checking Your Competitor’s Pricing

When determining your target prices, looking at what your competitors are charging is a solid starting point. Check out brands similar to yours and see what they’re selling similar items for. You can create a simple pricing comparison sheet of items with a similar style and materials. 

For example, if you’re selling denim jeans, identify Levi’s and Gap as brands with similar positioning, product type, and market as your own brand, you can reference similar looking products from them and use that as the baseline of how much you want to sell your product. Here’s a sample comparison sheet: 

When choosing the competitors to scope out, consider the following factors:

• Price Points: What’s the range of prices for products similar to yours?
• Quality: How does the quality of your fashion items compare to your competitors’?
• Target Market: Are you going after the same customers as your competitors?
• Brand Positioning: How do you want your brand to be perceived in relation to your competitors?

By analyzing these factors, you can get a sense of where your prices should fall to be competitive yet profitable. You might decide to price slightly lower than a close competitor to attract more customers, or go a bit higher to emphasize your brand’s unique value. 

Pricing Psychology: You don’t always have to compete on price. In fact, competing on price is sometimes a race to the bottom! With a strong brand story and position, price becomes secondary. There’s a lot of psychology with pricing, and remember, people value what they pay for. If you see a dress for $20 and a dress for $200, you instantly make judgments about the quality, how well it will fit, and how long it may last, based on the price alone. A lower price doesn’t mean it will automatically sell better!

Keep in mind, pricing isn’t a set-it-and-forget-it deal. You’ll need to regularly review and adjust your prices to stay competitive and maximize your profits.

Garment Pricing Tiers

There are many layers involved in determining a brand’s profit margin and markup. The same garment can fetch a price 10x higher when plastered with a luxury brand’s label.

Let’s break down the three main pricing tiers in the fashion market and see how they determine their prices.

Budget Pricing

Budget or value tier fashion brands like ASOS, Forever 21, and H&M aim to keep prices low to attract cost-conscious consumers. They often use cost-based pricing, minimizing production expenses by sourcing cheaper materials, using simpler designs, and manufacturing in countries with lower labor costs.

These brands typically set prices just above the cost of production, with smaller profit margins that usually do not exceed 50-60% of the cost. Their pricing strategy revolves around selling high volumes of merchandise to compensate for lower price points.

In my experience, markups of budget brands don’t go above 2x to 2.5x of the cost.

Mid-tier Pricing

Mid-tier fashion brands like Madewell, Coach, and Everlane strike a balance between quality and affordability. They use a mix of cost-based and value-based pricing, considering both production costs and the perceived value to the customer.

These brands may invest more in design, materials, and construction compared to budget tier brands, while still keeping prices accessible. They aim to maintain reasonable profit margins while appealing to a broader market.

Mid-tier fashion brands typically apply markups ranging from 2.5x to 3x the production cost to establish the wholesale price, followed by an additional 2x for the retail markup.

Luxury Pricing

Luxury fashion brands like Chanel, Gucci, and Hermès prioritize exclusivity, prestige, and top-notch craftsmanship. They employ value-based pricing, setting premium prices based on the perceived value to their target customers.

These brands justify their high prices through brand reputation, iconic designs, and impeccable quality, resulting in substantial profit margins. Luxury brands use significant markups, ranging from 3x to 10x or even more (there’s no limit, really), driven by the perceived value and prestige associated with their products.

That wraps up my guide on pricing your clothing line!

We’ve discussed how garment costing works, the different pricing methods, garment pricing tiers, along with practical tips on pricing.

At this point, you should be ready to crunch those numbers and set your prices. Get started by grabbing my FREE Cost Sheet for Fashion Design.