How to Set Your Price

What you take from this lesson: Set a price that leaves real profit after all discounts and fees.

Price is not cost times two

It is the formula everyone uses when they start, and the one that sinks the most businesses. Multiplying the cost by two looks like a 100% profit, but that margin gets eaten up before it reaches your pocket.

Between the price on the tag and what you actually keep, there are: sales platform fees, payment processing fees, shipping, packaging, taxes, the garments that get exchanged, the ones you clear out at the end of the season, and your own time spent selling and managing the business.

What the price has to cover

The selling price has to pay for the following, in this order:

• The variable cost of the garment: fabric, trims and notions, cutting, sewing.
• The proportional share of fixed costs: the sewing pattern, the sample, the design.
• The costs of selling: fees, payment processing, shipping, packaging.
• The business expenses that are not tied to any one garment: internet, transportation, your own time.
• What you lose: exchanges, defects, and garments cleared out at the end of the season.
• And only then, the profit.

Wholesale and retail, from the start

It is best to set both prices at the same time, even if for now you only sell to the public. If a reseller shows up later and you have to invent the wholesale price on the spot, it almost always ends up lower than it should be.

The wholesale price still has to leave a profit. A lower price per unit is made up for with volume and with not having to convince customers one at a time, but it is not made up for by selling at a loss.

And the retail price has to leave room for the reseller to earn something: if the brand sells to the public at the same price it charges the reseller, nobody will resell.

Look at the total margin, not the single garment

A garment can have a good margin and the business can still fail to break even, because the business's fixed expenses are not paid with the margin on one garment but with the margin on all of that month's garments.

The calculation that matters: everything sold in the month, minus the variable cost of what was sold, compared against the month's fixed expenses. If that difference falls short, the problem is not the price of one garment: it is the volume or the cost structure.

Common mistakes

• Setting the price as cost times two without accounting for fees or taxes.
• Setting the wholesale price only when the first reseller shows up.
• Not accounting for the garments that get cleared out at the end of the season.

In short

The price has to cover the variable cost, the share of fixed costs, the costs of selling, the business expenses, and what you lose. Only after that comes the profit.