It’s a recurring question.
When I sit down with a lot of new companies, this issue comes up quite a bit.
The challenge new brands have is they are not doing enough business to reach production minimums in order to get competitive pricing from factories. So the question becomes “Do I set my retail price based on the current cost of goods, or, do I work on a short margin and retail based on future quantities?”
I encourage you to follow the steps I have all my clients take.
When I start working with an emerging designer, the first action I have them follow is to conduct a competitive analysis. One of the reasons I have them do this is to learn what the prices are of their competitors’ collections. This serves as a guide to help us establish their pricing. Through this exercise they find out more or less where they need to be.
The next step to pricing is for them to decide if they are going to sell directly to customers, or wholesale, or both.
If you sell directly to the customer you have only one margin to worry about. The difference between making the garment and what you’re selling it for at retail. However, if you sell wholesale you have to have the margin between your cost of goods, what you sell to the store wholesale, and then the margin between the stores and what they sell it to their customers for.
The decision on what to do is unique to each entrepreneur.
Ideally you want to retail your line competitively in order to maximize sales. However, if your costs are 10-20% higher you can sometimes start a little higher than your competition.
This isn’t always possible. Sometimes your costs are so much higher that you are not even in the ballpark, and then you have to bite the bullet and take the shorter margin.
In the end, you shouldn’t expect to make as much margin in your first two seasons as you will further down the road. Part of being new is tightening your belt and assuming the upfront costs of starting a new business.
If you’ve done your homework, you’ll have a financial plan in place that allows you to tackle these beginning seasons with enough certainty to survive.
If not, give me a call and let’s work on your plan before you find yourself in a dangerous pickle!
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14 Essential Truths Everyone in the Fashion Business Should Know
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