Establishing your retail pricing effectively is a key part of the retail success of you collection. So how do you decide what the suggested retails (MSRP – Manufacturers Suggested Retail Price) for your fashion line should be? This is a question that comes up a lot with my clients. The answer is not a hard and fast rule.
There are two ways to figure this out. You can multiply your wholesale cost by 2.2 to 2.6. Let’s say you have a t-shirt that your are wholesaling for $10 and you decide to use 2.4 as the markup. $10 X 2.4 = $24. Or you can have a percentage calculation also know as an IMU (Initial mark up). An example would be a dress that wholesales at $75. that you elect to add a mark up of 60%. The calculation would be $75 divided by .40 = $187.50. Here you take the cost complement of 60% which is 40% and divide by the wholesale to come up with the MSRP.
Now that is how you do it, the next question is what should your retail business model be? Whether you multiply by a fraction number or divide by a percentage the most important things are to look at:
- Is there enough margin in there for stores you sell to make money?
- Is your pricing competitive?
These days you need to work at more than a double of the wholesale in order for retailers to have a cushion to off set margin erosion. Margin erosion occurs when a store has to put left-over inventory on sale. So making sure you have enough margin in there will help make your product more profitable for the stores. Yet, you must make sure you are not overpricing your product otherwise it will not sell as well.
Pricing your line is a delicate balance between the two. Make sure you do your homework and know what comparable product is sold for. This will help you when pricing your collection.