So business practice seems like a logical place for this I think.
My gf and I have been designing making and selling children’s apparel out of our home for sometime now, and we are looking expand, and get some of in manufactured. I have some questions, my apologies if they are silly questions that I am the only one who doesn’t know the answer to.
how do I figure some of the pricing, I know our wholesale, and can look into a ballpark of what price point to sell them at, but since I’m going to talk to a manufacturer soon, Ill be needing to know what a reasonable unit price would be.
How many units do I need. We are looking into some local boutique baby stores, so if we can get four stores, how many units will sell?
Ill end with a nice vague question, like what else do I need to know? lol
Knowing what your retail price targets are and what your retailers margins may be, you can work backward into per unit cost. Likewise knowing the material and labor costs you can work forward. Start by making a Bill of Materials, listing the cost of materials, labor, shipping and logistics and any other incidentals that may effect the wholesale cost of your design. Go to a manufacturer with that and they can determine their cost per unit to you. Then you can figure out your wholesale and compare it to their unit cost to produce.
How many units you need depends on your projections, what retailers will buy and can sell to their customers.
I’m really focusing on a specific product, We’re shooting for $22 price on the shelf, that puts us right about in the middle of the competition.
4.50 for materials, one hour to sew up currently, obviously any factory would be able to cut this time down a little.
As far as projecting some unit numbers, when you talk to a store owner, is it appropriate to as what they think they sell. I’m new to this and its a lot of fun to learn about and pull together, but I am also trying to project a professional image to possible customers. Living and Learning I guess.
For $25 on the shelf a good base is $12.50 wholesale.
but if you want the retailer to really pay attention and you can afford to do so say $10.00.
low ended margins is 40-50%
high end margins can be up to 125%
40-60% is about “normal” but it depends on your needs and you retailer’s needs. For example you can “advise” the retailer to take an extra 5% on margins based on smaller orders and vice versa based on larger quantities.
currently the materials are about 4.25 -5.50, and we don’t have too much more room to push that back, if we were wholesaling these at 12.50, that leaves say 7.00, where do we need to push the manufacturer back to. it should take 15 minutes to sew one up.
what is reasonable for small run contract cut and sew? And we are trying to avoid foreign manufacturing
You are confusing margin and markup (a common mistake). You need to get the terminology right before you talk to retailers, otherwise they will be confused. Margin is the percentage of the selling price that represents profit. Margin cannot be greater than 100%. If you mark something up 100%, your gross margin is 50%. Likewise a 50% markup is a 33% margin.
For example if you buy something for $10 and sell it for $15 (a 50% markup), $5 of that selling price is gross profit, so your gross profit margin is 33%. If you steal something and sell it for $10, your margin is 100%. I suppose technically people like car recyclers have margins greater than 100%- you pay them to take a car away, and then they sell it for scrap. But obviously that is not the case with a normal business.
Small bike shop (1 location) I work at from time to time does the nearly 100% markup on all softgoods, accessories, etc. I’m sure this rings true throughout most retail environments be it a small mom and pop to a larger multiple store setups (not big box like BestBuy, Target, etc.)
Your point is correct that “Mark up” and “Margin” are separate, terms, but in the retail world of apparel and softgoods 100%+ Margins are ordinary.
I’ll mention that to the “Big Box Retailer” media accessories buyer who sent the email speculating on the possibility of a 150% margin he is planning for the $100 laptop bags I am building for them at $12.48 FOB…
If you can get away with it what the worst they can say? No? Its a negotiation and if you have low overhead you should be confident that if it goes pear shaped you can go lower if they need to. But don’t go to low, because if have a compelling product you may actually undersell yourself.
Bottom line is to propose a sales plan with your product to approach the retailer with, recommend a mark up or margin and discuss.
Yeah, that actually sounds like I remember it, I think having some people to talk about this to is getting the old gears turning from when we talked about this in school.
so this is my break down today.
5.50 for materials, 3.25 when we get our wholesale account with the last of the suppliers.
Ive talked to some people and they are saying we can get away with paying the seamsters (?) sewers (?) lol anyways, we can pay them the eq of 9-12 per hour, and 4 units can be sewn in an hour, without cutting, so lets say three per hour, and get 3.50 per unit cut and sew.
our only other concern is shipping at current.
so so far that is 5.50 (soon 3.25) + 3.50 to get 9.00 per unit
if we are wholesaling them at 12.50 and suggesting a 100% markup, we make 3.50 per unit, so our margin is 28%… does and the retailers margin is 50%, I wonder if I could average those two numbers and figure out where that would put the wholesale price at so when we go to the retailer we can start equally and give them a bit to make them feel like they are doing better than we are. We have a few other products that get us a much better margin, like silkscreen shirts, so maybe we could take a little less while we create brand demand.
Anyone feel like that is absolutely not the right way to be thinking about this? I feel open to suggestions lately. Either way this beats the hell out of drafting thats for sure!
Your buyer must be talking about something else, because a margin greater than 100% doesn’t make any sense. It’s like dividing by zero. Using your numbers, they are looking at an 87.5% margin (before freight).
Gross margin = (revenue-COG)/revenue
You can’t get a number greater than 1 (100%) unless your cost of goods is negative.
A 28% wholesale margin is acceptable if you’re doing decent volume and your overhead is reasonable. If you cut your material cost to 3.25 your margin is closer to 50%, which is better for a low volume operation. Don’t forget to include all your miscellaneous cost of goods though: labels, packaging, etc. Also don’t forget what ultimately matters is net margin, not gross margin. If you have zero overhead, a 28% gross margin is a 28% net margin, and 28% net profit is exceptionally good.
We spoke with one of the prospective manufacturers Friday, and what a joke. The guys hands us the prototype he had put together, and the thing is just horrid lol. I mean I expected it not to be quite as good as the hand made ones we have been selling, but really. The seams were just appalling.
anyway, on top of this he wanted 30 an hour. I think I really surprised my partner who hasn’t really seen me in a professional capacity by not just tearing into the guy. They were really that bad. But when I calmly told him we needed him to be closer to 15 an hour he acted like he was offended and told us that if we wanted to use “slave” labor to go ahead. Well if we hadn’t already been talking to a company at that rate I may have thought about rethinking my cost structure and margins.
I guess the moral of this one was I FAILED to find a reasonable manufacturer (since we’re so about failure this week…) but I learned that maybe we should put together a QC guide when interviewing manufacturers. This way if they don’t think they can adhere to our QC standards, don’t bother. I may have considered a higher rate that I wanted if the work had at least been decent, but come on. Ill post some pictures sometime.
We are sending some samples and fabric up to Duluth this week and this mill seems more promising.