Cost is the economic value of the resources used to make a product. Garment costing is the process of evaluating the total cost of garment production. The garment production cost includes materials, labor, transportation, and operating costs of the business. A merchandiser should have a thorough understanding of garment costing.
A merchandiser does effective cost planning for two reasons. One is the garment pricing and the other is the order acceptance. In garment pricing, the merchandiser will sell manufactured products directly to the consumer. In this case, you can obtain the cost estimation very accurately. The pricing is calculated by adding the manufacturing cost with the estimated markup or profit % to it.
In the order acceptance method, the merchandiser will export the garments to the companies. In this case, the cost of the garments is the base of the business. The cost of a unit garment is calculated using the wages, operating expenses, transportation, freight charges, and profit % of the company. After obtaining the cost, the merchandiser will negotiate with the buyer and decide whether to accept the order or not.
Garment costing depends on various components like Fabric, Trims, Cut Make & Trim charges, Value-added services: printing, embroidery, washing, applique, Testing of the garment, Quality, Transportation and logistics cost, and Profit of the manufacturing organization. Also, the cost will vary from one style to another style of garments. This article, explore more about garment costs and how much does clothing manufacturing cost.
How much does clothing manufacturing cost?
Garment Costing: BOM
Bill of materials is a list of raw materials required to manufacture a garment and make it ready for shipment. Fabric is the most significant factor in garment costing. It accounts for 60-70% of the total cost of manufacturing a garment. Fabrics include materials like trims, buttons, thread, zippers, elastics, etc. Label costs depend on the size and material you choose. Packaging costs depend on the cost of hand tags or price tags used for packing the garment.
The BOM costs formula is:
BOM Costs = (Fabric + Trims + Labels + Packaging)
Labor costs are the daily wages of the employees who are responsible for cutting, sewing, and manufacturing the garment.
The landed cost formula is:
(Supplier cost price x Supplier currency exchange rate) x (1 + (Freight insurance %) x (1 + Freight %) x (1 + Tax Rate %)
Supplier currency exchange rate: It is the currency exchange rate when negotiating with the supplier. Suppose your local currency is USD and your supplier’s currency is EUR. Presently, the rate is 1 USD = 0.85 EUR.
Freight: The freight is the price to deliver the product from one place to another. It is based on the form and weight of the load, the mode of transport, and the distance traveled.
Tax Rate %: The tax rate is based on the country, product category, and product quality. Also, you have to include tax in your calculation.
Garment Costing: Transportation Cost
Irrespective of where you’re sourcing (Own country or abroad), the transportation of your goods from the factory to the warehouse accounts for additional costs.
Product Manufacturing Cost
The product manufacturing cost is the sum of Garment BOM Costing, Labor Cost, Landed Cost, and transportation costs.
Product Cost (PC) – This is the cost that is required to manufacture the garment.
PC = Materials Cost + (Labor Invested x Time) + Other Overheads (Rent, Fixed Costs, Electricity, etc.)
Garment Costing: Wholesale Price
When you sell the products in bulk at a lower price, it accounts for the wholesale price. It includes materials costs, manufacturing and labor invested, other overheads like rent, electricity, etc., and a minimal profit margin.
Formula to Calculate Wholesale Price is:
Wholesale Price = PC + Profit Margin
Garment Costing: Retail Price
The price at which the consumer buys your product is the retail price. The formula to calculate Retail Price is,
Retail Price = Wholesale Price / (1 – Markup Percentage)
In conclusion, the garment costing process is a complex process with multiple variations and calculations involved. It involves different types of costing like product costing and colorway costing. Moreover, it means the cost of a garment in one specific color does not match the cost of another color garment for the same product. It is because the type of raw materials used in manufacturing the color garment will vary. Hence, it is always better to have a template for cost calculation, that can be re-used with minor changes for other products.
Budgeting plays a prominent role in producing a garment. You have to see that your product is high in quality and fairly priced. Also, you should gain some profit margins from selling the product. So, you need to plan your garment costing appropriately taking into consideration all the factors.