Monday, August 8, 2011

Starting from Scratch - Part 7 - Costing

Photo: Jo Duck for Hopeless Lingerie
Model: Lulu Wagstaffe
MUAH: Sarah Lea Cross
Click here to shop the 'Omega' Cami
Click here to shop the 'Omega' Knickers

I really cannot believe its been 6 months since the last ‘Starting from Scratch’ installment. As I have mentioned a lot lately things have just been so busy, I barely have time for the blog! I managed to get (almost) up to date with orders over the weekend so thought it would be a good time to write about this really important topic.

People often comment about my pricing, and I hear constantly that my pieces are too expensive. It is hard to hear that sometimes people don’t think your work is worth the price you name, but that does not mean I will change my pricing structure. That is because I believe my price is fair for my time and skills. I also live in a city with a very high cost of living, and I want my business to make a profit, so that I can keep doing it and make a living from doing it.

I am happy (and perhaps a tiny bit nervous) to be completely transparent about this because I believe it is so important, and I see many small business owners and crafters selling themselves so short, especially on Etsy. Have faith in yourself and what you do, and price accordingly.

With that in mind here is an example of my costing formula. This is how I was taught to do it in Fashion School, and this is at the low end of the scale in terms of profit margins. Most luxury brands will have a mark-up somewhere in the realm of 1000% to 1500%. (See a book I have mentioned previously by Dana Thomas ‘How Luxury Lost its Lustre’ for more on this issue).

I am going to use as an example an imaginary pair of knickers that include silk, mesh, 2 different types of elastic, and garter clips.

Cost per Unit
1 Hour
$15 per Hour
$15 per Metre
$12 per Metre
Elastic 1
$1.35 per Metre
Elastic 2
$0.30 per Metre
$0.30 Each
Garter Clips
$0.70 Each
Label – Logo
$0.16 Each
Label – Size
$0.04 Each
Label – Care
$0.08 Each

Materials Cost: $8.03
Total Cost: (Materials + Time) $23.03
Wholesale Price: (Cost x 2) $46.06
Retail Price: (Wholesale Price x 2) $92.12

Although this is the pricing structure I currently use – there are actually a few things I am not doing. Something that I do not add in (this is because I worry about items being completely unaffordable) is overheads. That is anything that does not directly relate to an item, but is still a business expense. For example; photoshoots, bills, stationary and so on. I also pay myself below minimum wage. But you can imagine what my prices would look like if I paid myself a higher wage, so for this stage of the business I am happy to pay myself that amount. It is enough to keep me going. I am sure there are other things people could point out that I should be adding onto the above list.

Wholesale is a large part of my business so I have to make sure when I do sell wholesale, I am getting enough money, this is what really drives up the retail price. I think that a lot of Etsy sellers do not think about this, hence the very low pricing I see so often.

I would love to hear your opinions about this, and I really hope it helps a few of you.

Gaby xoxo


Alicia - Sea Of Ghosts said...

I think there's nothing wrong with being completely open about pricing in the fashion industry - people deserve to know how much (or little) the designer really MAKES sometimes.
I combine my time and profit in my pricing schedule which means I actually make a bit less than I ought to but I'm a little terrified of pricing myself out of my market.
However I'll be bringing quite a few changes through with my new collection and might be able to look and a different price structure.
It's tough being independent and self-manufacturing!

Lauren said...

May I ask Gaby, what sort of number of items per order are you looking at when you sell at wholesale price? Very interesting to read from the customer's perspective, so thankyou!

Gaby and Jane said...

Alicia - I know exactly what you mean in terms of pricing yourself out of the market, it is a fine line. And yes independent self manufacture is so tough!

Lauren - my wholesale orders are usually in the realm of 20-60 pieces. And you are welcome!

Gaby xo

Laced With Love said...

I think your prices are perfectly reasonable. What people have to consider is that Hopeless Lingerie does not have a huge factory, where each worker does their bit and passes the garment down the assembly line.
So much more time and care is put into handmade garments, which makes it well worth the price.
Compared to some of the luxury lingerie brands we have here in the UK, your prices are much more affordable.

Anonymous said...

If you want to grow at some stage then you are going to look at getting your products made with a CMT so you will need to cost labour at $30-35/hr. This will have a large impact on your pricing, almost doubling it. Many small labels do not cost correctly and struggle when they want to grow a wholesale business at realistic prices. They have also trained their customers that the goods are worth a certain amount and face customer resistance when they try and charge the new and more correct price structure. If you are only going to continue to sew yourself then this is not an issue.

Diana 'poetsie' said...

I'm making my own lingerie too, I think your price is not too high.

Jennifer Lynne said...

I think its really important to factor in not only your overhead, but a profit if you want to have a sustainable business. Use this formula: Costs of goods (material and labor) + overhead (which includes a salary for running your business) + profit = wholesale.

It may not be much over your current keystone method, but it will account for all your time and effort and will ensure you a profit (for future investment) and an income.

Gaby and Jane said...

Thanks Jennifer Lynne - As I mentioned in the article overheads is something I do not account for - so your formula seems like a great way to incorporate them without increasing my prices too much. I will definitely start looking at that method for new styles.

Can I ask how you recommend calculating overheads and profits?


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oni said...

i stumbled across this since you started it before I started reading your blog. I know that you are extremely busy but would you consider finishing the series or giving us an update?

Best wishes!