I admit it, I am guilty. I have caught myself numerous times on shopping excursions saying to myself, “how did they come up with this price?” Why is a pair of plain cotton pants priced $60 at the Gap and then priced $200+ at the department store right down the block? Both labels read 100% cotton. The silhouette is the same. So if the fabric is the same shouldn’t the price be the same? Well, not necessarily and I’ll explain why.
I always like referencing this New York Times aptly titled article “Why Does This Pair of Pants Cost $550?” to emerging designers. The article analyzes the pricing process:
“The cost of creating those things has nothing to do with the price,” said David A. Aaker, the vice chairman of Prophet, a brand consulting firm. “It is all about who else is wearing them, who designed them and who is selling them.”
Yet, from the designers’ perspective, there is value to be found in pants that are thoughtfully designed with high-quality materials and labor.
So if you are just starting to design your collection here are some important tips to remember when it comes to pricing your collection:
1. Does your product look like it will cost? Keep in mind your competition and what they are pricing their items for. It is all about perception and value.
2. What is it going to cost you to make the item? Are you making your item or collection in smaller quantities? Are they made by hand? I love how this excerpt taken from the article breaks down the pricing process below:
Mr. Sternberg’s (Band of Outsiders) khakis are tailored like dress pants, and the details are largely sewn by hand, including buttonholes and split waistbands, which can be altered easily. The fabric, which costs $24 a yard, plus $3 a yard to import, is a cotton gabardine fine enough to withstand basting stitches. About two yards, counting for boo-boos and such, is used to make a pair of pants, so the fabric cost is $54.
At Martin Greenfield, a union shop where employees earn about $13 an hour, before benefits, it takes an average of four hours of labor to make a pair of pants. The pants pass through the hands of at least 20 people in the process of cutting fabric, adding pockets and building out a fly. So with labor and fabric, the cost to make Mr. Sternberg’s pants was about $110 — a fifth of what they cost in a store.
The final price reflects the markups of the designer and the retailer, what they charge to cover expenses, pay their employees and, with luck, make a profit on what sells to cover the losses on what does not. Mr. Sternberg doubles the cost to arrive at a wholesale price of $220. The retailer adds another markup, typically a factor of 2.5, which brings us to $550.
3. Does the pricing of one item in your collection make sense with the rest of your collection?
So how much is too much? The bottom line ties all back to point #1: it is all about perceived value. No matter how much your fabric was, or how much your item costs to produce– if it doesn’t look like the price you are asking, it will be a hard sell to the consumer from the very beginning! Also remember you want to make a profit. Can you double your cost—a retail pricing term also known as keystone—and arrive at a wholesale price that makes sense? If not, you may want to look into the construction of the item: Can you buy cheaper buttons or rivets? Change from silver to burnished brass hardware? Find a less expensive factory? Granted you don’t want to compromise the quality, but you want to make sure you are making a profit!
Here’s a formula for you to remember:
[CMT (Cut, Make, Trim) + Fabric Cost + Any Extra Cost] x 2 = Wholesale Price
This will be your wholesale price to retail buyers. You will then need to mark up from that wholesale price to estimate your retail price based on the formula below:
Wholesale Price X 2.2 – 2.5 = MSRP (Manufactured Suggested Retail Price)
Keep in mind that if this formula doesn’t fit with your brand, try to go back and cut costs. Can you purchase different buttons or rivets, zippers, rings, or lining? Can you research a different factory? Figure out possible changes in how you spend your money.
This article originally appeared on Open Source Fashion, an active community of helpful innovators working in fashion, retail, and technology. Join OS Fashion on Meetup to attend future discussion series events. Open Source Fashion is holding its first “Freestyle Fashion Conference” with a great line up speakers on September 28th.