Your fashion products are ready to sell, except for one detail. You don’t know how to set prices! Setting the product price on your fashion products can be accomplished in a number of ways. Some emerging designers find this part of starting a fashion business confusing, but we’re here to help. Let’s take a look at what goes into the process of setting prices for your fashion business.
1. Do Research on the Market
Market research for emerging designers is important for your overall approach to your business and your specific approach to pricing. If you make silk ties for men, you want to first determine how much silk ties are selling for on the market. Look for a number of different sellers who are producing similar ties to yours. Determine the average price.
This initial research will help you get an idea of your price, but you shouldn’t let this be the only factor. There are more things to take into consideration.
2. Determine What Type of Product You Are Selling
Is your product a luxury item, a budget item, or a value-based item? If you’re not sure, it’s vital that you figure it out. A high-end, luxury item will have a luxury price tag to go with it. Luxury products have very high value compared to how much it costs to make the item. Your target audience won’t care that it costs a lot as long as they get the look and quality that they desire. Your price helps your buyers know the high quality of what they are buying.
On the other hand, if you are selling more basic, everyday items, you should not price them too high. People who shop for low prices don’t expect to find luxury items at budget prices. They want the type of fashion they can wear without worrying too much about maintenance and upkeep.
A value-based price is somewhere in the middle. Your buyers are the people who pay for what they get. If they pay more, they expect more value. You can cater to these buyers by offering quality products at affordable (but not budget) prices. Your marketing strategies should address what you are doing to make a valuable product that sells at a decent price. In other words, be transparent.
3. Figure Out Your Manufacturing Costs
How much does it cost you to make your product? You’ll want to include the price of all the materials you used, as well as labels, shipping costs, and whatever actually goes into the manufacturing. Got that cost figured out? Great. That is a key part of how to set prices. Go on to the next step.
4. Determine Your Margin In Order to Figure Out How to Set Prices
What is margin? It’s the measure of how much you profit after the costs of manufacturing your product. We typically measure margin in percentages, and you’ll probably want a margin percentage somewhere between 50% and 80%. The following formula will help you determine your margin:
Margin Percentage = (Retail Price – Manufacturing Costs) / Retail Price
Here’s an example. Let’s say you can make a denim jacket for $12. That’s your manufacturing cost. When you did your initial research, you found that similar denim jackets are sold at retail for $45. $45-$12=$33. Divide that number by the retail price of $45, and you get 73% as your margin.
Now you’re beginning to understand how changing the price of your product will change the amount of profit.
5. How Much Margin Do You Need?
To thrive as a fashion business, you need to make a profit. You need to pay yourself something for your hard work and time, and you also need to pay any employees who are working for you. You need to pay rent for your building, shipping costs, electricity, and whatever else goes into your fashion business. These are your overhead costs.
Another cost will be marketing and sales. There are a lot of things to pay for, so you don’t want to sell items at the cost it takes to make them. You need to make sure your margin covers all your necessary expenses and leaves you some profit so you can continue to grow your fashion business.
On the other hand, you don’t want too high of a margin. To generate sales, especially in the value-based market, you need to show that you’re selling your product for what it is worth. Too high of a price tag will scare away customers.
6. More Ways to Calculate Prices
Here are two more formulas that may help you set your product price:
Wholesale Price = Manufacturing Costs X 2 or 2.5
Retail Price = Wholesale Price X 2 or 2.5
In the previous example of the denim jacket, your wholesale price would be $12 times 2 = $24. Your retail price would be $24 times 2 = $48. Remember, these formulas are not your final answer to prices. They are tools to help you determine the price you want to set.
In the end, the pricing is your decision. You could decide to sell the jacket for $35 if you feel like you will be able to sell a lot of them and you can afford the low margin. You could choose to put a $60 price tag on the jacket, if your brand is more high-end, and you have buyers who expect higher costs.
We hope this post helped you figure out how to set prices. As you begin your fashion business, you have some room to experiment with prices, but you also don’t want to switch suddenly from low prices to high prices (or vice versa) because you will likely lose customers who have come to expect your product to fall into a certain place on the market. Take your time, do your research carefully, and ask for help if you need it.