What's in a price?
As consumers we expect to pay the set Recommended Retail Price (RRP) for the products we buy, whether that’s $4 for a flat white, $10 for lunch or $500 for the latest Scanlan and Theodore blazer. And whilst we understand that the production price of those products is far lower than the RRP, the recommended price does at least provide us with a measure of perceived value which in turn helps us to make daily decisions to go with one product or brand over another.
So being a consumer is pretty easy. But over on the other side of the fence the challenge of setting the RRP for our products isn’t quite as simple. We might like the thought of our products selling for $100 or $500 each but whether that’s realistic depends on a variety of factors related to the cost of producing, marketing and selling your product. Combined, these costs are known as the COST PRICE.
From my experience working with many different fashion brands, I know all too well that calculating the COST PRICE can be one of the biggest headaches you’ll face. So to help you out and share a little insider knowledge I’ve created a useful checklist of all the costs that must be included in order to work out your final COST PRICE.
- MATERIALS - The costs of purchasing all the raw materials to make your products, such as fabrics, accessories, and castings for jewellery.
- LABOR - The price you pay for your pattern maker, machinist or manufacturer to produce a single item.
- FREIGHT & INSURANCE - The cost of getting the products from your manufacturer to you or your warehouse. If you're importing your products from an offshore manufacturer you will need to also pay for insurance to safeguard against any loss or damaged stock.
- PACKAGING - Including all of the elements involved in presenting and protecting your products as they are shipped to the customs, plus details such as labels and swing tags.
- AGENCY FEES - If you intend to use a sales agent to sell your products to retailers it's important to include their fees right from the start. Sales agents within Australia expect anywhere between 10% - 20% commission on each sale they make while international sales agents may also charge a monthly showroom retainer in addition to commissions. If you don't factor in this cost now and look to agents further down the track, there’s a good chance you will have to sacrifice your margin to ensure you can still deliver a competitive RRP and provide the retailer with a good margin. PR agents should also be factored into this element of the COST PRICE.
- MARKETING - By this stage you should have an idea of what your marketing budget looks like for the next 6-12 months. If this is your first collection or product your marketing budget could be quite high and equate to around 50% of the money you have to invest in your brand or sales. It’s ideal to add a percentage of this budget to the COST PRICE of each product.
- TRANSACTION / MERCHANT FEES - If you are selling direct-to-consumer, payment gateways such as PayPal and Stripe charge you fees so these need to factored in as a cost. Similarly, if you offer payment plans such as Afterpay these will also need to be accounted for.
- SHIPPING - If you're shipping straight to your customer you need to factor in the postage cost per item and even if you’re planning to pass the cost on to the customer I still advise factoring it in, as the landscape is extremely competitive and offering free delivery can make the difference to potential customer choosing between you and another brand. The majority of fashion brands already offer complimentary shipping in some capacity, be it free shipping Australia wide, free shipping on orders above a certain amount, or as an alternative sales incentive to discounting products.
Once you've added up all of the above (and had a glass or two of wine to recover!) it’s time to start calculating your RRP. There are two main profitable pricing methods you can use and fortunately for you I have a post coming soon that explains both of these methods! And because I want to share even more of my knowledge with you, the website might also start including some ready-made downloadable pricing templates! If you want to be the first to the find out when these valuable pricing resources are live just sign up here!