How To Establish Your Recommended Retail Price (RRP)
Before we get stuck into today’s post I’d like to say a big thank you for all the fantastic feedback I’ve received following Part One of this deep dive into pricing! It’s an incredible feeling to know that so many designers are benefiting and even surviving by learning from my many years of experience in the fashion industry!
If you haven’t yet read Part One - What's In A Price? where I break down the components of your COST PRICE I highly recommend reading that first, and even if you did read it you might like to refresh your memory or refer back to it while reading this post.
Now, as promised, here is Part Two of my guide to calculating your RRP.
Traditionally there have always been two pricing models that the majority of fashion businesses use to calculate a profitable RRP.
The first method is commonly known as the Keystone Method and it’s super simple. You just multiply the COST PRICE by two to give you the WHOLESALE PRICE (WS PRICE), then you multiply the WS PRICE by two to get your RRP. Due to its simplicity this is a great starting point for calculating RRP. However, you do need to be careful and apply some common sense as you don’t want to price yourself out of the market!
The second method is a more considered approach known as the Perception Method. This is technically the reverse of the Keystone Method as the starting point is the consumer perception of competing products within your category and market.
For example, let’s take that $500 RRP Scanlan jacket we’ve been gushing over. From your research (yes, this method requires a little more effort!) you’ve noticed that other brands selling a similar product in the same market may have set their prices at between $350-$550 RRP. If you decide that your product sits somewhere around $450 RRP (based on its quality, construction, value for money and the brand awareness you have built) you can go ahead and set that as your RRP. From this starting point you work backwards to determine the WS PRICE by dividing the RRP by two = $225. You then divide the WS PRICE by two again to give you a draft COST PRICE.
Note that I mentioned this is a draft COST PRICE, not the actual COST PRICE (which is of course calculated as detailed in Part One of this post). So it’s important to keep in mind that you may need to move the RRP and WS PRICES around to ensure you are making a profit on top of your COST PRICE. Remember, no one builds a successful business by just covering costs!
So those are the two main methods for calculating RRP - the Keystone Method and the Perception Method. Both are extremely useful and I encourage you to try both to see what type of results you get. And don’t feel that you have to stick with just one method as you might need both depending on your range of products and markets. Used in combination these tried and true methods provide an excellent starting point for getting your prices right the first time around.
Before you even start speaking to suppliers and manufacturers it can be useful to use the perception pricing method to determine what you want your COST PRICE to look like. This helps to keep you on track when sourcing fabrics, trims, and makers you would ideally like to use or work with!