how to get the best possible cost price from your factory
This blog was written in collaboration with Chloe Hill - a recently graduated 1st Class Hons English student at Royal Holloway, the lifestyle editor of Orbital Magazine & freelance online fashion writer for Debut Magazine.
The intricacies behind the production process of a fashion business may seem mundane at first glance. When your mind is brimming with creative ideas about colours, designs and mood boards, these tasks can appear less inviting. Yet, these logistical issues are essential when it comes to ensuring that your business is in the best possible position to thrive.
Before it comes to securing the best possible cost price from your factory, make sure you’re clued up in terms of your own expectations, with a rough estimate of what you want to achieve and at what cost.
Think about a relative price estimate, along with more general considerations such as whether the factory has positive experiences within your sector and whether the location slots in well with your lifestyle. If viable, it can be beneficial to pay the prospective factory a visit before starting the negotiation process to get a feel for it.
Here is where the blog comes in! I’d love to help you understand the nuances behind how the factory will reach a price, along with the best steps that you can personally take in order to secure the best possible price.
WORKING IT OUT
Remember that factories will only offer an accurate and calculated price once a sample is complete. Before doing so, they will need a timeframe of approximately how long it will take a machinist from start to finish, along with the amount of fabric required.
Once the factory has acquired the factual data, they will then proceed to add the excess, which will translate as their profit, before reaching a final price that they will offer you.
TARGETS
A factory will inevitably ask you for a target price. A key tip to always remember is:
DON’T GIVE ONE!
Regardless of the target you give, the factory is likely to add some on, yet still present it as if they were doing you a favour. Make sure you always ask for an initial starting point before you give any mention of a target to assure that you’re getting the best possible deal.
MARGIN
When it comes to the margin, market research will be your best friend. Evaluate businesses who operate on a similar scale to your own and of course that boast a similar product range. Once you’ve got an approximate sell price, work with it – you can always change it afterwards. Use it as a comparison tool when the factory offers you a cost price, utilising this handy equation as a quick and easy way of calculating your margin:
COST PRICE / SELL PRICE X 100 – 100 = MARGIN %
Although this formula will leave you with a minus, just ignore that and see that number as a percentage.
EXAMPLE:
T-Shirt Cost Price: £7
Sell Price: £16
Using the formula…
7 / 16 x 100 = - 56.25 (56% margin)
You would ideally wish to aim for somewhere around the 60%-70% mark as the minimum figure, so work around with this formula and your cost price to reach a selling price that works.
Things to consider throughout the costing procedure include fabric, manufacturing time, thread, trims and packaging.
Note: If you make your products yourself, work out an approximate figure for your own pay per hour, along with the time it takes you from the point of cutting fabric to the final finishing point.
NEGOTIATION
Be prepared for the negotiation process, so you can get the most out of it. I’m sure it goes without saying for most of you – but NEVER take the first price.
You’re here to negotiate, so ask questions to generate a better mental picture about where there’s room for a bit of wiggle in terms of what is and what isn’t negotiable.
Here are some key questions to jot down as a starting point for your negotiation process:
o Can the fabric be cut more efficiently?
o Can the process be sped up?
o Where is the cost coming from?
o What can we do to bring that down?
Regardless of the medium by which you’re communicating (e.g. in person or over the phone) make sure you write everything down in an email where you will have solid confirmation.
I hope this comes in handy when you are faced with negotiating with the factory! If you have any further questions about this topic, or wish to discuss it in more detail on a more personal basis, please do not hesitate to contact me via email at hi@elizabethstiles.co.uk.