Why is costing so important?
If there is one aspect of garment manufacturing that can make or break a company’s fortune, it’s how product costing is determined. This is why we’re placing special attention on every element that affects costing and how to create costing tables easily and accurately.
But first, what is cost?
Cost can be defined as the economic value placed upon the resources consumed to make a product. This includes the cost of raw materials, construction of the garment, trims, packaging, labor, transportation and operating expenses.
A simple formula to estimate the final retail price of a product is:
In other words, the overall cost of your product minus the final retail price is what will determine your profit margin.
For this reason, it’s crucial to ensure accurate calculations as even minor mistakes could severely impact your bottom line and hurt your finances. In contrast, establishing an adequate competitive costing system will maximize profits and make your business thrive.
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The methods to determine costing may vary if you are a brand or a manufacturer. However, these are three main categories that have a crucial role in the final cost of your garment and should be taken in consideration by designers and factories:
Fabric is the main raw material for apparel production and it usually accounts for approximately 70% of the total cost.
One way to lower fabric costs is to source locally from your manufacturing country, instead of importing. You not only save on shipping expenses and paying import duties, but also usually get a better price for the fabric.
Order fabrics well in advance and above the minimum order quantity. A minimum order quantity (MOQ) is the lowest set amount of stock that a supplier is willing to sell. Usually, if you don't meet the MOQ for an order, the supplier will either refuse to produce the items or charge an additional fee. This is something to consider particularly when placing a small order.
This is another significant component factoring in the final cost of any apparel product. Trims can include both the stitching trims like buttons, zippers, and labels, as well as the packaging like carton boxes, poly covers, and hang tags.
Trims should add value to the garment and have a purpose; otherwise they are just increasing the overall cost of the piece. Locally sourced trims can be a lot cheaper and of good quality too. In this case also going above minimum order quantities can save money.
The style complexity of any apparel product determines the Cut Make (CM), and this will have an impact on the costs depending on how complex the piece is. For example, a basic shirt with no pockets will be less expensive to produce than a stylized shirt with patch pockets because it requires less stitching operations.
Special seams, for instance, will increase CM costs. Take for example the case of stitches and operations like pintuck, baby overlock or 5-needle flat overlock that require specialized machines or operators.
It's important to minimize total seams to reduce the total CM cost. But in some cases, additional seams decrease fabric consumption. The key is to strike a fine balance between aesthetics, CM costs and fabric consumption to have competitively priced product.
Order Quantity & Size Specification
As with fabrics and trims, MOQ (minimum order quantity) has a significant impact on apparel production costing. Larger orders not only lower the cost per item but also are also attractive to manufacturers as it's a bigger business for them.
It’s important to note that sizing specifications must be included, as larger sizes require more fabric and these will be more expensive to produce.
The manufacturing quality of garments is directly related to the workmanship of the factory and their specialty. You should choose manufacturers that specialize in your particular type of product because they will have the experience, the expertise and also the equipment to satisfy your needs.
Don't forget that the location of your garment manufacturer is also something to consider versus transportation costs.
The location of your manufacturer is also something to consider versus transportation costs as shipping can greatly impact costing.
Depending on where you decide to produce you might need to take into account either the CIF (Cost Insurance Freight) or a FOB (Freight on Board), plus additional taxes or import tariffs.
Start with the basics. Create a neat, organized, cost sheet that keeps track of all the expenses and that you can also save for your records.
An ideal cost sheet should be simple, yet comprehensive enough that it holds all of the necessary information about the garment you’re producing. At the same time, it should be easy to understand and accessible for the rest of the team.
A complete costing table should list all of the elements pertaining to the three main categories mentioned above: materials, manufacturing, and transportation.
For instance, let’s say you’re producing a basic denim jeans with a simple trim and a garment wash.
✔️ Your table should indicate which material the jeans are made of (100% cotton for example) and how much of it is required (1.4 mts).
✔️ Include your hardware/ trims like buttons, labels and packaging in total and what material they are (metal, plastic...)
✔️ List out any special garment processes requirements like washing, embroideries etc. and include cost per piece of garment.
✔️ Ideally, the table should list each vendor or company responsible for each part on a different column.
✔️ Evidently, quantities of each item must be listed, ideally on another column to make the visualization and calculation easier.
✔️ Atlast, estimate your production overheads and rejections (5% industry standards) and list them next to your profit-margin (subjective).
Why Excel sheets are not ideal
Many organizations still rely on Excel spreadsheets for their costing operations. They’re confusing, difficult to read and more prone to calculation errors. Take for example this costing sheet created in Excel:
At glance, it appears to be clean and organized. However, upon closer inspection it gets tricky:
1) Since the tables have to be built from scratch, all of the details for the BOM have to be entered manually, one by one. Next, it will be necessary to format the table and introduce the right formula to calculate costs.
2) It’s usually the case that these formulas and formats are copy-pasted to other tech packs to keep a consistent template. It doesn’t require too much thought to see why this method could go wrong easily!
3) All of this is particularly inconvenient when updating product prices during product development. As you know these are constantly changing, and having to manually reintroduce everything is very time consuming, not to mention primed for mistakes.
If you use our costing template, all the items that are in the ‘Bill Of Materials’ section automatically gets transferred to the costing sheet. This is a time saver and reduces the probability of missing an item.
All that you need to do is to introduce the variables for the quantity, price per piece, and the UOM (unit of measurement). The total cost will be calculated automatically with formulas already integrated in the table.
With Techpacker, you can see the cost sheet and the product tech pack in one place instead of having to go back and forth between two separate documents. You can always make edits and keep your entire team up to date with real-time information.
To share costing sheets with vendors and brands you can generate multiple PDF versions right from the platform. This makes it super easy to compare and analyze and make the necessary adjustments before sending to production.
Doing costing with Techpacker will save you time, money and not to mention the headache of having to organize so many sheets and lines of products. It's all in one place, with files, history and details ready to share and access as needed!
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