Garment Costing for Fashion Brands: How to Calculate COGS and Set Profitable Prices

Garment Costing for Fashion Brands: How to Calculate COGS and Set Profitable Prices A product can look successful on social media and still lose money on every sale. For a fashion brand, profitability starts long before launch day—with a clear understanding of what each garment actually costs. Many new designers focus only on the factory’s unit price. But the amount paid to manufacture a garment is not the complete cost of getting that product ready for a customer. Fabric, trims, sampling, packaging, freight, duties, payment fees, damaged units, and fulfilment can all reduce your margin. This guide explains how to calculate garment cost, understand cost of goods sold, and set prices that support a sustainable fashion business. What is garment costing? Garment costing is the process of calculating every expense required to produce one finished garment. A factory usually prepares its quotation from material consumption, labour, trims, finishing, overhead, and profit. A brand then adds the expenses required to bring that garment into stock and make it ready to sell. The terms are related, but they are not identical: • Factory cost is the price quoted by the manufacturer. • Landed cost is the total cost of bringing the product to your warehouse or fulfilment location. • Cost of goods sold, or COGS, is the direct cost assigned to the products you sell. • Operating expenses are the costs of running the wider business, such as marketing, software, salaries, rent, and professional services. You need all four views to understand whether a product and the business around it are financially healthy. Start with a complete tech pack and BOM Accurate costing depends on accurate product information. A factory cannot price a garment correctly when the fabric, construction, measurements, trims, artwork, labels, and packaging are still unclear. Your tech pack should define the product, while the bill of materials should list every physical component. A useful BOM may include: • Main fabric and lining • Rib, mesh, interfacing, or padding • Sewing thread • Buttons, zippers, snaps, eyelets, or drawcords • Printed or woven labels • Hangtags and barcode stickers • Printing, embroidery, washing, or other treatments • Polybags, tissue, cartons, and protective packaging When every factory quotes from the same tech pack and BOM, you can compare prices more fairly and identify which design decisions are affecting cost. ThreadPack helps fashion teams keep sketches, materials, measurements, construction notes, colourways, and revision details together in a clear factory-ready document. The main parts of a factory garment cost 1. Fabric Fabric is often the largest cost in a garment. The calculation depends on the fabric price and the amount consumed per unit. Fabric cost per garment = fabric consumption × fabric price Consumption should include a realistic allowance for cutting loss, shrinkage, defects, matching stripes or checks, and other production waste. The exact allowance varies by product and material. Fabric width, garment size, marker efficiency, minimum dye quantity, colour, weight, and special finishing can all change the final price. A small change to the pattern or fabric specification may have a significant effect across a large order. 2. Trims and components Calculate the cost of every item used in one garment. Small components are easy to overlook, but their combined cost can become meaningful. For a jacket, trims might include the main zipper, pocket zippers, snaps, elastic, labels, thread, drawcord, toggles, and packaging. Confirm whether the supplier price includes freight to the factory and whether minimum order quantities create unused stock. 3. Labour or CMT CMT means cut, make, and trim. It covers the labour required to cut the fabric, sew the garment, and complete basic finishing. More seams, difficult materials, precise matching, complex pockets, linings, or technical construction usually increase production time and labour cost. Ask whether the factory quote is full-package or CMT only. A low CMT quote may exclude fabric, trims, testing, washing, printing, packaging, and sourcing services. 4. Decoration and special processes Screen printing, digital printing, embroidery, garment dyeing, washing, heat transfer, pleating, bonding, laser cutting, and other processes should be priced separately when possible. These services may include setup fees, screens, digitising, strike-offs, test panels, or minimum charges. Spread one-time setup costs across the expected production quantity to understand their per-unit impact. 5. Factory overhead and profit Manufacturers must cover management, utilities, maintenance, compliance, quality control, and other operating expenses. These costs, plus the factory’s profit, may be included in the quoted unit price rather than shown as separate lines. The lowest quote is not automatically the best value. A reliable factory with strong quality control and clear communication can save money by reducing rejects, delays, and revision rounds. From factory price to landed cost After receiving the factory quote, add the expenses required to bring the goods into stock. Landed cost may include: • Factory unit price • Sampling and development allocated per unit • Quality inspection • Freight and insurance • Customs duty and import tax • Customs broker or forwarding fees • Port, handling, and delivery charges • Packaging not included by the factory • Currency-conversion and international payment fees Landed cost per unit = total product and import costs ÷ number of sellable units received Use sellable units, not only ordered units. If you receive 1,000 pieces but expect 20 units to be damaged, used for photography, or kept as quality samples, the remaining 980 units must recover the cost. What should be included in COGS? COGS normally includes the direct costs of the products sold. The exact accounting treatment can vary by business and country, so confirm your method with a qualified accountant. For internal product planning, many brands begin with landed cost and add direct per-order expenses such as pick-and-pack fulfilment, transaction fees, or customer packaging. Keep the method consistent so products can be compared over time. Marketing, office software, salaries, rent, design services, and general business expenses are usually tracked separately as operating expenses. They still need to be covered by your gross profit. Calculate gross profit and gross margin Gross profit per unit = selling price − COGS per unit Gross margin percentage = gross profit ÷ selling price × 100 For example, if a product sells for $80 and its COGS is $32: Gross profit = $80 − $32 = $48 Gross margin = $48 ÷ $80 × 100 = 60% Markup is different from margin. In the same example, the markup on cost is $48 ÷ $32, or 150%. Confusing markup and margin can lead to prices that are lower than intended. How to set a retail price There is no single pricing formula that works for every fashion brand. Your price must reflect product cost, customer expectations, brand position, competitor context, sales channel, and the profit required to operate and grow. A practical pricing process is: 1. Calculate a realistic landed cost and COGS. 2. Estimate returns, discounts, damaged goods, and unsold inventory. 3. Decide whether you will sell direct-to-consumer, wholesale, or through both channels. 4. Calculate the gross margin needed by each channel. 5. Check whether the resulting price makes sense for your target customer and market position. 6. Adjust the product, cost, or channel strategy if the required price is not realistic. Do not reduce the price before understanding the gap. You may be able to simplify construction, change an expensive trim, improve fabric consumption, combine colour quantities, revise packaging, or negotiate at a different volume without damaging the product’s core value. Plan for wholesale from the beginning If you may sell through retailers, build wholesale economics into the product early. A retailer needs room to apply its own margin, while your wholesale price still needs to cover COGS, development, operations, and profit. A product that is profitable only at full retail price may become unworkable when sold wholesale or heavily discounted. Create separate scenarios for direct retail, wholesale, promotions, and marketplace fees before committing to production. Common garment-costing mistakes • Using the factory quote as the complete product cost • Forgetting sampling, inspection, freight, duties, and payment fees • Dividing costs by ordered units instead of sellable units • Ignoring fabric and trim minimums • Comparing quotes based on different specifications • Confusing markup with margin • Setting prices only by copying competitors • Assuming every unit will sell at full price • Failing to update the costing after a design revision Build a costing sheet for every style Create one costing record for each style and colourway. Include the tech pack version, order quantity, supplier, currency, quotation date, material costs, process costs, landed-cost assumptions, COGS, target prices, and expected margins. Update the sheet whenever the fabric, construction, packaging, quantity, freight method, or exchange rate changes. A costing file is not a one-time estimate; it is a decision-making tool throughout development and production. Final costing checklist Before approving an order, confirm that: • The factory priced the latest tech pack and BOM • Fabric consumption and waste are included • All trims and special processes are listed • MOQ-related excess materials are understood • Sample and setup costs are allocated • Freight, duty, inspection, and fees are estimated • COGS uses the expected number of sellable units • Retail and wholesale scenarios meet your margin targets • Discounts, returns, and unsold stock have been considered • The costing will be updated after final production Creative ideas become sustainable products when the numbers work. A clear tech pack improves the quotation. A complete costing sheet reveals the true financial picture. Together, they help you decide what to produce, how much to order, and what price your brand needs to charge. Create clearer factory-ready product documents with ThreadPack: https://threadpack.com/app