The financial part of running a business can be tricky, but it’s a trade you really need to learn if you want to be successful.
After all, you want to run a business and not a hobby, right?
On paper the road from idea to production might seem like a smooth ride, but in real life, there can be a lot of bumps in the road, so it’s important to be prepared.
There are various mistakes and misjudgments you can easily make as a new designer. In a series of blogs I share some tips to help you recognize and avoid some common pitfalls.
One of the big pitfalls is not having a clue about costs and prices. From my experience, I’ve noticed that many starting designers think they can compete with the likes of Zara and H&M, but here’s the deal (spoiler alert!):
You can’t compete with fast fashion brands if you’re a small independent designer.
That’s why I want to give you a quick rundown on costs – it’s essential for emerging designers to have a realistic understanding of this.
Economics of scale
Consider that brands like that have their items made by the thousands. Even tens or hundreds of thousands. And with numbers like that, the world changes drastically.
As with everything in life, for small numbers you pay top prices. This applies for everything; materials, production, shipping, your daily groceries, you name it.
And then there is something with fair prices and quality…
Production and development costs for small runs are much higher, which means you’ll need to set realistic prices to cover your costs and still turn a profit.
When it comes to producing a garment, the main costs are development, materials, and manufacturing. There are also some smaller costs to consider, like transport and import duties, but they make up only a small percentage of the total costs.
Development costs are often overlooked, but they take up a significant portion of the total cost, especially for smaller orders.
For a small brand, €2000 in development costs per style is a realistic number, while larger brands may have higher costs due to the larger team and more complex process. Let’s assume this is €5000 per style.
When you break it down, for a small brand with 100 pieces, that’s €20 per piece, but for a larger brand with 1000 pieces, it’s only €5 per piece.
Smaller brands also pay more for materials, which adds up quickly. When you buy only 10 meters of fabric you easily pay 2.5 times as much then when you buy 100 meters.
It pays to shop around for materials. There are wholesalers/manufacturers who charge the same price per meter regardless of quantity or have low minimum order quantities. So it’s definitely worth taking the time to compare prices and quality.
Don’t just go for the cheapest option without considering the quality – it might save you money in the short-term, but in the long-term returns due to poor quality cost you more. Not only do you have to replace or refund the item, but you will also loose a customer.
When it comes to manufacturing costs, it’s easy to understand why it’s much more cost-effective to produce 10,000 pieces in an automated process than 100 pieces in a traditional workshop.
For a simple t-shirt, the price difference may be small. But when you’re dealing with more complex designs, the cost can really add up. Think about the difference between being able to make a pocket or zipper automatically versus having to do it by hand.
All of this means that it’s much more expensive for an individual or small business to make the same item as a large fashion brand. More than twice as much is not uncommon.
This is an old blog from 2016, but it explains the structure of costs pretty good.
To keep costs low, here are some tips to follow:
Do not let this blog discourage you from launching your fashion brand. Understanding these upfront costs will help you develop a more realistic budget for production and keep your designs accessible to your customers.
Thanks for reading this series on pitfalls to avoid- now go out there and start creating!
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