I recently had a poll on Facebook, inviting people to vote for topics they would like me to demystify. The one that got the most votes was "How do you price your clothes", so here's to transparency and sharing information!
Around 2 years ago I wrote a blog post on labour costs, largely motivated by people asking me why my clothes were priced so high. Salaries have gone up since then and talented labour is harder to find. Also, 2011 was a bad year for cotton and silk prices- the costs kept increasing every week. I struggled to prevent all of these factors from affecting my retail price, but it was difficult. I used a crude pricing system then that didn't really allow me to play with numbers and figure out what fabrics were within my budget and what weren't.
This was my old costing system:
([Tailoring cost] + [Fabric Cost] +[Thread/ Buttons/ ZipperCost]) * Markup = Price
It took me a few years to realize that this calculation wasn't giving me enough information. It wasn't telling me if I was covering my other costs (pattern making, quality control, production manager, sales staff, etc). A casual conversation with an accounting professor last year led to my new costing method (yes, I am a nerd who talks about work even at parties). ABC, or Activity Based Costing, breaks down the cost of each garment into every single aspect that is required for production. ABC allows you to see how wise a certain investment is, and it helps you work towards reaching economies of scale. Think about a cost like rent: your rent is going to stay at X amount every month, whether you produce 300 garments a month or 500 garments a month. However, your cost of rent per garment is lower if you produce more, because that X amount is now divided by 500 instead of 300. Another great example of reduced cost per garment as you increase quantities is the pattern-making costs.
My equation now looks like this
([FabricCost] + [TailorCost] + [Thread/ Buttons/ ZipperCost] + [PatternCost] + [ManagementCost] + [QualityCheck] + [Rent& Electricity]) * Markup = Wholesale Price
In order to do this accurately, it is important to arrive at a way of calculating precise costs. This means that fabric inventory counting and checking is important to know exactly how much fabric a particular style consumes, and producing a style in mini-bulk quantities is essential to observing average tailoring time for that particular style (it also ties in to how you would calculate Rent & Electricity cost for that style).
The Wholesale price is what another store would have to pay if they decide to start a franchise or retail Brass Tacks in their space. Please note, the markup highlighted in green (in the ABC equation) has to be significantly lower than the markup highlighted in yellow (in the first equation), since in the ABC equation you are taking many more indirect costs into account.
Finally, Wholesale Price * Markup = Retail Price
To know what costs need to go into your equation, ask yourself this question: if I did not have this thing, would it be possible to make my garments? If the answer is no, then you need to find a place for it in your equation. For Brass Tacks, things like fabric washing, rent, electricity, and pattern-making are all necessary for garment production. However variables like sales staff salaries, shop rent, photoshoot costs, etc, are not required in the garment manufacturing process and therefore they do not have a place in the ABC equation.
I cannot go into further detail of how much my tailors cost, and how much rent I pay, etc. However I do know that our markups are lower than industry standards. I'm not looking to change it now, because I hope that as we grow I'll reach better economies of scale that allow me to increase that profit margin without letting my customers feel the pinch. In other words, I'm willing to bear that cost today - because I know there's a future coming up very soon where Brass Tacks is bigger, and our production is more efficient.
Around 2 years ago I wrote a blog post on labour costs, largely motivated by people asking me why my clothes were priced so high. Salaries have gone up since then and talented labour is harder to find. Also, 2011 was a bad year for cotton and silk prices- the costs kept increasing every week. I struggled to prevent all of these factors from affecting my retail price, but it was difficult. I used a crude pricing system then that didn't really allow me to play with numbers and figure out what fabrics were within my budget and what weren't.
This was my old costing system:
([Tailoring cost] + [Fabric Cost] +[Thread/ Buttons/ ZipperCost]) * Markup = Price
It took me a few years to realize that this calculation wasn't giving me enough information. It wasn't telling me if I was covering my other costs (pattern making, quality control, production manager, sales staff, etc). A casual conversation with an accounting professor last year led to my new costing method (yes, I am a nerd who talks about work even at parties). ABC, or Activity Based Costing, breaks down the cost of each garment into every single aspect that is required for production. ABC allows you to see how wise a certain investment is, and it helps you work towards reaching economies of scale. Think about a cost like rent: your rent is going to stay at X amount every month, whether you produce 300 garments a month or 500 garments a month. However, your cost of rent per garment is lower if you produce more, because that X amount is now divided by 500 instead of 300. Another great example of reduced cost per garment as you increase quantities is the pattern-making costs.
My equation now looks like this
([FabricCost] + [TailorCost] + [Thread/ Buttons/ ZipperCost] + [PatternCost] + [ManagementCost] + [QualityCheck] + [Rent& Electricity]) * Markup = Wholesale Price
In order to do this accurately, it is important to arrive at a way of calculating precise costs. This means that fabric inventory counting and checking is important to know exactly how much fabric a particular style consumes, and producing a style in mini-bulk quantities is essential to observing average tailoring time for that particular style (it also ties in to how you would calculate Rent & Electricity cost for that style).
The Wholesale price is what another store would have to pay if they decide to start a franchise or retail Brass Tacks in their space. Please note, the markup highlighted in green (in the ABC equation) has to be significantly lower than the markup highlighted in yellow (in the first equation), since in the ABC equation you are taking many more indirect costs into account.
Finally, Wholesale Price * Markup = Retail Price
To know what costs need to go into your equation, ask yourself this question: if I did not have this thing, would it be possible to make my garments? If the answer is no, then you need to find a place for it in your equation. For Brass Tacks, things like fabric washing, rent, electricity, and pattern-making are all necessary for garment production. However variables like sales staff salaries, shop rent, photoshoot costs, etc, are not required in the garment manufacturing process and therefore they do not have a place in the ABC equation.
I cannot go into further detail of how much my tailors cost, and how much rent I pay, etc. However I do know that our markups are lower than industry standards. I'm not looking to change it now, because I hope that as we grow I'll reach better economies of scale that allow me to increase that profit margin without letting my customers feel the pinch. In other words, I'm willing to bear that cost today - because I know there's a future coming up very soon where Brass Tacks is bigger, and our production is more efficient.
3 comments:
Hello, just one comment since I have bought quite a few of your clothes. This is the customer side of the story: I pay as much or more for Brass tacks clothes than clothes I own from brands like Kilol, Anokhi, Allen Solly and van Heusen. In the case of the other brands, I am guaranteed a certain lasting quality in terms of quality of fineness of cotton cloth or dye not fading. In contrast, many Brass tacks clothes for which I paid a comparable or higher price were coarser (the feel on the skin) and in the case of the ikat pieces, the clothes became dull and faded after a few washes. I am careful to choose only mild bathing soap on expensive handlooms for washing.
Dear Anonymous,
This was a post on pricing not quality. But anyhow, I encourage you to bring your faded pieces to my store and show them to us. We're happy to learn from your experiences and see what we can do to improve our product. I own many of the pieces we make- especially the ikat ones- and I wear them several times. I don't want this to be a battle of your word against mine- obviously you've had some bad experiences and I value you as a customer so please, if you have the time, bring the pieces to us and help us learn what happened. I welcome every opportunity to improve our quality check and the quality of fabrics we use.
Thanks for your time, and for sharing your feedback with us.
Anaka
anaka@brasstacksmadras.com
Dear Anonymous,
I think another thing that might help is using a liquid soap like genteel or a shampoo to wash clothes rather than a bathing soap. Most bathing soaps, especially in India, contain ingredients that help make your skin fair, which would certainly react with the fabric dyes.
Hope this helps. You're welcome to still drop by our store anytime and show us your faded clothes. We'll work something out for you :)
Anaka
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