Ever wondered how a product is priced? In the fashion industry, it's pretty basic. Industry norm dictates that you take the cost of materials (e.g., fabric, zipper, labels) and labor (amount paid for someone to sew the garment) and multiply that number by four to six, sometimes more.
Why the multiplier? Because there are a lot of costs in product development and sales that aren't captured in materials or labor. For example, the cost of samples made to develop and perfect a single design. Or, the cost of having a style graded for the specific size range offered (you must grade each style). If a brand has a retail store, they have to cover overhead, rent, salaries, and incidentals like theft or damage to goods. An online only retailer must still cover the costs of shipping (packaging & postage), salaries, office equipment, and website, for example.
Everlane does a pretty good job of breaking down their costs. They're the only big retailer I know of that discloses product costs and profit margins. You'll see that they implement a multiplier of 2.38 and suggest that other retailers apply a mark up of 5 times for the Women's Cashmere Crew. Below is a screenshot of their breakdown for that particular style.
I'm also shocked by their very low labor costs. Although I'm sure many brands pay much less - especially those that manufacture in Bangladesh - I'm shocked that Everlane is paying such low wages for ethical production. Granted this item was made in China and what's a fair, living wage in China isn't here.
I also question what the hardware expense is for - there are no buttons or zippers on the sweater. I can only imagine it's for labels?
Everlane started out as an online-only brand but has since established a brick and mortar presence so it experiences all of the costs of doing business mentioned earlier. And while it's profit margin per piece isn't as large as most of its competitors, it's doing the volume necessary. A smaller profit margin is feasible if you're doing sufficient volume.
I manufacture in Washington, DC in very limited quantities. Sometimes I only produce one in every size offered. Other times, it's only 2-3 per size. As such, I'm not doing anywhere near the volume that Everlane is.
My fabric costs per piece range anywhere from $7 to $15 per yard. On average, I expect to use 1.5 yards for a style (this is a rough estimate). I pay my small run production company anywhere between $30 and $75 to make a single piece of clothing.
Because we looked at the cashmere sweater from Everlane, I figured my cowl neck top would be a fair example on my end.
Fabric: $22.5 (This ended up being much higher than anticipated because of a price increase in the fabric mid-development; we'd already sampled the item a couple of times therefore investing a lot in development and when I placed my order for production, learned there was a significant increase in price).
Plus, add an extra $2 to pre-wash the fabric. Because I work with a small run production company, they do not have the ability on site to pre-wash fabric. As such, I have to outsource and they have a minimum charge - this job was under their minimum charge amount increasing my per item cost. Total: $24.50
Manufacture: $36.40. The cost to manufacture any of my items is set by my small run production studio. She charges per piece she sews.
Total cost to produce: $60.9
Retail price: $138.
My mark up on the cowl neck ends up being 2.26 times the cost of production, resulting in a retail price of $138. According to Everlane, the top would traditionally retail for $304.50.
This mark up is intended to cover the cost of samples (we did two samples, approximately $150/ea.), pattern drafting (approximately $150) pattern grading (approximately $35 per size graded so $210), shipping (packaging & postage since I offer free shipping), monthly cost for website hosting, my time spent designing the piece and sourcing the fabric.
Sometimes my mark up ends up being closer to 3 times the cost. But, again, I only have a few pieces (5-20) at that mark up to recoup my costs in development and pay myself.
I'm sharing this in an effort to be as transparent as possible and so that you may better understand the cost behind products made by small, independnet brands in small batches. It simply costs more to do things in smaller quantities and there are fewer potential sales to be had to recoup those costs. As such, it's extremely difficult for small brands like myself to offer large sales (and when we do, we're basically selling product at cost to clear inventory).