Pricing 101: How To Price Your Products As A Fashion Entrepreneur
Pricing is an important aspect of fashion businesses as it goes a long way in determining how your brand is perceived by the public and how much profit you make for your business. This, in turn, determines your financial capacity as a business.
This week, we spoke with Chinelo Ikegbune of Lucydaves fashion brand and Opeoluwa Egbetayo of Avore Style Company on pricing for fashion brands and factors to consider in the pricing of fashion items.
Chinelo Ikegbune is the Founder of Lucydaves. Lucydaves is a Nigerian footwear brand that promotes African culture in a contemporary way. Their products, some of which have Nigerian and African themes, are made using 100% locally sourced materials and artisans.
The footwear produced by the brand is simple, unique, and classy all at the same time.
Pricing, to her, is putting an amount on the total of your time and creativity.
Opeoluwa Egbetayo is the Founder and Creative Director of Avore Style Company. Avore Style Company is a bespoke and ready-to-wear clothing line that specialises in well-fitting beautiful clothes for the stylish working woman.
The outfits the brand makes are classy and elegant, bringing out the beauty in every woman's body.
For her, pricing means the cost customers buy your products for.
Things to Consider when Pricing Fashion Items
1. Buying Power of your Target Market:
What type of customers are you looking to attract to your brand? What's their buying power like? How do you want your brand to be perceived by your target market?
The pricing of your product will either position your brand as a luxury brand or an affordable brand.
Not doing properesearch on how much customers are willing to pay for their products can lead to underpricing of your fashion items. - Chinelo Ikegbune.
It is key to factor in every cost incurred during production, from fixed costs, e.g. rent, your salary, employees' salaries, to variable costs e.g. cost of raw materials, like fabric and zip, fuel. This is important so you don't undersell and make little or no profit.
A lot of designers forget the fixed costs of their business while pricing. Many people just add the cost of fabric and a little margin on top and end up with huge debts at the end of the season. - Opeoluwa Egbetayo.
You need to determine how much your time and creativity are worth, how much value you're giving, and then put a price to it. The profit you want your business to make from fashion items is entirely up to you.
4. Competitor Pricing:
For startups that are just trying to penetrate the market, it is important to find out how your competitors price their items. This enables you to put a competitive price tag on your fashion items.
Some designers do no understand the value of their products hence they usually don't know how to put a price on it. You need to know the value of your brand before you decide on prices - Chinelo Ikegbune
The formula for Pricing (Gotten from one of the Top Fashion Schools in Lagos)
In pricing generally, what you want to do is get the price of everything.
Price = Cost of Production(C.O.P) + Profit.
C.O.P = Overhead per item + Materials + Labour (Commission)
To calculate Monthly overhead;
- List out all the items you have e.g. Sewing machines, mannequins, rent, a/c, tables, electricity, fuel, iron, maintenance, entertainment, etc,
- List out the amount you bought them e.g. if you bought your sewing machine for N100,000, list it out,
- Determine the number of years that items will last for and calculate it in months e.g. if your sewing machine will last for 5 years: 5years * 12 months = 60 months.
- Divide the cost of your asset by the number of years it's expected to last e.g. for the sewing machine above, 100,000/60 = N1667 per month.
Monthly Overhead = Cost of each item / Number of months each item will last for.
This calculation should be done for all of your fixed costs and then the total will be added to determine the amount of money you must make every month. For example, after you have calculated your overhead for your sewing machine, chairs, tables, iron, generator, waste, fuel, etc if the total comes to N15,000 then that is the minimum amount you should make per month to cover your bills.
After you have calculated your monthly overhead, you should go ahead and calculate your daily overhead;
Daily Over Head = Monthly Overhead / Number of Days you work per month.
Once you have gotten your daily overhead, it is important to calculate your overhead per item;
Overhead per Item = (No. of hours spent making that item / Working hours) * Daily Overhead.
Following the overhead calculation, you need to calculate how much it cost to buy the materials needed for each item you made. If you had to buy such items as lining, crepe, applique, zipper, thread, leather, calculate the total amount you spent plus transport cost.
Cost of Materials = Cost per item purchased + Cost of Transporation.
After calculating the cost of materials you used, you need to calculate the cost of labour (labour is paid on commission and not salary);
Labour Cost = Amount you want your employee to earn / Number of hours worked per day.
You have to have a fixed amount you are willing to pay per hour. Ensure to specify the number of hours he/she is expected to spend on each item.
When you have calculated all this, you have your Cost Of Production.
In calculating profit, you have to determine how much profit you want your business to make. This decision is entirely up to you. Your profit is a percentage of your C.O.P.
For example, if you want a profit of 100%;
Profit = (100 / 100) * C.O.P
N.B.: Never sell anything below your C.O.P
PRICE = C.O.P + PROFIT
Importance of Right Pricing
1. It puts you in a Good Spot:
When you price your fashion items right, it helps you maintain a balance between your profitability and volume of sales. It helps ensure that you make the right amount of profit following the number of items you sell.
2. It helps you Maintain a Steady Price:
Many times, when the price of the fashion products of a brand keeps fluctuating, it scares customers away. Customers like to be able to trust you and your brand enough to know that your prices are stable and within their buying capacity.
If you find that the price of your fashion items are not steady and you often need to make changes to them, maybe its time for you to sit and review your pricing.
3. It helps ensure that your Brand does not run at a Loss:
If you price too low, you might no be able to break even. You'll just find that your fashion items are being purchased but there is no cash to show for it. At this point, you begin to run your business at a loss and this will affect your brand negatively.
4. It keeps your Brand Within your Target Markets Price Point:
It is assumed that before you started your fashion brand, thorough market research had been carried out and you know what your target market can and cannot afford.
If your prices are too low for your target market, there is a high probability that your products will be seen as inferior by them. On the flip side, if your prices are too high, they might not be able to afford your products and they'll look somewhere else.
In pricing as a brand, you might, and should, get to a point where your prices need to be reviewed. This happens for various reasons;
- when you realise you have been selling at a loss,
- there is an increase in the cost of raw materials and production,
- there is an increase in value you give to your customers, e.g. if you begin to import Swarovski crystals to use for your clothing items, your price will naturally increase,
- you want to change the perception the public has of your brand.
If any of these reasons do come up, do not be afraid to increase your cost following the change.
Some people know the right price to put but are afraid that their customers will not buy. Never be afraid to step up your pricing as far as you know it is not exorbitant for your taryourmarket - Opeoluwa Egbetayo.
What do you do when a Loyal Customer is trying to go before a Price Point you're Comfortable with?
Loyal customers are key! Never forget that. They play a huge role in advertising your brand to their family and friends which is important.
However, if a loyal customer is trying to go below a price point you're comfortable with, it's advisable to give them a discount. You can do this for that purchase and one subsequent purchase only because you know they'll keep coming back. It's a win-win situation for anyone.
When it comes to new customers, make sure they buy at the price you are selling your products at so they get used to your pricing and your brand perception is preserved.
Ways to Upgrade your Pricing
In upgrading your pricing,
- Take it one step at a time: Never just hit your customers with a huge price change all of a sudden. Produce nicer things with more value and gradually begin to phase out your old cheap collection.
- Slip it in once and for all: If you have to upgrade your pricing, do it once and for all. Don't go the route of increasing it every month as this will turn your customers off your brand.
- Add extra value: While increasing your price, add extra value as an incentive. For example, in the first week, give out a little gift with each order you dispatch. This will keep your customers happy and let them know you care about them.
- Explain to customers: When your prices increase, always make it a priority to explain to the customers who complain about it the reason for the price review. You have to have a genuine explanation as you cannot just increase your pricing for no good reason and expect all your customers to go with the flow.
Chinelo Ikegbune said, "Start with the right pricing. Depending on the market you are trying to penetrate, do some research on the pricing of your competitors. Do proper market research. No matter what price you put out, don't be jittery when people say the price is too high, just know that they are not your customers."
Opeoluwa Egbetayo said, "Start right! Understand your numbers before you start putting prices on your goods as people will gauge your business by the price you put on your products."
Right pricing is an essential skill every fashion entrepreneur needs to learn. Do you have any questions related to pricing? Please ask them in the comments section below. Don't forget to hit like button if you enjoyed this read 🙂.