Why You Need More Than Just A Cost Sheet To Price Your Items
Ah, the cost sheet. The standard for understanding your financial situation. So many designers, ethical or otherwise, base their pricing on this valuable sheet of calculations. These documents include everything from the price of your fabric, to labor expenses, to packaging. The typical practice is to use the cost sheet to understand how much it costs to produce your garments and add a markup to cover the rest of your business expenses.
However, when designers only use a cost sheet to price their items, they’re giving up knowledge and control over so many pieces of their business. It can leave designers clueless as to what kinds of funds are right for them to raise, and what other expenses in their business are really doing.
When your business’ only source of income is your product, you need to take your entire company into account in order to price your ethical fashion line. While some may argue that those expenses are covered in a markup, there’s no way to know what your money is actually doing unless you track it.
Startup ethical fashion designers who only consider their costing sheet in order to price their garments are keeping themselves in the dark. Developing a complete picture of what the business costs to run is extremely important, and gives the brand the ability to be even more transparent with consumers.
In addition to the cost of goods sold, ethical fashion designers should be factoring in a few other things when it comes to pricing each of their pieces, like the cost of operations.
As we mentioned, your business only has one main source of income, so that source of income needs to cover everything. You may not think your phone bill needs to be calculated in order to price your garments, but it does. Could you create your garments without being able to call the factory, pattern makers, or any of the other members of your outsourced workforce? Probably not.
The most important thing about understanding how your operations expenses are covered in your items is that this particular knowledge can help you to grow and expand, because:
- You can actually see how things can be paid for in the future,
- You know how much wiggle room you have right now,
- You know what’s pure profit,
- You know what you need to put aside for taxes.
This means you can adjust your pricing according to your growth trajectory, instead of abdicating your growth to whatever you might be making on your garment by chance. By using the costing sheet alone to price garments, the only thing you know for sure is that your COGS are covered… But if you break down your COGS, why wouldn’t you do the same for everything else?
A business, any business, doesn’t exist without operations. By breaking down operations expenses and seeing how they fit into the pieces in a collection, brands can understand their numbers on a deeper level, which may change their financial decisions. It also can influence a brand’s decision to pursue different kinds of funding. From the side of a funder: banks, grants, and investors like to see that a company has a complete picture of their finances and that they understand them.
Here’s the fun part — this blog isn’t just about theory. We’re going to give you a super simple way to get started.
As a new business, it’s unlikely you have thousands of expenses. It’s more likely you have a handful of monthly expenses (not counting your COGS) that are on a set schedule, like the annual fee for your website, or the monthly fee for your PR efforts. You probably have a lot of the same expenses over and over, and you continue to slowly add expenses to that monthly list over time. That means that you can use expenses you’ve already paid in the past for a projection of what your expenses will look like in the future.
In our course, Business Breakdown, we go through the budget process for your business and help you to build a budget and price your items so you can account for all of your business expenses in your pricing strategy.
Want a preview? We’ve put together an operations budget cheat sheet you can download now to get started. You can get a copy of our Operations Budget Cheat Sheet for Ethical Fashion Designers here. The sheet includes instructions to get you through the process, and we can't wait to see how you use it.
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