What margins should I put on my products?
Hi guys
I'm thinking about selling clothing merchandise for online celebrities. I'm trying to draw up a financial plan at the moment and unsure of what margins to put on the products? How should I go about making decisions on this? Any help appreciated!!
First off, I'm not a fashion or retail expert so take this with a grain of salt. I would say that all smart fashion retailers are making money off of their merchandise even when you see it 80% off. The math is that a certain percentage will buy at full price, and more follow on as the price drops (perceived as a deal or impulse buy).
The next thing to consider is how recognizable is the celebrity? Do they have a large following? What type of budget do their followers have to spend?
The third item to keep in mind is the quality of the product. If these lines are being promoted or tied to online celebrities the items should match the quality and style associated to the personality.
The last thing to keep in mind is your distribution channels. Are you only planning to sell these items online? If so you may not have to worry about covering the costs of a brick and mortar storefront.
At the moment that covers all that came to mind.
Yee, just a clarifying question - can you tell me a little more of what you are doing... for example, are you acting as sole agent for these celebs or are you acting as their 'marketing arm' and selling online? Are you buying low cost and then onselling? Are they being dropshipped or are you holding them locally?The reason I ask is that different scenarios will mean a different approach/business model.
Hi Lisa. Simply responsible for buying and shipping of products. Celebs will do their own marketing. Initially, I'll be holding them locally.
Yee, this may seem a bit 'trite', however, because it is the fashion industry - I'd go with whatever the market will pay. Like Jef pointed to - fashion retail has huge margins - hundreds of percentages. So as long as the person you are onselling to can make a profit it should all be sweet. Next 3 steps. 1. Research your competitors, go undercover as a buyer and find out what they are charging 2. Have a conversation with your buyers.and see how much they are prepared to pay 3. Work out how much profit you want to make .... these three steps will enable you to either go and then find more knowledge, or make an informed decision. Good Luck.
Easy way to price your goods is to compare it to competitions. Research your competition and find where you are on scale compared to them in terms of the quality of your products. If you're product is better, price it more than competition, and vice versa. As long as the sell price is more than double of your cost, you are doing fine. Adjust price as you go.
Angelo Panagopoulos at Wilson Pateras Accountants
There are two margins that need to be considered when monitoring your profitability: gross margin and net margin. Knowing these figures helps to set prices for goods to calculate your sales targets. Gross margin is money left after subtracting the cost of goods sold from the net sales and can be a dollar value (gross profit) or a percentage value. Net sales are the total value of sales less any discounts given to customers and commissions paid to sales staff. Therefore, Gross profit (dollar value) = Net sales less Cost of goods sold (COGS), and Gross margin (% value) = (Gross profit $ / Net sales $) x 100 For example, if sales are $100,000 and COGS is $60,000, then Gross profit is $40,000 and Gross margin is 40% Secondly, Net margin is your profit before you pay any tax and fixed overhead expenses. Therefore net margin is your gross margin less your business overhead expenses. For example, if your business overhead expenses are 25,000, and using the above gross margins, your net profit would be $15,000 (being gross profit of $40,000 less business overhead expenses of $25,000) Which now leads us to the mark up. Mark up is the amount of money above the cost of purchase or manufacture you sell your goods for plus the overhead expenses and allow for profit to be earned. Mark up (% value) = (Sales – COGS / COGS) x 100 Therefore, in this example, the mark up would be 66.67% (being $40,000/$60,000 x 100) To reach the gross profit of $40,000, the cost price of the products purchased for $60,000 must be marked up by 66.67% to achieve the sales amount of $100,000. Your mark up is based on your gross profits and your fixed business overheads (wages, rent, insurances, etc). Each business will have different mark ups even for the same product or industry and be more profitable with less revenue because their costs and processes for example may be cheaper and more efficient.