Knowing how to calculate your cost of goods sold builds awareness of your financial standing so you can take greater control of your margins and turn a strong profit. This guide will help you understand the costs involved in your business and why keeping your COGS in mind during development and production will help you price your products and keep your net margin and contribution goals on track.
Your Cost Of Goods Sold is how much it costs to create and deliver your product. Before calculating COGS, you must gather information to input into your COGS formula. For a fashion brand, this information includes:
- Labor costs: Amount you paid workers to make and ship your products to you
- Material and supply costs: Amount you paid for the materials and supplies used to make and ship your product
- Other costs: Additional costs like rent to store your items, containers to ship products or freight expenses.
Note - COGS are helpful to understand how much your business earns before paying taxes and other expenses. COGS do not account for variable costs like those on advertising or fixed costs related to your product development like pattern-making or pattern digitization.
If you’re using the N.A.bld platform, your COGS will be automatically calculated for you as you fill out your tech packs.
You can see a breakdown of costs per unit color-coded and drilled down to shipping, packaging, trims, notions, materials, and labor to see what levers you have in your design process to impact cost.
The levers that affect your cost are as follows:
- Volume (labor and material factor)
- Quality/content (material factor)
- Shipping (distance, expediency, dimension/size)
- Complexity of garment (labor cost factor)
In order to adjust your costs and eventually your price, you have to adjust these levers. For example, if you are using an expensive material, you may be able to offset the cost of material with a less complex item. These tradeoffs are worth considering during your design process to better reach your desired price point. We suggest working with your technical designer to understand these tradeoffs as early as possible in the development process.
Many brands looking to incorporate more sustainability can be surprised by the costs involved in moving toward better business practices. If you are getting started or beginning to transition to your sustainable mandate, we suggest approaching one area of your product or process at a time to better understand the cost implications. Products or services that are better for people and planet often cost more because there is a more manual labor process involved with employees (usually) being paid a better standard wage. It’s important to keep this in mind as you consider the implications of your design choices.
Want to get your COGS faster? Now the N.A.bld platform will surface your material, shipping, and labor costs BEFORE you start production so you can leverage cost insights to make the best decision when picking your manufacturing partner.
Join N.A.bld to automatically generate a COGS breakdown for every product you're designing and connect with our development team for a one-on-one session to discuss levers to pull within your design to impact your bottom line.
Want more on cost calculations, sustainability and your supply chain? Learn more here.