Pricing model for your clothing brand : Step-by-step guide

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Pricing strategy for clothing brand

Fashion Pricing can be tricky but there are a few different methods you can use to determine the price of your line. In this post, we’ll explore different pricing models commonly followed in the fashion industry and discuss different factors you need to consider in order to price your clothes and take objective decisions backed by data.

So, whether you’re just starting out or you’ve been in the business for a while, read on for helpful tips on pricing your fashion line! 

Product Pricing Model for a clothing brand

As a fashion brand owner, knowing how to price fashion products is a vital concern. There are a few different ways to go about it, and each has its own advantages and disadvantages. We’ll take a look at three common methods for pricing clothing:

#1. Cost-based pricing model

#2. Market-based Pricing model

#3. Value-based pricing model

We’ll also discuss when each might be most appropriate. So, whether you’re just starting out or you’ve been in the business for a while, here are the following useful things to consider for fashion pricing.

Pricing Model for your Clothing Brand

#1. Cost-based pricing model

A cost-based pricing model, as the name sounds – works on a cost+ approach. This approach involves setting the price of a product based on the total costs involved in producing, marketing, and distributing that product, along with a desired profit margin.

For a clothing brand, this model is centered around understanding and calculating the costs associated with designing, manufacturing, and selling each garment.

Here’s how you can implement a cost-based pricing model for a clothing brand

Calculate Total Costs

  • Evaluate all costs associated with producing a single unit of your clothing item. This would include not only the raw materials, manufacturing costs, labor, packaging, shipping, but also any other fixed costs also known as overhead costs (rent, utilities, marketing expenses). Overheads are important especially if you are keeping a warehouse and employing staff on your payroll. It is important that you split this overhead (fixed cost) across the total quantity to arrive a unit price calculation.
  • Ensure that you capture all components of fixed costs (which remain constant regardless of production levels) and variable costs (which change with production volume).

Determine Profit Margin

It is important that you benchmark a specific profit margin, ideally in a form of %percentage. This could be the percentage of the selling price that contributes to your profit after covering costs (say 25%)

Set the Selling Price

A straight forward way to set a selling price would to add your desired margin + cost. You can also use the following formula to set the selling price:

Selling Price=Total Cost+(Total Cost×Profit Margin)

Consider Market Factors

Brands don’t operate in isolation. You can demand obscene profit margin, particular for fashion where there is so much competition already in the marketplace. It is essential to compare your calculated selling price with market standards.

This approach will ensure that your pricing remains competitive and aligns with customer expectations. It is also important to consider your brand positioning and target market. If your brand is positioned as a premium product, you should be able to command higher prices.

Adjust and adapt

You have to be constantly on your toes to refine your go-to-market strategy. Based on the feedback you receive and in what stage of the season you are in, it would be imperative to constantly evaluate your pricing even if you are operating under cost+ model.

Cost+ model is usually applied in wholesale setup compared to a retail setup. In a wholesale setup, you are worried only about the incremental cost. The mark-ups are not that great but your focus is in volumes and ensure that you capture cost+margin.

While the cost-based pricing model is straightforward and provides a clear understanding of the minimum price required to cover costs and generate profit, it has some limitations. It doesn’t take into account external market factors, such as competitor pricing or customer willingness to pay. Therefore, it’s essential to complement this model with market-based pricing strategies to ensure your pricing aligns with customer perceptions and competitive dynamics.

#2. Market-based pricing model

A market-based pricing model, also known as competition-based pricing or customer-driven pricing, involves setting the price of a product based on the prevailing market conditions, competitor pricing, and perceived customer value.

This approach considers what customers are willing to pay for a product based on their perceptions of value and how your prices compare to those of your competitors.

Here’s how you can implement a market-based pricing model for a clothing brand:

Research Competitor Prices

The fundamental principle upon which Market-based pricing model rests upon is – what is going in the market. If your competition is selling a dress $20 (like Shein?) then you can no longer sell a similar dress to the same target audience for $50

Understand Customer Perceptions

You cannot force your product over customer’s perception. If your customer doesn’t deem your brand to be a value add or premiem, it is very less likely that they will pay any premium to buy products of your brand. People buy on emotion. If you are not able to set a narrative to create that brand emotion for your brand, then it is better to stick to the commoditised market zone.

Set a Competitive Price

  • Based on your research, set a price that is competitive within the market. This doesn’t necessarily mean matching competitors’ prices, but it should be within a range that customers find reasonable and justifiable.
  • Consider your brand positioning and whether you are offering a premium, mid-range, or budget-friendly product.

Consider Value-Added Features

If you are charging a premium, you better offer some value added features. These value-added features could be something unique like some unique feature and functionality, exceptional quality, or some very unique design elements of your clothing items that differentiate you from your competitors.

If you seek premium pricing for your brand, you have to justify why someone should pay a premium to buy products from your brand.

Monitor Market Changes

Market-based pricing model is all about staying vigilant about changes in the market, including shifts in customer preferences, new competitors entering the market, or changes in economic conditions. You have to constantly adjust your pricing strategy according to the dynamics of the market so that you remain competitive and responsive to the ever changing market dynamics.

Implement Dynamic Pricing

There are different tools available that can enable you to implement dynamic pricing strategies based on real-time demand, inventory levels, or seasonal factors. If you are selling via Amazon FBA or Shopify – there is a vast network of tools that are tried and tested for their performance to optimise dynamic pricing. We will cover those tools in a separate post.

For now – you must accept that dynamic pricing allows you to adjust prices dynamically in order to optimize revenue and respond to changes in market conditions. If you are in fashion retail, dynamic price becomes an obvious fact to your life.

Promotions and Discounts:

Does anyone still wait for Black Friday and Cyber Monday anymore? Every day is promo and discount.

If you are in fashion, you got to utilize promotions and discounts strategically to attract customers and respond to competitive pressures. Combine dynamic pricing with limited-time offers, bundling deals like BOGO (Buy One-Get One), or loyalty programs to create additional value for customers.

Customer Feedback and Reviews

Customer is the king and if you are a new clothing brand in the market, then this factor becomes much more important. The insights you will gain from customer feedback and reviews will enable you to fine tune your pricing strategy and also identify areas to improve.

By adopting a market-based pricing model, you align your prices with customer perceptions and the competitive landscape. This approach allows you to be more responsive to changes in the market, providing a dynamic and customer-focused pricing strategy for your clothing brand.

#3. Value-based pricing model

Value-based pricing is a strategy where the price of a product or service is set based on the perceived value it provides to the customer.

In the context of pricing a clothing brand, value-based pricing focuses on determining how much customers are willing to pay for the perceived benefits, uniqueness, and overall value associated with the brand and its products.

Here’s how you can implement a value-based pricing model for a clothing brand:

Understand Customer Perceptions

Conduct in-depth market research to understand how your target customers perceive your brand and its products. Fashion industry experts, fashion designers are much more well accustomed to find the missing gaps and someone with no background in fashion.

You need to identify the key factors that influence your customer’s purchasing decisions, such as brand reputation, quality, design, and the emotional appeal of your products. You need to map out the entire customer journey and see where your brand fits in that journey.

Identify your Brand’s USPs (Unique Selling Propositions)

You need to clearly articulate and identify what unique features, qualities, or aspects are present in your merchandise that sets your clothing brand apart from competitors. Your USPs must resonate with your target audience. It would really suck if you find out the feature you thought people would pay a hefty premium turned out to be of zero interest to your audience.

Assess Perceived Value

Be practical and evaluate the perceived value of your products from the customer’s perspective. While you may have put your blood, sweat and tears in developing products for your brand and you may think very highly of your brand’s product but for an average Joe it could be a lot different.

If you are evaluating purchasing any product from customer point of view, you must consider the emotional, functional, and social benefits that the customers would derive from purchasing your clothing items.

Segment Your Market

It is important that you assess whether your brand is positioned as a luxury, mid-range, or budget-friendly option, and align pricing with this positioning. You must recognize that different customer segments may place different values on your products and you cannot serve all the customer segments. Therefore you need to consider different product lines, collections or even different brand in order to target a wide and diverse range of customer segment. And your pricing strategy should cater to the preferences and expectations of each segment.

Communicate Value to Customers:

Use storytelling to connect with customers emotionally and highlight the benefits and values embedded in your products. If you fail to do so, value-based pricing model is not for you.

You must clearly and effectively communicate the value proposition of your clothing brand to customers through marketing and branding efforts.

Monitor Customer Feedback:

Similar to market-based pricing model, value based pricing model also pays a lot of importance to customer feedback. You must pay attention to customer feedback and reviews in order to understand how well your pricing is actually aligning with the perceived value of your products. Use customer feedback to make adjustments to your value proposition or pricing strategy if necessary.

By adopting a value-based pricing model, you prioritize the perceived value your products bring to customers. This approach allows you to capture the premium that customers are willing to pay for the unique attributes and benefits associated with your clothing brand.

Step-by-step guide to establish a pricing strategy for your clothing brand

Pricing your clothing brand effectively is crucial for the success of your business. Here’s a 10 step guide to help you establish a pricing strategy:

#1. Understand Your Costs:

Calculate the costs associated with producing each item. This includes materials, manufacturing, labor, packaging, and any other overhead costs. Consider both fixed costs (e.g., rent, utilities) and variable costs (e.g., materials, labour)

Build Relationships with Suppliers on Transparency – Negotiate with suppliers to get the best possible rates for materials and manufacturing. This can positively impact your overall production costs and, consequently, your pricing.

#2. Determine Your Desired Profit Margin:

Decide on the profit margin you want to achieve. You can either choose the cost+ pricing model, or value-based pricing model to arrive at your profit margin. Irrespective of what pricing model you choose, it is important that this percentage of the selling price is actually able contribute to your profit after covering costs.

Industry standards vary, but a common profit margin range for clothing is 50-60%. If your product is priced in the commodity section $20 to $50 retail price range (in US market, for example), then your gross margin should at least be 4X – which means if the selling price is $40, you should be able to get the product under $10 or less.

#3. Market Research:

Many new and upcoming fashion brands either don’t conduct proper market research or they do a very superficial market research. A through market research in order to determine your pricing strategy should investigate your competitors’ pricing strategies. This will give you an idea of the price range for similar products in the market.

You must consider how the customer perceives the value of your brand and how it compares to competitors.

#4. Identify Your Target Customer

 Trying to sell to the wrong audience – this is the most common mistakes many first time founders in fashion make. It is important for you to understand your target customer’s willingness and ability to pay for your products. Evaluate factors like demographics, lifestyle, and buying behavior when you are setting prices for your clothing brand.

#5. Brand Positioning

Determine where your brand fits in the market. Are you positioning yourself as a luxury brand, mid-range, or budget-friendly? Your brand’s positioning will influence the perceived value of your products and, consequently, your pricing.

#6. Consider Wholesale and Retail Prices

If you plan to sell through retailers, factor in wholesale pricing. Typically, wholesale prices are lower than retail prices, allowing retailers room for profit.

#7. Account for Discounts, Liquidation and Promotions

Plan for occasional discounts or promotions to attract customers and boost sales. Consider how these will impact your overall pricing strategy. Also, you are not going to sell your entire inventory at the end of the season. You need to factor in the liquidation ratios

#8. Calculate a Competitive and Profitable Price

You must take into account your costs, desired profit margin, and market research to calculate a competitive and profitable price. You must ensure that your price is attractive to customers while covering your expenses and providing a reasonable profit.

#9. Consider Psychological Pricing:

Use pricing strategies that appeal to customers’ emotions, such as pricing items at $9.99 instead of $10. This can influence perceptions of affordability. If you are planning to follow value based pricing, then psychological pricing becomes all more important.

#10. Test and Adjust:

Fashion market is constantly evolving and the prices with which you launched your collection should not remain static if the market is dynamic. So launch with your initial set of pricing based on calculated models, but be prepared to monitor and adjust based on customer response and market dynamics.

Be adaptable to changes in the market, economic conditions, and consumer preferences. Regularly revisit and reassess your pricing strategy. Collect feedback and analyze sales data to make informed decisions about pricing adjustments.

Remember that pricing is a dynamic aspect of your business, and it may need periodic review and adjustment. Stay informed about market trends and consumer behavior to ensure your pricing strategy remains effective over time.

In Conclusion

Evaluating and Pricing for your clothing line is one of the most difficult business decisions. And there are multiple pricing strategies you can consider when it comes to selling your clothes online or in-store, and they all carry their own pros and cons. Some options include setting a fixed price, discounting for promotions, or creating an algorithm that changes prices based on supply and demand. But the question that bothers you is which strategy has worked best for you?  

Hula Global invites brands to get free quotes so we can help them launch with confidence!. Moreover, we specialise in private labels and custom designs at competitive rates which allows us to give customers the opportunity to stand out from their competition while still maintaining affordable costs per unit. 

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