Cost Vs Profit: What Clothing Manufacturers Don't Want You to Know
Choosing the right clothing manufacturer for your business can be very challenging - you want to ensure that you are getting the best value for your money while still making sure that your products will be of top quality.
Unfortunately, some business owners fall into the same trap of choosing clothing factories based on the lowest prices, which is the fastest lane to failure.
Wanna know how?
In this article, we explore the "secret method" fashion brands use to calculate their costs and profits and how to select the right clothing manufacturer based on this calculation.
Since the pandemic of 2020, business owners have been through many tough challenges, and the biggest challenge was to keep their businesses alive.
Which was impossible to do by applying the same old strategy of choosing a clothing manufacturer based on the lowest prices.
On the other hand, there were other fashion brands that not only survived but skyrocketed their sales and maximized their profit during the pandemic using this secret Cost and Profit Calculation Method (CPCS) for short.
The Secret Method
To help you understand this method, I will use an integer as an example for easy calculation.
Let's assume that you have a black dress that you want to make, and you sent it to two factories for a quotation.
Factory A's price is $20 for an MOQ of 100 pieces.
Factory B's price is $25 for an MOQ of 50 pieces.
Now, if your plan is to sell 20 pieces a day, then how would you choose a clothing factory based on this objective?
Well, if all you are looking for is the lowest price, then good luck choosing Factory A, which is the obvious choice.
But I'm afraid that when you finally realize that this is what's hurting your business, it's already too late.
If that's the case, then what is that secret method? and how to use it?
Well, It's a very effective method used in Toyota Lean Production called "J cost"
We summarize this thinking and simply calculate the above problems as follows:
Here's why it's better to choose factory B
Although your profit is lower, the low MOQ dramatically reduces the amount of your investment and increases your return on investment (ROI)
Now, the question is, what would the respective profits for business owners who chose different factories be?
Well, On the 2.5th day, what is the respective profit of the bosses who choose different factories? The profit of the boss who chooses factory A is ZERO.
You heard that right! ZERO
Because you will still have another 50 pieces lying around in a warehouse covered in dust.
And who knows what's going to happen tomorrow?
Nowadays, fashion has a shorter lifetime than bread.
Styles that sell on fire today won't sell tomorrow, and then you will need to sell them at way lower prices in the hope of just covering the production costs.
So, It is clear that factory B offers a better return on investment and poses significantly less risk than other options.
In reality, business owners often fail to consider the entire picture and instead rely upon the bulk manager’s quoted cost.
This dangerous decision can lead to disruptions in capital flow, a lack of profit, and even survival struggles for their companies- an error I've seen many clothing brands make.
I use this example to demonstrate that cost is not the most important factor.
For fashion business owners, the most important thing to be concerned about is the cycle and ability of all the inventory to be quickly turned into cash and whether there is a risk of large-scale returns due to quality problems, resulting in inventory backlog and credit crisis.
These are the most critical issues that determine life and death.
Wondering why many factories don't make MOQ50?
Understandably this requires a more stringent production system and experienced lean management staff to carry out small-batch production.
And ensure the quality of the products released into the market.
Just like Toyota's shift from mass production to one-piece flow, this is no job for just any factory or trading company.