How Much Can A Clothing Store Make Annually?

Markups on the cost of clothing causes many to think that clothing store owners make lots and lots of money. While some boutiques flourish, others do not. Many costs are incurred by online and brick-and-mortar clothing shop owners. Those costs are covered by the markups. A well-planned venture into the world of clothing stores can provide for a profitable endeavor.

A clothing store owner can make between $20,000 and $150,000 in profits annually. These profits are an average that depend upon many factors. The size and location of the clothing store and the type of apparel are key factors. Specialized boutiques can make closer to $500,000 annually. 

Understanding the components of profits will guide you in which products are best suited for your store. Some items might not be as profitable as others, but they may increase a customer’s total order. Knowing your profits will help you influence your ability to make money. Continue reading for information on profits and making money in your clothing store. 

Components of Profits and Profit Margins

Understanding what is included in each of the calculations of profit will help you earn profits. All the elements of your business costs must be accounted for in your pricing. Knowing your profit margin will help you in your decision making. 

Revenue

How Much Can A Clothing Store Make Annually?

Each item that a customer purchases is a sale. All your sales tallied together equal your revenue. Here is the formula to calculate your revenue. 

Total quantity sold X price of each item = Your boutique’s total revenue 

For example, if you sold green patterned t-shirts, mosaic t-shirts, and different socks, you would want to know the sales of each category and total for the shop. 

22 green patterned t-shirts X $28.00 = 616.00

18 mosaic t-shirts X $32.00 = $567.00

Total t-shirts = $1183.00

15 pairs of striped socks X $15.99 = $239.85

12 pairs of yellow socks X $12.99 = $155.88

Total socks = $395.73

Total Revenue = $1578.73

Make sure that you only include the totals for each category in your total revenue. Remember, revenue does not indicate how much profit you have made. It is a calculation of your total sales dollars. 

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Profit Margins

To calculate your profit margin, you need your store’s total revenue. In addition, you need all the other costs of doing business. Your total costs will include the following items.

How Much Can A Clothing Store Make Annually?
  • Rent
  • Insurances
  • Signage
  • Website and social media 
  • Marketing
  • Utilities
  • Licenses
  • Salaries
  • Inventory
  • Equipment (depreciation of assets might be used)
  • Packing materials
  • Office supplies 
  • Payment on any debt

Some of your costs are considered fixed; they are not dependent on your sales. While they are considered fixed, they may change monthly, such as heat and/or air conditioning bills. Other costs are classified as variable; they change with your sales. 

Here is your formula for profit margin –

Total revenue – all your costs = profit margin 

Using the example from revenue, this is a vendor who sets up a tent at the local farmer’s market. Costs included the tent and tables, which are depreciated monthly, gas, and the clothing. 

$1578.73 (total revenue) – 1420.86 (total costs) = $157.87 (profit margin)

Profit margins in boutique or smaller clothing stores average between two percent and fifteen percent. The higher your profit margin, the more money that your store is making. If your profit margins are low, you need to explore ways to reduce costs and increase sales. 

Many people assume clothing stores make a lot of money on each item. That is because there is often a high markup on clothing. The cost to the customer includes that high markup. A markup is different from the profit margin. You as a business owner, markup the price of the t-shirt. You add your costs to operate your store to what the item cost you to purchase. In clothing stores, the markup can be up toward fifty percent. This percentage added to the cost for the store owner to purchase the item is your selling price. 

Profit margin and gross profit margin are not synonymous. When you are discussing profits, you need to clarify which category of profits you are speaking about. When discussing profit margins, many people assume that you are talking about margins that are all encompassing. You need to distinguish between the different categories of profit margins to ensure you are measuring and examining the numbers correctly. 

To calculate your gross profit margin, you need your cost of goods sold, which is referred to as COGS. Included in your COGS are the value of the materials used to construct your garments and the amount of money paid for the labor to produce those goods. Not included in your COGS are the costs to run your store, ship product from your store, and your costs to market your brand. 

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Gross Profit Margin

To calculate your COGS, you need an effective inventory system. Here is one method to determine your clothing store’s COGS. 

How Much Can A Clothing Store Make Annually?

Cost of your starting inventory 

+ newly purchased inventory 

+ cost to ship product to you 

– any product returned to the manufacturer or distributor 

= Cost of goods in your store

– your current inventory

= your store’s cost of goods sold for that time 

For example –

    75,000 starting inventories in your store

+275,000 newly purchased goods

+   1000 shipping costs to the store

  • 8000 products returned

         = 343,000 costs of goods in the store

– 90,000 current inventory

253,000 costs of goods sold for that time

Your store’s gross profit margin lets you know how much money you have made after paying for merchandise you sold. 

Revenues – cost of goods sold (COGS) = gross profit 

Often gross profit margin is discussed as a percentage. To calculate your gross profit margin into a percentage, use the following formula –

How Much Can A Clothing Store Make Annually?

(Gross profit / revenue) X 100 (to find the percent) = gross profit margin

The gross profit margin lets you, as the store owner, know the amount of money you have left from your sales. This is the money needed for your other costs and toward the profit that you have earned as the store owner. 

Frequently, store owners will use this calculation to determine which lines of product are the most profitable. This will give you an idea of which products to expand sales on to increase your profitability. It can also help you understand which items are not profitable. When analyzing your gross profit margin, use this time and data to fully explore your inventory. 

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Operating Profit Margin

When calculating your operating profit, you need to know your COGS and the expenses that you incur to operate your store. Operating expenses, also referred to as OPEX, include all your other expenses except interest on any loans or purchases and taxes. 

Information needed to calculate your OPEX includes rent or mortgage payments, insurances, all your marketing costs, utilities, operating licenses, salaries, equipment, supplies, and loan payments without interest. To compute your operating profit margin, you can use the following formula. 

Revenue – COGS – OPEX = operating profit

As with other profit margins, this is often reviewed as a percentage to best understand how well your store is performing, or conversely, if you need to adjust how you are managing your store. 

Operating profit / revenue X 100 = operating profit margin 

This is a key number to understand to determine the efficiency of your store’s operations. You should also analyze this number to make sure that you are stocking merchandise that is selling. 

Your last calculation will include every single cost that goes into running your store. Net profit margin equates to the profits that are yours to keep, reinvest in the business, or use to pay off debt. 

Net Profit Margin
How Much Can A Clothing Store Make Annually?

You need all the same numbers from your gross and operating profit margin calculations. The last two accounts you need to include are your taxes and interest you are paying on any loans. Your formula to use is –

Revenue – COGS – OPEX – taxes – interest payments = net profit

As with other measurements, you want this in a percentage format as well.

Net profit / revenue X 100 = net profit margin 

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Related Questions

What is included in the pricing for clothing items?

Prices for clothing include the actual cost of the product, the store’s operating costs, which includes salaries, insurances, utilities, rent, taxes, licenses, shipping and handling costs, and marketing, and any interest payments on loans. These costs are part of the markup on clothing. 

What are profits per order?

Profits per order measures if each order with each customer is making a profit. While this is an ideal goal, every so often, you might ‘lose’ profit in order to attain customer satisfaction. With an unsatisfied customer, you need to balance nurturing customer relationships with making a profit. 

What does sales per square foot measure?

Sales per square foot measures how much each square foot of your store’s floor space is earning. Often this measurement was and is used for physical store locations to help determine if all the space in the store was effectively utilized.

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Please note: This blog post is for educational purposes only and does not constitute legal advice. Please consult a legal expert to address your specific needs.