When you’re starting your own fashion brand from scratch, it’s important to consider whether you’ll see any profit from following your dream. Are fashion brands profitable, and what can you do to make yours profitable?
Fashion brands do make money with the right markup and marketing. The markup for clothing and fashion items is typically 2.5 times the cost of production, and after subtracting the cost of paying for manufacturing, production, advertising, and shipping, your profit margin can be between four and 13 percent. A manufacturer can make an item for $100, which means they will sell it to you for $250 in wholesale, which means your shop, in turn, can sell it for $625 to make that profit. With the right profit margins and advertising, any fashion brand can make money.
So, what is the breakdown of whether clothing businesses are profitable? What do fashion brands spend their money on? What can you do to make sure your business is just as profitable? Read on to find out more.
How much are you spending to start a fashion brand?
It’s important to understand what your budget might be when you start a fashion brand, as you need to know just how much you’re going to be spending upfront before you even see a penny in profits. Some of the expenses you’ll see at the start of your clothing business include:
- Producing your product and creating your inventory. Coming in around $4,000 at the start, you’ll need to design, manufacture, and purchase your inventory. Even if you’re making it in house, you’ll need the materials and time to create some sort of inventory to sell. You don’t need thousands of options—keep your choices small so you don’t have to discount your inventory.
- A way to sell your items. If you’re selling in a physical store, you’ll need a cash register and a shop front—Which can cost upwards of $50,000. If you’re looking to sell online only, a point-of-sale system looped into your website would cost about $500.
- Advertising. People can’t buy what they don’t know about, so this is all up to you. Creating your own website by yourself costs about $250, and anything after that would be extra.
- Insurance and business permits. Make sure you stay on this side of the law and get your proper insurance and business permits. Talking to a lawyer to help you through this process usually costs about $1,500.
- Employees. If you’re just starting out and just working for yourself, you still need to make sure you get paid. If you need employees, budget those salaries in.
- Modeling and photography. Whether you’re selling in a store or selling online, you still need photos to use in your advertising and your website, not to mention your social media pages. At the low end, amateur photographers and models can cost about $1,500.
- Delivery costs. Shopping online means you’ll have to send your items out—depending on your location, you’ll need to decide whether the customer will pay for shipping or if free shipping will be offered.
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Do fashion businesses actually make money, and how?
It may seem like the cost markup—2.5 times the cost each time it changes hands—is high, but in reality, consider the fashion industry. Many clothing retailers end up discounting their items when they do not immediately sell within that season, and due to that, retailers end up building that into their original price of the item. That way, clothing companies actually still make profit off of a clothing item, even when they’re being sold on clearance.
When it comes down to your profits, you end up keeping about four to 13 percent of that number. If you’re looking at that $625 item from earlier, once you subtract all your costs—product, labor, shipping, production, staffing, etc.—you’ll expect to get $25 to $81.25 back off that item. Considering the markup now, the actually profit doesn’t seem that high—and you’re considering luxury items costing hundreds of dollars.
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How can your fashion brand make money?
Now that you know that a fashion brand can make money, how can you make your business make money? The following tips can help you increase your profits in your business from the start.
- Understand trends in the fashion industry.
The biggest step you can take to making money in your fashion business is making sure you stay on top of the latest trends. Currently, some of the major trends that are growing within the industry are sustainable fashion and shifting into more comfortable workplace clothing. These could change at any point, so make sure you stay on top of what’s popular so you do not fall out of favor.
- Research the industry and those who work in it.
It’s important to know your competition. Know what they’re selling, how they’re selling it, and what niches they’re catering to. That way, you can find out whether your brand can go up against that brand—or whether you should search for a more underserved niche.
- Create a business plan and budget.
The easiest way to fail is to not plan ahead. Make sure you’ve created your business plan, along with your budget, before you step foot into the fashion industry. Your budget should include all your expenses so you can plan for exactly how much profit you need.
- Create a marketing plan that includes a cohesive brand and message.
People can’t buy what they don’t know about. Consider as part of your business plan creating a marketing plan—ask yourself how you’re going to sell your items, who you’re going to sell them to, and what your price points will be. As you make these decisions, you’ll have to create your own branding package—that includes your logo, colors, fonts, message, etc. Make sure you decide on something that will be used for years to come. While large brands have been known to adjust their logos and branding packages, note that typically, they don’t make large sweeping changes. Create a brand that you love and stick with it—because with it, comes brand recognition.
- Keep your inventory low and demand high.
The easiest way to lose profit is by ordering too much inventory and having to sell it at a discount. Keep demand high through your advertising, and order a lower amount of inventory to help foster that demand.
- Create an experience that people will talk about.
One of the best ways—and typically, one of the hardest—to make your customer base happy is simply by providing great customer service. Word-of-mouth will spread, so make sure your company not only works well with its customers, but represents itself in a positive way through its employees and all other interactions. Show off your values and the quality of your products and your business through the people, and no amount of money will be able to equate to the good comments that people share about your business.
Just like any business, your amount of profit will depend on many factors, like where you’re located, what your items cost, what your staffing costs will be, and whether you’ll be paying for delivery. While this number will vary from business to business, in most cases, a fashion brand will make money. That means you have to put in the work, though, to advertise your brand—if people don’t know about your brand and what you’re providing, they can’t spend the money with you. The more people you can please, the more profit you will bring in, and the more successful your business will become.
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Is online shopping better than in person shopping?
While one is not better than the other, one is certainly growing exponentially in popularity—online shopping. Over the past several years, more and more clothing lines are going strictly online, and more and more people are shopping online—80 percent of the American population are current serial online shoppers.
What’s the difference between online shopping and in person shopping?
While the end result is the same—purchasing items—there are a few differences. For one, an in person shopping experience allows the customer to try on items, while online does not. Advertising can be different as well—without a physical storefront, an online shop has to put more money into advertising to bring people to their website. You may have less staff needed for an online shop, but you will incur delivery costs.
What should I have ready when I want to create an advertising campaign?
When it comes to an advertising campaign, you should have a few things prepared, including your logo, colors, fonts, etc. along with your message for that campaign, whether it’s a tagline or even an aesthetic. You should also have enough high resolution photos of several of the products you would like to feature before you begin. You can create an advertising campaign in house, or work with an advertising agency to create an effective campaign.
To learn more about how to start your own fashion clothing line check out my startup documents here
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.
Meet Shawn Chun: Entrepreneur and Fashion Business Fan.
I’m a happy individual who happens to be an entrepreneur. I have owned several types of businesses in my life from a coffee shop to an import and export business to an online review business plus a few more and now I create online resources for those interested in starting new ventures. It’s demanding work but I love it. I do it for those passionate about their business and their goals. That’s why when I meet a designer or boutique owner at a craft fair, farmers market, retail location or anywhere else I see myself. I know how hard the struggle is to retain clients, find good employees and keep the business growing all while trying to stay competitive.
That’s why I created Fashion Business Boss: I want to help fashion business owners like you build a thriving business that brings you endless joy and supports your ideal lifestyle.