What is a Good Profit Margin For Your Clothing Business

What Is A Good Profit Margin For Your Clothing Business?

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When you’re considering starting your own clothing business or you already have and are looking to see how well you’re doing, it’s important to know how you stack up to the others in the industry. How much money can you make, and what is a decent profit margin for your business?

A good profit margin for a clothing business is four to 13 percent. The markup for clothing and other fashion items is about 2.5 times the cost of production—minus manufacturing, production, shipping, and advertising. A manufactured item for $100 will cost your business $250 to purchase, while you can sell it for $625. 

So how can you determine your own profit margin, and what information do you need to know beforehand? How can you increase your profit margin in your business? Read on to find out more. 

Business Vocabulary

What is a Good Profit Margin For Your Clothing Business

When you’re talking about crunching numbers, there are some terms you should understand and consider. It’s not just about your profit margin, but your net revenue, your average ticket price and so on. 

  • Average ticket price: this is the total of all money spent on the receipts in a certain time period—usually a day or a month—divided by the number of receipts. This tells you how much someone is spending in your business on average. 
  • Fixed costs: these are those expenses you can count on every month like website, rent, and your employee salaries. 
  • Gross profit margin: this is the profit of all your items compared to your overall sales. Essentially, you divide your gross profit by your net sales. All your expenses—inventory, labor, taxes—are added into this number. The only way you can create a profit margin is to take out the costs you’ve already paid for. 
  • Gross revenue: the costs of your goods sold without subtracting expenses.
  • Net revenue: cost of goods minus the gross revenue. 
  • Variable costs: these are the costs that vary, most notably your inventory costs. 

Statistics on Your Small Clothing Business

Because the fashion industry is such a massive part of the American culture, there is an extreme amount of data out there about it. Some experts explain it in a few different ways, like Forbes, who say that a small online boutique makes about $6,000 of net revenue per month.

You should also be aware of how many people are shopping online. according to Statista, over 263 million American shoppers shop online. How is that comparative to the American population? That’s about 80 percent of all Americans. 

Whether you’re looking to sell your clothing online, in a physical shop, or both, these are all things to consider as you either start your business or grow your existing one. In many cases, small businesses fail because they are making poor manufacturer choices, aren’t pricing their items correctly, or buying too much inventory. You can also use this data to help drive your pricing and your business choices to help increase your profit margin. 

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Determining your Profit Margin

What is a Good Profit Margin For Your Clothing Business

When you’ve started your business, it’s important to know how you can determine your own profit margin for your own references. 

First, make sure you understand and keep a tight record of your business budget. Without decent records, you can’t determine your profits or your profit margin. The best way to do so is to make sure you write down all costs incurred over a time period, so you know how much you have spent and how much you have taken in. 

Secondly, find the data for your chosen time period. Usually that number is a certain month. Add all your receipts from your month to get your gross revenue. 

Thirdly, subtract your expenses from your gross revenue. This will give you your net revenue, and should be in the positive, or you’re spending more money than you’re bringing in. 

Next, divide your net revenue (the number you arrived at in the last step) by your initial revenue (the number you arrived at in step two) then multiply it by 100. That is your gross profit margin percentage. 

For example: if your business receipts add up to $10,000 and your expenses add up to $9,000, you subtract those expenses from your receipts, leaving you with $1,000, or your net revenue. Divide that $1,000 by the $9,000, leaving you with .11, and multiply that by 100, leaving you with 11 percent, which is a respectable profit margin for your business. 

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How to Increase Your Profit Margin

If you’re looking at your profit margin and want to increase it or you’re just starting out and looking to get a leg up, there are a few things you can do to help boost your profits. 

What is a Good Profit Margin For Your Clothing Business
  • Research the industry. Know what you’re getting into and know the trends. Knowing as much as you can about the fashion industry will not only influence your business decisions, but can help you understand what trends may be coming next. 
  • Research your competition. Just like the industry, make sure you know who your competition is and what they’re doing. You can anticipate their next moves, and you can counter them with your own. 
  • Research your niche or demographic. Make sure you know who you’re selling to. If you have a particular niche you cater to, make sure they’re being served, and they’re being served by you. See what trends they’re following and shift your business to better serve them. 
  • Create your business plan and continue to work on it. No matter the status of your business, a business plan is vital. Make sure you’ve created one and a budget, and while you don’t have to make every decision as outlined in your plan, make sure you shift and edit it as needed. 
  • Don’t overstock your business. One of the main pitfalls of a new clothing shop is ordering too much inventory and not selling it at the profit that they need. Save money by purchasing less inventory and create hype for your brand through your social media posts to make sure you sell everything at the profit your business needs to survive. 
  • Utilize free social media pages for advertising. While there are plenty of ways to advertise, you can use social media pages for free. Create a following on your social media, and they’ll even advertise for you. 
  • Run sales. This might be counterproductive, but you can still make a profit when you run a sale, and more customers may come to you simply because your clothing is on sale. When you get those new customers, make sure you hook them with your great customer service and your other full price items. 
  • Partner with another brand or an influencer. You can get more attention when you work with someone else, especially another brand or an influencer who focuses solely on the demographic you serve. 

Between the high-cost markup and the lower profit margin, it’s hard to know where the money will be coming from. You can actually expect to make about $25 to $81.25 off that item you sold for $625, that you purchased for $250, and that was made for $100. If you’re wondering why clothing costs continually increase, that’s why. 

It’s also important to remember that the four to 13 percent gross profit margin is just the beginning—and an average across the country. According to The Fashion Law, luxury brands like Gucci and Balenciaga reported a whopping 28.4 percent margin. While these luxury brands may be outside of your purview for the time being, it’s definitely something to shoot for—and it’s something you know is achievable.

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Related Questions

How much money does it take to start out a new clothing business?

It depends on how what you plan on doing with your clothing business—if you want to start your line online, you can expect to pay about $10,000 before you open your digital doors. If you’re expecting to need a building for your business, expect to pay about $50,000 or more. 

If I don’t have a lot of capital, where can I get funding to start my clothing business?

There are several ways to find funding for your clothing business. You can get in touch with the U.S. Small Business Administration for grant and loan resources, you can apply for local grants, you can ask your friends and family for a loan, you can get a bank loan, you can sell your assets for cash, and you can cut down on the items in your budget. 

What trends tend to shift the clothing industry?

Trends come and go, but there are a few that are influencing the clothing industry in our current age. Online shopping is a continued trend, and only threatens to increase. More and more shoppers are looking for sustainable fashion and environmentally friendly fashion, so you’ll need to start considering more and more the environment in your manufacturing and selling decisions. Sustainability and recycling tend to be at the top of your shoppers’ minds. More and more people are looking for more comfortable work clothing, along with genderless clothing. 

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.