What is product costing in fashion?
The calculation of what a product costs to make and deliver, used to set wholesale and retail prices that protect margin.
In short
Product costing is the process of calculating the full cost of making and delivering a garment, from materials and labour to freight and duties. Fashion brands use it to check that each style can be sold at its planned wholesale and retail price while still achieving the target margin.
How does it work in practice?
Costing usually starts with a target cost derived backwards from the intended retail price, the retailer's expected markup and the brand's own margin goal. As the style develops, the team builds a detailed cost sheet from the BOM, supplier quotations for cut, make and trim, and estimates for freight, insurance and duties. The result is compared with the target, and if the gap is too large, designers adjust materials, construction or trims.
- Material cost from the BOM
- Manufacturing cost from the factory quote
- Freight, insurance and duties to reach landed cost
- Overheads and allowances, such as testing
Why does it matter for fashion businesses?
Costing decides which styles are viable. A style that looks great but cannot reach its price point either erodes margin or must be dropped late, after sampling money has been spent. For wholesale brands, the cost also underpins the price list and the margin offered to retail partners, so mistakes affect relationships as well as profits.
How is AI changing it?
Predictive models trained on past cost sheets can estimate the cost of a new style from its sketch, materials and category, giving designers feedback before samples exist. AI can also compare supplier quotes, highlight unusual cost lines and simulate the effect of currency or freight changes. These tools help teams negotiate from data rather than intuition.
Common pitfalls
Common mistakes include forgetting landed cost elements, using outdated exchange rates and costing at sample quantities instead of realistic production volumes. Late design changes that are not reflected in the cost sheet also cause unpleasant surprises once bulk invoices arrive.
Frequently asked questions
What is target costing in fashion?
Target costing works backwards from the planned retail price and required margins to set the maximum cost a product can have. Design and sourcing teams then develop the product to fit within that limit.
What costs are included in a garment cost sheet?
A typical cost sheet includes fabric, trims, labour and factory overheads, plus freight, insurance, duties and any testing or packaging costs needed to bring the product to the brand's warehouse.