A common mistake that I see when I work with emerging designers is their own calculation of their retail and wholesale prices. Sometimes they put too high prices that are not adequate for the market resulting in no sales. Sometimes they forget to include all the expenses and end up with zero profit or losses. In this session, I will give you the methodology for how to calculate your wholesale and retail prices and define the right markup for your retailers. So you can become commercially attractive to stores. But first, let's briefly define all the terms.

So retail price is the price at which the end consumer buys the brand's garment at a retail store. Let's say Macy's wholesale price is the price at which meses buys this garment from a brand Let's say michael kors production cost is the price that use the designer pay to produce this garment. So in our case, it's michael kors. So the difference between production cost and the wholesale price is the profit that is earned by a designer. And the difference between the wholesale price and the retail price is the profit that is earned by a store, right? Okay.

There are two approaches to calculating your prices. Approach number one is based on calculating the final price from the bottom. What does it mean? So first you design the garment then you calculate all the expenses that you had to produce this garment, for example, materials, dreams, labor, packaging shipping, and then what happens is that a designer either doubles this price or triples it and gets the wholesale Price and retail price. The logic can be different every time. The second approach is called Target Costing.

And this method says that you should define your production costs starting from the top, meaning from the final retail price that and consumers are willing to pay for brands like yours. So here you have to know your target customer, what brands they buy and at what price and clearly define that price niche for your brand. So before you establish price, you need to compare the items in your line with similar collections to establish a range that makes sense in the marketplace. And then, knowing the retail price range, you calculate the retail markup and then define the wholesale price. That would be attractive for buyers. So what does it mean attractive markup right?

Well, it may vary by store. However, the accepted norm in the industry equals double the wholesale price plus 20 to 80%, referred to as 2.2 2.8. So, basically, apparel is at the low end of the scale while jewelry shoes they are the higher. Then, after you've calculated the wholesale price, you can calculate your own markup, which should be also around 2.5, and three to three and define the target production cost. That will be the price at which you have to manufacture your items. Let's look at this example.

Let's assume that you want to sell a certain dress at a retail price of $200 You know that this is the average price that you that your target customer is willing to pay for this type of dress. This means that you need to divide $200 by 2.5, the average retail markup and you will get the wholesale price of $80. Then you divide 80 by 2.5 and you get your 30 production cost $32. This means that in order to sell this dress at the retail price of $200, you have to produce it at the price of $32. So, this is the price that you announced to your factory to your production company. A retail markup of 2.5 is very attractive as most of the boutiques have their markup at the level of 2.2.

So if you are able to provide store with a markup of 2.3 or 2.4. Your brand immediately stands out among the rest of the brands. Basically, basically, the production costs that you calculated in the first variant should meet the target production costs that you calculated through this second approach. If you see that the production price is too high, you have to find ways to simplify the design or use less expensive materials or find a cheaper production. Why? Because it's all starts from your target audience from your market.

And I want to stress the validation of the retail price and consumers price resistance. So first, you have to be ready to explain your price point to the buyer and how such things as fabric and production process. Define the The costs and then the price of each item must be careful a balance between its fair price value and the needs of your business. So each item must look its price reflecting its value and quality pricing must stay consistent from season to season, you cannot jump from one price segment to another price segment is impossible. So let's recap. buyers want to earn money.

Remember about that, that's why they prefer the brands that they can make money on. Your collection should be commercially attractive to buyers. If your wholesale prices do not provide the appropriate level of profit, buyers will most likely reject your line. Before you start creating your line sheets. You should carefully review your pricing model and determine the correct price. For each item