Why Accurate Costing is Non-Negotiable
Garment costing is where most Indian fashion brands get it wrong — and it costs them their business. Undercosting leads to losses on every piece sold. Overcosting leads to prices the market will not accept. Either way, the brand suffers.
The brands that succeed are the ones who know their exact cost per SKU, including every rupee spent from raw material to the customer's doorstep. This guide breaks down every component of garment costing and shows you how to price for sustainable profit.
The Garment Cost Structure
Every garment's cost can be broken into six components. Here is a real example using a men's cotton casual shirt manufactured in Tirupur:
1. Fabric Cost
Fabric is your biggest cost component — typically 40-55% of the total garment cost.
- Fabric consumption: Calculate the exact fabric required per piece using your marker (cutting layout). A men's shirt typically consumes 1.6-1.8 metres of 58-inch width fabric
- Wastage allowance: Add 5-8% for cutting waste, end-of-roll loss, and defective fabric. So 1.7 metres becomes 1.7 x 1.07 = 1.82 metres
- Fabric rate: If your cotton poplin costs ₹180 per metre, fabric cost = 1.82 x ₹180 = ₹327.60
Always cost fabric based on actual consumption data, not estimates. Measure consumption by weighing 10 pieces of the finished garment and dividing by the fabric's GSM and width. Estimated consumption is typically 10-15% higher than actual, which inflates your cost.
2. Trims and Accessories
These are the small items that add up quickly:
- Buttons (7-8 per shirt): ₹1.50 each = ₹10.50 to ₹12.00
- Sewing thread: ₹3-5 per piece
- Interlining (collar and cuffs): ₹8-12 per piece
- Labels (main label, care label, size label): ₹5-8 total
- Hang tags and price tags: ₹3-5
- Spare button with card: ₹2
Total trims for our example shirt: approximately ₹35-40
3. CMT (Cut-Make-Trim) or Labour Cost
This covers cutting, stitching, finishing (thread trimming, pressing), and quality checking.
- CMT rate for a basic shirt in Tirupur: ₹80-120 depending on complexity (pocket styles, yoke details, collar type)
- A shirt with embroidery or prints: Add ₹20-60 depending on the process
- Washing/finishing: ₹15-30 (enzyme wash, softener, etc.)
CMT for our example: ₹100 (standard construction, no special finishes)
4. Overheads
Overhead costs that must be allocated per piece:
- Factory overheads: If the vendor includes this in CMT, do not double count. Otherwise, allocate electricity, rent, and depreciation across total monthly output
- Design and sampling cost: If a style required 3 sample rounds at ₹800 each, and you produce 1,000 pieces, sampling cost = ₹2.40 per piece
- Quality rejection cost: If 3% of production is rejected, the cost of those rejected pieces must be absorbed by the good pieces
- Administrative overhead: Salaries of your merchandising team, travel to factories, communication costs. Allocate 3-5% of product cost
Overheads for our example: approximately ₹25
5. Packaging and Shipping
- Poly bag: ₹2-3
- Brand tissue paper or wrap: ₹5-8 (if applicable)
- Shipping carton (allocated per piece): ₹3-5
- Inward freight (factory to warehouse): ₹8-15 per piece depending on distance
Packaging and shipping for our example: approximately ₹20
6. GST and Compliance
GST on garments in India is 5% for items priced up to ₹1,000 and 12% for items above ₹1,000 at retail. Factor this into your pricing, not your cost sheet — GST is collected from the customer and remitted to the government. However, you should account for:
- Input GST credit timing differences (cash flow impact)
- GST on services (courier, rent, etc.) that cannot always be fully credited
The Complete Cost Sheet
Here is the full cost sheet for our men's cotton casual shirt:
- Fabric: ₹327.60
- Trims and accessories: ₹37.00
- CMT (labour): ₹100.00
- Overheads: ₹25.00
- Packaging and inward freight: ₹20.00
- Total landed cost: ₹509.60
This is your cost price — the total amount you spend to have one finished, packaged shirt sitting in your warehouse ready to sell.
Pricing for Profit
Understanding Margin Structures
Indian fashion brands typically operate with these margin benchmarks:
- D2C (own website): 65-75% gross margin. A shirt costing ₹510 would retail at ₹1,499-₹1,799
- Marketplace (Myntra, Ajio): 45-55% after marketplace commission (typically 25-35%). Price higher to account for commissions
- Wholesale/multi-brand retail: 30-40% gross margin. You sell at ₹750-850, retailer sells at ₹1,499
Pricing Formula
For D2C brands, use this formula:
Retail Price = Landed Cost / (1 - Target Gross Margin %)
If your target gross margin is 70%: ₹510 / (1 - 0.70) = ₹1,700. Round to ₹1,699 for psychological pricing.
The Hidden Costs Most Brands Forget
- Return and exchange cost: If your return rate is 15% and each return costs ₹150 (reverse logistics + restocking + damaged goods), that is ₹22.50 per piece sold that you need to factor in
- Marketing cost per acquisition: If you spend ₹3 lakh per month on marketing and sell 2,000 pieces, marketing cost is ₹150 per piece
- Discount and promotion: If 30% of your sales happen at 20% discount, your effective discount is 6% across all units
- Dead stock write-off: If 10% of inventory becomes dead stock sold at 50% off cost, that loss must be distributed across profitable sales
Many Indian fashion brands show healthy gross margins on paper but lose money at the net level because they ignore returns, marketing costs, and dead stock. True profitability is measured at the unit economics level — revenue per piece minus ALL costs including customer acquisition and returns.
Tips for Reducing Garment Cost
- Negotiate fabric in bulk: Consolidate fabric orders across styles. Buying 5,000 metres of a base fabric is 10-15% cheaper per metre than buying 500 metres five times
- Simplify construction: Every additional operation (tuck, pleat, extra pocket) adds ₹5-15 to CMT. Audit your designs for unnecessary complexity
- Reduce sampling rounds: Each sample round costs ₹500-1,500. Getting approval in 2 rounds instead of 4 saves ₹1,000-3,000 per style across dozens of styles per season
- Improve marker efficiency: A 2% improvement in fabric utilisation on a brand doing ₹10Cr annually saves ₹10-15 lakh per year
- Track and measure: Use your ERP to track actual costs against estimated costs for every production order. The gap reveals where your costing assumptions are wrong
Automate Your Costing
Manual costing in Excel works when you have 20 styles. When you reach 200 styles across multiple categories and vendors, it becomes unmanageable. An ERP system like LabelERP automates cost sheet generation, tracks actual versus estimated costs, and gives you margin analysis at the SKU level. Accurate costing is the foundation of a profitable fashion business — invest in getting it right.