Pricing is a tricky question entrepreneurs seem to face weekly. Where from come the costs of a 100€ bag or a 150€ dress? We opened the prices of three products.
It seems that it is so common to buy a shirt for 10€, that a price tag containing three numbers, or is over 40€, is a shock. The most heard sentence of the customers looking at domestic products is usually ”oh, this is quite expensive!” At the same time, it is commonly known that quality cannot cost just 10€. Although, it not guaranteed that a high-price shirt is quality either.
According to Kristiina Niskanen, well-known expensive brands are not automatically better than cheaper brands, which mean that consumers must be critical and demand transparency. This is something Fashion Revolution aims at. And although certificates exist, you don’t know for sure what they contain as they vary a lot. It is hard for the consumer to know whom they can trust and from which products the employee has been paid fairly.
Pricing is extremely hard, state the designers of Uhana Design. On one hand, the price must be reasonable, something that the consumers are willing to pay. On the other hand, money must also be left in your wallet after taxes and so on.
Anniina Nurmi has also highlighted earlier that in order to keep the prices reasonable for consumers, (which in this case means 59€ from a T-shirt and not 70€), production volumes must get bigger. This way the price of fabrics per meter is smaller.
Nurmi has made a simplified version of how the costs are calculated:
Production + Materials + Transportation x 2 = Wholesale price
Wholesale price x 2 + VAT = Price for customers
So what does these ”expensive prices”, referred earlier, contain then? Let’s have a look at the price tags of three different products and see which are the elements that determine the price!
And notice that the value-added tax (VAT) in Finland is 24%!!
THE BIG SORJA-BAG BY KENKÄPAJA PIHKA COSTS 129€
MATERIALS – 16€
PRODUCTION – 35€ per hour
- The production of this bag takes two hours (70€) and it includes choosing and cutting the materials, sewing and finishing
- The price per hour includes things such as wage, the company’s expenses (rent etc.), the entrepreneur’s pension insurance
CONTRIBUTION MARGIN – 18€
VAT – 25€
THE PILLOW COVERS BY ILONI COSTS 36€
MATERIALS – 5,94 €,
PRODUCTION – 7,00 €,
WRAPPING AND TRANSPORTATION – 0,6 €
OWN CONTRIBUTION MARGIN – 8,2 €
RETAILER’S CONTRIBUTION MARGIN – 7,2€
VAT – 6,97€
Anna Iloni agrees with Anniina Nurmi. By getting volumes up, the costs of materials and sewing would decrease, which means it would be a more profitable.
THE CLOTHES OF MEM BY PAULA MALLEUS
What do you think about the pricing? Reasonable or not? And again, notice that in Finland the amount of VAT is 24%!
We hope that this glance at the price tags opened where from these prices come. Many appreciate local food, lets hope that consciousness is reaching the clothing industry too.