CHAPTER 5 FINANCE
“I was horrified to meet a
designer recently who was
showing his collection with
no understanding of
what his garments would
cost to make in a
factory. It is imperative
understand how to make
the garments as well as
design them” Anne Tyrrell,
British Fashion Council.
Understanding the breakeven position is vital to survival and
profitability. The break even position is the sales volume
which generates sufficient revenue to cover all the costs of
the business but no profit. Designers must know the total
cost of the overheads of their business, all the other costs
than those costs directly relating to garments which are
included on the costing sheet.
There are two broad categories of costs: manufacturing and
overhead. A simplistic view of manufacturing costs would be:
Fixed cost of materials (fabric & trims)
+ Variable cost of labour to produce and pack garments
+ Costs to deliver garments to the warehouse
= Total delivered cost
Variable costs change in proportion to the number of
garments produced. In the case of delivery costs can be
both fixed and variable. The cost per delivery could be a
minimum charge of £100, which would equate to £1 per
garment for 100 pieces or £10 for 10. However a charge is
variable if it is based on cost per unit e.g. £1 per garment or
£20 per box.
Critical to pricing is an understanding of total manufacturing
costs and having accurate records on which to base the
recovery of these costs within the pricing structure.
Overhead costs include all those other items of cost, which
cannot be attributed directly to a product and these are
shown in the list on the following page.
CHAPTER 5 FINANCE
This chapter looks at the role of finance within the design/manufacturing business mix. It highlights the importance of the financial
side of the business and its role in developing a successful manufacturing base.
Three of the key barriers to successful commercial relationships between