Pricing your garments correctly is one of the most important decisions you’ll make as a fashion business owner. A well-calculated profit margin ensures your brand is not only covering its costs but also generating enough revenue to grow sustainably. Whether you’re producing your first small batch or scaling to consistent monthly orders, understanding how to calculate profit margins will help you make smarter pricing decisions.
In this guide, we break down everything you need to know from the numbers behind your costs to practical ways to improve your margins.
1. Key Terms Every Clothing Brand Should Understand
Before you can calculate your profit margin, you need clarity on a few essential financial terms used across the fashion and manufacturing sectors.
Revenue (Selling Price)
This is the price you charge your customer for each garment.
Whether you sell directly to consumers or wholesale to retailers, your selling price forms the basis of all margin calculations.
Cost of Goods Sold (COGS)
COGS includes all direct costs involved in producing a garment.
For a clothing brand, this typically covers:
- Fabric, trims, labels, and thread
- Cutting and stitching labour
- Manufacturing costs
- Packaging materials
- Freight or shipping from the factory to you
These are the expenses tied directly to making the product, not running your business.
Operating Expenses
These are the indirect costs required to keep your brand running, such as:
- Office or studio rent
- Marketing and advertising
- Website hosting, apps, and e-commerce subscriptions
- Salaries for non-production staff
- Utilities
- Fulfilment or shipping costs to the customer (if you cover them)
These costs don’t change based on how many units you produce, but they play a major role in your overall profit.
2. How to Calculate Your Gross Profit Margin
Gross profit margin shows how much you earn after you pay for the product itself, but before business expenses.
This is the number most brands monitor first because it tells you whether your pricing is viable.
Example
Imagine you sell a T-shirt for £80 and it costs £30 to produce:
- Revenue: £80
- COGS: £30
- Gross Profit: £50
- Gross Margin: (£50 ÷ £80) × 100 = 62.5%
A 62.5% margin means that before overhead and operating expenses, you keep over half of every sale.
3. How to Calculate Net Profit Margin
Net profit margin gives you a fuller picture of your business performance because it includes everything, production costs and operating expenses.
Example
Let’s say in one month your brand earns:
- Total Revenue: £10,000
- Total COGS: £4,000
- Operating Expenses: £3,500
Net Profit = £10,000 – (£4,000 + £3,500) = £2,500
Net Margin = (£2,500 ÷ £10,000) × 100 = 25%
A 25% net margin indicates your brand is operating efficiently and keeping a healthy portion of your revenue after all expenses.
4. Practical Ways to Improve Your Profit Margins
Healthy margins aren’t just the result of good pricing; they come from smart production decisions and operational efficiency. Here are some strategies that work particularly well for fashion brands:
Negotiate Smarter
Many manufacturers offer discounts for:
- Larger orders
- Multiple sample rounds
- Repeat production
A small drop in COGS can significantly increase your gross margin. Remember that manufacturers will not give discounts on ‘promised future work’, to achieve discounts you need to be willing to commit to more production.
Review Your Pricing Strategy
If your brand offers premium fabrics, ethical production, or distinctive design, your pricing should reflect that value.
Use Product Bundles
Selling coordinated items as a slightly discounted bundle (e.g., hoodie + joggers) encourages larger basket sizes while still giving customers a small saving.
Streamline Operating Costs
Reducing unnecessary subscriptions, outsourcing certain tasks, or using automation tools can lower your OpEx (operational expenditure) and increase your net margin.
Follow a Limited Drop Model
Producing in smaller curated drops can reduce excess stock, minimise waste, and improve cash flow, especially valuable for new brands. Keep in mind that for more premium custom made items 50 units per style/colour is considered limited.
Why Calculating Your Margins Matters
For emerging fashion labels, unclear margins can lead to:
- Under-pricing your products
- Running out of cash prematurely
- Overspending on production
- Unsustainable long-term growth
Knowing your margins empowers you to price confidently, plan production responsibly, and build a business that supports your long-term vision.
How Hook and Eye UK Helps Fashion Brands Build Profitable Collections
At Hook and Eye UK, we work closely with brands at every stage, from tech pack creation to manufacturing, ensuring they understand their costs clearly before going into production. By guiding you through sampling, sourcing, and construction details, we help you create garments that are both high-quality and commercially viable.
Ready to Build a Profitable Clothing Brand?
Understanding your numbers is the first step.
Creating garments that meet your budget, brand vision, and quality expectations is the next step.
Book a Tech Pack and Design Session with Hook and Eye UK today and let us help you create profitable, beautifully made garments.
We’re based in the UK, but our design and garment development team works with amazing brands all over the world, including the USA, Australia, Canada, Germany, Senegal, Poland, and the UAE.
Hope you found this helpful,
H&E team :)
