Costing for a First Fashion Collection: Materials, Labor, Overhead, and True Unit Cost

What “true unit cost” means (and why it’s different from a quote)

Your true unit cost is the all-in cost to get one sellable unit ready to ship to a customer or retailer. A factory quote (or a “CMT price”) usually covers only part of this—often just labor. True unit cost includes materials + labor + overhead + risk allowances (defects, wastage, freight variability), and any one-time costs spread across units (sampling, pattern, grading, testing).

Use true unit cost to make decisions like: “Can I afford a better fabric?”, “Should I add a zipper?”, “Is a second colorway worth it?”, and “What minimum order quantity (MOQ) makes sense?”

Build a line-item costing system from scratch

Step 1: Set up a costing template (one worksheet per style)

Create a worksheet with these sections. Keep each line item explicit; avoid lump sums like “misc.” unless you can’t break it down.

• A. Materials (BOM): fabric(s), lining, interfacing, trims, thread, elastic, buttons, zippers, labels, hangtags, care labels, packaging.
• B. Labor: cut-make-trim (CMT) or sewing minutes, cutting, finishing, pressing, QC, packing labor if charged separately.
• C. Logistics & compliance: inbound shipping to factory, outbound shipping to you/warehouse, duties/taxes (if applicable), customs brokerage, testing/certifications (if needed for your category/market).
• D. One-time costs (amortized): sampling, pattern, grading, markers, size set, fit models, photo samples (if they are made specifically for sales), lab dips/strike-offs.
• E. Allowances: shrinkage/wastage, defects, rework, freight variance, currency variance (if paying in another currency).
• F. Overhead allocation: software, workspace, equipment depreciation, marketing tools, accountant/bookkeeping, insurance, small supplies.

Step 2: Decide your unit basis and batch size

Costing changes with quantity. Choose a realistic first run (e.g., 50, 100, 200 units) and cost on that basis. For one-time costs, you’ll divide by this unit count.

Use consistent units: meters/yards for fabric, pieces for trims, minutes or unit price for labor, and per-shipment costs converted to per-unit.

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Step 3: Cost materials with consumption (not just price per meter)

For each material, calculate:

Material cost per unit = (Consumption per unit × Price per unit) × (1 + Wastage%)

Consumption per unit should come from marker estimates or factory guidance. If you don’t have markers yet, start with a conservative estimate and refine after sampling.

Typical wastage drivers: marker inefficiency, fabric flaws, end-of-roll loss, directional prints/nap, matching stripes/checks, cutting errors.

Step 4: Cost trims, labels, and packaging per piece

Trims are often quoted per 100/1000 pieces. Convert to per-unit and include extras for defects/spares.

Trim cost per unit = (Unit trim price) × (1 + Extra% for spares/defects)

Packaging can be more than a polybag: tissue, sticker, size label, hangtag string, mailer/box, insert card. Decide what “ready to ship” means for your business and cost that level.

Step 5: Cost labor (CMT) transparently

If you receive a single CMT price, still record it as its own line item. If you have minute-based costing, use:

Labor cost per unit = Total minutes per unit × Cost per minute

Include finishing steps that are easy to forget: pressing, thread trimming, button attach, bartacks, QC, folding/packing.

Step 6: Add sampling and development as amortized costs

Sampling can quietly destroy margins in small runs if you treat it as “sunk.” Track it and spread it across the units you expect to sell from that development cycle.

Amortized cost per unit = Total one-time costs ÷ Planned units

If you plan multiple reorders, you can amortize across a larger lifetime unit estimate—but be honest. For a first collection, it’s safer to amortize across the first run (or first run + one realistic reorder).

Step 7: Convert shipping, duties, and taxes into per-unit costs

Shipping is often quoted per carton or per kg. Convert using packed weight/volume per unit and expected cartonization.

Freight per unit = Total freight for shipment ÷ Units in shipment

Duties/taxes (if applicable) depend on product category and declared value. If you don’t know exact rates yet, include a placeholder line with a conservative percentage and update once you have a broker quote.

Step 8: Add allowances for defects and wastage (sellable yield)

Even good production has some defects. If 2% of units are unsellable or require rework, your effective cost per sellable unit rises.

Simple method: add a defect allowance percentage to your subtotal.

Defect allowance per unit = Subtotal (materials + labor) × Defect%

More precise method: divide total batch cost by expected sellable units (e.g., produce 100, sellable 98).

Overhead allocation made simple (and realistic)

What counts as overhead for a small fashion brand

Overhead is the cost to run the business that isn’t tied to one unit directly. Common examples:

• Software: design tools, inventory, accounting, project management, email.
• Workspace: studio rent, utilities, internet (or a home-office portion if you track it).
• Equipment: sewing machine, steamer, camera, computer (allocate via depreciation).
• Marketing operations: subscriptions, content tools, sample shipping for creators (not paid ads tied to a campaign—track separately if you prefer).
• Professional services: accountant/bookkeeper, legal templates, insurance.
• General supplies: tape, labels, printer ink, small tools.

Two easy ways to spread overhead across units

Method 1: Per-unit overhead based on planned production (best for first collections).

Overhead per unit = Total overhead for the period ÷ Units planned to sell in the period

Example: If your monthly overhead is $1,200 and you plan to sell 200 units over that month/launch window, overhead allocation is $6 per unit.

Method 2: Overhead as a percentage of direct costs (useful when volumes fluctuate).

Overhead per unit = (Materials + Labor) × Overhead%

Pick a percentage that matches reality by checking your last 2–3 months of overhead vs. direct costs. If you’re early-stage, start with a conservative 10–20% and refine.

Costing worksheet structure (copy/paste template)

Use a table like this for each style and colorway. Add columns for “Supplier,” “MOQ,” and “Notes” if helpful.

Worked example: one style, one run (and how changes affect unit cost)

Base style assumptions

Example product: a woven skirt. Planned first run: 100 units, one colorway.

• Main fabric consumption: 1.2 m per unit
• Fabric price: $8.00/m
• Fabric wastage: 8%
• Zipper: 1 pc at $0.60 (+2% spares)
• Labels set: $0.35 (+2% spares)
• Hangtag set: $0.25 (+2% spares)
• Packaging set: $0.40 (+2% spares)
• CMT labor: $6.50 per unit
• Finishing/pressing: $0.50 per unit
• Inbound freight allocated: $0.30 per unit
• Outbound freight to you: $1.20 per unit
• Duties/taxes: $0.00 (domestic production in this example)
• Sampling & development total: $600 (pattern + samples) amortized across 100 units
• Defect allowance: 2% of (materials + labor)
• Overhead allocation: $5.00 per unit

Base cost calculation

In this example, the factory labor quote ($6.50) is only a small slice of the true unit cost ($32.77). The biggest drivers are fabric and amortized sampling/overhead at low volume.

Sensitivity checks: how “small” changes move unit cost

Change 1: Fabric upgrade

Upgrade fabric from $8.00/m to $10.00/m (same consumption and wastage).

• Old fabric cost: $10.37
• New fabric cost: 1.2 × $10.00 × 1.08 = $12.96
• Increase: +$2.59 per unit

New true unit cost (approx.): $32.77 + $2.59 + (defect allowance increase ~2% of $2.59 ≈ $0.05) = $35.41.

Change 2: Add an extra zipper (design detail)

Add a second zipper at $0.60 (+2% spares).

• Added zipper cost: $0.61 per unit
• Potential labor impact: if it adds $0.40 in sewing time, total impact becomes $1.01

New true unit cost (approx.): $32.77 + $0.61 + $0.40 + (2% defect allowance on added direct costs ≈ $0.02) = $33.80.

Change 3: Add a second colorway (hidden costs)

A new colorway often changes costs in ways that don’t show up in the BOM:

• Minimums: you may need to buy more fabric than you use (leftover becomes a real cost).
• Development: lab dips/strike-offs, additional sample(s), extra photo sample.
• Complexity: more SKUs can increase packing/QC time and error rates.

Example: you add a second colorway but keep total units at 100 (50 + 50). Sampling increases by $150 (extra lab dips + one additional sample). Fabric price stays the same, but wastage rises from 8% to 10% due to smaller lays/less efficient cutting.

• Sampling amortization increases: ($600 + $150) ÷ 100 = $7.50 (was $6.00) → +$1.50
• Fabric cost increases: 1.2 × $8.00 × 1.10 = $10.56 (was $10.37) → +$0.19

New true unit cost (approx.): $32.77 + $1.50 + $0.19 + (defect allowance increase ~2% of $1.69 ≈ $0.03) = $34.49.

Key takeaway: a second colorway can raise unit cost even if the fabric price per meter is unchanged, because it affects efficiency and development spend.

Practical workflow: costing a style in 30–60 minutes

1. List every component that physically ships with the product (including labels and packaging).
2. Enter consumption for each fabric and fusible; add a realistic wastage %.
3. Enter trims per unit and add a small spares % (commonly 1–3%).
4. Add labor (CMT or minutes) plus finishing/pressing/QC if separate.
5. Allocate logistics: inbound + outbound freight; add duties/taxes placeholders if uncertain.
6. Amortize one-time costs across the planned run (and only the reorders you truly expect).
7. Add defect allowance (start with 1–3% if you have no data).
8. Allocate overhead using a simple per-unit number for the launch period.
9. Run sensitivity checks on the top 3 drivers (usually fabric, labor, freight, sampling amortization).

Preventing common costing errors (and how to catch them)

Error 1: Forgetting shrinkage/wastage

What happens: You cost fabric at perfect consumption, then run short during production or pay for extra meters at a higher price/expedited shipping.

Prevention checklist:

• Add wastage % to every fabric and fusible line.
• Increase wastage for directional fabrics, plaids/stripes, prints that must match, small colorway quantities.
• If fabric is washed/garment-dyed, include shrinkage allowance or confirm the factory’s process assumptions.

Error 2: Ignoring sampling and development costs

What happens: You think you’re profitable because production costs look low, but cash disappears into repeated samples, pattern updates, lab dips, and courier fees.

Prevention checklist:

• Create a dedicated bucket for one-time costs and amortize them.
• Track courier/sample shipping as part of development if it’s required to get the product made.
• Decide an amortization rule and stick to it (e.g., “first run only” for first collection).

Error 3: Underestimating shipping (and forgetting the ‘last mile’)

What happens: Freight is quoted optimistically, cartons weigh more than expected, or you forget inbound shipping for trims and packaging.

Prevention checklist:

• Cost inbound (materials to factory) and outbound (finished goods to you) separately.
• Ask for carton dimensions and gross weight once packing is defined; update your per-unit freight.
• Add a small freight variance allowance (e.g., 5–10%) if rates are volatile.
• If importing, include broker fees and a duties/taxes placeholder until confirmed.