Pricing Your Fashion Brand: Retail Pricing, Wholesale Basics, and Margin Targets

Pricing is a Strategy, Not a Spreadsheet Output

Your price has to do three jobs at once: (1) cover all costs (including the “invisible” ones like returns and payment fees), (2) deliver enough margin to fund growth, and (3) make sense in the customer’s mind versus alternatives. A sustainable price is the intersection of cost reality, brand positioning, and channel strategy (direct-to-consumer vs. wholesale).

Key Terms You Must Not Mix Up

• Retail price (MSRP): the price the customer pays.
• Wholesale price: the price a retailer pays you (typically ~50% of MSRP in many categories).
• COGS (cost of goods sold): the per-unit cost to make and deliver a sellable unit (production + packaging + inbound freight, and any per-unit finishing). Your earlier costing work feeds this number.
• Gross margin: what’s left after COGS, expressed as a percentage of selling price.
• Markup: how much you add on top of cost, expressed as a percentage of cost.

Gross Margin vs. Markup (With Simple Math)

These are not interchangeable. Use the right one depending on the question you’re answering.

Rule of thumb: When setting targets, brands usually talk in gross margin. When vendors/retailers talk about “keystone,” they often imply a markup relationship (e.g., doubling).

Keystone Pricing and What It Really Means

Keystone pricing traditionally means: Retail ≈ 2 × Wholesale. In many fashion categories, that implies the retailer buys at ~50% of MSRP, then sells at MSRP.

For a small brand, keystone is useful as a channel compatibility check: if your cost structure can’t support wholesale at ~50% of MSRP, you either (a) adjust costs, (b) adjust MSRP/positioning, (c) choose DTC-first, or (d) accept that wholesale will be limited or at different terms.

Continue in our app.

You can listen to the audiobook with the screen off, receive a free certificate for this course, and also have access to 5,000 other free online courses.

Or continue reading below...

Download the app

Typical Wholesale Structures (Common Ranges)

• Wholesale discount off MSRP: often 45–55% (meaning wholesale price is 45–55% off MSRP).
• Retailer margin expectation: commonly ~50–60% gross margin for full-price selling (varies by category and retailer).
• Promotional allowances/markdown support: some retailers expect flexibility; plan for it if you pursue wholesale seriously.

Choosing a Target Margin That Fits Your Production Model

Your target margin should reflect how much risk and overhead you carry, and how much cash you need to reinvest in inventory, marketing, and operations.

Practical Target Ranges (Use as Starting Points)

• DTC-only, made-to-order: you may accept a slightly lower gross margin than inventory-heavy models because you reduce unsold stock risk, but you still need room for customer acquisition costs and returns. Many small brands aim for 60–75% gross margin at retail depending on category and fulfillment/returns burden.
• DTC, small batch inventory: you carry inventory risk and cash tied up in stock; targets often need to be higher to fund markdowns and slow movers. Many aim for 65–80% gross margin at retail.
• Wholesale-capable pricing: you must ensure margin at wholesale is still viable. A common internal target is 30–50% gross margin at wholesale (after considering any per-order costs you absorb). If you can’t hit this, wholesale may become a volume-without-profit trap.

Don’t treat these as universal rules; treat them as guardrails. Your actual target should be driven by your expected operating expenses (marketing, fulfillment, team, software) and the channel mix you want.

DTC vs. Wholesale: How Pricing Logic Changes

Direct-to-Consumer (DTC) Pricing Considerations

• You keep the full selling price, but you pay for demand generation (ads, content, PR), payment processing, customer service, and returns.
• Returns can be a hidden margin killer: if your return rate is high, your “effective” gross margin drops. Consider building a returns reserve into your margin target.
• Shipping strategy matters: “free shipping” is not free. If you include shipping in price, treat it like a cost you must cover.

Wholesale Pricing Considerations

• Lower price per unit (wholesale) but potentially larger orders and brand exposure.
• Terms and timing: payment terms (e.g., net-30) can create cash-flow strain even if the margin looks fine on paper.
• Operational load: wholesale requires line sheets, consistent replenishment, barcodes, packaging standards, and on-time delivery reliability.

Wholesale Viability Check (Quick Test)

If your MSRP is P and wholesale discount is d (e.g., 50% = 0.50), then wholesale price is P × (1 - d). Your wholesale gross margin is:

Wholesale GM = (Wholesale Price - COGS) / Wholesale Price

If that number is too low to cover your operating expenses and the extra complexity of wholesale, you either need a higher MSRP, lower COGS, or a different channel plan.

A Step-by-Step Method to Set Prices (Repeatable for Every Style)

Step 1: Start With Unit Cost (COGS) and Add Channel-Specific “Selling Costs”

Use your unit cost as the base, then add per-unit selling costs that differ by channel.

• DTC add-ons (examples): payment fees, pick/pack, outbound shipping subsidy, average return cost, packaging upgrades for unboxing.
• Wholesale add-ons (examples): labeling/barcodes, wholesale packaging, outbound freight to retailer/warehouse, compliance requirements.

Create two numbers per style: COGS_DTC and COGS_Wholesale if they differ meaningfully.

Step 2: Choose a Margin Target (by Channel)

Pick a target gross margin for DTC retail and (if applicable) for wholesale. Write it down as a percentage and stick to it unless you have a strategic reason to break it.

To calculate price from a gross margin target:

Price = Cost / (1 - Target Gross Margin)

Example: If COGS_DTC = $45 and target DTC gross margin is 70%:

Retail Price = 45 / (1 - 0.70) = 45 / 0.30 = $150

Step 3: Check Wholesale Compatibility (If You Want Wholesale)

Assume a wholesale discount (e.g., 50%). With MSRP $150, wholesale price at 50% off is $75.

Now test wholesale margin. If COGS_Wholesale = $45:

Wholesale GM = (75 - 45) / 75 = 40%

If your wholesale target is 35–45%, you’re in range. If it drops to, say, 20%, wholesale will likely be unsustainable unless you have unusually low operating expenses or very high volume.

Step 4: Validate Against Competitor Pricing (Positioning Reality Check)

Competitor pricing is not a rule, but it is a constraint: customers compare. Build a small comparison table for each category you sell (e.g., “silk camis,” “heavyweight hoodies,” “tailored trousers”).

• Compare like-for-like: fabric type/weight, construction details, country of origin, brand positioning, and included services (free returns, warranty).
• Decide your lane: entry, mid, premium, luxury. Your MSRP should be consistent across the collection so the brand feels coherent.

If your calculated price is far above the market, you need to justify it with clear value (materials, fit, craftsmanship, limited production) or revisit cost and design choices.

Step 5: Test Willingness-to-Pay (Before You Commit Fully)

You’re not guessing; you’re running small tests to reduce risk.

• Price A/B on a waitlist or preorder page: show two price points to different traffic sources and compare sign-up or add-to-cart rates.
• Survey with anchored options: “At $X I’d buy now; at $Y I’d consider; at $Z too expensive.” Keep it tied to a specific product with photos and key specs.
• In-person pop-up test: track conversion rate by price point and listen for objections (not just compliments).

Use results to adjust within a controlled range (e.g., ±10–15%) rather than swinging wildly.

Scenario Pricing: Made-to-Order vs. Small Batch

Scenario A: Made-to-Order (MTO) Pricing

MTO reduces inventory risk but increases operational complexity and can increase unit costs (less efficiency, more handling). Pricing should reflect:

• Longer lead times: customers may accept a premium for customization or craftsmanship, but only if communicated clearly.
• Higher service component: sizing support, customization, and customer communication are real costs.
• Lower markdown need: fewer end-of-season discounts can protect margin over time.

Practical approach: set a DTC margin target that covers service time and potential remakes/alterations. Consider a non-refundable deposit model to protect cash flow and reduce cancellations (ensure it aligns with local consumer laws).

Scenario B: Small Batch Inventory Pricing

Small batch improves production efficiency and delivery speed, but you carry unsold stock risk. Pricing should reflect:

• Markdown budget: plan for some units to sell at a discount. Your initial margin must be high enough that the blended margin remains healthy.
• Cash tied up in inventory: you need margin to fund reorders and new development.
• Size curve risk: some sizes will sell slower; pricing alone won’t fix it, but margin gives you room to manage it.

Practical approach: set MSRP with an assumed markdown rate (for example, “20% of units will sell at 20% off”). Then check whether your blended gross margin still meets your target.

Discount Rules That Protect Brand Value (And Your Cash)

Set a Minimum Price Floor (Non-Negotiable)

Define a minimum selling price per style so you never discount below sustainability. A simple floor is based on a minimum acceptable gross margin:

Minimum Price Floor = Cost / (1 - Minimum Gross Margin)

Example: If cost is $45 and your absolute minimum gross margin is 50%:

Floor = 45 / (1 - 0.50) = $90

Any discount that drops below $90 should be avoided (or used only for true liquidation with a clear reason and limited visibility).

Launch Offer Limits (So You Don’t Train Customers to Wait)

• Keep it time-bound: e.g., 48–72 hours or a fixed end date.
• Keep it shallow: many brands cap early offers at 10–15% unless there’s a strategic reason.
• Prefer value-add over price cuts: free shipping threshold, small gift, or priority production slot for MTO.

Markdown Ladder (Planned, Not Emotional)

Pre-plan discount steps so decisions aren’t made in panic.

• Example ladder: 10% (soft push) → 20% (clearance signal) → 30% (final) while never crossing the price floor.
• Use triggers: time since launch, stock coverage, or sell-through rate.

Protect Price Integrity Across Channels

• MSRP consistency: keep the same MSRP on your site and in wholesale partners to avoid channel conflict.
• Avoid undercutting retailers: if you sell wholesale, aggressive DTC discounting can damage relationships and reduce reorders.
• Use channel-specific perks instead of lower prices: early access, exclusive colorways, bundles, or loyalty credits.

Practical Pricing Worksheet (Copy/Paste Template)

Use this structure per style to make pricing decisions consistent.