How to Calculate Garment Product Cost

Many small factories and home businesses set their price by looking at what the neighbour charges. That is risky. If your costs are higher than theirs, you lose money on every piece and may not know it for months. Knowing how to calculate product cost is the base of every sound price, every quote and every profit plan.

This guide shows the method in plain steps. We use a basic cotton T-shirt as the example, with real numbers worked out line by line. You will also see how efficiency changes the cost, how to find your break-even point and which mistakes to avoid. The numbers use US dollars for convenience, but the same method works in any currency. For more detailed garment-specific guides, see our pages on the costing of knit garments, the costing of a polo shirt and woven fabric costing.

What is product cost

Product cost is the total money spent to make one unit and get it ready to sell. It covers everything from raw material to packing. The selling price is cost plus profit. If you do not know the cost, you cannot know the profit.

The basic formula

Total cost per piece = materials + labour + factory overheads + other costs

Selling price = total cost + profit

Let us look at each part.

Step 1: Direct materials

These are the items that become part of the product. In a garment they are:

• Main fabric. Usually the biggest cost.
• Trims. Thread, zippers, buttons, labels, tags, elastic, interlining.
• Packing. Poly bag, hanger, carton share, stickers.

For each item, find out the quantity used per piece and the price per unit, then add an allowance for waste. Fabric waste comes from cutting loss, end-of-roll waste, defects and sampling. A typical allowance for a basic knit garment may be around 5 to 10 percent, but measure your own from cutting reports.

Material cost per piece = quantity × (1 + wastage) × unit price

Step 2: Direct labour

This is the pay of the people who work directly on the product, mainly cutters, sewing operators, finishers and packers. There are two common ways to count it.

1. Per-piece pay. If operators are paid per piece, the cost is simply the rate times the number of operations.
2. Time-based pay. If operators are paid by the month, work out the cost of one minute of work and multiply by the standard minute value (SMV or SAM) of the product. Our guide on productivity and production formulas explains SAM and efficiency.

Labour cost per piece = SAM ÷ efficiency × cost per minute

Efficiency matters because an operator does not work at full speed all day. If a line runs at 65 percent efficiency, each piece takes more actual minutes than its SAM.

Step 3: Factory overheads

Overheads are the costs that support production but are not tied to one piece. Examples are:

• Factory rent
• Electricity, water, gas and fuel
• Supervisors, managers and quality staff
• Machine repair and maintenance
• Insurance and security
• Depreciation of machines
• Cleaning, canteen and welfare
• Internet, phone and office costs

To spread them across your products, add them up for a month and divide by your total output or total productive minutes. Our upcoming guide on factory overheads in garment costing goes deeper into this step.

Step 4: Other costs

Some costs sit outside the factory floor but still belong in the price:

• Testing, inspection and audit fees
• Freight, port and customs charges, if you quote on a delivered basis
• Bank charges and interest on loans
• Commission to a buying agent
• Sampling and development
• Washing, printing or embroidery if you do them

Add a small percentage for these if you cannot assign them to each style.

Step 5: Add profit

Profit is not a bonus. It pays for new machines, bad months and your own income. Decide a target margin and add it to the cost.

Selling price = total cost × (1 + profit percent)

Note the difference between mark-up and margin. A 10 percent mark-up on cost is a 9.1 percent margin on price. Use the same method every time so you compare numbers fairly.

Worked example: cost of a basic cotton T-shirt

A factory plans an order for a plain round-neck T-shirt in single jersey cotton.

Given data

• Net fabric weight per shirt: 0.200 kg
• Fabric wastage: 8 percent
• Fabric price: 5.20 dollars per kg
• Trims (thread, labels, tags, neck tape): 0.05 + 0.05 + 0.03 = 0.13 dollars
• Packing (poly bag and carton share): 0.02 dollars
• SAM of the shirt: 8.0 minutes
• Line efficiency: 65 percent
• Factory cost per working minute (wages and overheads together): 0.03 dollars
• Commercial and finance cost: 2 percent of the cost so far
• Profit: 8 percent

Step A: fabric

• Fabric needed = 0.200 × 1.08 = 0.216 kg
• Fabric cost = 0.216 × 5.20 = 1.1232 dollars

Step B: trims and packing

• Trims and packing = 0.13 + 0.02 = 0.15 dollars

Step C: total material cost

• 1.1232 + 0.15 = 1.2732 dollars

Step D: conversion cost (labour and overheads)

• Actual minutes per piece = 8.0 ÷ 0.65 = 12.31 minutes
• Conversion cost = 12.31 × 0.03 = 0.3692 dollars

Step E: subtotal

• 1.2732 + 0.3692 = 1.6424 dollars

Step F: commercial and finance cost at 2 percent

• 1.6424 × 0.02 = 0.0328 dollars

Step G: total cost

• 1.6424 + 0.0328 = 1.6752 dollars

Step H: profit at 8 percent

• 1.6752 × 0.08 = 0.1340 dollars

Step I: selling price

• 1.6752 + 0.1340 = 1.8092, rounded to 1.81 dollars per piece

Here is the same information in one table.

Cost element	Amount (dollars)	Share of selling price
Fabric (with wastage)	1.1232	about 62 percent
Trims and packing	0.1500	about 8 percent
Conversion (labour and overhead)	0.3692	about 20 percent
Commercial and finance	0.0328	about 2 percent
Profit	0.1340	about 7 percent
Selling price	1.8092	100 percent

The shares add up to about 99 percent because of rounding. Notice that fabric is by far the biggest piece. A small change in fabric price or consumption has a bigger effect than a change in thread cost.

What happens if efficiency drops

Now suppose the line runs at 50 percent instead of 65, because of absenteeism and a difficult style.

• Actual minutes = 8.0 ÷ 0.50 = 16.0 minutes
• Conversion cost = 16.0 × 0.03 = 0.48 dollars
• Subtotal = 1.2732 + 0.48 = 1.7532 dollars
• Add 2 percent = 1.7532 × 1.02 = 1.7883 dollars
• Add 8 percent profit = 1.7883 × 1.08 = 1.9314 dollars

If you had quoted 1.81 and then ran at 50 percent efficiency, the cost of 1.7883 would leave a profit of 1.81 − 1.7883 = 0.0217 dollars a piece, which is only about 1.2 percent. On an order of 10,000 shirts, the profit falls from about 1,340 dollars to about 217 dollars. This is why careful factories track efficiency daily and price with a safe assumption.

What happens if the fabric price rises

Suppose the fabric price rises by 5 percent, from 5.20 to 5.46 dollars per kg.

• New fabric cost = 0.216 × 5.46 = 1.1794 dollars
• Rise = 1.1794 − 1.1232 = 0.0562 dollars per piece
• On 10,000 pieces, that is about 562 dollars of extra cost

A small price change adds up quickly on large orders. Add a price validity period to your quote, such as 15 days, for this reason.

Fixed cost, variable cost and break-even

It also helps to split costs into two groups.

• Variable costs change with output. Examples are fabric, trims and per-piece labour.
• Fixed costs stay the same in the short term. Examples are rent, salaries and loan payments.

The break-even point is the output at which you earn zero profit. It is useful when you decide whether to accept an order.

Break-even pieces = fixed costs ÷ (selling price − variable cost per piece)

Take the T-shirt example. Suppose the variable cost per piece is 1.40 dollars (material plus per-piece labour) and the fixed cost is 9,000 dollars a month.

• Contribution per piece = 1.81 − 1.40 = 0.41 dollars
• Break-even = 9,000 ÷ 0.41 = 21,951 pieces, so about 21,952 pieces a month

If the factory sells fewer than that, it loses money. If it sells more, each extra piece adds 0.41 dollars of profit. This also shows why a low-volume order at a very low price can look attractive but harm you. It may cover the variable cost, but it does not help the fixed cost much.

A simple costing sheet you can copy

Use a sheet with these lines for every style.

Line	What to enter
Style number, buyer, order quantity	Basic details
Fabric type, GSM, width	From the spec
Consumption per piece	From the marker or an estimate
Wastage percent	From past cutting reports
Fabric price	From the supplier quote
Trims list with unit price	One line per trim
Packing items	Bag, carton, hanger
SAM and expected efficiency	From the IE department
Cost per minute	Wages plus overheads
Washing, printing, embroidery	Quote from the process unit
Testing, freight, commission	Per piece share
Total cost	Sum of the lines
Profit percent	Your target
Quoted price	Total cost plus profit

Keep old sheets. After the order ships, compare the estimate with the real cost and learn from the difference. This habit helps you correct your numbers next time. Good records of consumption also help with the cutting department and with the target versus actual production variance.

Costing for home and small businesses

The method is the same if you stitch at home. Count your materials, then put a fair value on your time. List monthly costs such as electricity, machine repair, transport and phone. Divide by the number of pieces you usually make. Add profit. Many small makers forget to pay themselves, and then wonder why the business feels hard. If you take orders from clients, see our guide on how to get stitching orders at home, which includes a pricing example.

Common mistakes

• Using the fabric weight from a sample, not from a full marker
• Forgetting wastage on fabric and trims
• Using an optimistic efficiency, such as 80 percent, when the factory normally runs at 60
• Leaving out overheads, so costs look low
• Ignoring the cost of rejects, reworks and returns
• Copying a competitor’s price without checking your own cost
• Not updating costs when fabric or wages change
• Mixing up mark-up and margin
• Forgetting that currency changes affect imported materials
• Not including interest on loans or the cost of waiting for payment

Ways to lower product cost without lowering quality

1. Improve the marker. Better fabric use cuts the biggest cost.
2. Raise efficiency. Balance the line, train operators and reduce changeovers.
3. Reduce rework. Fix problems at the source. Our guide on garment inspection shows how.
4. Negotiate smart. Buy fabric in larger lots when the cash flow allows.
5. Reduce waste. Reuse cut offcuts for small parts and trims.
6. Save energy and water. Fix leaks, switch off idle machines.
7. Plan orders well. Fewer style changes mean less lost time.

Final thoughts

Knowing how to calculate product cost turns pricing from a guess into a plan. List every cost, add wastage, include overheads and test your numbers against lower efficiency and higher fabric prices. Then add a profit you can defend. Check your estimates against real results after each order, and your costing will become sharper with every style you make.

Frequently asked questions