How to Price a Jacket

Every jacket has a cost, and a price to the customer.

In simple terms:

• $100 selling price
• $50 cost to make
• = $50 gross profit at a 50% gross profit margin

You could imagine a whole spectrum of selling prices for that jacket:

• 99% gross profit = $5000 selling price
• 75% gross profit = $200 selling price
• 50% gross profit = $100 selling price
• 0% gross profit = $50 selling price
• -100% gross profit = give it away for free

Let's assume that the jacket's cost is all-in landed cost, meaning the cost to make it and ship it to your warehouse, including customs fees, freight forwarding, etc. And let's also assume this is a decently optimized low cost for the garment given materials, labor, etc.

Now your typical jacket will be priced at 3-4x cost. Which puts this particular jacket at a $150 - $200 selling price.

Consider that the 'market average' for what a jacket 'should' cost, purely from the point of view of the unit economics. Most likely the 'average' brand will be spending advertising dollars with Meta and Google and Amazon, and therefore that profit margin allows for adspend to turn a profit at a 2x return on adspend or better.

Fine, ok, that's what it is. But pricing can be much more interesting than being forced into your margins by your business model.

What if we priced this jacket higher? Lower? What does that look like?

I tend to think of margin from the customer's perspective. I.e. the amount of value the customer gets for their money. Jackets may be purchased on taste, but the quality of the garment at its price point, underlies the value the customer receives. They may not be able to articulate that. They may buy the jacket just because they like how it looks, with no thought to value. But when they wear that jacket, put it through the wash a few times, and find where it fits in their closet rotation, they feel that value come through the garment.

So back to the point of selling price.

A $50 cost jacket at a $5000 price point is a tough sell. There just isn't enough value to the customer at that price points. Even for luxury brands who may be able to get away with charging those prices, I believe that is not a sustainable practice, and eventually something must break; prices come down, or value must increase in the garment.

What about a lower price point?

A $50 cost jacket at a $100 price point is insane value compared to $200. If you think about the average brand who needs to carve out room in their price structure for adspend, it would be impossible to sell a jacket at that price point. They would lose money with every sale. Therefore, if you can charge those prices and still make money in your business model, you are likewise insanely competitive against all those brands overly reliant on Zuck and Pichai for their revenue.

At a basic level, that's how to think about pricing a jacket; a balance of value to the customer and what they are willing to pay for the perceived value of that garment.

Your audience also has a sweet spot for pricing

Go below that and sell more. Go above that and sell less.

It's the Econ 101 pricing curve: $50 jacket vs $100 vs $150.

All fine prices but you probably move more units at a lower price, and less units at a higher price.

Assuming that you keep the same level of quality at all price points.

Key thing, price too high and you may not sell all inventory.

But price too low, and you left money on the table.

That said. Always better to raise prices later than to lower them in terms of perceived value.

Context matters as well - in the collection, the brand, the store, the overall placement of the jacket

One killer price on one item can draw a ton of people to a collection, a store, etc. And while that item may not have the best margin, other pieces in the collection can make up for it with higher margins.

This is the same tactic that Costco uses when they price their rotisserie chickens super cheap to bring more people to their stores, AKA 'loss leaders'.

Now there are exceptions to these rules in your greater product universe.

There may be times to sell at a very small profit margin, less than 20%. Or a huge margin over 80%. Or sell at a loss. Or give away items for free.

Totally context dependent and you should not consider prices for just one jacket by itself in a vacuum when you have other products and things going on in your brand. Always be questioning the logic, to get the best outcome in the long run.

Some basic rules of thumb I feel are important to mention as well:

• 99% of products should be priced at 2x cost or better.
• 5x is a pretty hard limit & requires lots of supplier negotiating to push down your costs. OR you must have the brand equity to be able to charge those kinds of prices per value. Very rare to be above a 5x and keep quality.
• Obviously more margin is good.