💰 Costing in Textile Merchandising: How Garment Price is Calculated (FOB Method Explained

🧵 Introduction

Costing is the backbone of textile merchandising and one of the most critical functions in the garment export industry. A small mistake in costing can lead to huge financial loss or loss of business orders. In global apparel trade, buyers and manufacturers depend heavily on accurate costing to negotiate prices, finalize orders, and ensure profitability.

In textile merchandising, costing refers to the process of calculating the total production cost of a garment and adding profit margins to determine the final selling price. One of the most widely used pricing methods in the global garment industry is the FOB (Free On Board) method, which is essential for export-based businesses.

This article provides a complete professional-level understanding of garment costing, FOB pricing, and the entire cost breakdown used in textile merchandising.

---

🧠 What is Garment Costing?

Garment costing is the process of calculating all expenses involved in producing a garment from raw material to final shipment.

It includes:

• Fabric cost

• Trims and accessories

• Sewing cost

• Washing and finishing

• Overhead expenses

• Profit margin

The final output is known as FOB price when used in export merchandising.

---

📦 What is FOB in Textile Merchandising?

FOB stands for Free On Board.

It means:

The seller is responsible for all costs until the goods are loaded onto the shipping vessel.

After that point, the buyer takes responsibility.

FOB price includes:

• Production cost

• Factory overhead

• Packaging

• Transportation to port

• Export documentation

It does NOT include:

• Sea freight

• Insurance after shipment

• Import duties

---

🧾 Basic Formula of Garment Costing

FOB = (Fabric Cost + Trims Cost + CM Cost + Overhead + Profit)

---

🧶 Step-by-Step Garment Cost Breakdown

1. Fabric Cost (Most Important Component)

Fabric cost usually contributes 50%–70% of total garment cost.

Factors affecting fabric cost:

• Fiber type (cotton, polyester, blended)

• GSM (grams per square meter)

• Fabric width

• Yarn price

• Dyeing and finishing cost

Example:

If fabric consumption = 1.5 meters
Fabric price = $3/meter
👉 Fabric cost = $4.5 per garment

---

2. Trims and Accessories Cost

Trims include:

• Buttons

• Zippers

• Labels

• Threads

• Hangtags

Example breakdown:

• Button: $0.10

• Zipper: $0.40

• Label: $0.05

👉 Total trims cost = $0.55 per garment

---

3. CM (Cut and Make) Cost

CM cost includes:

• Cutting

• Sewing

• Finishing

• Labor cost

CM depends on:

• Style complexity

• Stitch count

• Factory efficiency

Example:

Basic T-shirt CM cost = $1.20
Complex jacket CM cost = $5.00

---

4. Washing & Finishing Cost

Used for denim and fashion garments.

Includes:

• Enzyme wash

• Stone wash

• Softener

• Heat finishing

---

5. Overhead Cost

Includes factory expenses:

• Electricity

• Machine maintenance

• Rent

• Administration

Usually calculated per garment.

---

6. Profit Margin

Manufacturers add profit:

• 5% to 20% depending on order size

---

📊 Example of Full Garment Costing

Let’s calculate a simple T-shirt:

Component	Cost
Fabric	$4.50
Trims	$0.55
CM Cost	$1.20
Overhead	$0.30
Profit (10%)	$0.65

💰 Final FOB Price = $7.20 per piece

---

🏭 Importance of Costing in Merchandising

✅ 1. Order Approval

Buyers decide based on FOB price.

✅ 2. Profit Control

Ensures factory profitability.

✅ 3. Negotiation Tool

Merchandisers negotiate with buyers and suppliers.

✅ 4. Production Planning

Helps select materials and processes.

---

🧠 Skills Required for Costing

📊 Analytical Thinking

Understanding numbers and breakdowns.

🧵 Fabric Knowledge

Knowing material consumption and properties.

💻 Excel Skills

Used for costing sheets.

🤝 Negotiation Skills

Important for supplier pricing.

---

⚠️ Common Mistakes in Garment Costing

❌ Wrong fabric consumption calculation

❌ Ignoring hidden costs

❌ Underestimating CM cost

❌ Not updating market price changes

---

🌍 FOB vs Other Pricing Methods

FOB (Free On Board)

• Most common in exports

• Seller responsibility until port

CIF (Cost, Insurance, Freight)

• Includes shipping + insurance

EXW (Ex Works)

• Buyer takes full responsibility

---

📦 Role of Merchandiser in Costing

A merchandiser:

• Collects fabric prices

• Calculates CM cost

• Prepares costing sheet

• Negotiates with buyers

• Ensures profitability

---

📈 Market Trend in Costing (2026)

• AI-based costing tools emerging

• Real-time fabric price tracking

• Automated ERP systems

• Digital costing sheets replacing manual work

---

🇧🇩 Costing in Bangladesh Textile Industry

Bangladesh is one of the largest garment exporters. Accurate costing is essential for:

• Competitive pricing

• Export survival

• Buyer retention

Challenges include:

• Fluctuating fabric prices

• Energy cost changes

• Currency variation

---

🏁 Conclusion

Costing in textile merchandising is not just a calculation process—it is a strategic business function that determines success or failure in the global garment industry. The FOB method remains the standard pricing model in international trade, ensuring clarity between buyers and manufacturers.

A skilled merchandiser must understand every component of costing, from fabric consumption to final profit margin, to remain competitive in today’s fast-changing textile market.