Ever wondered how much it costs a business to manufacture their products? I do, so that's why I’ve decided to start sharing some more business insights on the blog. I’ve always been fascinated about the inner workings of small businesses but it’s rare to get a peek behind the curtain, so I decided why not do some sharing myself!
So here it is, the cost to manufacture a pair of leggings:
The cost of manufacture: AU $10.12
This is the cost of fabric, materials, labour and packaging ready for shipment. The biggest fluctuation here is the exchange rate. I pay in US dollars and the Australian dollar was at parity with the US when I first started O2wear back in 2011. Today it’s dropped a long way. This analysis was based on an exchange rate of AU$1=US$0.71 cents and includes costing for my custom recyclable cardboard packaging, a switch I made a couple of years back to avoid any single-use plastic in the supply chain.
GST & Duties: AU $1.01
Thanks to the Australia-China free trade agreement, duties have been removed and it’s just GST (10%) paid on the import.
Sea freight, port and customs duties: AU $0.56
This also fluctuates with the size of an order. As you would expect, the sea freight varies based on the quantity being shipped but many of the other fees are ‘fixed costs’ and payable regardless of the size of the import, so the bigger the shipment, the lower the cost per unit.
Quite a while ago I wrote an article breaking down the costs and process involved in importing a LCL (less than container load) of product from China to Australia. If you're interested in the details you can read it here.
At this point I decided to also include the warehousing and delivery fee in the ‘cost’ of a pair of leggings because I offer free shipping on all orders (within Australia) so it’s a significant component of the cost of an item and it gives a fuller picture I think.
Warehousing, pick & pack and delivery fee: AU $11.20
This is the cost of warehousing, labour, postage, fuel surcharges etc. There are economies of scale when sending more than one item, my cost here is based on the sale of one item.
Margin AU $17.06
The margin here doesn’t take into account other variables like discount codes or sales that might affect the RRP but in a nutshell, this is what it looks like.
I’m curious, is it more or less than you thought?