How a Factory Costs a Garment: The Breakdown Buyers Should Understand

Where the money goes in a basic garment

In a simple knit t shirt, fabric typically accounts for forty to fifty five percent of the factory cost, the labour of cutting, sewing and finishing for twenty five to thirty five percent, and trims, packing and overhead for the remainder. In a woven shirt the fabric share can rise above fifty five percent, and in a garment with a lining or a heavy trim the trims become significant.

Fabric cost is the consumption multiplied by the price per kilogram, where consumption includes the garment area plus the cutting wastage. Wastage is usually between five and fifteen percent depending on the pattern and the marker efficiency, and a badly nested marker buys more fabric than a well nested one for the same garment.

Labour cost is time multiplied by the wage rate, and time is set by the operation count and the machine speed. A simple t shirt is a few minutes of sewing across several operations, while a jacket with a lining, pockets and a zip can take twenty times as long. That is why a jacket costs more in labour than in fabric in many cases.

Why the same garment costs different amounts

Two factories quoting on the same specification will produce different prices because their fabric rates differ with volume, their labour efficiency differs with the technical skill of the line, and their overhead recovery differs with the size of the plant. A small factory with an efficient team can beat a large one on a short run, and the reverse holds on long runs.

Order quantity changes the price through the same routes. A larger order spreads the sample development, the marker making and the line set up across more pieces, and it lets the factory buy fabric at a better rate. That is why a stocklot of a large cancelled order can be cheaper than a fresh production of the same garment at a small quantity.

Compliance and certification costs also flow into the price. A factory audited for a European brand carries the cost of that audit in its overhead, and a buyer comparing it with an unaudited unit is comparing two different businesses. For a stocklot buyer this matters because the goods themselves reflect that standard.

What the conversion cost tells a stocklot buyer

Conversion cost is the labour, overhead and finishing part of the factory cost, and it is roughly what a stocklot seller is trying to recover when a lot is cleared. The fabric in a completed garment has already been bought and cut, so the seller’s incremental value is in the completed piece rather than in a fresh production.

That is the arithmetic behind most stocklot pricing. A completed garment offered well below the sum of its fabric and conversion is usually a genuine clearance, where the seller is converting inventory to cash. A garment offered above that sum is not a stocklot price at all, whatever it is called.

Buyers do not need the factory’s actual numbers to apply the logic. Estimating the fabric consumption and the labour intensity of a garment gives a plausible floor, and a price far below that floor deserves questions about the lot rather than congratulations. The most common explanation is a defect rate the seller has not mentioned.

The costs that are added after the factory

Inland transport to the port, export documentation, the freight itself, insurance, destination clearing, duties and the final delivery all sit outside the factory cost, and they are the costs that most often turn an attractive lot into a thin margin. They are also the costs a buyer can actually estimate, because forwarders publish rates.

The duties are the item buyers underestimate. A garment classified in a knit chapter and the same garment classified in a woven chapter can carry different duty rates in many markets, so the classification affects the landed cost before any margin is applied. Classification belongs in the cost model, not in the paperwork folder.

Add a real number for shrinkage and damage. Goods are lost, cartons are damaged, and some pieces are unsellable in every shipment. A buyer who plans two to four percent of the value for that reality prices more honestly than one who assumes every piece arrives perfect.

Using the model to compare two lots

The model turns a comparison of totals into a comparison of unit economics. Put the price per piece, the estimated freight per piece, the duty and the handling in one line, and the lot with the lower sticker price frequently loses. This is the calculation that separates an experienced buyer from a bargain hunter.

The same model tells you which categories are worth the freight. A value dense category such as leather or denim carries its freight easily, while very light garments such as beachwear must have a low freight per piece or their margin is consumed in transit. Both can be good purchases, and only one of them rewards buying on price alone.

Finally, model the resale price before you buy rather than after. A buyer who knows what the garment sells for locally in their own market, through their own channel, can work backwards to the maximum purchase price and stop negotiating at that number. The costing exercise is not academic; it is the discipline that keeps a trader solvent.

What the breakdown says about supplier selection

A supplier who can discuss fabric consumption, labour operations and wastage is a supplier working from the production floor, and one who can only discuss the price is a trader of descriptions. The conversation itself is a qualification, and it costs nothing to have.

Where a supplier offers both stocklot goods and fresh production, the costing language tells you which side of the business you are buying from. Stocklot goods are priced by recovery and fresh production is priced by cost plus margin, and the two should not be confused when comparing quotations.

Over time a buyer accumulates their own cost benchmarks for fabric, labour and freight, and those benchmarks make every later purchase faster. The first few orders build the model, and after that the model does the deciding, which is how experienced buyers can evaluate a lot in a single message.

The final value of the model is in speed. A buyer who can estimate a garment’s plausible factory cost in a few minutes can answer a supplier in a single message, which matters in a trade where a good lot is sold to whoever replies first with a serious number.

A worked example

Take a 180 GSM cotton t shirt at a fabric consumption of 220 grammes including wastage, with fabric at a plausible local rate per kilogram, plus trims of a label and a polybag, plus a few minutes of sewing at an achievable line rate, plus finishing, packing and factory overhead. The resulting factory cost is a plausible floor for the garment.

A stocklot offered at around half that figure is a genuine clearance and is worth serious consideration. One offered above it is either a fresh production price, a premium branded lot, or a lot with a defect rate the seller has not disclosed. The buyer’s job is to establish which of the three it is before paying.

The same calculation applied to a hoodie, a denim jean or a towel gives the same kind of range, and the numbers change but the structure does not. Once the model is understood, a buyer can estimate a fair stocklot price for almost any category in a few minutes, which is the practical value of knowing the breakdown.

A practical way to use the model without factory data is to build a simple sheet for the categories you buy: garment type, estimated fabric consumption, a fabric rate per kilogram, an estimated sewing minutes figure and an overhead allowance. Each column gets better with every purchase, and after a few orders the estimate is close enough to be decisive.

The same sheet makes a supplier conversation easier. Asking a supplier why a lot is priced as it is, in the language of consumption and labour, usually produces the honest answer: it is an overrun the factory wants off the floor, or it is a short production being sold at production pricing with the word stocklot attached for marketing reasons.

Record the actual landed cost per piece for every purchase after the goods clear. That record is the real specification of your business, and it is the number that lets you say yes quickly to a good lot and no quickly to an average one. Costing is not an accounting exercise at the end of the process; it is the process.