Costing and Pricing strategies

By: Dr. Jawad Naeem

Difference between Costing & Pricing

• Costing is a calculation without profit.

• Pricing is a calculation with profit.
• This is the main difference between Costing and Pricing in Textiles.
• For apparel costing, one needs to have clear concept of the raw
materials’ price & CM (cost of manufacturing) calculation of final
apparel products.
 Difference between Costing & Pricing

• “Pricing of Products” plays the major role in profitability and success of

a project.
• Even a successful and smoothly running order is futile if it carries no
profits or gains.

• However sometimes profitability is compromised for gaining new

markets or getting some new customers or orders.
 Difference between Costing & Pricing

Pricing is playing a crucial role specially after post quota scenario.

The fate of new projects mainly depends upon who will bid the least.
It seems “Price” has become the only factor of winning or losing a
project.

Usually in bidding, winning of a project is done at lowest price while

in textiles .
 1.1) Methods of Pricing:
• Pricing types or methods are no different than the ones used by other
industries
• Keeping in view huge competition, prices are going down and down
while cost has upward trend.
• In textiles the pricing is being done on the basis of “Competition” more
than on the basis of “Cost”.
• Different methods are as
a) Value based pricing
b) Cost based pricing
c) Competition based pricing
 1.1) Methods of Pricing:
a) Value based pricing:
• In value based pricing, prices are quoted by keeping in the view
what value customers will perceive for the product.
• This sort of pricing is actually done for “Newly Speciality
Products”.
• Sometimes value based pricing ideas can also be get from
surveys to different target customers/markets before launching
the new products.
• Once value is perceived in mind, then seller keep it in mind at
the time of getting quotations from different
suppliers/manufacturers.
 1.1) Methods of Pricing:

B) Cost based pricing:

• In cost based pricing, there are certain price models (software or
excel sheets) used to get the final cost of the product.
• Cost based method involves pricing by adding all overheads of an
organization.
• Then a certain profit margin is added to get the quotable price to
the customers.
 1.1) Methods of Pricing:

c) Competition based pricing:

• In competition based pricing, the prices are quoted keeping in
view what competitors are quoting.
• Although price models are used to get the actual cost of the
product but final quotation is made only keeping in view the
competition.
• The competition based prices can be less or sometimes more
than the cost based prices.
• Internet Bidding is an example of acute competition prevailing
in the market.
➢ EXAMPLE: BUSINESS LETTER (INTRODUCTION LETTER)
• Sears
• Leixoes,
• Toronto, Canada February, 01, 2019
• Ref# MKT-101/19

• Attn: Mr. Peter Nike (Apparels Sourcing Manager)

• Dear Sir,
• In today’s world where quality, timely deliveries and competitive prices matters, you need to have
supplier who can deliver products exactly to your requirements. This is what exactly we can do!
• Having been in textiles for about four decades with an annual turn over of US$ 210M, we use the best quality
of local as well as imported fabrics to manufacture into Apparels to supply you consistent quality throughout
the year. We are vertically integrated unit having 10,000 sewing machines plant capacity to produce 2.5
Million garments per month with lead time of 30 days.
• The confidence of quality is reflected in our huge export for world’s leading brand like Hanes, Gap, Russell,
Champions, Levies‘, JC Penny, Nautica etc. Our website www.xyztextile.com will enable you to know more
about us.
• We look forward to your response so that we could send you the required samples along with competitive
prices. Hope to build long term and healthy relationship with your esteemed organization.
• Best Regards,

• ABC (Director Marketing)

• XYZ Textile Mills Ltd (Apparel Division) Faisalabad Pakistan
• Contact Details:
➢ EXAMPLE: BUSINESS LETTER (INQUIRY LETTER)

• XYZ Textile Mills Ltd (Apparel Division)

• Faisalabad, Pakistan
• February, 04, 2019
• Ref# IMP-31/19

• Attn: Mr.ABC (Director Marketing)

• This is with reference to your letter dated February 01. 2019 Ref# MKT-101/19, in which you have given
introduction about your company.
• We are importers of Apparel Products from Asian countries and need competitive prices for our regular work
orders. Please send us few samples of your product lines along with your best price for C&F Toronto L/C At
Sight 1*40 FCL.
• Hope to receive samples and prices within this week.
• Best Regards,

• Peter Nike (Sourcing Manager)

• Sears Canada
• Contact Details:
➢ EXAMPLE: BUSINESS LETTER (QUOTATION LETTER)
• Sears
• Leixoes,
• Toronto, Canada

• Ref# MKT-102/19 February, 07, 2019

• Attn: Mr. PETER NIKE (Apparel Sourcing Manager)

• Reference to your inquiry letter dated February 04. 2019 Ref# IMP-31/19, thank you for your keen interest in our quality products.
• Please find enclosed samples of our regular Apparel Products (Polo Shirts, Crew Neck, Fleece Hood) sent as per requirement via DHL #
3165889607 dated 04.02.2019 Our introductory prices will be as under.
• S/S Polo Pique Shirt 175 gsm @ 7.5 US$/piece
• L/S Crew Neck 150 gsm @ 5.5 US$/piece
• Fleece Hood 220 gsm @ 9.5 US$/piece
• These prices are based on 1*40” FCL each for C& F Toronto L/C At Sight. Shipment within 30 days after receipt of L/C.
• Please confirm so that we could issue our sales contract and plan the production accordingly.
• Validity of offer: One Week
• Looking forward to an early and positive response.

• Best Regards,

• ABC (Director Marketing)

• XYZ Textile Mills Ltd. (Apparel Division) Faisalabad Pakistan
• Contact Details
 1.2) Pricing Process:
• Pricing process involves several steps which have been explained in
detail below.
• Normally the process starts with getting some query from the customer,
1) Getting Customer’s Inquiry:
• First Marketer or Merchandiser will receive inquiry from the customer
for the submission of your Price Quotes.
• He or She will look at the product requested and fix whether it can be
produced or not.
 1.2) Pricing Process:
Merchandiser makes sure that he/she have all necessary details (as below)
from his/her buyer before moving to the next step. The details might include
the below.
✓Product type
✓Yarn type
✓Yarn count
✓Required process type (knitting, weaving, bleaching, dyeing etc.)
✓Shades (White/Dyed)
✓Special finishes or treatment required
✓Garment/Apparel types & specs (If Garment query)
✓Accessories
✓Embellishments
✓Sales terms (Ex-Mill, FOB, CIF, C & F etc)
✓Target price
Other than above, there might be some special requests of Printing, Mercerizing, Washing etc for which
the cost can be added accordingly.
 1.2) Pricing Process:
2) Preparing the pricing sheet:

• Although some special software are also prepared for pricing, but
merchandisers often prepare MS Excel sheets to calculate the
prices.
• For more basic products like cotton/ yarn etc on going market rates
are commonly followed instead of sticking to price models because
of less complexity.
1.2) Pricing Process:
2) Preparing the pricing sheet:
Below is the example of Fabric & Garment “
Cost Based Pricing” such price models can be developed for other textile
items too.
❖Yarn Rate/10 Pounds or Yarn Rate/Kg
❖Knitting charges/Weaving charges
❖Knitting waste/Weaving waste
❖Dyeing recipe cost
❖Overheads
❖Dyeing losses
❖Freight (in case you are quoting C&F,CIF)
❖Commission of agent (if any)
❖Duties (if any)
 1.2) Pricing Process:
2) Preparing the pricing sheet:

• Finally choose your profit margin to quote the fabric price to the buyer.
• It depends upon the buyer whether he/she needs fabric price in Kg or
yards or meters or pounds etc.
• For Garment pricing, merchandiser will move ahead from the cost
calculated for fabric.
• For this he/she will use the below information

❖Block weight (Fabric Consumption)

❖Cutting Cost
❖Sewing Cost (Depends upon the type of Garment)
❖Accessories Cost
 1.2) Pricing Process:
2) Preparing the pricing sheet:

❖Embellishments Cost (Printing/Embroidery /Washing)

❖Overheads
❖Rejection Cost
❖Freight (in case C&F,CIF required)
❖Commission of agent (if any)
❖Duties (if any)
The price is then forwarded to the buyer after adding a specific
profit% usually depends upon the market situation and orders
booking.
 1.2) Pricing Process:

3) Maintaining the record:

The record is maintained both in soft and hard copies form for
the effective follow up and further negotiations.

4) Follow up & revisions:

• Quoting the price is not an end.
• It is in-fact the first phase for the launch of a big project or an
order.
• Follow up is to made with the buyer regarding the price
acceptability.
 1.2) Pricing Process:

4) Follow up & revisions:

• The buyer may ask to revise the prices. In this case rework is done
to get the target price for the buyer.

• A sensible decision at this stage can make a difference between

winning or loosing a project
Payment Methods:

➢Final price also depends upon the payment method i.e. On

cash or on credit like Letter of credit or cash in advance
➢The price is directly proportional to credit tenure and level
of risk involved.
 1.3) Pricing for fibers & Yarns:

The pricing for fibers and yarns is much simpler than fabrics and garments. Its
mainly due to less processes involved and hence less complication than other
value added products. Like in dyed yarn, the below things will be calculated to
get the right price:
❖Cotton Rate/Bag
❖Yarn Rate/Bag
❖Dyeing Recipe Cost & Losses
❖Overheads
❖Dyeing Losses
1.3) Pricing for fibers & Yarns:

❖Freight/Kg (In case you are quoting CIF,C&F)

❖Commission of agent (If any)
❖Duties (If any)

Then desired% of profit is added in the cost to be quoted to the

customer.
 1.4) Pricing for new or speciality products:
• The pricing for new or speciality products will be different.
• It will mainly rest on the company’s corporate decision whether to
get more profits from the target market for this new launch and
getting the benefits out of less/no competition (Market Skimming
Pricing) or to keep the price low with moderate profits to attain
more market share (Market penetration pricing).
• Value based pricing concept is also used for pricing such products. In
this type of pricing, the prices are set by keeping in view the value of
the product customers would perceive.
• In textiles, usually first option of Marketing Skimming Pricing is
followed, because as the competitors come in, the price war begins
leaving little room for profits. Major brands charge premium price
for such new launches from end customers.
➢Costing of Embellishments:
• The costing of embellishments ( Printing, Embroidery, Garment
Washing, Garment Dyeing etc) depends upon its type, size,
coverage and negotiation.
• There is also some rejection% during this process which is based
on its type and coverage.
• This cost and rejection factor is the part of pricing.
• Costing and handling can be controlled in case of in house facility
of this embellishments like embroidery or washing.
1.5) Price war after elimination of trade restrictions:
After elimination of trade restrictions, post
quota scenario 2005 means nothing but more competition and lesser
prices. More and more customers are asking for bids on the internet
in which the suppliers with the least offers are selected. Competition
based pricing is all over found these days.
Price is now a days a decisive factor. So the manufacturers are now
seeking ways to drop their cost to be competitive. Its true that lot of
customers keep ridiculously low target price and get unfair benefit of
this competition. Normally even a mediocre level project is offered to
the whole world instead of any particular supplier or country.
➢Pricing in Buying House/Brands:
• Pricing in buying house/sourcing houses is more dependent on
manufacturing facilities.
• The merchandisers in buying house gets the target price from
the customer and ask the suppliers to submit their quotes as per
specifications required.
• After the reception of quotes, merchandisers forward it to the
customer for the confirmation.
• The pricing in brands is based on the research results received to
find out how much price the customers are ready to pay for a
certain style.
• Merchandisers complete costing of their chosen styles/designs and
make sure they will not cross the limit of a certain cost which
customers are willing to pay.
• In order to verify their costing, merchandisers send their styles to
various suppliers in order to check the actual cost suppliers are
seeking.
 THANKS

FOR YOUR ATTANTION

 Introduction
In general, during an order execution process, the merchandiser need to
perform the following operations (not mandatorily but) based on the
organization structure and policies.

i) Preparation of time and action plan for each order

ii) Analysis of factory capacity and line efficiency

iii. Estimate the approximate consumptions for various raw materials

used in the production of that particular order for order quantity
 Introduction

iv) Estimation of details regarding approximate output in each department

v) Estimation of number of operator required for each department

vi) Proper follow-up and coordination with each department to complete

the order in predetermined date to successfully complete the shipment
process.
 Time and action plan for merchandisers

• For enlisting his day-to-day activities or to enlist the different operations

involved in the process of completing an order

• This process involved various department and different people in the

manufacturing.

• Time, and action plan is not simply a data entering process, it is about
scientifically working out the activity duration, logically determining the
preceding and succeeding activities
 Time and action plan for merchandisers

To prepare a time and action plan, the merchandiser requires

the following details:

• Extensive process flow of an order from the sampling to dispatch with

tasks to be performed on each activity
• Detailed production capacity of various departments of their unit.
Some times the merchandiser needs to know their vendor’s production
capacity also
• Tentative lead time details of various raw material and buffer time
required for each department
• Style complication in each department level, both in technical aspects and
also in terms of throughput time of different departments

• Duration of transportation, shipment and logistic facility for the

particular customer and exact delivery date to the customer

• Availability of the special machines / technology and their possible

influences

• Details regarding the local and national level holidays – in his/ her
company and also holiday information about customers / vendors, from
where the raw material imported or to whom the products need to be
delivered
• Complication associated with the trims and accessories sourcing
and manufacturing

• Government and political policies of concerned countries

• Response time of customer / buyer at various stages.

Influencing key activities from the sample department
Influencing key activities from the sample department
 Development of time and action plan
The commonly used methods were discussed below.

1. Gantt charts
2. Network charts
 Gantt chart

• Project planning tool that can be used to represent the timing of

tasks required to complete a project.

• Developed by Henry Gantt as a way to visually see a project’s

schedule

• Allow us to visualise a project’s start and end date along with each
element or task that needs to be completed.
 Advantages of Gantt chart

• It organizes the thoughts in a picture format

• It demonstrates that whoever doing that particular task, know what
they are doing
• It (should) helps the merchandiser to set realistic time frames
• It can be highly visible. Gantt charts are visual and give you an
excellent way to instantly see and comprehend all of the different
elements in once place, thus bringing thoughts and ideas together.
Beyond that the visuals provide users with an easy to see chart of
what needs to be done next.
 Disadvantages of Gantt chart

• They need to be constantly updated

• Changes to the schedule require a redrawing of the chart
• Several scheduling possibilities cannot be shown in the same chart