A product can sell well and still be a weak business if the economics are wrong. Unit economics means understanding what one sellable unit costs, what one sale contributes, and how many units must sell before the project recovers its costs.
01 / LANDED UNIT COST Start with everything required to get one sellable unit ready: • garment or manufacturing • decoration • labels • packaging • allocated freight • duties/import costs where relevant • quality-control loss allowance where appropriate
Landed unit cost = total direct product cost / sellable units.
02 / SELLING PRICE The price should reflect product, market, positioning and margin requirements. Do not set retail by simply doubling the blank cost.
03 / GROSS PROFIT Gross profit per unit = selling price - landed unit cost.
04 / GROSS MARGIN Gross margin % = gross profit / selling price × 100.
Do not confuse margin with markup. A 100% markup on a £20 item creates a £40 selling price, which is a 50% gross margin before other selling costs.
05 / VARIABLE SELLING COSTS A sale may also trigger: • payment processing • fulfilment • pick/pack • shipping subsidy • marketplace fees • returns allowance • sales commission • performance marketing
Contribution per order is what remains after the variable costs associated with making that sale.
06 / FIXED LAUNCH COSTS Examples: • samples • photography • website setup • campaign production • design • studio hire
These costs do not necessarily change with every unit sold, but the launch must eventually recover them.
07 / BREAK-EVEN Break-even units = fixed costs / contribution per unit.
Example: Fixed launch costs: £1,500 Contribution per T-shirt after direct and variable costs: £15 Break-even: 100 units.
This is a planning example, not a recommended pricing model.
08 / SELL-THROUGH MATTERS If you order 500 units and sell 150, the theoretical margin on sold units does not remove the cash sitting in the remaining 350.
Track: • sell-through rate • stock value remaining • size balance • product-level contribution • cash required for the next order
09 / CASH FLOW IS DIFFERENT FROM PROFIT You may need to pay manufacturing before customer revenue arrives. A profitable product can still create a cash-flow problem if money is tied up for too long.
10 / TEST THE MODEL Model at least three scenarios: CONSERVATIVE — low sell-through / higher acquisition cost BASE — expected outcome STRONG — high sell-through / efficient marketing
If the project only works in the strong scenario, the production commitment may be too aggressive.
11 / MERCHMODE TAKEAWAY Before placing production, know: • landed unit cost • retail price • contribution per unit • break-even quantity • total inventory exposure
RELATED How Much Does It Cost to Start a Clothing Brand? How to Price Merchandise Pre-Order vs Holding Stock How to Validate a Clothing Brand Idea