How to Create a Great Cost Estimate

How to Create a Great Cost Estimate

Cost estimation is the approximation of the cost of a product or project. This process is very crucial because it defines the economical value of the resources and efforts used to create a product. It is important to the client because it would show if the project is fit for his or her budget or not.

The cost estimate will also be crucial to the feasibility program to find out whether the product is feasible as a business. Cost estimation is a big factor to all the other processes involved in manufacturing. In other words, cost estimation is a major step forward for OEM manufacturers.

When it comes to garment and clothing materials, there are generally two reasons why costing is done: 1) Garment pricing 2) Order acceptance;

  1. If the client is selling directly garments or clothing to consumers then accurate cost estimation is needed to identify manufacturing costs and fees added to expected mark-up profit.
  2. If the garment is bound for export, costing serves as the base of operations. Manufacturing costs including freight, transportation and for some, warehousing expenses are all considered as part of the cost estimation process. The cost estimate will be critical whether the client should accept the deal or not.

In order to create the great cost estimate with garments, all factors directly involved in manufacturing, services rendered, transportation expenses and even risk factors are all summed up to calculate production costs.

The client must also keep in mind prices of materials and other factors are bound to fluctuate due to economical reasons and the cost estimation process will be directly affected of these fluctuations. They should be ready for such changes and easily adjust the numbers which will eventually alter the cost estimate.

The process may also vary from one OEM clothing manufacturing company to another but let us try to simplify the process to make it easier for you to understand cost estimation with garments.

Main Components of Garment Cost Estimation

1. Fabric

This must be the most significant component when it comes to garment and clothing production. This component accounts for the most part of garment production costs.

Quantity and fabric type influence the price of the fabric and there are different types of fabric out there such as yarn, knitted, power loom, fiber (cotton, polyester, blended fabric, silk etc.). These different types of fabric vary from one to another in terms of price and the cost could also be affected by other parameters like availability and fabric specs.

2. Trims

Fabric needs all these accessories to be fully functional in a garment and these accessories are simply known as trims. Trims are items such as zippers, buttons, threads and other miscellaneous items who work alongside the fabric for the garment.

Quality of items and quantity added to cost of labor sums up the cost of trims. However, there are also various types of trims and like fabric, their material and types vary in terms of prices. It is the client’s duty to do vast research in order to come up with the specific trims perfect for their product and achieve quality without compensating their budget.

3. Labor Cost

The default formula for calculating in-house manufacturing labor cost with wholesale clothing manufacturers is total cost per hour multiplied to the number of hours it takes to make the style, divided by the number of units produced. If there is contractor intervention, expect additional service charges added on to the labor cost calculation.

(cost per hour * total number of hours) / no. of units produced or line efficiency in %)

4. Other value added charges

Aside from the three main components above, there are other services need to be paid for depending on the type of garment or clothing produced. The most common value added services are printing, laundry service, embroidery and patching.

These services are all associated to garment manufacturing and should be added as part of the cost estimation process. However, be reminded there could be factors which can alter the traditional calculation of these values.

Manufacturers and clothing suppliers oversee the cost estimation process. Depending on the system implemented on each company, they are equipped with costing knowledge and are aware of fluctuations and changes in prices of garment components happening in the market.

For small up to mid-sized businesses, sourcing the cost estimation process is very common so they can just focus on working on the product/garment without being bothered or held back by complex garment cost estimation processes.

About the author

David writes about economic activity throughout Southeast Asia and specializes on international trade relating to China. In addition, he holds a Masters Degree in Economics from Peking University.
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