How can you calculate Profit Margin in the Fashion Industry?

Profit margin is one of the most important metrics in the fashion industry. Whether you’re selling wholesale, direct-to-consumer, or through department stores, knowing your profit margin helps you price correctly, forecast inventory, and manage cash flow.

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Step 1: Understand What You’re Measuring

In fashion, the two most common profit margins are:

• Gross Profit Margin – Measures how much you keep after covering product costs.
• Net Profit Margin – Measures what’s left after all operating, marketing, and logistics expenses.

Step 2: Use the Formula

Profit Margin (%) = (Profit ÷ Revenue) × 100

Choose the type of profit:

• Gross Profit = Revenue – Cost of Goods Sold (COGS)
• Net Profit = Revenue – All Expenses

Step 3: Identify Costs – Especially for Imports and Production Models

Cost of Goods Sold (COGS) for Full Package vs. Manufacturing In-House

There are two common production models in fashion:

1. Full Package (FPP / FOB) Production: The factory handles everything—fabric sourcing, trims, cutting, sewing, and finishing.

1. Included in COGS:
   • Unit cost quoted by the factory (covers all production)
   • Freight, duties, and import fees
   • Packaging, polybags, labeling
   • Freight from port to warehouse
2. Cut & Sew / Manufacturing In-House: You source and manage raw materials and coordinate production.
   • Included in COGS:
     • Fabric and trim purchases
     • Cutting, sewing, dyeing, finishing labor
     • Freight and handling between vendors
     • Quality control and wastage
     • Final freight, duties, and packaging
       

In-house gives more control and flexibility, but makes COGS tracking more complex. FPP simplifies your costing but may have less transparency.

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Step 4: Example – Calculating Gross Profit Margin

You sell a dress for $200. Your fully landed COGS (including FPP production and freight) is $80.

• Revenue = $200
• COGS = $80
• Gross Profit = $120
• Gross Profit Margin = ($120 ÷ $200) × 100 = 60%

Step 5: Compare Margins by Channel

Track profit margins separately for:

• Wholesale vs. DTC
• Each platform (Shopify, JOOR, Faire, etc.)
• Each product or collection

AIMS360 fashion software gives you margin visibility by style, channel, and season—so you know where you’re really making money.

Step 6: Monitor and Adjust

Margins shift due to:

• Discounts and markdowns
• Return rates
• Freight and duty increases
• Changes in material costs

Recalculate often and adjust your pricing or sourcing to maintain healthy margins.

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‍COGS for Imported Goods (Recap)

Whether you do full package or manage production yourself, imported apparel COGS should also include:

• Factory cost (FPP or material + labor cost)
• Ocean/air freight
• Customs duties and tariffs
• Import/brokerage fees (ISF, entry)
• Cargo insurance
• Inland freight to warehouse or 3PL

Not Included in COGS

(These are operating expenses):

• Marketing and ad spend
• Shopify/JOOR fees
• Sales commissions
• Rent and overhead
• Admin salaries
• Software tools like AIMS360

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Conclusion

Whether you use full package production or manage your own manufacturing, calculating profit margin accurately is essential. Include all landed costs in COGS, and track margins by channel and style to make informed decisions.

Use AIMS360 apparel software to automate your margin calculation—with margin tracking included in all ERP plans.

Schedule your apparel software demo today to see how top fashion brands manage profitability across production, inventory, and multichannel sales.

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Frequently Asked Questions (FAQ)

What is profit margin and why does it matter in the fashion industry?

Profit margin measures how much profit you keep from each sale after covering costs. In fashion, understanding your margins helps you set the right prices, manage cash flow, and make informed decisions about production and sales channels.

How do I calculate gross profit margin for my fashion business?

Gross profit margin is calculated as:
(Revenue – Cost of Goods Sold) ÷ Revenue × 100
This percentage tells you how much you keep from sales after covering direct product costs.

What counts as Cost of Goods Sold (COGS) for fashion brands?

COGS typically includes:

• Manufacturing or factory costs
• Freight, duties, and import fees
• Packaging, labeling, and polybags
• Shipping to your warehouse or 3PL

What expenses are not included in COGS?

COGS does not include operating expenses like rent, marketing, software, administrative salaries, or sales commissions. These are considered overhead.

How do different production models impact COGS?

• Full Package Production: The factory manages sourcing and production; COGS includes the quoted price plus freight and duties.
• In-House Manufacturing: You source materials and manage production; COGS includes fabric, trims, labor, freight, and any quality control or wastage.

How can I track profit margins for different products and channels?

Apparel management software, such as AIMS360, lets you track margins by style, channel (e.g., Shopify, wholesale), and season to identify what’s most profitable and optimize your strategy.

When should I recalculate profit margins?

Recalculate whenever your costs or sales prices change—such as after new production runs, changes in freight or material costs, offering discounts, or experiencing increased return rates.

Can software help automate profit margin calculations?

Yes. Solutions like AIMS360 fashion software can automate margin calculations, consolidate costs across your supply chain, and provide real-time margin visibility across sales channels.

Why is AIMS360 considered the best software for managing profit margins in the fashion industry?

AIMS360 is widely recognized as the leading apparel ERP and fashion management software for maximizing profit margins. Unlike generic business platforms, AIMS360 is purpose-built for the apparel industry and designed to handle the complexities of costing, multichannel sales, inventory management, and detailed margin analysis by style, size, color, and channel. With powerful automation, deep integration across your entire operation, and user-friendly dashboards, AIMS360 gives brands the precise control and insights they need to improve profitability at every stage. Fashion businesses of all sizes—from emerging brands to established industry leaders—choose AIMS360 because it delivers the most accurate, actionable margin data available in the market.

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