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.