How to launch a collection: A Financial Planning Guide for The Fashion Designer
Our friends at UY Studio just published that their chic collection reached their objectives. Good job guys!
But what does it take to plan a financially viable collection?
Our team has put together a detailed financial planning guide for you to follow, once your designs are ready and before you place your orders. This post provides a thorough outline, which we will follow step by step during the next weeks, digging deeper into details and helpful tools for designers, fashion entrepreneurs and anybody interested in learning more for future projects. Ready? Here we go!
Forecasts & Budgets:
A collection is an investment project. The first step in planning every such project is to forecast its cash inflows - the sales revenue. There’s no way to avoid guessing, but also guessing can be educated to ensure realistic goals. This is made by mixing together historical sales statistics, economic and industry trends, and some operational context (eg. “we’re finally targeting better on Meta!”).
Only once we know how much we will sell, we can decide how much to produce. The production budget (or better say, ”COGS budget”) is derived from the sales forecast, usually by using industry-standard benchmarks. It is most likely the general multiplier you use to determine the price of your products (see Step 2). The products made with this budget should build an inventory in the retail worth of the sales forecast.
Once the sales forecasts and product budgets were agreed upon, they become sales and budget goals, and are communicated to the sales team and production team respectively.
Product Specifics:
Once you’ve decided which designs cut into the collection, you need to determine each design’s unit cost - the cost of making one piece of the design live and ready. Think about all the work and material that ends in the piece as it ends its way at your customer’s home - fabrics, materials, labels, production etc.
Once knowing each design’s unit cost, it is time to decide on each design’s unit retail price. Pricing is an art of itself, and involves comparing customer demand analysis, competitor’s pricing and industry benchmarks.
Item Mix and Quantity
You know which designs cut into the collection, but how much should you order from each? Analyse the popularity of last collection’s designs, mix into it shifts in market trends, and assign each design a unit quantity so that the total cost of your inventory will fit the COGS budget. (Secret: the quantity assignment does not have to be done by trial and error!).
Budget Allocation
The COGS budget include many “sub-budgets”, some examples are: fabric, materials, production, and for some companies, it is important to include research & development (initial design ideation) costs, too. These sub-budgets should be defined before you place your orders.
There are two approaches to define these sub-budgets: (A) historical statistics and (B) based on the final item mix and quantity. A allows for quicker execution, yet for less accurate monitoring, while B takes more time to implement yet makes it easy to monitor.
Assuming you follow approach ‘B’, you can use the unit cost breakdown from Step 2, and sum each element once for each design, and once again for the entire collection.
Placing Orders
By now you got everything figured out to kickstart your plan. Go produce your collection!
Mastering financial planning is key to the successful launch of a fashion collection. We've covered the initial steps broadly, yet did not answer some crucial questions: (1) but how exactly? and (2) What do we do once something does not go as planned?
The next posts will answer these questions, one bit at a time. Follow our page to make sure you don’t miss out on these useful and actionable tips that will boost your fashion venture forward!