23 data to include in the business plan of your clothing brand project

This article was written by our expert who is surveying the industry and constantly updating the business plan for a clothing brand project.

Our business plan for a clothing brand project will help you build a profitable project

Ever wondered what the ideal cost of goods sold (COGS) percentage should be to ensure your clothing brand remains profitable?

Or how many collections you need to launch annually to meet your sales targets and stay ahead in the fashion industry?

And do you know the optimal inventory turnover ratio for a successful apparel business?

These aren’t just nice-to-know numbers; they’re the metrics that can make or break your brand.

If you’re crafting a business plan, investors and financial institutions will scrutinize these figures to gauge your strategy and potential for success.

In this article, we’ll explore 23 crucial data points every clothing brand business plan needs to demonstrate your readiness and capability to thrive.

A successful clothing brand keeps cost of goods sold (COGS) below 40% of revenue

A successful clothing brand often keeps its cost of goods sold (COGS) below 40% of revenue to ensure profitability and sustainability.

By maintaining a lower COGS, the brand can allocate more resources to other crucial areas like marketing and innovation, which are essential for growth and staying competitive. Additionally, a lower COGS allows for better pricing strategies, enabling the brand to offer competitive prices while still maintaining healthy profit margins.

However, this percentage can vary depending on factors such as the brand's market positioning and target audience.

For instance, luxury brands might have a higher COGS due to the use of premium materials and craftsmanship, but they compensate with higher pricing. On the other hand, fast fashion brands might achieve lower COGS through economies of scale and efficient supply chains, allowing them to offer lower prices to consumers.

Marketing expenses should ideally stay between 8-12% of total sales to ensure brand growth

Marketing expenses for a clothing brand should ideally range between 8-12% of total sales to ensure sustainable brand growth.

This range allows the brand to invest adequately in advertising and promotions while maintaining a healthy profit margin. It ensures that the brand can reach its target audience effectively without overspending, which could lead to financial strain.

However, this percentage can vary depending on factors such as brand size and market competition.

For instance, a new clothing brand might need to allocate a higher percentage to marketing to establish its presence and compete with established brands. Conversely, a well-established brand with a loyal customer base might spend less on marketing while still achieving growth.

The average turnover rate for retail staff is 60%, so budget for high recruiting and training costs

The average turnover rate for retail staff is 60%, which means clothing brands should budget for high recruiting and training costs.

This high turnover is often due to factors like seasonal employment and low job satisfaction, which are common in the retail industry. Employees frequently leave for better opportunities, leading to a constant need for new hires and training.

In the context of a clothing brand, this can significantly impact the consistency of customer service.

However, turnover rates can vary depending on specific circumstances, such as the brand's location or its employee benefits. For instance, a store in a high-traffic area might experience higher turnover due to increased stress levels, while a brand offering competitive wages and benefits might see lower turnover rates.

50% of clothing brands fail within the first three years, largely due to cash flow issues

Many clothing brands fail within the first three years primarily due to cash flow issues.

Starting a clothing brand often requires significant upfront investment in materials, production, and marketing, which can quickly deplete resources if sales don't meet expectations. Additionally, the fashion industry is highly competitive, and brands must continuously invest in new designs and marketing to stay relevant, further straining cash flow.

Without a steady stream of revenue, brands struggle to cover operational costs and may face insolvency.

However, the success or failure of a clothing brand can vary based on factors such as target market and business model. Brands that effectively manage their finances, perhaps by starting with a lean approach or focusing on a niche market, may have a better chance of surviving and thriving beyond the initial three years.

Brands should aim for a break-even point within 12 months to be considered viable

Reaching a break-even point within 12 months is crucial for a clothing brand to demonstrate its financial viability and potential for growth.

This timeframe allows the brand to assess its market acceptance and operational efficiency, ensuring that it can cover its initial costs and start generating profit. If a brand takes longer than a year to break even, it may indicate underlying issues such as ineffective marketing or poor product-market fit.

However, the 12-month benchmark can vary depending on factors like the brand's business model and target market.

For instance, a luxury clothing brand might take longer to break even due to higher production costs and a more niche audience. Conversely, a fast-fashion brand might achieve this milestone quicker due to lower price points and a broader customer base.

Accessory profit margins are generally 70-80%, higher than apparel, making them crucial for profitability

Accessory profit margins are generally higher than apparel because they often involve lower production costs and can be sold at a premium.

Unlike clothing, which requires a variety of sizes and fits, accessories like bags, jewelry, and hats are typically one-size-fits-all, reducing the complexity and cost of manufacturing. Additionally, accessories are often seen as luxury items or status symbols, allowing brands to charge more and achieve higher margins.

These high margins make accessories crucial for a clothing brand's overall profitability, as they can significantly boost the bottom line.

However, the profit margin can vary depending on the type of accessory and the brand's positioning in the market. For instance, a high-end brand may achieve even higher margins due to its prestige pricing strategy, while a budget brand might see lower margins due to competitive pricing pressures.

Prime cost (COGS and labor) should stay below 55% of revenue for financial health

Keeping the prime cost, which includes COGS and labor, below 55% of revenue is crucial for a clothing brand's financial health because it ensures that the business retains enough profit to cover other expenses and invest in growth.

When the prime cost exceeds this threshold, it can squeeze the profit margins, making it difficult to manage other operational costs like marketing, rent, and utilities. This can lead to cash flow issues, which are particularly challenging for clothing brands that often need to invest in seasonal inventory.

However, this 55% benchmark can vary depending on the specific business model and market positioning of the clothing brand.

For instance, a luxury brand might have higher labor costs due to craftsmanship and still maintain healthy margins because of premium pricing. Conversely, a fast-fashion brand might focus on keeping COGS low to compete on price, allowing them to operate with a different cost structure while still aiming for financial health.

Brands should ideally reserve 1-2% of revenue for store maintenance and visual merchandising annually

Brands should ideally reserve 1-2% of revenue for store maintenance and visual merchandising annually because it ensures that the store environment remains appealing and functional, which is crucial for attracting and retaining customers.

Investing in store maintenance helps prevent wear and tear, ensuring that the physical space remains safe and inviting. Meanwhile, visual merchandising plays a key role in showcasing products effectively, enhancing the shopping experience, and ultimately driving sales.

Allocating a specific percentage of revenue allows for consistent updates and improvements, keeping the brand's image fresh and competitive in the market.

However, this percentage can vary depending on factors such as the brand's size, location, and target market. For instance, a luxury clothing brand might allocate more than 2% to maintain a high-end image, while a smaller, budget-focused brand might spend less, focusing on cost-effective strategies.

A successful clothing store turns inventory at least 4 times a year to ensure freshness and trend relevance

A successful clothing store turns inventory at least 4 times a year to ensure freshness and trend relevance because the fashion industry is highly dynamic and consumer preferences change rapidly.

By frequently updating their inventory, stores can offer the latest styles and seasonal trends, which keeps customers coming back for more. This approach also helps in minimizing the risk of holding onto outdated stock that might not sell, thereby reducing potential losses.

However, the frequency of inventory turnover can vary depending on the specific market segment and target audience of the clothing brand.

For instance, a luxury brand might not need to turn inventory as often because their products are seen as timeless and classic, whereas a fast-fashion retailer must constantly refresh their offerings to stay competitive. Ultimately, understanding the unique needs and expectations of your customer base is crucial in determining the right inventory strategy for your clothing brand.

Inventory turnover should happen every 60-90 days to avoid markdowns and ensure cash flow

Inventory turnover every 60-90 days is crucial for a clothing brand to avoid markdowns and maintain healthy cash flow.

When inventory sits for too long, it risks becoming outdated, leading to markdowns that can erode profit margins. Regular turnover ensures that the brand can keep up with fashion trends and consumer demand, which is essential in the fast-paced clothing industry.

Moreover, frequent inventory turnover helps in maintaining a steady cash flow, allowing the brand to reinvest in new collections and marketing efforts.

However, the ideal turnover rate can vary depending on factors such as the brand's target market and product type. For instance, a luxury brand might have a slower turnover due to higher price points and exclusivity, while a fast-fashion brand needs to move inventory quickly to stay competitive and relevant.

It’s common for retail stores to lose 2-4% of revenue due to theft or inventory shrinkage

It's common for retail stores to lose 2-4% of revenue due to theft or inventory shrinkage because these issues are prevalent across the industry.

In the context of a clothing brand, shrinkage can occur from both shoplifting and employee theft, as well as from administrative errors like miscounted inventory. These losses can add up quickly, especially in stores with high foot traffic or those that carry high-value items.

However, the percentage of revenue lost can vary depending on factors like store location, security measures, and staff training.

For instance, stores in areas with higher crime rates might experience more theft, while those with advanced security systems and well-trained staff might see lower shrinkage rates. Additionally, brands that invest in inventory management technology can better track and reduce losses, ultimately protecting their bottom line.

A store’s rent should not exceed 10-12% of total revenue to avoid financial strain

A store's rent should ideally be no more than 10-12% of total revenue to prevent financial strain.

When rent exceeds this percentage, it can significantly reduce profit margins, making it difficult for a clothing brand to cover other essential expenses like inventory, marketing, and staff salaries. This can lead to a situation where the business is constantly struggling to stay afloat, rather than focusing on growth and expansion.

Keeping rent within this range ensures that the brand has enough financial flexibility to invest in other areas that can drive sales and improve customer experience.

However, this percentage can vary depending on specific factors such as the location of the store and the brand's target market. For instance, a store in a high-traffic area might justify a higher rent percentage due to increased sales potential, while a niche brand with a loyal customer base might manage with a lower percentage.

Upselling during peak seasons can increase average ticket size by 15-25%

Upselling during peak seasons can significantly boost a clothing brand's average ticket size by 15-25% because customers are already in a buying mindset and more open to additional purchases.

During these times, shoppers are often looking for complete outfits or gift sets, making them more receptive to suggestions for complementary items. This is especially true when the upsell items are strategically aligned with the customer's initial purchase, such as offering a scarf with a coat or a belt with a pair of jeans.

However, the effectiveness of upselling can vary depending on factors like the brand's target audience and the specific products being offered.

For instance, a luxury brand might see a higher increase in ticket size because their customers are more accustomed to purchasing high-value items and may be more willing to add on additional products. On the other hand, a budget-friendly brand might experience a smaller increase, as their customers may be more price-sensitive and less likely to indulge in extras.

The average profit margin for a clothing brand is 4-13%, with higher margins for luxury and lower for fast fashion

The average profit margin for a clothing brand ranges from 4-13% because of the diverse nature of the industry.

Luxury brands often enjoy higher profit margins due to their ability to charge premium prices, which are justified by their exclusive designs and high-quality materials. On the other hand, fast fashion brands operate on lower margins as they focus on volume sales and quick turnover to stay competitive.

These margins can vary significantly depending on the brand's business model and target market.

For instance, a brand that invests heavily in sustainable practices might have higher costs, potentially reducing its profit margin. Conversely, a brand that outsources production to regions with lower labor costs might achieve a higher margin by reducing expenses.

Average transaction value should grow by at least 5-7% year-over-year to offset rising costs

For a clothing brand, the average transaction value needs to grow by at least 5-7% year-over-year to effectively counteract the impact of rising operational costs.

These costs include everything from raw materials to labor and logistics, which tend to increase annually due to inflation and other economic factors. If the average transaction value doesn't grow at this rate, the brand may struggle to maintain its profit margins.

However, this growth rate can vary depending on the brand's target market and pricing strategy.

For instance, a luxury brand might aim for a higher growth rate because its customers are less price-sensitive and more focused on quality and exclusivity. On the other hand, a budget-friendly brand might find it challenging to increase prices without losing customers, so it may need to focus on increasing sales volume instead.

Ideally, a brand should maintain a current ratio (assets to liabilities) of 1.5:1

In the context of a clothing brand project, maintaining a current ratio of 1.5:1 is considered ideal because it indicates a healthy balance between assets and liabilities, ensuring the brand can meet its short-term obligations while still having a cushion for unexpected expenses.

This ratio suggests that for every dollar of liability, the brand has $1.50 in assets, which provides a comfortable buffer. A clothing brand often deals with seasonal fluctuations in sales and inventory, so having a slightly higher ratio helps manage these variations without financial strain.

However, the ideal current ratio can vary depending on the specific circumstances of the brand, such as its size, market position, and growth stage.

For instance, a newly established brand might operate with a lower ratio as it invests heavily in growth and marketing, while a more established brand might aim for a higher ratio to ensure stability. Ultimately, the key is to maintain a balance that supports the brand's strategic goals and operational needs, while also considering industry norms and economic conditions.

Effective merchandising can boost revenue by 10-20% by highlighting high-margin items

Effective merchandising can significantly boost revenue by 10-20% for a clothing brand by strategically highlighting high-margin items.

When customers enter a store, their attention is often drawn to displays that are visually appealing and well-organized. By placing high-margin products in these prime locations, a brand can increase the likelihood of these items being noticed and purchased.

This approach not only enhances the visibility of these products but also encourages impulse buying.

However, the impact of merchandising can vary depending on factors such as store layout and target audience. For instance, a store with a younger demographic might benefit more from trendy displays, while a luxury brand might focus on creating an exclusive atmosphere to highlight premium items.

A store should have 1-1.5 square meters of display space per item to ensure visibility

A store should allocate 1-1.5 square meters of display space per item to ensure each piece of clothing is easily visible and accessible to customers.

This amount of space allows for adequate room to showcase the unique features of each item, such as design and fabric, without overcrowding. When items are too close together, it can create a cluttered appearance, making it difficult for customers to focus on individual pieces.

By providing enough space, customers can have a more enjoyable shopping experience, which can lead to increased sales.

However, the ideal amount of display space can vary depending on the store's location and target market. For example, a high-end boutique might require more space per item to create a luxurious feel, while a fast-fashion retailer might opt for less space to accommodate a larger inventory.

Customer satisfaction scores can directly impact foot traffic and should stay above 85%

Customer satisfaction scores are crucial because they can significantly influence the foot traffic in a clothing brand's stores, and maintaining a score above 85% is often necessary to ensure a steady flow of customers.

When customers are satisfied, they are more likely to return and recommend the brand to others, which can lead to increased word-of-mouth marketing. Conversely, if satisfaction scores drop below 85%, it can deter potential customers and reduce the number of repeat visits.

However, the impact of customer satisfaction scores can vary depending on factors such as location and target demographic.

For instance, a store in a high-traffic urban area might still attract customers even with slightly lower satisfaction scores due to its convenient location. On the other hand, a store in a less accessible area might rely more heavily on maintaining high satisfaction scores to draw in customers.

Brands in high-density areas often allocate 5-7% of revenue for e-commerce partnerships and fees

Brands in high-density areas often allocate 5-7% of revenue for e-commerce partnerships and fees because these regions have a high concentration of potential customers who are increasingly shopping online.

In such areas, the competition is fierce, and brands need to invest in strong online presence to stand out. Allocating a portion of revenue to e-commerce allows them to leverage digital marketing strategies and reach a wider audience.

This investment is crucial for clothing brands as it helps them tap into the growing trend of online shopping, which is especially prevalent in urban settings.

However, the percentage allocated can vary depending on factors like the brand's target demographic and the level of competition in the area. For instance, a brand targeting younger consumers might allocate more to e-commerce, while a luxury brand with a niche market might spend less.

Digital marketing should take up about 10-15% of revenue, especially for new or growing brands

Digital marketing should take up about 10-15% of revenue for new or growing clothing brands because it is crucial for building brand awareness and reaching potential customers.

For a clothing brand, especially one that's just starting out, investing in digital marketing helps to establish a strong online presence, which is essential in today's market. This percentage allows for a balanced approach, ensuring that the brand can effectively use various digital channels like social media, search engines, and email marketing without overspending.

However, this percentage can vary depending on specific factors such as the brand's target audience, market competition, and overall business goals.

For instance, a brand targeting a younger demographic might need to allocate more resources to social media platforms where their audience is most active. On the other hand, a brand with a niche market might focus more on search engine optimization and content marketing to reach their specific audience effectively.

Seasonal collections can increase sales by up to 30% by attracting repeat customers

Seasonal collections can boost sales by up to 30% for clothing brands because they create a sense of urgency and exclusivity that encourages repeat purchases.

Customers are often drawn to the freshness and novelty of new seasonal items, which can make them feel like they are part of a trendy and current fashion movement. This excitement can lead to increased customer loyalty, as shoppers return to see what new items are available each season.

However, the impact of seasonal collections can vary depending on factors such as the brand's target audience and the specific market conditions.

For instance, a brand targeting younger demographics might see a higher increase in sales due to their audience's desire for the latest trends. On the other hand, brands in regions with less distinct seasons might not experience the same level of impact, as their customers may not feel the same urgency to update their wardrobes.

Establishing a COGS variance below 3% month-to-month is a sign of strong management and control.

Establishing a COGS variance below 3% month-to-month for a clothing brand is a sign of strong management and control because it indicates that the company is effectively managing its production costs and maintaining consistency in its financial performance.

In the clothing industry, where factors like fabric prices, labor costs, and shipping fees can fluctuate, keeping COGS variance low demonstrates that the brand has implemented effective strategies to mitigate these changes. This could involve negotiating stable contracts with suppliers or optimizing production processes to reduce waste and inefficiencies.

However, the acceptable level of COGS variance can vary depending on the specific circumstances of the brand, such as its size, market position, and product range.

For instance, a smaller brand with limited resources might experience higher variance due to less bargaining power with suppliers, while a larger brand might have more leverage to maintain stability. Additionally, brands that frequently release new collections or experiment with different materials might naturally see more fluctuation in their COGS, making a slightly higher variance more acceptable in those cases.