Wholesale & Retail Pricing and Margins for Apparel

Every earlier page in the Garment Costing Guide answered the question what does this garment cost? This page answers the next one: what should it sell for — at each step of the chain? A garment typically changes hands three times on its way to the wearer: factory to brand at FOB, brand to retailer at wholesale, retailer to customer at retail. Each seller prices its step from its own cost, and each step uses the same two words — markup and margin — in ways that are similar enough to confuse and different enough to bankrupt.

A wholesale apparel showroom with long rails of sample garments organized by style while a buyer reviews a line sheet at a table — The wholesale step: the brand's line sheet price is built on its landed cost, not on the factory's FOB.

Markup vs. Margin: The One Distinction That Matters

Markup (%) = (price − cost) ÷ cost · Margin (%) = (price − cost) ÷ price

Same profit, two denominators. Sell a garment that cost $14.01 for $28.00 and the profit is $13.99 — which is a 100 percent markup on cost and a 50 percent margin on price. Both statements are true; they are not interchangeable. A buyer who asks for "a 50 percent markup" and receives a 50 percent margin has been given a much better deal than requested, and a brand that prices with a 50 percent markup believing it holds a 50 percent margin will discover, at season's end, that a third of its expected profit never existed. Every pricing conversation should name its basis, and every costing sheet should state whether its percentages divide by cost or by price — as flagged on the margin line of our cost sheet guide.

The Chain, Built on One Shirt

Follow the woven shirt from the earlier guides in this series. The factory's FOB price is $11.06. The importer's landed cost — FOB plus freight, insurance, duty and clearance — is $14.01. The brand now prices the wholesale step from that real cost: at a keystone-style 100 percent markup, the wholesale price becomes $28.00, on which the brand's margin is (28.00 − 14.01) ÷ 28.00 = 50 percent of the wholesale price. The retailer applies keystone again: the ticket price is $56.00, and the retailer's margin at full price is likewise 50 percent. One garment, three prices, and the customer-facing number is five times the factory's — not because anyone in the chain is extravagant, but because every step carries real costs the margin must feed: development, warehousing, sales teams, stores, staff, and the unsold stock discussed next.

Keystone is the industry's traditional shorthand: double the cost at each step. It survives because it is simple and because a 50 percent margin at each step roughly covers what each step must pay for. Premium brands price above keystone; off-price and high-volume operators deliberately price below it and make the difference back in volume and turns.

A neat rail of garments in a bright clothing boutique, each garment carrying a clean white price tag — The final number on the tag was determined by a chain of costs and margins set months before the garment reached the rail.

Initial Margin, Maintained Margin, and the Markdown Tax

The 50 percent retail margin above is the initial margin — true only for units sold at $56.00. Some of the buy will sell dearer to the season than that: promotions, end-of-season clearance, the occasional damaged or returned piece. The margin averaged across every unit actually sold is the maintained margin, and it is always lower. Retailers therefore plan backwards: knowing a category's normal markdown rate, they set the initial margin high enough that the maintained margin still covers store costs and leaves profit. This is the honest reason retail margins look large to outsiders — a healthy share of the apparent margin is pre-spent on the discounts the market will demand.

For brands, the same discipline runs one step earlier. A wholesale price that leaves the retailer too little room to mark down is a price the retailer will not reorder at, however beautiful the garment. Pricing the chain is therefore a design constraint, not an afterthought: work backwards from the ticket price the market will bear, through the retailer's margin and your own, and what remains is the landed cost the garment must hit — and, behind it, the FOB target the factory will be asked to meet, which is exactly where this series began.

Keep Exploring the Costing Series

Common Questions

What is the difference between markup and margin?

Markup is profit expressed as a percentage of cost; margin is the same profit expressed as a percentage of the selling price. A garment bought for $14 and sold for $28 carries a 100 percent markup but a 50 percent margin. Confusing the two is one of the most common and most expensive errors in apparel pricing.

What is keystone pricing?

Keystone pricing means doubling the cost to set the price: the wholesale price is twice the cost, and traditionally the retail price is twice the wholesale. A keystone step equals a 100 percent markup, or a 50 percent margin on that step's selling price.

Why do retailers need margins around 50 percent?

Because the retail margin must pay for everything between the stockroom and the sale: store rent, staff, fixtures, shrinkage, and the markdowns taken on whatever does not sell at full price. A 50 percent initial margin typically lands as a far smaller maintained margin once those costs and discounts are counted.

How do markdowns change the real margin?

The margin planned at full price (the initial margin) is only earned on units sold at that price. Units sold on promotion or clearance earn less, so the season's maintained margin — what was actually earned across all units — is always lower. Pricing must start high enough to survive the markdowns the category normally requires.

Back to the Garment Costing Guide

This page is one part of the Apparel Search Garment Costing & Production Economics Guide — return to the hub for the full costing workflow and every guide in the series.