We get some questions why our T-shirt is priced at 499 DKK. In this post we will lay out our budget to tell how and why we end up at this price. But we will start by comparing our sales price to a branded quality T-shirt sold in a boutique (retail).
Cutting out the middlemen
The big difference between these cases are the number of steps involved. When middlemen (agents, distributors or shops) are added you multiply the price with ~2.7 to get the approximate sales price including taxes.
Our production cost, everything included, is around 185DKK, making a sales price of:
185 x 2.7 = 499DKK
A branded high quality T-shirt have a production cost around 100 DKK, making the retail price:
100 x 2,7 x 2,7 = 729DKK
These are simplified examples and the profits may vary, but it illustrates the consequences of having several steps from production to sales. There are simply more people or companies to take a cut of the sales price.
Even though our production cost is higher, we are able to keep our sales price lower than other brands.
Fig. 1 Comparing to other branded cotton or Merino T-shirts sold through a retail store, approximate distribution of costs and profits.
Distribution of our costs and profit
The mayor expense is the Merino fabric itself, costing around 90DKK for 1 meter. Which makes around one T-shirt.
Compared to quality cotton Merino is around 10-20 times more expensive.
We have chosen to use local production to support the Danish industry, insuring a sustainable, high quality and flexible setup.
The cost of producing in Denmark/Poland is around twice as expensive as manufacturing in the far east, costing around 50DKK including labels, transportation etc.
We spend around 120DKK on marketing when selling one T-shirt, this might seem like a lot, but compared to other brands our budget is at a minimum.
We rely on mouth to mouth and recommendation of our products.
This doesn't take up much in the budget, as everything is done online with very few employees. By not selling through stores we save a lot of money here. There are very few steps from production to sale, minimizing this cost compared to our competitors.
We spend around 10DKK on administration per T-shirt.
In Denmark there are 25% tax applied to almost all products from food to clothing. This equals 100DKK of the sales price.
Profit & Salaries
As we are still in the start-up phase, we are not paying out any salaries. The 129DKK left is invested to improve the products and develop new styles. In the future we have to cut down on our expenses and marketing to make room for salaries.