Great design fails without a sustainable pricing model. Most brands, especially those just starting, collapse their margins before they even realize it. Pricing isn't a formula; it's a system, and the right system separates brands that thrive from those that quietly bleed cash. We’ve spent years watching talented designers lose money simply because they ignored the hidden costs that evaporate margins.
If you’re a fashion entrepreneur, this blog is your financial playbook, where we’ll walk you through the A to Z of absorption versus keystone pricing, so your brand remains profitable from the first sample to the final sale.
The Real Cost of Custom Apparel, Before You Add a Markup
Most brands see only the surface. A $5 blank. Screen printing at $2 per unit. Done.
But that's unit cost. Unit cost is incomplete. Landed cost is the only number that tells the full truth. Landed cost is the only number that matters.
Blank garment, printing, and embroidery. Sample runs. Setup fees. Packaging. Labelling. Logistics. Freight. Duties. Warehousing. Insurance. Admin overhead.
Every invisible hour spent tracking orders, chasing corrections, and managing spreadsheets these are cost.
When you ignore hidden costs, your margins evaporate. A $12 unit cost becomes $18 landed cost. Suddenly, that $24 retail price leaves you with $6 per unit before salaries, rent, and platform fees.
We've seen brands price at what feels comfortable, only to realize they're working for free.
What Is the Absorption Pricing Model?
Absorption pricing means you absorb all production and operating costs directly into the unit price. You calculate the total cost per garment, including blanks, labour, setup, sampling, overhead, and everything, and build one transparent price.
When absorption makes sense: corporate uniforms, long-term contracts, internal merch programs, bulk reorders.
The advantages are real. Margins stay predictable. Clients see one clear price. No surprises on reorders. Consistency builds trust.
But absorption has limits. Fast-moving drops, limited runs, and volatile material costs create friction. You can't absorb a $500 setup fee across fifty units and stay competitive.
What Is Keystone Markup?
Keystone is simple. Multiply your wholesale cost by 2.
Wholesale price × 2 = retail price.
It's the standard retail model. A retailer buys at $12, sells at $24. Clean math. Scales easily across product lines.
Keystone works for retailers selling manufactured goods. Direct-to-consumer brands love it because the logic is transparent to investors.
But Keystone fails at custom apparel. Why?
Custom orders don't have consistent wholesale costs. A 50-unit run has different cost dynamics than a 500-unit run. Setup costs, sampling, and artwork revisions completely change the math. Keystone ignores that. You end up underpricing complex work or overpricing simple jobs.
Absorption vs. Keystone: A Side-by-Side Comparison
Absorption demands honesty, while Keystone permits laziness.
Absorption exposes every cost driver. You see exactly where the money goes. Keystone masks the reality of production behind a blind multiplier. This kills stability. Absorption locks in predictable margins while Keystone leaves profit volatile.
For custom work, Absorption is the only viable option. It handles complex setups and corporate contracts without breaking. Keystone ignores these variables. It collapses on low-volume runs and leaves you exposed when material costs spike.
Profit Margin Calculation: What You Should Actually Be Targeting
Gross margin versus net margin matters. Gross margin is revenue minus production cost. Net margin subtracts overhead, salaries, platform fees, shipping, and returns.
A 50% gross margin might look healthy. But if your overhead is 35%, your net margin is 15%. That's thin for a service business.
Typical ranges in custom apparel: gross margins of 40–60% are common. Net margins of 15–30% are realistic, depending on scale.
Why does a high margin not mean cash flow? It is because you can be profitable on paper and broke in the bank. Slow payment terms, inventory holding costs, and sample waste drain cash before you invoice a cent.
Production scale impacts margins dramatically. One hundred units at a time have different economics than one thousand units. A $1,000 setup fee kills your margin on a 50-unit order but barely dents a 1,000-unit run.
We've seen brands quote wrong because they didn't account for scale. Then they got the order and discovered they'd just locked in a loss.
Wholesale Pricing: When and How to Use It
Wholesale pricing differs from DTC pricing because it doesn't capture the final customer price. You're selling to a retailer, distributor, or reseller. That retailer marks up again.
If you wholesale at $15 and the retailer doubles it, the customer pays $30. You get $15. The retailer captures $15. You both need healthy margins.
This forces discipline: your cost must be low enough that the wholesale price covers your margin while leaving room for the buyer's markup. Most brands need their wholesale price to be 40–50% of retail to make this work.
Minimum order quantities are critical. Wholesalers expect economies of scale. A 500-unit minimum is standard. A 100-unit wholesale order usually doesn't exist; the pricing falls apart.
Common wholesale errors: brands quote low to win the order, then discover they can't fulfil it profitably. Or they price wholesale assuming retail volumes, then panic when the order is smaller.
Wholesale isn't wrong. It's just different. Plan it before production, not after.
Choosing the Right Pricing Model for Your Brand
Ask yourself three questions.
1. Are you running repeat programs or one-off drops?
Repeat programs reward absorption pricing. You spread setup costs across multiple orders. One-off drops favour keystone because you need quick margins upfront.
2. Are you absorbing setup costs or passing them on?
If the customer absorbs setup, you can lower the margin on the units. If you absorb setup, unit margins must be higher.
3. Is this internal use, gifting, or resale?
Internal merch and gifts use absorption. Resale uses keystone or wholesale.
As brands scale, pricing strategy evolves. Early-stage brands often use keystone to move units fast. Mature brands shift to absorption because they've built loyalty and can demand transparency.
At In-House, we've worked with brands across all three models. The key is to match your model to your business structure, not to force your business into a pricing mould.
How In-House Helps Brands Price Apparel Sustainably
We don't sell apparel. We sell cost transparency.
Every client gets a detailed costing breakdown from sampling through production. You see the blank cost, labour, setup, logistics, and overhead. Then you price with intention, not guesses.
We help brands choose their model: absorption, keystone, or hybrid. We guide them through reorder economics so they don't get trapped underpricing repeat orders. We calculate the landed cost so hidden expenses don't surprise them.
Why does this matter? Pricing accuracy is the difference between a sustainable brand and a burnout. And manufacturing insight, understanding what things actually cost to make, is the bedrock of accurate pricing.
Pricing is part of product development, not an afterthought.
FAQs
What is the best apparel pricing strategy for custom clothing?
The Absorption Model. It forces you to account for every cent of "invisible" admin and setup labour before setting a price. This ensures you never subsidize a client's project with your own margins.
How do I calculate profit margin on apparel?
Track Net Margin, not Gross. Calculate: (Retail Price minus Landed Cost) / Retail Price. Landed Cost must include blanks, freight, duties, decoration, and overhead. If you miss the freight, your margin is a lie.
Is absorption pricing better for corporate apparel?
Yes. Corporate buyers demand consistency. Absorption allows you to present a single, stable unit price that covers all overhead while making procurement frictionless for the client.
Who can help me price custom apparel in Canada?
In-House specializes in cost-transparent production. We break down landed costs and margin targets, doing the math so you can build the brand.
Pricing Is a Strategy, Not a Formula
Sustainable brands price with intention. They know their numbers. They plan for scale. They adjust as costs shift.
That takes rigour. That takes partnership with makers who understand your cost structure and help you build pricing that supports quality, consistency, and longevity.
Talk to our team about your next run. We'll break down your true costs and help you price with confidence.
