Costing & Price Negotiation in an RMG Buying House
In the Ready-Made Garments (RMG) industry, Costing & Price Negotiation is one of the most critical functions of a buying house. It directly determines profitability, competitiveness, and long-term buyer relationships. A professional RMG buying house must prepare accurate cost calculations and negotiate smartly to ensure both the buyer and the factory benefit.
In countries like Bangladesh—one of the world’s largest garment exporters—effective costing strategies are essential to remain competitive in the global apparel market.
- What is Costing in RMG Buying House?
Costing is the process of calculating the total production cost of a garment before order confirmation. It helps determine the final FOB (Free on Board) price offered to the buyer.
The objective of costing is to:
Achieve buyer’s target price
Ensure factory profitability
Avoid hidden losses
Maintain competitive market positioning
Accurate costing prevents unexpected financial risks during bulk production.
- Major Components of Garment Costing
Costing in an RMG buying house is detailed and structured. Below are the key components:
- Fabric Cost (60–70% of total cost)
Fabric is the main cost driver. It includes:
Fabric price per kg or yard
Fabric consumption (based on marker efficiency)
Wastage percentage
Dyeing/finishing cost
Even a small error in fabric consumption calculation can cause major loss.
- Trim & Accessories Cost
Includes:
Buttons
Zippers
Labels (Main label, care label, size label)
Threads
Elastics
Packaging materials
All trims must match buyer specifications and compliance requirements.
- CM (Cut & Make) Cost
CM refers to the factory’s production cost including:
Cutting
Sewing
Finishing
Labor cost
Machine cost
Overhead
CM varies depending on product complexity and factory efficiency.
- Washing, Printing & Embroidery Cost
For special products like denim or fashion items:
Washing cost (enzyme, stone wash, acid wash, etc.)
Screen printing cost
Embroidery cost
Special finishing cost
These value-added processes increase garment price.
- Commercial & Overhead Cost
Includes:
Bank charges
Documentation cost
Testing cost
Buying house commission
Transport & logistics
- Profit Margin
After calculating total cost, a reasonable profit margin is added for:
Factory
Buying house
The final result becomes the FOB price quoted to the buyer.
- Costing Methods in RMG Buying House
- Estimated Costing
Prepared based on previous similar styles before actual sampling.
- Actual Costing
Prepared after sample development and exact fabric consumption calculation.
- Target Costing
Buyer provides a target price, and the buying house adjusts materials and construction to meet it.
- Price Negotiation Process
Price negotiation is a strategic discussion between:
Buyer
Buying house
Factory
The goal is to agree on a price that ensures:
✔ Buyer competitiveness
✔ Factory sustainability
✔ Long-term partnership
- Strategies for Successful Price Negotiation
- Strong Market Knowledge
Understanding global price trends helps defend your quotation.
- Transparent Cost Breakdown
Providing detailed cost sheets builds buyer trust.
- Alternative Material Suggestion
If price is high, suggest:
Alternative fabric
Cost-efficient trims
Construction simplification
- Volume Advantage
Higher order quantity allows better price negotiation.
- Long-Term Relationship Focus
Sometimes small profit today leads to larger future orders.
- Common Challenges in Costing & Negotiation
Buying houses often face:
Buyer target price too low
Raw material price fluctuation
Currency exchange risk
Tight margin pressure
Compliance cost increase
To manage these risks:
Monitor raw material market regularly
Maintain multiple supplier options
Use accurate consumption calculation
Negotiate strategically
- Importance of Bangladesh in Competitive Pricing
Bangladesh remains competitive due to:
Large-scale production
Skilled workforce
Strong knit backward linkage
Cost-effective labor
Buying houses play a vital role in balancing competitive pricing with quality and compliance standards.
Conclusion
Costing & Price Negotiation are the financial backbone of an RMG Buying House. Accurate costing ensures profitability, while smart negotiation ensures business sustainability.
In today’s competitive global apparel market, success depends not only on low pricing but also on:
Transparency
Efficiency
Strategic negotiation
Long-term relationship building
A professional buying house must combine technical costing knowledge with negotiation skills to create a win-win situation for buyers and factories—ensuring growth, stability, and global competitiveness.