13 · BOM & Costing Sheets

Week 13 · 25 hours

Objective

Read, build and interrogate a factory cost sheet; know where your money goes line by line; and hold an informed conversation about price instead of a hopeful one.

Why it matters commercially

Costing is where design meets money. A designer who can read a cost sheet can redesign a $38 shoe into a $31 shoe without hurting it — and $7 at 300 pairs is $2,100, which is a fifth of your entire budget.

Core concepts

The structure of FOB

FOB (“Free On Board”) means the price with the goods loaded on the vessel at the origin port. Freight, insurance and duty are yours from there.

A factory’s FOB is built up as:

    Upper materials            $ 8.40
  + Bottom unit (sole)         $ 7.20
  + Components & trims         $ 3.10   linings, foams, boards, laces,
                                        eyelets, thread, sockliner
  + Packaging                  $ 1.20   box, tissue, polybag, labels
  ───────────────────────────────────
  = MATERIAL COST              $19.90   ~55–60% of FOB
  + Direct labour              $ 5.50   cutting, stitching, lasting,
                                        assembly, finishing
  + Factory overhead           $ 3.20   utilities, depreciation, QC,
                                        admin, dies amortised
  ───────────────────────────────────
  = FACTORY COST               $28.60
  + Factory margin (8–20%)     $ 3.40
  ───────────────────────────────────
  = FOB PRICE                  $32.00

Ask for this breakdown. Many factories will give it; a refusal tells you something too.

The cost levers, ranked

  1. Materials (~55–60%). The biggest lever by far. Substituting a $4.20/sq ft leather for a $2.60/sq ft one on a shoe using 1.4 sq ft saves $2.24 — often with no visible quality loss if you choose well.
  2. Yield. How efficiently your panels nest. A redesign improving yield 10% on your priciest material is free money. Ask the factory: “Which of my panels is hurting yield?”
  3. Operation count. Every seam, every fold, every extra reinforcement is labour minutes. Ask: “Which three operations cost the most, and what would you change?”
  4. The bottom unit. Open-mold already saved you tooling; different molds still vary $3–8/pair.
  5. Panel count. Fewer dies, fewer operations, less waste.
  6. Volume. At your scale this is your weakest lever. Don’t pretend otherwise in negotiation — it damages credibility.

From FOB to landed to retail

Stage Typical calculation Example
FOB Factory price $32.00
+ Freight Sea LCL or air, per pair +$2.50
+ Insurance ~0.3–0.5% of value +$0.15
+ Duty % of customs value — footwear rates vary hugely +$5.60
+ Customs broker / entry fees Fixed per shipment, amortised +$0.90
+ Inland freight to you +$0.60
= LANDED COST $41.75
+ Fulfilment, packaging, payment fees ~$8–14 for DTC +$10.00
= DELIVERED COST $51.75

Then price. Common conventions:

  • Wholesale ≈ 2.0–2.5 × landed cost
  • Retail (via wholesale) ≈ 2.2–2.6 × wholesale → so ~5–6 × landed
  • DTC retail — you capture both margins, so you can price at 3–4 × landed and still be healthy, or price at retail parity and enjoy a much better margin

Module 18 turns this into a real model with your numbers.

A worked sanity check. $32 FOB → ~$42 landed → ~$52 delivered. At $140 DTC retail you have $88 gross margin per pair, 63%. At $110 you have $58, 53%. At $85 you have $33, 39% — too thin to fund a second run once you account for returns and marketing. This arithmetic, not aspiration, sets your price.

Reverse costing (target costing)

Better practice than designing then pricing:

  1. Decide the retail price your positioning supports.
  2. Divide by your target multiple → target landed cost.
  3. Subtract freight/duty/fees → target FOB.
  4. Take 55–60% of that → your material budget.
  5. Design within it.

If your material budget is $17 and the leather you love costs $9 of it, you now know that before the tech pack, not after the sample.

The duty variable

Footwear duty rates in the US are among the highest of any consumer category and they vary enormously by construction and material. The classification depends on things like the material of the upper, the material of the outsole, whether the upper covers the ankle, and sometimes value per pair. Rates can range from single digits to well over 30%, and additional tariffs may apply by country of origin.

Do not guess. In Module 16 you will get your actual shoe classified by a licensed customs broker. But put a conservative placeholder in your costing now — and if your design sits near a classification boundary (e.g. an upper that’s borderline between predominantly textile and predominantly leather by external surface area), flag it, because that boundary can be worth several dollars a pair.

Do this

1 · Build the cost sheet (6h). Recreate the FOB build-up above as a spreadsheet, populated from your BOM with real quoted prices. Mark every estimate clearly.

2 · Request the factory’s breakdown (2h). Ask your chosen factory for their cost sheet against tech pack V02. Compare it line by line to yours. Every discrepancy is a lesson.

3 · The cost-reduction exercise (5h). Find $5 of cost in your shoe without materially harming it. Use the levers list. Document each change, its saving, and its risk. Ask the factory to validate the savings.

4 · Reverse cost (3h). Do the target-costing exercise from your intended retail price backwards. Compare to where you actually are. If you’re over, you now know exactly by how much and what has to give.

5 · Landed cost model (4h). Build the full FOB→landed→delivered model with conservative duty and freight placeholders.

6 · Order the proto (3h). With your factory selected and costing understood: issue the development order, pay the development charge, and confirm in writing exactly what you expect back — construction, materials (or nearest available substitutes, clearly listed), sole mold, last, and the date.

7 · Outreach block (2h).

Deliverable. Your cost sheet vs. the factory’s, with discrepancies analysed; a documented $5 cost-reduction plan; a reverse-costing analysis; a full landed cost model; and a paid, confirmed proto sample order with a written spec of what’s coming.

Self-check

  • What does FOB include and exclude?
  • What percentage of FOB is materials, typically?
  • Rank the cost levers, and say which one is weakest at your volume.
  • What is reverse costing and why is it better practice?
  • Explain the path from $32 FOB to a $140 retail price.
  • Why can two visually similar shoes have very different duty rates?

Traps

Forgetting duty until it arrives. It is one of the largest single line items and it hits when the goods are already at the port and you must pay to release them.

Negotiating on volume you don’t have. Factories know what 200 pairs is. Negotiate on the things that are actually winnable.

Comparing quotes that aren’t like-for-like. Two FOBs mean nothing unless both are quoted against the same tech pack version with the same materials. Insist on it.