Cost Estimation


To estimate our costs we looked at the retail price of existing stores like H&M and reasoned with those numbers what our costs and sale price could be.



Method



We calculated the total cost of baby clothes for the first year. We guest that the stores use a margin of profit of 40% which we subtracted. The result is the cost of the clothes. Since we ‘sell’ our clothes a minimum of 3 times we divide this cost by three. This is our total cost for the clothes per customer. These are our variable costs. We also have fixed costs which consist out of transport, cleaning, inspection, promotion and overhead costs. We estimated these costs and divided this by our expected number of customers for the first few years. This number is added to the variable costs. This result are the total costs which have to be covered by the sales. For the price for our subscription we also use a margin of profit of 40% which we add to the cost price. This result is the total cost of the subscription, so this number divided by 12 is the monthly fee for our service.



Calculation

We calculated the normal cost for a year of other stores with the help of these necessities:

  • 8 undershirts or onesies (mix of short-sleeve and long-sleeve)
  • 5 nightgowns (for use until the cord falls off)
  • 8 one-piece stretchy sleepers (go for ones with zippers; new moms swear by them!)
  • 5 pairs of pants
  • 2 newborn hats
  • 8 pairs of socks or booties, to wear with nightgowns and outfits
  • 2 pairs of scratch mittens, to keep baby from scratching his face
  • 2 cardigans or jackets, more in winter
  • Bunting bag or snowsuit for winter baby
  • Laundry detergent for infants
  • 4 outfits for dressing up (optional)
  • 3 large cotton blankets
  • 8 receiving blankets (they also make handy burp cloths)

The result was around €300 per year, we did the following calculation with this result:

Discussion



With these calculations we will be 6 euro’s cheaper than buying clothes the ordinary way but even more important is that the customers only spends €24,50 per month for all their baby clothes.



Even though this estimated cost calculation could be possible it's very likely that the real numbers will be very different since we estimated the fixed costs and the number of customers. However with this calculation we already make profit with 20.000 customers. But in the real situation it's no problem to make losses (because of marketing for instance) at this point, because we can earn this back when our number of customers grow.



Another aspect that we didn’t use in the calculation is the revenue of advertisement for other companies. This revenue can be used to either make more profit or lower our retail price to make our brand even more appealing.