This page is for anyone who prices, sells, or buys apparel and wants to know where the money goes once a garment leaves the factory. At work, a merchandiser or a factory owner is often asked why the same jeans cost more through one route than another. Answering that means following the money, one company at a time, not guessing from the final shop price.
Without this skill, a person assumes that a higher price along the chain means someone is being cheated, or that a trading company's price is "the same deal, just passed through" with nothing added. Both assumptions are wrong more often than they are right. Every company that buys and resells goods in its own name takes its own margin on top of the price it paid. This lesson shows you how to find each margin separately, using the same costing method you already used for a single factory sale, now applied across a longer chain.
You need: lesson 7.1 (how a price is built), 7.2 (costing a garment), 7.3 (margin and markup), and 7.4 (payment terms and cash flow). This lesson uses the same costing method on a longer chain; it does not re-teach it from the start.
By the end of this lesson you can:
Not covered here: how Atlas Trading finds its retail buyers or negotiates its own contracts (not yet written), and the shipping and customs steps of an export order (course 5).
| Term | Meaning |
|---|---|
| Value chain | The connected stages that create, move and sell a product, from raw material to the final customer. |
| FOB (free on board) | The factory delivers the goods on board the ship at its own port. Freight from there is the buyer's cost. |
| Trading company | A company that buys goods in its own name and resells them, taking ownership of the goods, unlike a buying office, sourcing office or agent. |
| Agent | An independent business that is paid a commission for arranging or managing an order on behalf of whichever side hired it. |
| Commission | A payment to an agent, normally a percentage of the order value, agreed in advance in the agency agreement. |
| Margin | Profit divided by the selling price, shown as a percentage of what a company sells for. |
| Markup | Profit divided by the cost, shown as a percentage of what a company paid. |
A garment can reach a shop by a short route or a long one. In a short route, the factory sells straight to the buyer, and the buyer sells to the customer: one margin, held by the factory, before the buyer adds its own retail markup. In a longer route, one or more companies sit between the factory and the retailer, and each one that buys and resells the goods in its own name adds its own margin on top of the price it paid. The same physical jeans can therefore carry very different total markups by the time they reach a shop, depending only on how many companies bought and resold them along the way. Where each link's profit is captured is a separate question from what the goods cost to make.
A merchandiser meets several different chain shapes in real work. Learning only one shape leads to wrong assumptions about every other one.
| What can differ | The shapes you will meet | Why it matters |
|---|---|---|
| Direct sale | Delta Garments sells straight to a buyer such as Northline Apparel at its own FOB price, with no company between them. | One margin only, held by the factory, before the buyer's own retail markup. |
| Trading-company sale | Atlas Trading buys the goods from Delta Garments in its own name, then resells them to a retailer at a higher price. | A second margin sits between the factory's price and the retailer's cost, captured by Atlas Trading. |
| Agent sale | Meridian Sourcing arranges the order between a factory and a buyer for a commission, but never buys or resells the goods itself. | An agent's commission is not a margin on the goods; the agent never owns them, so there is one margin fewer in the chain than a trading-company sale has. |
| Retailer's own margin | Whichever route the goods take, the shop that finally sells to the customer adds its own margin when it sets the shop price. | The retailer's margin is the last link in the chain, regardless of how many companies came before it. |
| Domestic short chain | Cedar & Co. buys directly from Delta Garments for its own shops, with no trading company or agent involved. | A domestic direct sale keeps the chain at one margin, the same as an export direct sale. |
Delta Garments makes Order B: 3,000 pieces of five-pocket jeans, 12 oz denim, at a buyer target FOB price of USD 9.80. In this lesson, instead of Delta Garments selling straight to a buyer, Atlas Trading buys this same order from Delta Garments at its own FOB price of USD 9.80, and resells it to a retailer in Europe. Atlas Trading is the master-cast trading company: it buys in its own name from factories and resells to retailers in Europe, taking ownership of the goods between the two sales.
For this lesson, if Atlas Trading resold this order to the European retailer at, say, USD 13.00 per piece, that resale price is an illustrative teaching figure for this lesson, not a fixed fact about Atlas Trading's real pricing. It lets you see how the method works on a longer chain.
The worked numberDelta Garments' own profit is already inside its USD 9.80 FOB price, built up the same way lesson 7.2 taught: fabric, trims, making, overhead and profit added together. Order B's own jeans cost-component breakdown is not yet fixed in the master figures, so this lesson does not split the USD 9.80 into its parts; it only shows that a profit is already inside it. Using the illustrative Atlas Trading resale figure above, Atlas Trading's own margin is calculated on its own buy and sell prices, separately from Delta Garments' price:
A common mistake is assuming that a trading company's higher resale price is administrative pass-through, with no real value added. Atlas Trading buying Order B's jeans at USD 9.80 and reselling them at USD 13.00 is not the same deal repeated; it is a genuine, separate margin that Atlas Trading earns for taking ownership risk on the goods and for finding and serving the retail buyer. This is structurally different from an agent's role: Meridian Sourcing, working on commission, never buys or resells the goods, so it adds no margin of its own to the goods at all. Confusing the two roles leads to the wrong conclusion about who is charging what, and why.
Sometimes a factory sells straight to the company that will sell to shops. Sometimes a trading company buys from the factory first and sells on to a shop itself. Every time a company buys goods and sells them again, it adds its own extra amount on top of what it paid; that is its own profit for taking the risk and doing the work of selling. A company that only helps arrange a sale for a fee, without ever buying or owning the goods, is doing a different job and is paid in a different way. To understand why a price is what it is, look at each company in the chain on its own, add up what each one added, and see which company added the most.
A retailer in Europe is comparing two ways to buy jeans matching Order B's specification. One route goes through Atlas Trading. Another route, offered by a different contact, is factory-direct, with no trading company involved.
Does Atlas Trading's resale margin mean the retailer is being overcharged? Decide before opening the answer.
Not necessarily. Two facts decide this, and neither one alone is enough.
First, what the margin pays for. Atlas Trading's margin, illustratively 24.6% in the worked example, is what it charges for buying the jeans in its own name, taking ownership risk on 3,000 pieces before they are sold on, and finding and serving the European retailer. A direct factory relationship would require the retailer to do all of that itself, or hire someone else to do it.
Second, what the alternative actually costs. The existence of a trading-company margin alone does not prove overcharging. Whether Atlas Trading's margin is "worth it" depends on what the retailer would otherwise have to pay, in money and in its own staff time, to source directly from Delta Garments or a similar factory. A retailer with no buying office in Egypt may find that USD 3.20 per piece is less than the cost of doing that work itself.
If the retailer wants a lower price, the useful next step is not to accuse Atlas Trading of overcharging; it is to compare the full cost of the direct route, staff time included, against the trading-company route.
Using the illustrative Atlas Trading resale figures from this lesson, applied to Order B's fixed 3,000-piece jeans quantity:
This USD 9,600 is a real, additional amount captured at the trading-company link of the chain. It sits separately from, and in addition to, Delta Garments' own profit, which is already built into its USD 9.80 FOB price before Atlas Trading ever buys the goods. A merchandiser who only looks at the factory's price never sees this second amount; a merchandiser who traces the whole chain does.
The Costing sheet you used in lessons 7.1 and 7.2 is pre-filled with Order A's own cost components, adding up to one FOB price. Order B's own jeans component breakdown is not yet fixed, so this lesson does not add new columns or rows to that workbook.
Instead, use the sheet's method, not its exact columns, for a longer chain: treat Atlas Trading's buy price (USD 9.80) as one line, its sell price (the illustrative USD 13.00) as a second line, and the difference as its own margin, calculated as lesson 7.3 taught. Repeat this for every company in a chain, one at a time.
Download the workbook here: [Costing sheet](../../templates/T01-C07-costing-sheet.xlsx).
1. What is structurally different about a trading company's role compared with an agent's role?
2. In the worked example, does Atlas Trading's illustrative margin replace Delta Garments' own profit, or add to it?
3. A factory sells at an FOB price of USD 6.00. The buyer resells the same goods at USD 8.00. What is the buyer's own margin?
| EN | AR | FR | TR | Meaning |
|---|---|---|---|---|
| Value chain | سلسلة القيمة | Chaîne de valeur | Değer zinciri | The connected stages that create, move and sell a product, from raw material to the final customer. |
| FOB (free on board) | تسليم على ظهر السفينة في ميناء المصنع | FOB (franco à bord) | FOB (gemide teslim) | The factory delivers the goods on board the ship at its own port. Freight from there is the buyer's cost. |
| Trading company | شركة تجارية | Société de négoce | Ticaret şirketi | A company that buys goods in its own name and resells them, taking ownership of the goods, unlike a buying office, sourcing office or agent. |
| Agent | وكيل | Agent | Acente | An independent business that is paid a commission for arranging or managing an order on behalf of whichever side hired it. |
| Commission | عمولة | Commission | Komisyon | A payment to an agent, normally a percentage of the order value, agreed in advance in the agency agreement. |
| Margin | الهامش | Marge | Marj | Profit divided by the selling price, shown as a percentage of what a company sells for. |
| Markup | الزيادة على التكلفة | Majoration (marge sur coût) | Kâr yüzdesi (markup) | Profit divided by the cost, shown as a percentage of what a company paid. |
You now know how to trace profit through a chain of companies, however long the chain is. Course 8 turns from money to people: the departments inside a factory and inside a buying company, and what each one is responsible for. Back to the course map