Essential Apparel Costing Terms: PO, FOB, CMT, Lead Time & More

Every costing sheet in the apparel business looks like alphabet soup to a newcomer. PO, FOB, CMT, SRP, CIF – these short forms are not jargon for the sake of jargon. Each one tells you who pays for what, who carries the risk at each stage, and how a garment’s price is actually built up from raw fabric to store shelf. Once you can read a costing sheet fluently, a conversation with a buyer or a factory stops feeling like guesswork and starts feeling like a negotiation you can actually win. Here is a practical walkthrough of the terms every apparel merchandising student needs to know.

Purchase order and lead time 🔗

A Purchase Order (PO) is the first official commercial document a buyer issues to a seller once both sides have agreed on terms. It records the style, the quantity, the price per unit, and the date by which the goods must be delivered. Once a factory formally accepts a PO, it blocks production capacity for that order, which is why merchandisers treat the PO date as day zero for every calculation that follows. Commercial documentation of this kind sits at the centre of how export transactions are structured and tracked from the buyer’s confirmation right through to shipment.

Why lead time decides the whole calendar 🔗

Lead time is the gap between the day an order is placed and the day it is delivered. It covers sourcing raw material, fabric production, cutting, sewing, finishing, quality checks, and shipping. In the apparel industry, this window commonly stretches between 90 and 120 days, depending on fabric availability, order complexity, and the shipping mode chosen. A shorter lead time usually means air freight and a higher cost; a longer one allows sea freight and cheaper landed costs. Missing a lead time doesn’t just delay a shipment – it can push a garment past its selling season entirely, which is a bigger loss than any late fee.

Markup and markdown: two sides of retail pricing 🔗

These two terms sound similar but move a price in opposite directions, and mixing them up on a costing sheet can throw off an entire pricing strategy.

Markup 🔗

Markup is the percentage added to the manufacturing or cost price to arrive at the selling price. It is essentially the retailer’s built-in margin, calculated so the business covers its overheads and still turns a profit on every unit sold. Retailers commonly work out their ideal markup by dividing the difference between selling price and cost by the unit cost, then expressing that as a percentage. A higher markup gives more room for later discounting, which is exactly where markdown enters the picture.

Markdown 🔗

Markdown is a deliberate cut in the selling price, usually applied toward the end of a season to clear stock or move merchandise that isn’t selling as expected. It is calculated as the difference between the original retail price and the reduced price. Retailers rely on markdowns to control terminal inventory – the stock left over once a season ends – and timing the size and depth of a markdown correctly is critical to protecting overall revenue for that season. A garment marked up generously at launch has more cushion to absorb a markdown later without slipping into a loss.

Shipping and trade terms you will see on every costing sheet 🔗

Once a garment moves from factory to buyer, a separate set of terms takes over – these define who owns the goods at each stage of transit and who pays for freight, insurance, and handling. Together they form part of the internationally recognised Incoterms framework used to fix the delivery point and cost split between exporter and buyer.

AWB and Bill of Lading 🔗

An Air Waybill (AWB) is a legally binding transport document issued by an airline or its agent for cargo moving by air. It acts as a receipt and a contract of carriage, but it is not a document of title, so it cannot be traded or transferred like ownership papers. A Bill of Lading serves the same function for sea freight – it is issued by the shipping line and details the type, quantity, and destination of the goods being carried. For sea shipments, this document often doubles as proof of ownership, which is why both documents are treated as essential paperwork for any international shipment leaving India.

EXW, FOB, and CIF 🔗

EXW (Ex-Works) places minimum responsibility on the seller. The seller simply makes the goods available at a named location, typically the factory, and the buyer takes on all shipping costs, risk, and paperwork from that point onward.

FOB (Free on Board) shifts more responsibility to the seller. Under FOB, the seller retains ownership and liability until the goods are loaded onto the shipping vessel at the port of departure; once loaded, risk and cost transfer to the buyer. FOB is the most widely used term in apparel export contracts because it gives both sides a clear, easily verifiable handover point, and it is often preferred over CIF because it keeps freight and insurance decisions in the buyer’s hands rather than bundling them into the seller’s quote.

CIF (Cost, Insurance, and Freight) goes a step further. The seller covers the cost of goods, insurance, and freight until the cargo reaches the buyer’s destination port. CIF applies only to sea and inland waterway transport, and while it simplifies logistics for the buyer, it also reduces the buyer’s visibility into shipping costs since everything is baked into one price.

Suggested Retail Price (SRP) 🔗

SRP is the price a manufacturer or wholesaler recommends for a product when it reaches the retail shelf. It isn’t legally binding in most cases, but it acts as a pricing guideline that keeps a brand’s image consistent whether a customer buys from a flagship store, a multi-brand outlet, or an online marketplace. Retailers can choose to sell above or below the SRP depending on local demand, competition, or ongoing markdown cycles, but straying too far from it too often can confuse customers about what a brand is actually worth.

Garment production terms: CM, CMT, and FPP 🔗

These three terms describe how much of the production process a factory takes on, and each one changes what a buyer needs to include in their cost sheet.

CM (Cut and Make) 🔗

Under a CM arrangement, the factory is responsible only for cutting the fabric and sewing the garment. The buyer supplies the fabric, trims, and packaging materials directly. Because the factory’s scope is narrow, CM pricing usually reflects labour cost alone, so the buyer’s cost sheet needs to separately account for fabric, trims, and finishing.

CMT (Cut, Make, and Trim) 🔗

CMT expands on CM by adding trims to the factory’s scope. The manufacturer cuts the fabric, sews the piece according to the design, and also handles trimming, tagging, labelling, inspection, and packing. The buyer still supplies the fabric itself but hands over more of the finishing responsibility to the factory. This model gives brands tighter control over fabric sourcing and quality while letting the factory focus purely on construction, which is why CMT remains a common starting point for buyers who want to manage material costs directly. When calculating a cost sheet, the items to include change depending on which model is used – CM calculations need only labour and overhead, while CMT calculations must also factor in trim costs.

FPP (Full Package Production) 🔗

FPP is the most complete arrangement. The manufacturer handles everything – sourcing fabric, developing patterns, producing samples, and running bulk production – and delivers a finished, ready-to-ship garment. This is closest to what buyers call FOB production in a costing context, since the factory’s price already includes materials on top of labour. FPP suits buyers who want a single point of accountability and don’t want to manage fabric sourcing or vendor relationships themselves, though it usually comes at a higher per-unit cost than CM or CMT because the factory is absorbing more risk and coordination.

What do you think? If you were setting up a small apparel export order for the first time, would you choose a CMT arrangement to keep control over fabric sourcing, or would you go with full package production to simplify the process? And looking at Incoterms, would FOB’s shared responsibility work better for your business than the higher-touch commitment of CIF?

References

1. https://content.dgft.gov.in/Website/HTE.pdf
2. https://www.uschamber.com/co/start/strategy/what-are-pricing-markups
3. https://en.wikipedia.org/wiki/Price_markdown
4. https://www.dhl.com/discover/en-in/e-commerce-advice/shipping-guides-by-country/export-documentation-shipping-from-india
5. https://techpacker.com/blog/manufacturing/difference-between-fob-and-cif/
6. https://www.onlineclothingstudy.com/2025/12/cmt-vs-fob-decoding-sourcing-orders-in.html
7. https://www.cbi.eu/sites/default/files/pdf/research/1958.pdf