Riya's Boutique: A Bulk Order That Looks Big
Riya, 27, runs a small stitching unit in Patna making kurtis under her own label. She sells about 180 pieces a month at ₹850 each. Each piece uses ₹300 of fabric, ₹180 of tailoring and ₹40 of packaging; rent, electricity, her two helpers' salaries and social-media advertising come to ₹40,000 a month. Her present capacity is 200 pieces a month; a second shift with one additional tailor would raise capacity to 450 pieces but add ₹14,000 a month to fixed costs. A Delhi reseller has offered to buy 400 pieces a month at ₹650 each on 60-day credit, and wants the designs exclusively, which would end her retail sales. Her bank charges 12% a year on working-capital limits. Riya's cousin, who has just finished a digital marketing course, says she should instead list on an online marketplace that charges 18% commission on the selling price and pays her 21 days after delivery. Riya has ₹35,000 in her account and a fabric supplier who will give 15 days' credit.
1. Compute contribution per piece and monthly profit now and under the reseller's offer. Which position is better?
Read the worked answer
Present position. Contribution = ₹850 − (₹300 + ₹180 + ₹40) = ₹330 a piece. At 180 pieces, total contribution = ₹59,400; less fixed costs ₹40,000 = profit ₹19,400 a month.
Reseller offer. Contribution = ₹650 − ₹520 = ₹130 a piece. To make 400 pieces she needs the second shift, so fixed costs rise to ₹54,000. The exclusivity clause ends retail sales, so the whole business becomes 400 × ₹130 = ₹52,000 contribution, less ₹54,000 = a loss of ₹2,000 a month.
Add financing: 60-day credit means she funds 400 × ₹520 = ₹2,08,000 for two months. At 12%, interest ≈ ₹2,08,000 × 0.12 × 60/365 ≈ ₹4,100 a month, so the true loss is about ₹6,100 a month.
The offer converts a ₹19,400 profit into a ₹6,100 loss. It is below her cost of doing business and should be refused as it stands. A large order is not a good order unless its contribution covers the fixed cost it brings with it.
2. At what price per piece would the reseller's order leave Riya exactly as well off as she is now?
Read the worked answer
Set required total contribution equal to the profit she makes now plus the fixed cost the order adds.
Required contribution = present profit ₹19,400 + fixed costs under the second shift ₹54,000 = ₹73,400. Per piece = ₹73,400 ÷ 400 = ₹183.50. Price = variable cost ₹520 + ₹183.50 = ₹703.50, say ₹705.
Add the cost of 60-day credit, about ₹10 a piece (₹4,100 ÷ 400), and the price that genuinely leaves her no worse off is roughly ₹713–715.
This is the number she should put on the table. The gap between ₹650 and ₹705 is about 8%, which is precisely the cushion a small unit does not have. If the reseller will not move, a smaller order on 30-day credit at about ₹720 can still work, because it uses spare capacity without abandoning retail customers and brand identity - the two assets that took her three years to build.
3. Riya lists online at ₹850. At what listing price does she keep her present ₹330 contribution, and what does that imply?
Read the worked answer
At an 18% commission, ₹850 × 0.82 = ₹697 reaches her, so contribution falls to ₹697 − ₹520 = ₹177, not ₹330.
To keep ₹330 she needs a net receipt of ₹850, so the listed price must be ₹850 ÷ 0.82 = ₹1,036.60, say ₹1,037.
Two implications. First, a marketplace is not a free shopfront; it is a partner taking roughly one-fifth of the price, and the price must be raised or the product cost cut before listing. Second, if she lists at ₹1,037 while selling at ₹850 in her own shop and on Instagram, customers will compare - the higher price must be justified by designs, sizes or bundles not available locally, or by free delivery.
The principle: every channel carries a cost, and a small firm must compute contribution after channel cost, not before. The cousin's advice is not wrong - online reach can be real - but 'list where the customers are' is only half an answer; the other half is 'at what net price'.