The Biggest Mistake Founders Make With Numbers

we’ve spoken about designs, fabrics, production, photoshoots, and marketing. Today, we talk about the one topic most founders avoid: money.  

If you don’t understand your numbers, even the best collection can silently kill your brand. I realised this with Offnorth, very differently from my manufacturing unit Varthagam International.

In Varthagam: clients pay advance → I produce → I get balance.

In Offnorth: I pay first (inventory, photoshoot, marketing) → then I wait for sales.

That’s why a clothing brand is capital intensive. And that’s why basic financial metrics are not optional. They’re survival. In this email, we’ll keep it simple, practical, and 100% relevant to your clothing brand.

1. Revenue: What’s Really Coming In? 

Gross Revenue (Top-line) 

Meaning:

Total money from product sales, excluding GST. 

Formula: Gross Revenue = Selling Price (without GST) × Quantity Sold 

Example: You sell 150 oversized t-shirts at ₹1,200 (excluding GST). 

Gross Revenue = 150 × 1,200 = ₹1,80,000

Customers actually paid 1,200 + 18% GST = 1,416 each, but the extra ₹216 per piece = GST to the government, not your income.  

Why this matters: This is the first number investors, banks, and even you will look at to see: “Is this brand actually selling?”

2. COGS: What It Really Costs to Make Your Product 

COGS = Cost of Goods Sold 

These are all direct costs to bring one product into your warehouse.  

Includes for a t-shirt: 

• Fabric
• Trims (labels, tags, buttons, zips)
• Printing/embroidery
• CMT (Cut, Make, Trim – stitching cost)
• Packaging (polybag, inserts, box)
• Freight from the factory to your warehouse
• External QC charges (if any)

Does NOT include: 

• Ads
• Shipping to the customer
• Your salary
• Warehouse rent
• Website tools

Example t-shirt COGS: 

• Fabric: ₹180
• Labels + tags: ₹25
• Print: ₹80
• CMT: ₹120
• Packaging: ₹15
• Freight: ₹20

COGS per piece = 180 + 25 + 80 + 120 + 15 + 20 = ₹440  

If you sold 150 pieces: Total COGS = 150 × 440 = ₹66,000

If you don’t know this number clearly, you are guessing your margins.

3. Gross Profit & Gross Profit Margin – Your Business Oxygen 

Gross Profit 

Gross Profit = Gross Revenue – COGS  

From the example: 

• Gross Revenue = ₹1,80,000
• COGS = ₹66,000
• Gross Profit = ₹1,14,000

This ₹1,14,000 must cover everything else: ads, shipping, salaries, rent, software, and still leave some profit. 

Gross Profit Margin (GP%)  

This is one of the most important numbers for a clothing brand. 

GP% = (Gross Profit ÷ Gross Revenue) × 100  

Using the same example:  GP% = (1,14,000 ÷ 1,80,000) × 100 = 63.3%

Means: for every ₹100 you sell, after product cost, ₹63 is left to run the business.  

At Offnorth, my aim: 55–65% GP margin. 

Below 50% = red flag (pricing or sourcing problem). 

Your quick exercise (do this today): 

1. Take one of your main products.
2. Write down its full COGS (be brutally honest).
3. Calculate GP% using the formula.

If GP% is: 

1. 50–65% → good, you have space for marketing and team.
2. Below 50% → either increase price, reduce cost, or discontinue that product.

4. Operating Expenses (OPEX): The Cost of Running the Show 

These are the costs to run the brand, not to make the product. 

Typical OPEX for a clothing brand: 

1.Marketing & Acquisition

• Meta/Google ads
• Influencer payments
• Photoshoots
• Marketplace commissions

2. Fulfilment & Logistics

• Shipping to customers
• Return shipping
• Packing material
• Payment gateway charges (2–3%)

3. People

• Your salary
• Team salaries (designer, support, ops)

4. Space

• Warehouse/office rent
• Electricity, internet

5. Tech & Tools

• Shopify or other platform
• Email/WhatsApp tools
• Domains, hosting

6. Admin

• CA fees, GST filings
• Bank charges
• Legal fees

Example for that same quarter: 

• Marketing: ₹40,000
• Shipping: ₹15,000
• Payment gateway: ₹3,600
• Rent: ₹10,000
• Tools: ₹5,000
• CA: ₹3,000
• Your salary: ₹15,000

Total OPEX = ₹91,600

5. Operating Profit (EBITDA) & Net Profit – Are You Really Making Money? 

Operating Profit (EBITDA) 

Ignore the long name. Think of EBITDA as:  

“Profit from running the brand, before loans & taxes.” 

EBITDA = Gross Profit – OPEX  

From our example: 

Gross Profit: ₹1,14,000
OPEX: ₹91,600
EBITDA = ₹22,400
That means the business model is working – you are not selling at a loss.

Operating Margin (EBITDA%) 

EBITDA% = (EBITDA ÷ Gross Revenue) × 100 = (22,400 ÷ 1,80,000) × 100 ≈ 12.4%  

Rough stages for clothing brands: 

Year 1–2: often negative (investing in growth)
Year 2–3: 0–10%
Year 3–5: 10–20%
You hitting 10–15% early is very good. 

Net Profit – The True Bottom Line  

Now subtract: 

• Loan interest
• Taxes
• Depreciation (laptop, camera, etc.)

Example: 

• EBITDA: ₹22,400
• Interest: ₹2,000
• Tax: ₹4,000
• Depreciation: ₹1,500

Net Profit = 22,400 – 2,000 – 4,000 – 1,500 = ₹14,900 

Net Profit Margin = (Net Profit ÷ Gross Revenue) × 100 = (14,900 ÷ 1,80,000) × 100 ≈ 8.3%  

For a young clothing brand, a 5–10% net margin is excellent.

6. The 3 Financial Statements Every Brand Must Maintain 

You don’t need to become a CA. But you do need these three reports, at least monthly.

1) Profit & Loss Statement (P&L)  

Shows: Income – Expenses over a period. Tells you: “Did we make money this month or lose money?”  

Key things to watch: 

• Is GP% stable or falling?
• Are marketing costs giving good ROI?
• Which months were profitable? Why?

You can maintain this in Google Sheets or Zoho Books.

2) Balance Sheet 

Snapshot of: 

• What you own (cash, inventory, equipment)
• What you owe (loans, payables)
• Your equity (your money + retained profit)

Important for clothing brands: 

If your balance sheet shows: 

• Inventory: ₹5,00,000
• Cash: only ₹20,000

That’s a warning. Your money is stuck in stock, not in the bank.  

Brands often die not because they’re unprofitable, but because all their cash is sleeping in the warehouse.

3) Cash Flow Statement 

Most underrated report. 

P&L shows profit. Cash Flow shows cash in the bank. 

You can be profitable and still run out of money if: 

• You sell on credit
• Marketplaces pay after 15–30 days
• You pay for inventory upfront

Before launching a new collection, create a simple 3-month cash flow plan:

• Month 1: pay fabric + stitching
• Month 2: pay photoshoot + ads
• Month 3: sales start coming in

Will you have enough cash to survive those months?

7. The 4 Ratios That Will Define Your Brand’s Health 

Now the fun part: ratios that smart founders and investors love.

1) Current Ratio – Can You Pay Your Bills? 

              Current Ratio = Current Assets ÷ Current Liabilities 

Example: 

• Current Assets (cash + inventory + receivables): ₹1,33,000
• Current Liabilities (short-term loans, payables): ₹50,000

Current Ratio = 1,33,000 ÷ 50,000 = 2.66 

Meaning: for every ₹1 you owe, you have ₹2.66 available. Great. 

Thumb rule: 

• Above 2.0 → Very safe
• 1.5–2.0 → Healthy
• 1.0–1.5 → Manage carefully
• Below 1.0 → Risky (you may not be able to pay short-term dues)

If yours is low:

• Reduce new inventory purchases
• Push old stock with offers
• Delay non-essential expenses

2) Inventory Turnover – Is Your Stock Moving or Sleeping?

 For a clothing brand, this is life or death. 

                      Inventory Turnover = COGS ÷ Average Inventory 

Average Inventory = (Opening Stock + Closing Stock) ÷ 2 

Example: 

• Opening Inventory: ₹50,000
• Closing Inventory: ₹88,000
• COGS in that period: ₹66,000

Average Inventory = (50,000 + 88,000) ÷ 2 = 69,000 

Inventory Turnover = 66,000 ÷ 69,000 ≈ 0.96 (per quarter)  

Annualized ≈ 0.96 × 4 ≈ 3.8 times per year  

Another way: Days Inventory Outstanding (DIO)   

             DIO = 365 ÷ Annual Inventory Turnover = 365 ÷ 3.8 ≈ 96 days 

So on average, your stock sits 96 days before selling.  

Benchmarks: 

• 45–60 days → amazing
• 60–90 days → good
• 90–120 days → okay
• 120–180 days → danger zone
• 180+ days → big problem

If your DIO is high: 

• Identify slow-moving SKUs
• Create specific offers just for them
• Order less quantity next time
• Improve designs/fit/content around them

At Offnorth, if a product doesn’t move in 60 days, I take action.

3) Debt-to-Equity Ratio – How Risky Is Your Funding? 

Debt-to-Equity = Total Debt ÷ Total Equity  

Example: 

• Total Debt: ₹20,000
• Total Equity: ₹1,37,000

Debt-to-Equity = 20,000 ÷ 1,37,000 ≈ 0.15  

That’s very comfortable – mostly your own money.  

Rough guide: 

• Below 0.5 → low risk
• 0.5–1.0 → balanced
• 1–2 → aggressive growth using loans
• Above 2 → high risk
• Above 3 → danger (banks avoid)

Use debt carefully to: 

• Fund larger inventory for proven products
• Invest in equipment

But don’t load your young brand with heavy EMIs.

4) Return on Equity (ROE) – How Well Are You Using Money? 

Investors love this number. 

                         ROE = (Net Profit ÷ Total Equity) × 100 

Example: 

• Net Profit (for the period): ₹14,900
• Total Equity: ₹1,37,000

ROE = (14,900 ÷ 1,37,000) × 100 ≈ 10.9% for the quarter Yearly (×4) ≈ 43% – this is excellent.  

Benchmarks: 

• 25%+ → outstanding
• 20–25% → excellent
• 15–20% → very good
• 10–15% → decent
• Below 10% → ask yourself: “Why should anyone invest here instead of mutual funds?”

Early years might be negative (you’re investing), but you must be able to show a path like: 

• Year 1: -20% (building brand)
• Year 2: 0% (break-even)
• Year 3: 15%+ (scaling profitably)

Your Action Plan for Today 

1) Pick one bestselling product and calculate:

• COGS
• Gross Profit and GP%

2) Open a simple sheet and create:

• A basic P&L for last month
• Your Net Profit (even if it’s negative)

3) If you already have some data:

• Estimate your Current Ratio
• Rough Inventory Turnover (even if approximate)

Don’t aim for perfection. Aim for clarity. Once you see your numbers, your decisions will become 10x sharper.