[day 3] let's talk about funding...

LESSON 3: how a good budget can help you find the perfect supplier

This might be the most important thing I tell you in our 7 days together. Do not spend all of your budget on your first season. Because if you do, you will never have a second season.

I am going to pause for a second, not only for dramatic effect, but to really let that sink in.

DON'T SPEND IT ALL ON THE FIRST SEASON

Let’s say you have $10,000 to invest in your clothing line. Sounds like a lot, but you should really only be spending about a third to half of it (max) on your first season. In reality, your $10,000 budget, is actually only $3,500-$4000. 

So, why should you only use 1/3 to 1/2 of your total budget?

Usually, new founders think that they can spend their whole budget, and then reinvest their profits back into future seasons. But, fashion is tricky, and not that simple. That is because timelines and lead times in the fashion industry can be up to 1 year long!

Even in fast fashion, the timeline to go from designing and sampling a line, to producing and selling in stores, to making back all of your investments when customers buy your product is really long - on average about 6 months, in some cases as I said earlier, a year. 

And, at any given time you will probably be working on 3 out of the 4 seasons (spring, summer, fall, and winter) all at once. Basically, while your spring season is selling in-store you should be in the middle of your summer production, while also developing your fall line. 

There is a joke in the industry that fashion people never know what year it is,  because we work so far in advance. 

So, back to our budget. If you spend 100% of your budget on your first season, you won’t have anything left to get your next season going while you wait for season 1 to sell.

UNDERSTANDING YOUR BUDGET IS THE KEY TO FINDING THE RIGHT SUPPLY CHAIN PARTNERS

Aside from not running out of money, setting your budget is important for another reason.

In short, it actually helps you create better partnerships with your supply chain, and helps you to not make newbie mistakes. 

More often than not, new brands reach out to suppliers thinking they will make way more than they can actually afford. They go through the development and sampling process. Then, when it comes time for production they realize their projected orders were a little too high, they running out of capital, and they will need to make less. 

When they tell this to the factory one of two things usually happens. The factory either says ok, in that case, we are going to jack up your price for a smaller order. Or, no thank you, please find someone else to work with.

Either way, the brand is in trouble and ends up losing tons of time and money, and in the worst case has to start over again with another supplier. 

Don't let this happen to you.

When I tell brands not to reach out to suppliers until they know how big their orders will be, they usually respond with, but Melanie how can I create a budget and figure out how much I can order if I don’t know how much I want to order is going to cost me?

YOU DON'T NEED A FACTORY TO TELL YOU HOW MUCH YOUR PRODUCTION WILL COST

Well. I’ve got a trick for you…

Right now, where we are in the development process, we are just getting a rough idea of what is even possible. You can’t start a 30 piece collection with $10,000, but a 3 piece collection is totally doable, and you might even have some extra cash to play around with afterward.

So for the sake of your very first budgeting exercise, and just to get a general idea of how big your collection is going to be, and how many pieces per style you can afford, try using these numbers

• If you are making under 20 pieces per style assume each piece will cost around $50
• If you want to make 20-100 pieces per style – use $40 per piece for your costing exercise
• For 100-500 pieces per style – each piece will cost around $30
• And for 500 pieces or more you can use $20 per piece

Now the price is going to change depending on where you are making, what you are making, and lots of other factors. But for the sake of simplicity start here. Because by the end of the exercise you will know if you can afford to make a 30-piece collection or a 3-piece collection.

BTW, in The Fashion Startup Club, I share the exact formula on how to hack your competitor's product costs.

Also remember, for every style, you want to make, put aside at least an extra $500 for product development costs.

In the future, after you partner with a supplier and start to sample, you can get more specific with the numbers in your budget.

A budget is a living breathing document. It should always be changing and getting updated. 

STOP! THIS IS IMPORTANT!

Your budget is one of the most important things you will do for your brand. And, again, the work is never really done. Think of your budget as a document you are constantly refining and making more accurate. It’s hard work, and if you’re like me, it’s boring work. But, the brands who put in the effort and spend the time crunching the numbers are the brands that end up being the most successful. 

So clear a little time in your schedule to figure out realistically how big your first collection is going to be. And remember, like I said on day 1 you don’t need a huge collection to see success. Just like Spanx, Crocs, and Moleskin, all you need is one really good product, that your ideal customer can’t help but fall in love with.

Download the easy expenses and profits excel, and get to work! I’ll see you tomorrow for day 4!

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