How to Plan Your Fashion Business Budget in the First Year: Estimating Marketing and Inventory Costs

When you launch your fashion business, you need a solid budget to help you from the very beginning. Having a business budget from the beginning helps you control and focus your spending. This is crucial to keeping your business afloat in those early days.

There’s just one problem: it’s your first year of business, and you have no idea how to create an effective budget. How much will you need to spend on marketing? What does your inventory really need to look like? You don’t have historical data to go by, so how can you create the budget you really need?

Step One: Check Your Competitors

In order to understand what your spending is going to look like, one of the most effective methods you can use is checking your competitors in the industry. Consider exactly what you’re selling: handbags? Women’s dresses? Children’s clothing? Then, look for your nearest competitor in the industry. Be honest with yourself: What brands are you most likely to compete with as you create your stunning fashion designs? While you don’t want to oversell your products, you don’t want to undersell yourself, either. If you’re going to design custom children’s clothes geared toward fandoms or holiday apparel, you don’t want to base your costs on something that can be found in a local department store.

Take a look at what your competitors are charging for their products. In many cases, the markup on apparel is substantial. In fact, many companies charge two times wholesale cost for their items or more. This will hopefully give you an idea of what you can expect to bring in for your items.

Step Two: Consider Your Inventory

In order to determine how much your product is going to cost, you’ll need to know how much inventory you need to produce. Not only will there be a higher initial cost to produce a higher quantity of your product, but you’ll find that many manufacturers will charge lower costs for higher quantities of the product. In order for that to be the deal you’re hoping for, however, the product has to sell in those quantities. Consider some of these elements to help determine your inventory for that critical first year.

  • Who are you selling to? Do you want to sell to clients directly, or will you be selling your products to a retailer, who will then help put your products out to the public? Are you using a consignment method?
  • How specific is your market? A highly niche market may have lower inventory needs than a more generalized market.
  • How much advertising are you planning to launch? In general, about how much traffic are you expecting? Most of the time, you can expect less than 1% of people who view your advertisements to actually purchase your product–but you might be surprised by how much those sales generate.

When you first launch your business, setting your inventory can be a challenge. Start by looking at factory minimums, which can go a long way toward determining how much of your inventory you need to make. Then, look at the sales channels and initiatives you have planned for the first six months. Do you have several trunk shows booked? What about holiday markets? By considering your future plans, you can get a better look at the inventory you need. Remember, these early weeks, months, and even years are a time to test your market and determine what people really want. You can also consider offering preorders to help increase your sales and raise the capital for manufacturing.

Step Three: Contact Manufacturers

Once you have a general idea of what your competitors are charging for their products (and therefore how much you can charge for yours), contact the manufacturers who will help take your designs from paper to reality. In many cases, a manufacturer may require you to pay upfront for them to create your designs. This means you have to have the capital available in your budget from the beginning. You may want to take estimates from several manufacturers to find the one that will fit best with your budget. Make sure to consider factors like production time and shipping costs, which also have a big impact.

Step Four: Plan Your Marketing

There are many marketing strategies out there, and choosing the one that will work best for your fashion design business launch will depend on your budget, the time you have to invest in your marketing, and your target audience. Assume, however, that to get the word out about your business, you’re going to need paid ads in addition to organic forms of content marketing.

Start by considering the number of sales you’ll need to make. Once you take a look at the rest of your budget, you’ll know how many units of your product you need to sell in order to meet your other overall costs. Then, determine how many contacts you will need to make to effectively sell that much of your product. Keep in mind that if you’re using a retailer, each retailer may stock as few as five units of your product.

As your business grows, your marketing budget will typically represent 7-8% of your overall revenue. In these early days of your startup, however, you may need to allow as much as 15-20% of your budget to cover marketing expenses, from social media to paid Google ads. There’s no magic formula for determining the reach of your advertisements. Just keep in mind that a few high-quality leads can go much further than dozens of leads that choose not to make a purchase. By highly targeting your advertising, you can often reduce your marketing budget at this critical stage of your business.

Taking those first steps to launch your fashion design business can be intimidating. In these early days, you need to take care of many of the tasks yourself, rather than relying on an accountant or other professional. This can make it even harder to figure out key information. By following these key steps, however, you can get a better idea of what your marketing and inventory budget will look like in the first year of your fashion business.

Contributor
Contributor

StartUp FASHION is an online community where independent designers and emerging brands are coming together, helping one another, forming friendships, collaborating, letting off steam, sharing victories, and belonging to a network of people who get it; who are doing it too. We’re a place to access and discover the tools and information you need to build your fashion business. We help you define your path and give you the guidance, encouragement, and resources to follow that path.

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