How Much Should I Invest in My Company?

Probably one of the biggest keys to success is not spending too much money before you start making money.

There are many ways to start a company without having to invest too much money. Shopify gives some great advice in this article on industries that don’t take very much money getting started.

Bottom line, don’t invest more than you can afford before you have tested if it will even sell. It is ok if you don’t make a profit at the beginning, the key is to see if your product will sell first before dumping in a lot of cash into bulk purchases. 

Invest in Samples

It may cost $25-75 to get a sample of your product, or even more for a mold or prototype but getting samples will save you a lot of money if you’re buying a large amount.

I talk a lot about this in an article titled “How to Avoid Common & Overseas Scams“. Just because a company is local doesn’t mean they won’t scam you as well or change your order halfway through.

Buying in Bulk

It can be tempting to buy in bulk at the beginning of your company. For example, if a jewelry company is buying chains, they may see that it is $7 a chain if they buy it one at a time, $5 if they buy 50 or more and $3 if they buy 150 or more.  The problem can be that you buy something before you’ve tested if it will sell well then you could be wasting way more money than if you bought it at a higher price point.

Only buy in bulk when you have tested that the product sells well and you can sell it to strangers. Or if you have enough presales like with Kickstarter or if you have a big family that you can then put in the order after you have the cash in your hand.

Don’t’ Spend Money “Fronting”

Fronting is when someone tries to maintain an image of success without success. A great example of fronting would be to spend thousands of dollars on branding, your website, a storefront, employees or an expensive fancy office.

This is how to crash before you even get off the ground. Companies who launch their companies with DIY websites and test the market, then start spending more on marketing, which at that point if it is successful, THEN decides to get a storefront are smart.

But these days, many popular companies do not have dedicated storefronts, they’re in stores that already pay the rent and employees, like Nordstrom. That would be a much more worthy target if one wished to be in a physical store.

Getting Started

If possible when you start off, try to produce your product on-demand or have a limited product line.

Creating books or apparel that can print on demand doesn’t require you to buy in bulk and carry the product yourself.

I have even seen this with some of the Multi-Level Marketing companies. Some Multi-Level Marketing companies like Lularoe require about $5000-6000 to start. Whereas companies like Mary Kay send you samples of their products for free and have your clients send in an order form when they make a purchase.

Bottom Line

Focus on getting your company off the ground first, then once you see there is demand start to invest more money in buying your materials in bulk at a comfortable rate as you slowly scale. Focus on creating a demand for your products.

Here’s a great resource for calculating startup costs! 

Leave a Reply

Your email address will not be published.