How Much Money Do You Need To Start Your Own Product Based Business?

By Christine Syquia
24 Comments

I am just going to come out and say it: You need money to start your own product-based business. A lot of money.

I certainly do not want to squash anyone’s dreams or dissuade them from starting their own company, but if you want to start a product-based company, you need to have money to invest in your business.

If you think conservatively you might need $25,000 USD for your business, just go ahead and double it. Have $50,000 USD liquid for your project.  It is worth repeating that it is imperative that you run the numbers so you do not jump into your venture without any semblance of the financial risks.

When we started our handbag company, charm and luck, we were fortunate that we had savings and retirement funds to pull out of. I have to preface this and say I can almost feel the financially conservative wanting to stop reading this blog post because they are probably thinking I was irresponsible.  As an entrepreneur, I live with risk and almost thrive on it. We can have another discussion on whether me pulling my money out of a retirement fund was a wise move or not. Short answer: For my entrepreneurial spirit, yes, it was well worth the risk.

With a product-based business, there are so many variables that you have to take into account before you just jump in and start creating. These figures really need to be studied beforehand, so you can make sure you have enough capital to get your product out into the public before running out of money.

What Capital Is Needed Where?

Money for Setting-Up Company

  • Money for the legalities of setting up a company.
  • Money for business licenses, export/import licenses and any other special licenses. For instance, we imported exotic skins for handbags which needed a license per skin called a CITES (Convention on International Trade in Endangered Species). We also had to have a special license that was available from the US Fish & Wildlife Service.
  • Money to put in the bank when you start your business account. It might also be a wise move to put a healthy amount into the bank account, so the bank can monitor your activity and possibly give you a line of credit after a period of time.

Money for Research and Development (R & D)

  • If you are not savvy with computer rendering software, you may need to hire a designer to translate your designs into paper. 
  • If you are making a unique product, it will take rounds and rounds of corrections to finally have your perfect sample. Sometimes a sample maker will charge for each round of samples. Negotiate this process so you are not charged each and every time. I have seen some samples take at least ten iterations before it is even remotely close to the finished product.
  • If you need to work with skilled artisans, make sure you pad this section with even more money, as you will be paying for their expertise.
  • Mold fees. If you require a part or piece that the factory or sample maker does not have, you will have to pay for a custom mold fee.  At least, once the mold is done, you own that and if you decide to part ways from your factory or sample maker, make sure you take the mold with you.

Money for Marketing

  • Money for logo creation and website creation.
  • Money for business cards and other marketing outreach-postcards, line sheets and brochures.
  • Money for professional photos of your product. Please do not skimp on this. A fantastic versus a mediocre photo can be the difference between getting an appointment with a key buyer and not getting an appointment.

Money to Make Money

  • Yes, you can send out solicitation emails and hit the phones hard to try and sell your product. But to have an even stronger impact, I urge my clients to do either trade shows or to travel and make one-on-one appointments with their dream retailers.  I have always found that when I make the trip to meet with an important client, they pay much more attention to me because they know I have invested the time and the money to come to them.  You will get their undivided attention versus trying to jockey with other companies at a trade show, or worse yet, them not returning your emails or phone calls.
  • Money to invest in samples to send out to potential customers, for press outreach, showrooms or traveling salespeople.

Money for Production

  • The most exciting part for me was receiving a new order. I would be very excited for about ten minutes and then go into the mode of – how do I produce this? Where would the money for production come from?
  • Generally when you place an order with your factory, it cannot be for just 10 or 100 units. There are minimums which must be met with the factories, so even though the purchase order from the customer might only be for $10,000, it may cost you $20,000 because of factory requirements.
  • Check out my last post entitled, What You Need To Know Before Manufacturing Your First Product, where I discuss where we made a critical mistake with one of our customers.
  • Funds to hire a third-party inspection company or better yet, arrange to be present at the factory before your first order is shipped.

Money for Help

  • Running a business takes so much time. In general, before a company gets traction, it is usually only the owner or owners doing all of the work. If the fax machine needs new toner – you have to change it. If there is a deposit to be made, you have to run to the bank. If you need to change a proposal for a client, you will need to block out a couple of hours to do it. The point is that it is only you. If you have interns, great. They can help with the grunt work, but you may want to consider hiring some experts if you have the budget for it. I strongly support hiring outside consultants for marketing-SEO and traditional marketing experts, a public relations firm to get your business noticed, and a business coach or mentor to help guide you.

Money for Year 2

  • If Year 1 flies by and you have made a couple of sales, but you are not in the black yet, you will need to infuse your company with more working capital. It can take up to three years or more of you supporting your company, and it is critical that you have those funds liquid so your company is able to take root and prosper.

Creating a physical product requires an idea and an enormous amount of time, resources and commitment.  It is incredibly rewarding to see a tangible product that was once a thought now created into a physical object. Just make sure that you run the numbers and are prepared for any hidden costs which will pop up.

Christine Syquia

About Christine Syquia

Christine Syquia is the owner of the Accessory Business 101. Get her free 30-page report which discusses how one can start a product based company with little to no experience. You can access the free report here. In addition to working with designers, Christine also enjoys working with local businesses as a business and expansion consultant in Santa Monica, California where she lives.

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24 Comments

  • Reading all these costs scares me at this stage. I’m going to start off online first to grow a business. Later on if I have the capital, then I may consider a product business.

    Thanks for sharing, Christine.

  • I would like to start small creating a product for my blog. Perhaps an audio program that I can sell for $25.00. After I get the hang of it I will work my way up to physical products.

  • I enjoyed this article. When I’m building a website for someone – and that website will be their business and need ecommerce functionality, I usually tell them it’s going to be anywhere from $10,000 to 20,000 for the website alone. There is a boatload of work going into the site design, coding, photos, graphics, SEO, and other marketing.

    But, on the other hand – there are alternatives. I started a business for someone recently where I made it all WordPress design and the inventory was dirt cheap (they are overseas – in Asia). The site, inventory, and everything mentioned above – was just $9,000 to get started (usd).

    For myself, I create online businesses for me all the time that are in the $2-5K range, and that gross $12K – 20K per year. If you already know the game – it’s so easy to jump in and see what kind of $ you can make.

    Thanks for the article.

    Cheers! MF

    • Is that $2k-5k amount mostly marketing for the website? I would think that buying the domain, hosting it and designing it would not be too much, especially if you are a web designer. Thanks.

      – Andrew

  • Hello Christine, great article. I would like to point out that the dollar costs will vary greatly depending on the business model and product selection and scope.

    My first product we had manufactured in Asia. The product didn’t require an expensive setup. It required no set up at all. It was cut-and-sew and I asked the factory for 50 units to test. They happily complied, and we had them air shipped which didn’t cost all that much and got here much faster than a container shipment.

    The 50 units sold well so we started ordering hundreds, and then started adding more products. We sold them online on our own website and Amazon so we didn’t have to stock retail outlets and carry tons of inventory.

    In the mean time, we became official resellers of other similar products which helped us build our business and grow our capital base as those items sold.

    All this was created by bootstrapping. Barring the initial costs for getting the business setup and the first few product orders, we had little setup costs (under a couple thousand).

    Startup costs will vary greatly on the scope of the business and how fast you need to ramp up. We certainly had our challenges, and I don’t share this to say we were super great, just that depending on the type of business and speed at which you want to grow, it’s possible to start out small and grow the business as you go to the point of having hundreds of products and a full time income.

    Cheers,
    Thomas

    • Thomas, What business do you run. I am starting my own business and trying to figure things out when it comes to manufacturing in different countries. I would appreciate your advise.

  • Love reading this posts and the comments… I could remember the time when I was stating my business… Thanks for sharing the post and bringing back memories…

  • I think the best option these days is to use the power of the Internet to source your initial seed capital. KickStarter seems to be the premier option available at the moment: http://www.kickstarter.com

  • Having the right information in place is key to making sure you make all the right decisions.

    Too many people think running an online business will enable them to retire.. and rush in too quickly.. thanks for the tips.. it will help out alot of people.

    Robert

  • Ann

    We started our business with $15,000. Its all about managing cash flow and sensible marketing

  • Hi Christine,

    Thanks for the good article, it really does seem a bit daunting when you lay it all out like that. But still, even just the fun of the entrepreneurial game is enough for some to venture into the unknown.

    And with regards to your “pulling money out of a retirement fund, was it a wise move or not?” I think doing something like just gives you even more incentive to keep working hard, and increases the determination to make it successful.

    ~ Rory

  • Yeap i agreed with your post nice idea you have for starting own business, thanks for great information.

  • I think this is the reason why we should focus more on digital products. Would like to read a similar article from Yaro, to analyze the costs for an e-course, setup professionally

  • Hi Christine,

    I think everyone is well aware of the fact that we need money to start a business, but your article truly highlighted how much of it is needed and for which aspects of business. A lot of people don’t realize the expenses involved. Thanks for sharing the various areas where investment is needed to make a business work.

    Riya Sam
    Training for Entrepreneurs.com

  • Now, why exactly would anyone want to create their own physical product considering the tremendous expense and risk? Instead of spending $50k why not spend a few hundred and build a few niche websites?

    I know, I know, there are people that prefer to work with physical products versus information products, but still. Only certain kinds of people can make the physical product route work. I am amazed at anyone who would go through such a long process to make a product.

    – Andrew

  • Thanks for this Christine. Starting a product based business can really be expensive. I honestly had no idea that you should have 50,000 or so before starting. I agree with Max, I will try to develop online business so that I can have the capital to invest in a product based business one day.

    – Robert

  • Wow Christine, I really had no clue how much went into such a venture. It is not a particular area I had even considered entering into. but it is fascinating to see just what goes into it. I also want to see what mistake you made with one of your customers. As a side note my Dad an Financial Consultant would have a heart attack if i pulled from my retirement and scream about how irresponsible it would be. But you do have to take risks sometimes and I am glad it worked out for you.

    ~Rodger

  • Starting your own business surely needs a huge capital. It is necessary to save, save and save. Research and Feasibility study can be a huge help so that you know you are investing on the right product/business.

  • i agree i think we shouldn’t spend thousands or thousands to start a website or create a product. The fact that you upload your theme to wordpress, you already have a web site designed and in the past, some people paid up to 10,000$ for just web designing services.

    • In the past that is exactly why I was afraid to start an online business. I did not think I could afford the cost of having an HTML site made for my business. Anyhow good point.

      – Robert

  • Hi Christine,

    What always amazes me when I talk to people who want to create great wealth in their lives, is that some of them are not prepared to make ANY investment into it – whether it is an investment in capital, in time, or in personal development and upskilling. Unfortunately, many people still hope for the ‘lottery ticket’ kind of wealth, even though they call it a ‘business’. Plus, creating a VALUABLE product or service requires some dedication and expertise!

    The main thing with investing capital in any project, is that cheaper methods usually take more time. Smartly invested capital can take a big chunck out of figuring out how to successfully develop and market a product, especially when outsourcing professionals and experts comes into play.

    Creating great wealth and personal success will always require some investment, smart risk-taking and personal growth. Committing to the process is what distinguishes the serious and successful entrepreneurs from the majority that ‘has a go’ and gives up…

    Thank you for sharing some great advice here!

    Justine

  • Thanks for sharing this important ideas. This article is gives me a good idea about business. Thanks Christine!!

  • This a great article that really doesn’t hold back in warning potential entrepreneurs about the real costs for starting something from nothing. Probably the best line in the article was, if you think your startup costs will be a certain amount of money, you should go ahead and double it… probably the best piece of advice I’ve heard all day! There are so many unforeseen expenses that will come up when starting a business from scratch, especially if you are on a strict budget. It is crucial that startups try and save money in any way they can. For example, using free email via Google Aps for the company email account, using voip phone lines vs traditional landlines, using online fax service vs. landline fax, etc. Ultimately it will be extremely important that the business doesn’t run out of money as cash will always be the life line for any business, especially those that are just getting started.

  • i wanted start a business export import in zero investment weather its posibel to start in india ……….

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