How Much Money Do I Need to Budget?
One of the most popular questions I see in any of the groups is how much money you need to get started. The answer you get is often a dollar amount or range, and often times it doesn’t have any context.
These answers generally spark a bunch of debate, and no one comes to a consensus.
The real problem is that this is the wrong question.
The Right Question
Giving someone an answer to how much they need to get started is based on way too many factors to give you a dollar amount. For example, if a product you’re going to sell costs $5 a unit, the answer of how much you should budget is much more different than a product that costs $1 a unit. Keep in mind, everyone wants to launch a $1 a unit product, so competition will be fierce.
The real question people should be asking is “How Many Units Should I Buy To Launch a Product”
So, How Many?
As with everything else, you’ll get a lot of debate about this question. Some people say you can start with 100 units, others say a thousand, depending on what kind of launch you’re going to do. Here’s an outline of the most common launch methods, and an idea of how many units should be bought.
Big Budget Launch – Highest Likelihood of Success
This is the launch that has the best shot of being successful. Money isn’t an object. You can buy several months worth of inventory, do a bunch of give-aways to get a base of reviews and rank for the top keywords, and still have inventory left over to sell without worrying about running out of stock.
When you have a budget like this, you have every advantage. You get to buy in bulk and get the lowest prices per unit. You save on shipping due to economy of scale. Your order becomes a priority for the factory. You can afford the marketing expenses to MAKE your product successful over your low-budget competitors.
Shoestring Launch – Highest Likelihood of Failure
This is the launch of a person who has $1000-$1500 in their pocket to get this business off the ground, and they’re going to make their dreams come true. A Guru selling a course probably told them “Sure, You Can Do It, Just Buy My Course!”
This is also the launch you’ll hear about when someone says “Just buy 100 units to test the market, you don’t want to risk it!”
They’re probably going to fail. Things aren’t going to go as planned, and the seller is going to run out of money or inventory. The seller will do everything themselves including copywriting, photography, guerrilla marketing. The product won’t be positioned in the marketplace in the best way possible.
Even if it’s super successful, you’re still likely to fail.
Here’s how it’ll go. You get your 100 units in stock, you start running some PPC and you’ll sell your 100 units in a week or so. It takes 2 months to restock your inventory because your need the money from the sales to be able to place the order. While you’re waiting to restock, everyone with JungleScout and a few bucks in their pocket buys the product because it as doing well. By the time you come back in stock, you’ve lost momentum and now you have a bunch of new competitors all fighting for the same sale.
If it’s a failure, it could be a false negative
If you launch with 100 units, and sell 2-3 a week, you’re likely going to abandon the product and keep looking for that product that sells great from the start (the one from above that’s still likely to fail) The problem is you haven’t been able to invest enough in the product to really know if it can be successful. Some products need to gain momentum to get ranking, and you never had enough inventory or cash available to get that momentum. Some products won’t sell well until they get a couple hundred reviews before you really see that meteoric growth. You can’t get a couple hundred reviews with 100 units in stock. You can’t even really afford to properly launch the product because you need the units you did buy to turn a profit so you can reorder. The product didn’t fail, the launch did.
Calculated Launch – Moderate Success
This is the launch I recommend. It’s a balance between spending a bunch of money and not spending enough.
Here’s how it works. You make an informed guess how many sales it takes a day on each of your top 5 keywords to get into the top 6 positions. You do enough give aways every day for a week or two to get those rankings. You beg borrow and steal to get reviews so you can start running PPC. You run profitable/break even campaigns on Facebook to keep momentum.
Here’s how you calculate your inventory needs
Give aways = Units Per Day * Number of Days
Review Units = # of Units Needed to Give Away to get your baseline of reviews. Usually 10-20 minimum
Units to Sell/Break Even = Average Units Per Day Sold By The Top 10 * Number of Days It’ll Take you to Get a Reorder In w/ cushion (45 MINIMUM, Likely 60+)
Inventory To Buy = Give Aways + Review Units + Units To Sell/Break Even
Example: $4/unit product (landed) that sells 20 a day with a $22 sale price and 60 Day turn around from order to in stock
$2039.12 – 280 Give Aways/review units $1120 + $81.90 commission + $837.22 FBA Fees
$4800 = 1200 Units – 60 days supply
$6839.12 = Total Inventory Expense for First Order
You won’t have to place the reorder for inventory immediately, but you’ll likely need to place the reorder within a couple weeks of starting to sell to be able to restock. The good news is you only have to pay 30% Down with an order this size. You still have the production time to get the rest of the money.
Naturally, you’ll need to be careful in your product selection. You’ll need to buy a high quality product from a good supplier. You’ll want to choose something that has the right amount of sales potential. But this is an investment. It’s not for the feint of heart.
So How Much Do I Need?
My answer is $3500+ depending on the cost of your product, and the volume you plan on selling. Here’s the math, including everything you need to get started.
$500 – Samples
$250 – Copywriting (minimum)
$250 – Basic Photography
$500 – Misc Expenses
$2000+ = Inventory Expense
In the above example of a $4 product that sells 20 a day, this is a total $8,339.12 to properly launch the product.
This isn’t including any costs for buying a course, if you choose to do that.
Private Label isn’t for someone with a minimal budget. All sorts of things will go wrong. Your mindset will be horrible. You’ll NEED the money from the sales, so you’re likely to sabotage your own launch. That’s because you’re focused on a monetary return on your investment, instead of focusing on building your product’s assets like reviews, ranking, photos and copywriting.
Could you do it with less? Yes. Absolutely. But it becomes much more risky.
What If I Still Want To Try?
It’s possible. You’ll need to find a very low cost product with a very QUICK turn around. Likely you’re buying stock that is already made from a trading company so you’re just waiting for shipping. Everyone is trying to launch with a low budget, so you’re likely to have FIERCE competition. You’ll have to do everything right, and you’ll have no room for error.