Blog | Backbone HQ
The True Cost of Running a Fashion Startup
By: Team Backbone | March 3rd, 2022
At a Glance:
How Much Does it Cost to Run a Fashion Startup?
Fashion Startup Frequently Asked Questions
Running a fashion startup is no walk in the park. Before the fun can begin, emerging brands must have a market-ready product and a business model they believe will be sustainable long-term. From here, it’s time to leverage the right software, secure funding, and acquire customers through the proper marketing channels.
That all sounds feasible on paper, but what does it cost to start a fashion startup? It is an excellent question that all fashion entrepreneurs should keep top of mind. Several factors can influence your ability to obtain capital and start a fashion brand, including the size of your business, the manufacturer’s location, and your target audience. However, there are much larger base costs you will need to cover to launch a successful brand.
Fashion Startup Goals
Before we jump into our list of fashion startup expenses, we recommend all early-phase fashion brands establish a few simple objectives, including your brand goals, product designs, technical skills, and marketing strategies. Let us explain:
- Your Brand Goals: Consider what kind of fashion brand you want to launch and ask yourself the following questions. Will you be making knit goods or woven goods? Will you be selling tops, bottoms, outwear, or activewear? Have you established a price point for your products? Will you be selling via e-commerce or brick and mortar? Will products be made to order, or will you hold inventory? What is your pre-sales model?
- Your Designs: Without the right design, you have no product. That includes the number of styles, different sizes, and various colorways. Tailor your design to best suit consumer demand and your customer’s fashion preferences.
- Your Technical Skills: Do you have established technical designers and product developers working for your organization? When you can create your own patterns, trims, and grading samples, you will save a lot of time and money.
- Your Marketing Strategies: Have you considered how you plan to market your brand? Depending on your current audience, resources, or budget, your fashion brand can implement various paid and free tactics for customer acquisition channels, including your website, social media platforms, search engine marketing (SEO), email marketing, influencers, and word-of-mouth.
Related Article: Factory Communication and Tech Pack Sharing
How Much Does it Cost to Run a Fashion Startup?
Once you have established some general brand goals and strategies, you’ll face the dreaded question of, “How much is this going to cost?” Acquiring customers and marketing your brand is only half the battle. There are a lot of variables to consider when it comes to starting a fashion brand. It can be expensive, but don’t worry — we will break it down for you.
Follow along as we discuss the six main costs to consider when launching a fashion brand.
1. Sampling and Development
Before you can build products at scale, you need to develop samples. Sampling costs vary depending on the factory, category, material type, and how intricate the design is. Samples are a large part of your overall development costs, which include fabrics, trim pieces, graded specs, sampling rounds, finishing, revisions, and shipping costs. A conservative estimate would be $75 per style for patterns, cut and sew, and shipping, but it’s always best to overestimate than underestimate. If your brand created 100 SKUs, the development costs would be around $7,500.
It is completely normal if your samples aren’t perfect the first time around, but be sure your tech packs are well-organized before sending them off to suppliers if you hope to receive accurate quotes for each additional sampling round. This helps reduce your development costs and also helps push your products to market faster.
Related Article: Managing Sample Development with Backbone PLM
Once your samples are secure, you will need to determine your sales cost. If your brand operates a wholesale business model, the costs involved pertain to your sales team, showroom expenses, travel budget, and tradeshow fees. A direct-to-consumer (DTC) business model will have a lesser sales force, but will have substantially more expenditures in terms of its online presence and resources needed to manage the website. Your brand can even implement a hybrid model where you sell goods directly to consumers through your website while also showing your collection of products to prospective buyers in showrooms.
For many fashion startups, the DTC model is the most sustainable. You’re likely to have a higher Customer Lifetime Value (CLV), a better relationship with customers, and more control over brand messaging and product data. This strategy also helps decrease overhead costs and provides greater flexibility toward product development processes and supply chain logistics.
The cost of a fashion e-commerce website depends on the features you want to integrate, as well as the number of products featured. If your brand carries 100 products, annual fees can range from roughly $500 to $1,500.
3. Product Sourcing
As a new fashion brand, you will need to spend some time sourcing high-quality fabrics, textiles, and other materials. Essentially, product sourcing is the process of determining how and where you will obtain manufactured components. The driving force behind product sourcing is to provide a high level of quality at a low production cost, establishing a competitive edge in the market and enhancing profit margins.
Fashion brands and apparel retailers prioritize product sourcing to maximize exposure. When choosing sourcing destinations, brands should consider quality, location, trade regulations, cost-effectiveness, shipping time, communication, and raw material prices. For example, if a dress costs $25 to produce, you should expect to spend at least $10 per item on fabric, finishing, and packaging.
Expect final production costs to come in around $10,000 to $20,000 based on the number of styles, colors, size range, fabric cost, trim, labels, hangtags, and more. Once your brand has a finished sample, you will send that to factories to receive their minimum order quantity (MOQ) and quotes for production. If your supplier’s minimum order is 100 styles and $20 per style, your production costs will be around $2,000, excluding additional fees for material costs, labels, fabric dyes, shipping, and so on.
It is also good to consider economies of scale when manufacturing products of any kind, meaning that producing more of something will actually cost less per unit. If you request 20 units of each style, it may cost substantially more than 100 units because manufacturers typically charge less when fulfilling orders of larger quantities.
Manufacturer location is another crucial aspect of production costs. If your fashion startup sources goods domestically in the United States, it will likely be much more expensive than sourcing from China or India. If you place an order for 300 units of a button-up shirt, production costs in the US could run an average of $25 compared to $10 in China. If you order larger quantities, you may get the price even lower.
However, we recommend all fashion startups work in phases. Start small and only add more styles when you have the necessary resources to grow your business. Don’t be fooled by cheaper production costs that persuade you to produce more units than you’re able to sell. Listen to your consumers, trust the market, and let demand determine how fast and how much you increase production.
As mentioned above, your fashion brand should take advantage of marketing channels and customer acquisition tactics, including a blog page, search engine marketing (SEO), social media platforms, and even product photography. Clothing isn’t always as appealing when it’s in packaging, which is why an engaging display of your products is much more impactful for prospective shoppers.
Early-phase fashion brands must pay close attention to customer satisfaction and limit customer acquisition costs to help expand their business and stay competitive in an evolving marketplace. For fashion startups, it’s not always about reaffirming brand awareness but rather converting curiosity into recurring sales and brand loyalty. Garnering these early relationships with prospective customers is key to maximizing marketing efforts, investor contribution, and ROI.
There is a great deal of planning involved surrounding the launch of a new product. Your fashion brand should learn how to communicate with factories, organize finances, and market your product via e-commerce — to name a few. Marketing and education are often overlooked by fashion startups, but they are necessary for any growing brand.
Before launching your product, make sure your pre-launch plan is effective. Creating packaging, developing a landing page to collect contact information, and fine-tuning your branding with the appropriate logo, colors, and fonts will help you get started. Be prepared and budget accordingly, as these costs can set you back around $1,000 to $5,000.
Related Article: Acquiring Customers and Marketing Your Brand
Overhead costs are any fees not directly related to production volume. They are usually a fixed expense required to operate your fashion business. Fashion brands should already be aware of overhead costs such as rent, lighting, wages, and transportation, but don’t forget to note warehousing, licensing, and distribution.
Fashion brands of all sizes need a place to store goods. Whether your brand rents a warehouse, storage facility, or an ordinary garage, it can be a big part of startup costs. Brands can also use a Third Party Logistics company (3PL) where you use another company’s warehouse and services to receive, pack, and ship your goods. This method saves a great deal on overhead but can cost more long term if you do not meet the minimum goods requirement.
Registering your brand and obtaining the necessary licenses to conduct your business is vital. If you cannot legally operate as a business, then products cannot be shipped, and revenue cannot be earned. If something were to go wrong, your brand should also invest in insurance to protect your organization from any unforeseen events that may derail your business later down the road.
Fashion delivery is a double-edged sword. Fashion startups often pay to have items shipped from the manufacturer to the warehouse and then pay more to send goods to the buyer after an order occurs. Many fashion startups require customers to pay for shipping to help offset additional expenses, but consumers might feel discouraged by the added fees and conduct business with a brand that offers free shipping.
If you choose to use a distributor, you will most likely give your products to the distributor at a cheaper rate, but this could affect the return you receive from your goods. If you retail the products yourself, you’ll spend a lot more money renting out a storefront and furnishing it accordingly.
Running a Fashion Startup FAQs
1. What Is The First Step When Running a Fashion Startup?
Have a clear overview of your business with an executive summary that states how your fashion brand will start, expand, and scale. Include an analysis of your business to understand consumer demand, the marketplace, and competition.
2. Which Business Model Is Best For Starting A Fashion Startup?
These days, e-commerce is the king of fashion and apparel. A digital-first business model is the best solution to keep startup and overhead costs as low as possible. Particularly when it comes to product development, cloud-based solutions outperform spreadsheets.
3. What Impacts Fashion Startups the Most?
Most often, macroenvironmental factors will impact resources, demand, and production, which hurts emerging fashion brands. For example, you can’t always control supply chain disruptions, adverse weather, tariffs, transportation delays, shipping capacity, oil prices, telecom outages, or medical disruptions. Additionally, if certain materials like leather are scarce, you may be forced to pay premium prices or sell products made of faux leather as a substitute.
4. How Do I Calculate My Brand’s Overhead Costs?
To calculate your fashion brand’s overhead rate, divide the indirect costs by the direct costs and multiply by 100.
5. What Are The Total Estimated Costs for Running a Fashion Startup?
As discussed, running a fashion startup requires a lot of capital. For most small-scale fashion brands, expect to spend $600,000 to $1.2 million starting your business, and for large-scale brands, it can cost over $5 million.
6. Can You Make Money Running a Fashion Startup?
Establishing a fashion brand is a lot of work, but there will always be a market and consumer demand for clothing. If you find your niche and have the funds available to cover the expenses explained above, then you have the potential to make money and be profitable.
Related Article: How to Choose Your First PLM System
You’re Off and Running with Backbone
Ultimately, running your fashion startup depends on your product requirements, so costs are different for every brand. If you are serious about improving your products and establishing yourself as a leading brand in the fashion industry, Backbone PLM is here to streamline your design and product development needs.
Backbone takes a dynamic approach to fashion PLM compared to traditional legacy systems. Product and component libraries are the heart of the Backbone system and the central source of truth needed to create tech packs, line sheets, BOMs, and much more within minutes. We’ve thoughtfully built popular product development features into the system, making Backbone a user-friendly platform for daily design and development tasks.
If you’re ready to build your brand with Backbone and explore a better way to run your fashion startup, discover our collection of case studies, blogs, and free resources to learn more.
For a first-hand point-of-view on how brands are using the platform to build better products, smarter, and faster, check out our free demo video below, or schedule a demo to see Backbone in action today!