As a retail business, your stock is your most valuable asset.
Almost certainly, it’s also your biggest expense, and if you look back at where most of your money has gone, your stock will make up the bulk of your expenditure.
Catherine Erdly’s previous blog explored how you could calculate the right amount to order, and this blog will explore how to use trialling as a strategy to minimise your risk.
What is a trial?
Trialling stock basically means buying as little as you possibly can when you don’t know anything at all about how it is going to sell.
If you are first starting out, or launching a new product area, I would strongly suggest that you focus on how you can start selling your products with the smallest possible stock investment.
Starting small might mean that you may have to create products that are almost prototypes if you are manufacturing, or buy in very small quantities if you are purchasing from other brands.
Making clothes? Can you have a tailor create a handful of garments before you have even a small manufacturing run?
Skincare? Can you have your products made by hand before moving to a factory?
Launching a box service or subscription? Can you buy small amounts of products at full retail and put those in your box? (With the brand’s permission of course!)
Why should you trial?
Did you know that if you estimate how much something is going to sell, even if you are an experienced professional, you only have a 50% chance of getting it right?
I’ve certainly seen that in my career – every season, brand new products either sell out much faster than expected, or there will be some that we backed fully that did not sell at all.
However, once you do have even two week’s worth of sales to look at, you have an 85% chance of getting the re-order quantity correct.
Trialling also has the benefit of allowing you to just get started. Many people launching product businesses want to keep tweaking their product BEFORE it goes in front of the customer, so that they can have the “perfect” assortment.
The truth is, the best way to learn about your products is to try selling them, and then listening very carefully to what your customers are saying.
Find the Balance Between Profitability and Cash Investment
The chances are, you will not make any money at all on any products that you produce or sell in this way.
Even though that is not a very appealing idea to most founders, it’s still much better to start small and learn, than to overcommit.
For example, let’s imagine you are creating a line of 6 children’s dresses.
You are going to sell them for £25, and to start with, you pay a seamstress £20 per dress to create each style in 4 sizes. Total investment is £480.
If you were having them manufactured, at a cost price of £8 per garment, if you had to manufacture 50 per style, you would be investing £2.4k.
But Research If The Model Works In The Long Term
The approach of making little money on the prototypes is only worth doing if you have already confirmed that you can make the products profitable once you are ready to commit to larger quantities.
Before you go ahead, even with the prototypes, you want to do your research into the costings so that you are confident that your business plan is solid.
Can You Pre-Sell?
Pre-selling, for example through a crowd-funder, is a great way to learn about what customers want to see before you put items into production.
As long as you are very clear with your customers about how long they may need to wait for the products, it can be a really interesting model for learning what your customers want.
What If You Can’t Buy Small Quantities?
If you are looking at manufacturing, then you may well have run into the issue of MOQs, or minimum order quantities.
Manufacturers will have MOQs that will range from 30-50, all the way up to 3000 or more.
If you are considering using a manufacturer, you sometimes can persuade them to lower their MOQs if you pay them more per unit.
You can start the conversation by asking them what it would take to get 50 of something, for example. They may still not be able to accommodate you, but it’s worth asking.
If you can’t get them to come down on their MOQ, consider how you could have the product made in another way – again, can it be made by hand for the first run, just so that you can create what you want without over committing to quantities.
Always Think About Reducing Your Risk
While it’s exciting to be planning your new product launch, always keep in mind that you need to manage your risk, and over spending on stock is a very real risk that product businesses face.
You want to do as much as you can to reduce your commitment in the early stages, so that when your products do take off and start selling, you’ll have the cash to really get behind them when you need to most!