How Big Should Your First Purchase Order Be?

Striking The Right Balance

Ultimately, you want your first order to be for as little as possible but still for a good unit price. Whereas your supplier wants pretty much the opposite.
A compromise will have to be struck.
Know that it won't be perfect for you and you'll have to make concessions somewhere (pricing, lead times, product spec, payment terms etc).

Although you're paying the bill, it's the not same as when you're a customer in a shop. Your prospective supplier has to also buy into you and believe you're worth their while. They've seen a tonne of time-wasting upstarts cross their doorway only to disappear in a few months. They need to believe you'll be different.

What Terms To Expect

If you're bootstrapping, you're very unlikely to be in a position to dictate terms right away.
You'll ask for pricing at a few different options of quantities. And largely have to go with what's quoted.

Suppliers are unlikely to grant you favourable payment terms as a new account. They'll ask you to prepay 50% or even 100% of the order before they get to work.

Sure you could ask for better pricing and better terms. The worst they can say is "no".
Wait actually, the worst they can say is "no and let's forget about it".

Depending on how much time you're spending evaluating suppliers (and how many there are in your market), if it's a promising supplier that's ticking a lot of your boxes, maybe don't risk it.
You can always improve terms later once you've proven you're a reliable customer and built a relationship.

Plan That It Won't Sell Out

When you're trying to make the numbers balance, it's tempting to make optimistic assumptions.
After all, change a couple of cells in a spreadsheet and great, it all adds up - millions here we come!

I would recommend assuming the worst. For the first PO, write the whole thing off as an expense you'll never get back. You'll sleep better at night. And while it's no fun to be the one with the 'warehouse half empty' attitude, on the plus side when you sell *only* 50% of it, you'll be happy :)

Expect Issues

Writing the whole thing off isn't an exaggeration. It could happen! 
After all, this is the first production run and anything could go wrong and render the batch unfit for sale.
Finished products on the shelves of a shop look so simple. But don't be deceived, as they needed a lot of steps to all go smoothly for it to get there.

Something will inevitably go askew, but hopefully, it won't be a total disaster and you can still sell them and then fix it up for the next run.
Here are some potential grenades in no particular order:

• packaging unexpectedly different to the samples you signed off on
• mistakes or misprints on the label
• various sizing/fitting issues
• the product itself is unexpectedly different (shape, size, texture, taste)
• packaging or product was damaged in transit

Mentality of Personal Money VS Business Money

If you're bootstrapping a brand, the line between you and the company is often blurred.
With no outside investors, the money is mostly coming from you.
Of course, you probably know in your logical brain that you and your company have different legal entities, that you can't spend willy-nilly via the business account and other sensible things that aren't particularly fun.

But ensure that you keep the separation strong when you're making these big purchases.

In a personal context, spending £10-15k on something is a big deal. It requires a lot of research and you should be getting something pretty damn good in exchange for that hard-earned cash!
But that same £10-15k isn't that much for a business placing a PO. And you might get defective goods. Or maybe the whole lot will fall off the side of a boat during a storm. Who knows these things.

But if you treat it like personal money, it'll give you more stress and you might turn into your supplier's least favourite customer who asks the most questions and spends the least money.

A List of Effects You Should be Aware Of

Here are a few things you should factor in when deciding how much to spend:

POs Tie Up Cash as Stock

However much you spend will now be unusable for anything else - make sure you have enough for your other needs (without assuming you'll sell the inventory profitably).

Marketing Spend

Your PO spend is only the beginning. The more you buy, the more marketing spend you'll need to sell the stock. Even if you're hustling without any paid channels, you'll still more of your time to make the extra sales.
If you are using paid channels, then definitely ensure you have the cash to fund the customer acquisition.
Healthy businesses with their shit figured out can spend something like ~25% of revenue (ex.VAT) on paid ads.
So assume something significantly worse than that if you don't have tried and tested paid ad funnels ready to go.

Potential Distraction

If you have a tonne of stock sitting in your warehouse, you may get distracted by it. Instead of focusing on "how can I grow my business", you may unknowingly morph into thinking "how can I sell that stock I have".
Sometimes they're the same- but sometimes they're quite different.

Blocks Creative Shoots

Here's one I didn't predict.
In the early days, your packaging and labels will go through changes as you fix early snags.
Sometimes you'll have to change packaging formats drastically for various reasons.
So if you're sitting on a tonne of stock to get through, it means you can't update your ads and website with the new version until you've sold through (unless you want to just chuck it).
And if you can't do that, then it affects organising things like new product shoots.
This becomes more problematic if you have multiple products and you need things like group shots. Just having one being a blocker means delaying the whole shoot, or doing the shoot once now and then repeating it with the new packaging.

And THEN, photoshoots tie into larger projects like branding changes and website redesigns. Those too can get delayed if you're committed to selling down your existing stock first.

Final Recommendation

Every brand/product is different so it's hard to give a rule of thumb for how much to spend on PO #1.
But here's goes nothing:

• £10k and under - go for it and don't worry too much (write it off, remember!)
• £10k to £25k - doable, but only if there's no other option
• £30k+ - avoid and find another supplier with a smaller MOQ (or choose a different starting product)

The above is for consumables. For anything techie or gadgety, or requiring custom moulds, this will be significantly higher.

Every owner wants their product to be great, it's only natural.
But if you're bootstrapping you may have to be more patient.

If you skip straight to a high-quality but high-MOQ supplier, your first Purchase Order may well be your last.

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