Chapter 17: Producing Your Product
If you’re looking to scale production, one of the best ways to do it is by bringing all of your production in house. Doing so has the potential to drastically increase your profit margins, since there’s less steps with outside vendors in the chain to produce your product. Depending on your product however, this can be extremely expensive, and is likely only a viable option once you’ve had success getting your product produced elsewhere. Nevertheless, once you’re ready to take the plunge, there’s a few key cost considerations to keep in mind:
Warehouse Space
The first is warehouse space - chances are, you’ll need more than you think. If you’re bringing production in house, you probably want a space to do fulfillment in house (if not a separate additional warehouse nearby), and some offices as well. It’s generally better to get a slightly larger space than you think you need for contingencies sake if you can afford it. If you truly don’t need the space, you’ll likely grow into it in the near future with the increased profit margins.
Supplies Cost
For every aspect of your production that you bring in house, you’re going to need supplies. Tools, machines, you name it. Plan all of this out ahead of time and get exact quotes for the types of machinery that you’ll need. Then build out a detailed accounting.
Team Members
You will have to fill this new warehouse with staff, so don’t forget about them. Having a site manager or project manager is absolutely key. You don’t want to have to be at the warehouse all day directly overseeing production - so you need to hire somebody you can trust to do this task.
Pro-Forma’s
In general, it’s good to build out detailed pro-formas for what your operational costs to run this facility are going to look like. Figure out the monthly burn including contingency expenses, and look at the term of your lease for the property. By adding your total lease cost to your total burn over that time period, you can come up with a pretty good number as to how much this move will cost you. Ideally, you should have the upfront capital to be able to pay for much if not all of the expenses for the duration of the lease, even if you don’t get additional revenue. While this is not required, it’s a good benchmark to know if your business is doing well enough to justify the cost of bringing everything in house. Remember there are always setbacks, and you don’t want to rush something like this.