Clothing Line: Inventory Budget

This article was written by our expert who is surveying the industry and constantly updating the business plan for a clothing brand.

Who wrote this content?

The Dojo Business Team

A team of financial experts, consultants, and writers

We're a team of finance experts, consultants, market analysts, and specialized writers dedicated to helping new entrepreneurs launch their businesses. We help you avoid costly mistakes by providing detailed business plans, accurate market studies, and reliable financial forecasts to maximize your chances of success from day one—especially in the clothing brand market.

What initial budget should you plan for your first clothing brand production cycle?

Your initial inventory budget for launching a clothing brand typically ranges from $15,000 to $50,000 in 2025.

This budget range depends primarily on your brand's scale and ambitions. A smaller, direct-to-consumer brand focusing on a capsule collection of 3-5 core items might operate comfortably at the lower end of this range. Meanwhile, a brand planning to launch with multiple product categories, seasonal collections, or retail distribution will need to invest toward the higher end.

The budget should cover all production costs including fabric sourcing, manufacturing, labeling, packaging, and initial shipping to your warehouse or fulfillment center. For clothing brands targeting premium positioning or using specialty materials like organic cotton or technical fabrics, expect costs to push toward the upper limit of this range.

You'll find detailed market insights in our clothing brand business plan, updated every quarter.

New brand founders should also factor in that minimum order quantities from manufacturers will directly impact this initial outlay—lower MOQs mean more flexibility but typically higher per-unit costs, while higher MOQs reduce unit costs but require larger upfront capital commitments.

How much cash should you allocate monthly for restocking your clothing inventory?

Healthy clothing brands typically reserve 20-30% of monthly sales revenue or available cash flow specifically for inventory replenishment during the first year.

This allocation ensures you can restock bestselling items before running out of stock while maintaining enough liquidity for other operational expenses. For a clothing brand generating $20,000 in monthly sales, this translates to setting aside $4,000-$6,000 for reordering inventory.

The percentage should be adjusted based on your sales velocity and seasonal patterns. Fashion brands experience significant seasonal fluctuations—summer collections need restocking in spring, while winter items require capital allocation in fall. Planning quarterly cash flow allocations helps you anticipate these peaks and avoid cash crunches during high-demand periods.

For clothing brands in their first 6-12 months, it's advisable to maintain a slightly higher reserve—around 30-35% of sales—because sales patterns are still stabilizing and forecasting accuracy improves over time. As you gather more historical data, you can optimize this percentage downward while maintaining adequate stock levels.

What percentage of your budget should go to core items versus seasonal pieces?

The optimal budget split for clothing brands is 60-80% allocated to core, evergreen items and 20-40% dedicated to seasonal or trend-driven pieces.

Core items are the foundation of your clothing brand—these are the timeless pieces that sell year-round regardless of fashion trends. Think classic t-shirts, basic denim, neutral-colored hoodies, or everyday dresses that define your brand identity. These items minimize risk because they have predictable demand and lower markdown pressure.

Seasonal and trend-based pieces capture current fashion movements and generate excitement, but they carry higher risk of becoming unsold inventory if trends shift quickly. Limiting these to 20-40% of your budget protects you from excess stock that might require steep discounts at season's end.

This is one of the strategies explained in our clothing brand business plan.

For new clothing brands without established sales history, starting at the conservative end (70% core, 30% seasonal) makes financial sense. As you build customer data and understand which trends resonate with your audience, you can gradually adjust the mix to capture more trend-driven opportunities without jeopardizing your cash position.

How do supplier minimum order quantities impact your budget planning?

Supplier minimum order quantities (MOQs) typically range from 100 to 500 units per SKU for startup clothing brands, directly impacting your upfront capital requirements.

Higher MOQs create a double-edged sword for new clothing brands. On one hand, ordering 500 units instead of 100 reduces your per-unit cost significantly—sometimes by 20-40%—which improves your gross margins. On the other hand, this requires substantially more upfront cash and increases the risk of holding unsold inventory if the style doesn't perform as expected.

For new clothing brands, negotiating lower MOQs is often possible—manufacturers may accept 50-150 unit orders at slightly higher per-unit costs to build relationships with emerging brands. This strategy reduces your initial cash strain and surplus inventory risk while you validate market demand.

When planning your budget, calculate the total capital requirement by multiplying each SKU's MOQ by its per-unit cost, then add 15-20% buffer for unexpected MOQ-related costs. This gives you a realistic picture of how MOQs will tie up your working capital in the first production cycle.

What is the true cost per unit for your clothing items?

The all-inclusive cost per unit for basic fashion items typically ranges from $7 to $25 when you factor in materials, manufacturing, labeling, packaging, and shipping.

This estimate varies significantly based on product complexity and production location. A simple cotton t-shirt manufactured in countries with lower labor costs might come in at $7-$10 per unit, while a structured jacket with multiple components could reach $20-$25 or higher. Premium materials like organic fabrics or technical performance textiles can push costs even higher.

To calculate your true cost per unit, start with the base manufacturing cost (materials plus labor), then add labeling costs ($0.50-$2.00 per unit), hang tags and packaging ($1.00-$3.00 per unit), and shipping from manufacturer to your warehouse ($1.50-$4.00 per unit depending on distance and volume). Quality control inspections may add another $0.50-$1.50 per unit.

We cover this exact topic in the clothing brand business plan.

For accurate budgeting, request detailed quotes from manufacturers that break down each cost component. Many new clothing brand founders underestimate the "downstream" costs beyond basic manufacturing—these hidden costs can add 30-50% to your expected per-unit cost if not properly accounted for in initial budget planning.

How much should you reserve for unexpected inventory expenses?

You should set aside 5-15% of your total inventory budget as a contingency reserve for unexpected expenses in your clothing brand.

This reserve protects your clothing brand from common supply chain disruptions that can derail production timelines and cash flow. Supplier delays are frequent in the fashion industry—shipping delays, customs hold-ups, or production backups at manufacturing facilities can force you to pay for expedited shipping or find alternative suppliers at premium prices.

Quality control issues represent another major unexpected expense. When a production batch fails quality inspection, you'll need to reorder quickly to avoid stockouts, often at rush pricing. Defect rates of 2-5% are normal, but occasionally entire batches may need replacement, requiring immediate capital deployment.

Urgent reorders for unexpected bestsellers also tap into this reserve. When a particular style sells faster than anticipated, you need immediate cash to capitalize on demand before the moment passes. Having 5-15% reserved means you can reorder within 48 hours rather than missing sales opportunities while scrambling for funds.

For new clothing brands in their first year, staying toward the higher end of this range (12-15%) makes sense because you're still learning which issues will arise and lack historical data to predict them accurately.

How do you calculate projected sales volume for inventory allocation?

Projected sales volume for clothing brands should be calculated using market research, competitor analysis, demand forecasting tools, and conservative assumptions about customer acquisition.

Start by analyzing similar brands in your market segment—research their product launches, customer reviews, and visible sales indicators (like sell-out speeds or restock announcements) to establish baseline expectations. If comparable brands sell 200-300 units of a similar item in their first month, this gives you a realistic starting point for your own projections.

Use demand forecasting tools and pre-launch strategies to refine these estimates. Email list signups, social media engagement rates, and pre-order campaigns provide concrete data about interest levels before you commit to large production runs. A pre-launch email list of 5,000 engaged subscribers might convert at 2-5%, suggesting initial sales of 100-250 units.

For initial orders, plan for baseline projected demand plus a 10-20% safety stock for bestselling core items, but keep minimal overstock on trend-based SKUs. This means if you project selling 200 units of a core t-shirt style in 90 days, order 220-240 units to avoid stockouts. However, for a trendy seasonal piece with the same 200-unit projection, order only 200-210 units to minimize markdown risk.

Break down your projections by product line—different categories will have different velocity rates. Basic items typically have steady, predictable sales, while statement pieces may have sharp initial demand that quickly tapers. Allocating inventory budget proportionally to these realistic sales projections prevents both stockouts and excess inventory.

What are the carrying costs you need to account for?

Carrying costs for clothing inventory typically represent 12-35% of your annual inventory value and include storage, insurance, management, and markdown risks.

Storage costs vary dramatically based on your fulfillment strategy. A third-party logistics provider (3PL) might charge $3-$8 per cubic foot monthly, while a small self-operated warehouse could run $0.50-$2.00 per square foot monthly. For a clothing brand holding $30,000 in inventory at any time, annual storage costs could range from $3,000-$8,000 depending on your setup.

Insurance for clothing inventory adds 0.5-2% of inventory value annually—this protects against theft, damage, or loss during storage and shipping. Management costs include inventory tracking software ($50-$500 monthly), labor for receiving and organizing stock, and periodic physical counts to maintain accuracy.

The biggest carrying cost for clothing brands is markdown risk—the longer items sit unsold, the more likely they'll require price reductions to move. Fashion inventory loses value faster than many other products because styles become outdated. Items held beyond their optimal selling window often require 30-70% discounts to clear, directly impacting your profitability.

Reducing storage time and avoiding overstocking are critical strategies for protecting margins in clothing brands. Every additional month of storage adds costs while the product's market value potentially decreases, creating a double financial hit that can eliminate profits on slow-moving items.

How much budget should you allocate to testing new styles?

Allocate 5-10% of your total inventory budget to experimental SKUs or new trend-driven items for your clothing brand.

This testing budget allows you to gather real sales data on new styles without overextending your capital or storage capacity. For a $40,000 initial inventory budget, dedicating $2,000-$4,000 to testing means you can trial 2-4 new styles at lower quantities to assess market response before committing to larger production runs.

Testing new styles at this budget level typically means ordering at or near the minimum MOQ—perhaps 50-100 units per experimental style. This controlled approach lets you validate customer interest, gather feedback on fit and quality, and measure actual sell-through rates before scaling up successful items in your next production cycle.

The data you collect from these test styles is invaluable—it tells you which trends resonate with your specific customer base, which price points drive conversion, and which styles generate repeat purchases. This evidence-based approach to expansion is far more capital-efficient than guessing which new items will succeed and ordering large quantities upfront.

It's a key part of what we outline in the clothing brand business plan.

For clothing brands beyond their first year, this testing budget can gradually increase to 10-15% as you build stronger cash flow and become more skilled at identifying winning styles, but new brands should stay conservative at 5-10% until they establish reliable forecasting capabilities.

How does lead time affect your upfront inventory investment?

Fashion supply lead times typically range from 30 to 120 days depending on manufacturing location and production complexity, directly impacting how much inventory capital you must invest upfront.

Longer lead times force clothing brands to order more inventory further in advance, which increases both your upfront capital commitment and the risk of market changes during production. A 90-day lead time means you're making inventory decisions three months before products arrive—trends can shift, seasons can change, and customer preferences can evolve during that window.

To calculate the lead time impact on your inventory investment, multiply your average daily sales rate by the total lead time in days, then add safety stock. If you sell 10 units daily and have a 90-day lead time, you need to order at least 900 units just to cover the lead time period, plus 10-20% additional safety stock (90-180 units) to avoid stockouts if reorders are delayed.

Domestic manufacturing typically offers 30-45 day lead times, while overseas production from Asia can extend to 60-120 days when you factor in production time, shipping, and customs clearance. Shorter lead times allow you to hold less inventory and respond faster to demand changes, but often come with higher per-unit costs that can offset the inventory carrying cost savings.

New clothing brands should maintain a larger cash cushion—typically 20-30% above the minimum calculated need—when working with longer lead times to prevent stockouts that could damage brand reputation and lose hard-won customers during your critical launch phase.

What financing mix should you use for inventory purchases?

The recommended inventory financing mix for clothing brands combines 30-60% self-funding through equity or cash reserves, 20-40% supplier credit terms where available, and 20-40% from loans or external financing.

Self-funding (equity and cash reserves) should form your foundation because it doesn't create repayment obligations that could strain cash flow during slower sales periods. If you have $20,000 in startup capital, allocating $6,000-$12,000 to inventory provides a solid base while preserving funds for marketing and operations.

Supplier credit terms—typically net 30, net 60, or net 90 payment terms—effectively provide interest-free financing if you can negotiate them. Many manufacturers offer extended terms to brands ordering consistently or above certain minimums. A 60-day payment term on a $15,000 order means you can potentially sell products and collect revenue before paying the supplier, significantly improving cash flow.

Loans and external financing (inventory financing, business lines of credit, or small business loans) fill the gap when self-funding and supplier terms don't cover your full inventory needs. However, this creates fixed repayment obligations—a $20,000 loan at 8% annual interest requires roughly $1,800 in annual payments plus principal repayment, which must be factored into your cash flow planning.

The ideal mix depends on your specific situation—brands with strong personal capital can rely more on self-funding, while those with established supplier relationships might access more credit terms. New brands typically start with higher self-funding percentages (40-60%) and gradually shift toward more supplier credit and strategic financing as they build relationships and demonstrate sales performance.

How should you track inventory performance monthly?

Implement real-time inventory management software that tracks sell-through rates, aging reports, and excess stock, then perform monthly reviews to adjust future purchasing decisions.

Effective tracking for clothing brands requires monitoring several key metrics each month. Sell-through rate (units sold divided by units received, expressed as a percentage) tells you how quickly inventory moves—a healthy clothing brand targets 70-85% sell-through within 90 days for core items. Tracking this by SKU reveals which styles are performing and which are stagnating.

Inventory aging reports categorize your stock by how long it's been held—0-30 days, 31-60 days, 61-90 days, and 90+ days. Clothing inventory older than 90 days typically requires promotional pricing to clear, so monitoring these aging buckets monthly allows you to take action before items become deadstock. Any SKU sitting beyond 90 days should trigger an immediate markdown or bundling strategy.

Get expert guidance and actionable steps inside our clothing brand business plan.

Monthly inventory reviews should compare actual performance against projections to refine future orders. If you projected 200 units sold but only moved 120, your next order should be adjusted downward by 25-40% while you investigate why performance lagged. Conversely, items exceeding projections by 30%+ should be flagged for larger reorders or potential line extensions.

Use inventory management platforms like Shopify inventory tools, Inventory Planner, or specialized fashion software like Apparel Magic that automatically calculate these metrics and provide reorder recommendations. Set up automated alerts when inventory drops below minimum thresholds or when items enter the 90+ day aging category so you can respond immediately rather than discovering issues during monthly reviews.

Conclusion

This article is for informational purposes only and should not be considered financial advice. Readers are encouraged to consult with a qualified professional before making any investment decisions. We accept no liability for any actions taken based on the information provided.

Sources

1. Clothing Brand Startup Costs - Dojo Business
2. Fashion Business Cash Flow Management - YouTube
3. Seasonal Inventory Planning - Inventory Planner
4. Understanding MOQ in Clothing Manufacturing - Cotton Monk
5. Understanding Minimum Order Quantities in Apparel Manufacturing - Lefty Production Co
6. Calculate Garments Cost of Making - Ordnur
7. How to Calculate the Cost of Manufacturing Apparel Products - Fashinza
8. Inventory Carrying Costs - Shopify
9. Clothing Inventory Management - NetSuite
10. Apparel Inventory Management Best Practices - AIMS360