Financing Your Startup
You’ve done your breakeven forecast. You’ve mapped out your 3-year P&L. You know your cost of goods and overhead. Your initial investment looks solid. You’re feeling confident.
You start selling your product into stores and learn the term velocity. For some reason you are struggling to pay your bills, let alone yourself, and you can’t understand why your projections aren’t coming true.
Many CPG founders miss factoring in the cost to sell a product and start saying yes to more stores than they can support. We hear this all the time but what does it actually mean “Support”?
Once you have moved beyond your local farmers market or co-op grocer, you start talking with a local or regional grocery chain, or maybe you even attend a national trade show and are invited to submit products to a larger store like Sprouts or Whole Foods. Wow, amazing, just what everyone dreams of!?
They tell you they require a Free Fill. You say okay because you’re so excited.
You schedule demos to support your launch.
You set up a TPR (temporary price reduction) to drive trial in the first 30 days.
You start running ads on Meta and Google.
You hire someone to help with your social media because your time is now consumed with this chain launch.
Did you include all of this in your initial P&L? Maybe it was lumped in with Marketing or maybe some broker told you it would cost $100/door to launch. That is most likely for slotting, not to support sales or ongoing trial. So what will this actually cost you?
You pay for the product, the freight, and expect payment in 30 to 60 days. Instead, you get a bill for the wholesale price. Because it was a free fill.
Now you’re in. But now you have to stay in. You set up promotions, schedule demos, and get charged back every time a shelf tag changes. Each demo might cost $150 or more. Those 2-for-$6 stickers? You’re paying for them.
If the promotions work, great. If not, the store starts pressuring you. If your velocity isn’t strong enough, you lose the placement. And now your sales data is out there for other buyers to see.
Update your Cost Model to includes:
Free fills: You are charged back wholesale value of your product.
Promotions: You are charged back the difference of your full price vs the discount, plus an admin fee.
Demo labor: This can run you $30/hour if you hire direct, or between $150-200/demo if you use an agency, plus an admin fee to the store.
Warehouse fees: A frequently hidden cost and you could see handling or storage fees listed as chargebacks from your distributor or chain partner.
Merchandising support: This might be the most important support mechanism you can invest in to be sure your product makes it to the shelf, sale tags are up and it is consistently stocked. Some demo agencies and brokers will include merchandising but you must ask.
Delayed payments: Grocery stores will often pay you within 30 days from receiving product but if you’re going through a distributor it could take longer.
After these adjustments, what do you do if you find that your true breakeven is nowhere in sight? You can raise outside capital or adjust your go--to-market strategy. Common sources of funding include:
Founders' capital
Friends and family
Pre-orders or direct-to-consumer sales
Revenue-based financing tied to wholesale POs
Grants and pitch competitions
Angel investors
And if raising money isn’t the right move, another option is to shift your channel focus. You don’t have to start in retail, or say yes to every opportunity. You can grow through:
Foodservice or hospitality, where expectations are clear and volumes can be strong
Events or vending, where trial and awareness happen together
Subscription boxes or partnerships that allow for controlled scale
Direct-to-consumer sales where you keep the margin and the customer
The key is to align your launch strategy with your cash flow and capacity. Otherwise, you’re just lighting money on fire.
If you want help figuring out what it’s really going to cost or how to fund it please reach out and schedule time with me here. I’ve been through this and done it the right way and the wrong way.
—Sara Delaney