Over the years, I've watched one mistake repeat itself - across startups and mature businesses alike.
It starts innocently.
You launch a new product or plan for the next big sales push.
You get quotes from suppliers - and yes, larger order quantities look cheaper per unit. On paper, the margins improve.
So, the decision is made to order based on sales estimates for the next 3–6 months.
But here's the thing -
What if the market doesn't respond the way we hoped particularly relevant for new launches.
We forget that ordering high quantities doesn't just save cost per unit -
It locks up working capital
Puts pressure on warehousing
Leads to higher logistics and customs duties
And worst - it forces production of finished goods risking expiry, obsolescence, and brand dilution.
In the scramble to sell,
trade discounts go up.
Marketing spends increase.
And often, we start selling below contributory margin. (The more you sell, the more you lose)
Here's the irony -
Sales teams still earn commissions.
Performance metrics still look green.
But the company? Bleeds quietly.
This hurts.
Not because it's rare - but because it's so common.
If you're a business leader, here are 3 lessons I've learned:
1. Get end-to-end P&L visibility -
Decisions about sourcing and production cannot be made in silos.
Sales, marketing, and finance must sit at the same table.
2. Respect the sunk cost principle -
Throwing good money after bad isn't strategy.
Sometimes, writing off raw materials or salvaging them is the smartest option.
3. Don't obsess over unit cost - A lower cost per unit is meaningless if it sinks the ship.
Small batch runs at a higher cost may save the bigger picture.
It's about protecting your business, your people, and your brand's future.
I'd love to hear your thoughts how you have tackled similar challenges.
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P.S. - I am Abhi, a Fractional CFO helping businesses take informed financial decisions while having peace of mind.
Great job explaining a very common challenge that many early stage CPG companies face. I've seen this as well, most often with packaging decisions. On the one hand, a packaging option that can be purchased in low volumes, but high cost per unit vs. a packaging option that needs to be purchased in higher volumes, but with lower unit costs and better brand appeal. This is a difficult decision to make as an early-stage founder. Since there are usually surprises after launch where your initial assumptions for sales mix, velocity, etc. are proven to be off base I definitely agree with Abhijit that it is usually a safer/wiser choice to protect cash flow initially by purchasing in lower volume then risk tying up too much cash in inventory that in a worst case scenario might not have any future value. However, I've also seen some founders that get stuck purchasing in small volumes at high cost per unit for several years and struggle with lack of profitability. As such, ensuring you have access to cash to make these larger volume purchases once you've achieved traction / decent trend line for your product(s) is important, otherwise the company can become handcuffed in operating at an unsustainable level. Launching a CPG product is not for the faint of heart, so beyond having a strong USP, having a high margin product, and enough cash flow (and protecting cash) to support the launch will improve the chances of success.