Founder Finances: A subscription-box founder shares the monthly budget she uses to help her reach profitability

• Welcome to "Founder Finances," a new Insider series discussing founders' monthly budgets.
• In this story, the founder of a subscription-box company shares her $24,000 monthly budget.

Zarina Bahadur was at the grocery store one night when she spotted an exhausted mom carrying a crying baby in one arm, holding a toddler in the other, and pushing a cart full of baby products.

Despite not being a mother, the full-time college student envisioned a service she believed every mother would want: a box of baby products that would arrive right at their doors.

Bahadur founded 123 Baby Box, a monthly subscription box that delivers products based on a baby's age and developmental stage, in March 2021.

The business was launched in the middle of a growing global baby-products market, which is expected to increase in value from $67.35 billion in 2020 to $352.65 billion by 2030, according to the statistics website Statista. Those stats helped Bahadur during her fundraising process, she said.

To date,she's raised a $90,000 seed round and $693,000 toward her $1 million Series A, which she hopes to close by the end of September. The investments will go toward team building, purchasing inventory, and marketing, the three largest portions of her monthly budget, she said.

123 Baby Box sales have surpassed $90,000 this year, according to documents verified by Insider. But it's important to keep the company's burn rate — or the rate at which a company spends money — low because it's partly supported by investment funding, Bahadur said.

"It's a fine line that you have to walk," she said of deciding whether to invest in growth or turn a profit. She's hoping to become profitable by the end of year three, which would be a result of lowering her company's burn rate.

"The more you get your burn rate down to zero, that's when you get to break even, and then that's when you become profitable," she said.

Bahadur said her goals for growth made a strategic monthly budget crucial. She explains how she best uses investment dollars to achieve growth without overspending.

Here's the budget breakdown

Spend now to save later

Bahadur's spending varies from month to month and is based on her goals for the company at a given time, such as seasonal preparation or audience growth. To set objectives, Bahadur reviews market and economic trends.

With inflation and supply-chain slowdowns, she's "made the decision to put more of our budget into inventory" to avoid any issues entering the fourth quarter, including those around holiday shopping and shipping, she said. In July, the company spent $6,100 stocking that inventory.

But during the first two quarters of the year, Bahadur's goal was to grow 20% month over month. To achieve those numbers, she allocated more money to marketing and advertising, she said. Her company's advertising budget goes toward digital ads, like ones on Google and Facebook, along with influencer marketing.

"Our target is the new mom, and there are so many mommy bloggers out there that we've been able to leverage," Bahadur said. "To have them promote our boxes really hits the nail on the head with our target market."

The majority of Bahadur's influencer marketing is not paid in dollars but negotiated through gifting baby boxes in exchange for a post or story, Bahadur said.

"I got my first 60 sales just from influencers," she said. "But now, since we're getting a little bit bigger and we want to move faster, we have set aside a budget for influencer marketing."

Don't waste cash on the perfect 'MVP'

A quality product is important for business growth, but you can't let striving for a "perfect" product hold you back or cost you too much money, Bahadur said.

When you are building the minimum viable product, test out a simple and cost-effective version to prove the concept, Bahadur added.

"Too many founders take so much time and money perfecting this MVP that they think is going to be the final product," she said. "Then they're all out of money" when it's time to reiterate and relaunch, she added.

123 Baby Box used the customer feedback from its beta launch to reshape the product offering and continues to adapt based on consumer input, Bahadur said. Today, the company fills each box with one product from six categories to ensure it's a well-rounded package.

"I would've never known to do that if I didn't listen to my customers in the beginning," she said, adding that she would've spent too much on goods and inventory that never ended up being used.

Equity is more powerful than a salary

Bahadur employs six people — including a chief marketing officer, a director of supply chain, and an influencer manager — which amounts to $7,700 in employee expenses each month. She does not take a salary.

"I want to be as frugal as possible," Bahadur said.

"If I don't absolutely have to take a salary, then I'm not going to," she added, noting that she'd been fortunate enough to live at home with her parents to save on expenses like rent.

She understands that many founders need a salary to sustain themselves, but for those who don't, she suggests saving on that expense. For example, she could fundraise more to budget for her salary, but she doesn't think that's beneficial in the long run.

"Once you run out of cash, you have to fundraise, and then you have to give up equity," she said. "Equity is worth way more than a salary. In my mind, equity is gold."