How to start a hat company: a founder's playbook

Starting a hat company is an exciting venture that combines your creative flair with business savvy. The global headwear market is a multi-billion dollar industry, with steady demand for hats in fashion, sports, and for everyday sun protection.

This guide will take you through the practical steps of validating your business concept, building supplier relationships, acquiring inventory, and obtaining the right licenses to help you launch a successful hat company in the U.S.

Step 1: Validate your business plan

First, define your niche. Instead of selling all types of hats, focus on a specific audience like outdoor adventurers or fans of minimalist design. Use Google Trends to compare search interest for styles like "bucket hat" versus "trucker hat" to spot opportunities.

A common misstep is to create designs for everyone. A focused brand is easier to market. You can also browse Instagram hashtags like #customhats or #hatfashion to see what styles get the most engagement and identify underserved customer groups.

Analyze competitors and estimate costs

Look at what successful hat brands on platforms like Etsy and Shopify do. Note their pricing, popular designs, and what customers say in reviews. This research gives you a baseline for your own products and prices. It helps you find gaps in the market.

Speaking of costs, your initial investment can be modest. A lean startup budget might range from $500 to $2,500. This typically covers initial inventory of 50-100 hats ($250-$1,500), business formation fees ($50-$500), and basic branding or website setup ($200-$500).

Here are 3 immediate steps to take:

• Research three niche hat styles using Google Trends and Instagram.
• Analyze two competitors' pricing and best-selling designs on their websites.
• Draft a startup budget with estimates for inventory, legal fees, and your website.

Step 2: Establish your legal structure and obtain licenses

Choose your business structure

You might want to consider forming a Limited Liability Company (LLC). This popular business structure protects your personal assets, like your home or car, if the business runs into debt or legal trouble. It creates a formal separation between you and the company.

State filing fees for an LLC typically range from $50 to $500. For taxes, an LLC offers pass-through taxation, meaning the company's profits are reported on your personal tax return. This simplifies paperwork compared to a corporation.

Secure federal and state permits

First, get an Employer Identification Number (EIN) from the IRS. This is a unique tax ID for your business. You can apply for an EIN online for free and receive it instantly. You will need it to open a business bank account and hire employees.

Next, you will need a seller’s permit, sometimes called a resale certificate. This is issued by your state’s department of revenue and allows you to buy wholesale inventory without paying sales tax. It also lets you collect sales tax from your customers.

A common oversight is forgetting about local requirements. Check your city or county government’s website for a general business operating license. These permits usually cost between $50 and $100 annually and are required for most businesses.

Here are 3 immediate steps to take

• Decide between a sole proprietorship and an LLC for your business.
• Apply for a free Employer Identification Number (EIN) on the IRS website.
• Research your state’s seller’s permit application and your city’s business license rules.

Step 3: Secure your business insurance

Key policies for your hat company

You will want to get general liability insurance. This protects you if someone claims your business caused injury or property damage. For a small hat company, expect annual premiums between $400 and $700 for about $1 million in coverage.

Product liability insurance is another key policy, often bundled with general liability. It covers you if a hat has a defect that harms a customer, like a dye that causes an allergic reaction. Some new owners overlook this, which can be a costly mistake.

Once you hire your first employee, you will also need workers' compensation insurance. This is required in most states and covers medical costs and lost wages if an employee gets hurt on the job.

When you shop for policies, consider providers that specialize in e-commerce. Companies like Hiscox, The Hartford, and Next Insurance understand the risks and can offer tailored packages for online retailers.

Here are 3 immediate steps to take:

• Get quotes for a general liability policy that includes product liability coverage.
• Research your state’s workers' compensation requirements.
• Compare plans from at least two providers that work with e-commerce businesses.

Step 4: Set up your workspace and source materials

You can likely start your hat company from home. A spare room or a section of a garage, around 100-200 square feet, provides enough space for inventory and a small work area. Check your local zoning rules for home-based businesses to ensure you comply with any inventory storage limits.

If you decide to lease a commercial spot later, negotiate for a short-term lease of one to two years. This gives you flexibility as your business grows without a long-term commitment.

Choose your production gear

A quality hat heat press is a key purchase, typically costing $300 to $700. It lets you apply patches and vinyl designs. Many new owners are tempted to buy a pricey embroidery machine, but you can outsource embroidery to a local shop at first to keep initial costs down.

Source your blank hats

Now, open wholesale accounts with blank headwear suppliers. Companies like SanMar, S&S Activewear, and Richardson are industry standards. Be aware of Minimum Order Quantities (MOQs), as you may need to buy 12-24 units per style to get wholesale prices. Start with one or two core suppliers.

Here are 4 immediate steps to take:

• Research local zoning laws for home-based businesses.
• Compare prices for a hat heat press from two different vendors.
• Request wholesale account applications from suppliers like SanMar or Richardson.
• Contact a local embroidery shop to get a quote for contract work.

Step 5: Set up your payment processing

Now you need a way to get paid. Most customers expect to pay with credit cards, debit cards, or digital wallets. For large custom orders, you might ask for a 50% deposit, but for single hat sales, payment is due at the time of purchase.

When you choose a payment processor, look closely at the transaction fees. Many new owners only see the percentage fee but miss monthly charges or hardware costs. These can add up, especially when you are starting out.

For selling at markets or pop-ups, JIM offers a streamlined solution. You can accept debit, credit, and digital wallets directly on your smartphone. Just tap and the sale is done. It is a great fit for mobile businesses.

At just 1.99% per transaction with no hidden costs or extra hardware, it is very competitive. Other processors often charge between 2.5% and 3.5% and may require you to buy a card reader. This makes JIM useful for keeping your startup costs low.

• Get Started: Download the JIM app for iOS.
• Make a Sale: Type the sales amount, hit sell, and ask your customer to tap their card or device on your phone.
• Access Funds: Your money is available right on your JIM card as soon as the sale is done - no waiting for bank transfers.

Here are 3 immediate steps to take:

• Compare transaction fees and monthly costs for two different payment processors.
• Decide if you will sell in-person at markets, which requires a mobile payment option.
• Download the JIM app to see how it works on your phone.

Step 6: Fund your business and manage finances

Most new hat companies start with personal savings. You could also explore an SBA Microloan, which offers up to $50,000. These loans often have interest rates between 8-13% and are designed for startups that may not qualify for traditional bank loans.

Another option is a crowdfunding platform like Kiva, where you can borrow small, interest-free amounts. This approach also helps validate your brand with early supporters. You might want to avoid large loans until you have consistent sales.

Estimate your working capital

Plan for at least six months of operating expenses. For a small hat company, this is typically $3,000 to $5,000. This covers new inventory orders, marketing costs, and website fees before your revenue becomes predictable.

Manage your money from day one

Open a separate business bank account immediately. This keeps your personal and business finances distinct, which simplifies tax time. Many new owners make the mistake of mixing funds, creating a bookkeeping headache later on.

Use accounting software like Wave (free) or QuickBooks Self-Employed to track every dollar. This helps you monitor cash flow. You need to know if you have enough cash to reorder popular styles, which is a common challenge for new apparel brands.

Here are 4 immediate steps to take:

• Research the requirements for an SBA Microloan in your area.
• Calculate your estimated working capital for the first six months.
• Open a dedicated business bank account for your hat company.
• Compare features of Wave and QuickBooks Self-Employed to see which fits your needs.

Step 7: Staff your business and set up operations

Hiring your first team member

You will not need employees on day one. Once you consistently handle 50-100 orders a month, you might consider part-time help. This frees you to focus on marketing and design instead of only packing boxes.

Your first hire will likely be a Production Assistant. This person can apply designs with the heat press, manage inventory counts, and pack orders for shipment. Look for someone who is detail-oriented and reliable.

Expect to pay around $15-$20 per hour for this part-time role. Formal certifications are not necessary. Instead, focus on practical skills like experience with shipping software or a willingness to learn your production process.

A lot of new owners hire too quickly without a clear plan. Before you post a job, write a simple one-page document that outlines the exact responsibilities and weekly hours. This prevents confusion and sets clear expectations.

Streamline your operations

Once you have an employee, you need a payroll system. A service like Gusto handles paychecks and tax filings for you. For managing tasks, a free platform like Asana or Trello helps you track production schedules and marketing efforts.

Here are 4 immediate steps to take:

• Draft a job description for a part-time Production Assistant.
• Determine the monthly order volume that would justify your first hire.
• Explore a payroll service like Gusto to understand its features and costs.
• Create a sample project in Asana to map out your order fulfillment process.

Step 8: Market your brand and acquire customers

Build your online presence

Focus your efforts on one or two visual platforms like Instagram or TikTok where your audience spends time. Create content that shows your hats in real-life situations, not just on a white background. This helps customers imagine themselves wearing your product.

You can also collaborate with micro-influencers who have 10,000 to 50,000 followers. Their audience is often more engaged, and they are more affordable than larger accounts. A single sponsored post can introduce your brand to thousands of potential buyers.

Do not neglect email marketing. Add a pop-up to your website that offers a 10% discount in exchange for an email address. An email list is an asset you own, with conversion rates often hitting 3-5%, far higher than social media.

Use paid advertising strategically

Once you have some organic traction, you can explore paid ads on platforms like Meta. Start with a small budget, perhaps $15 a day, to test different images and audiences. Many new owners just boost posts, but you should run conversion-focused campaigns for better results.

Keep a close eye on your Customer Acquisition Cost (CAC). For a new hat brand, a good target CAC is between $15 and $25. If your CAC is higher than your profit per hat, you are losing money on each sale. Adjust your ads accordingly.

Here are 4 immediate steps to take:

• Set up an Instagram or TikTok profile and post three lifestyle photos of your hats.
• Research two micro-influencers in your niche and reach out for collaboration rates.
• Create a 10% discount pop-up on your website to collect email addresses.
• Draft a test ad campaign on Meta with a daily budget of $15.

Step 9: Price your products for profit

Set your pricing model

A simple way to start is with the cost-plus model. Add up all your costs per hat—the blank hat, patch, and your labor—then multiply that total by a set number. This multiplier is your markup.

For example, if your total cost is $10, a 3x markup sets your retail price at $30. This gives you a healthy 66% gross margin. As your brand grows, you can explore value-based pricing for unique, high-demand designs.

Now, look at what your competitors charge. Browse Etsy and Shopify for brands with a similar style. Do not just copy their prices. Instead, analyze their perceived quality and brand strength to see what the market accepts.

Many new owners price their hats too low, thinking it will attract sales. This can signal poor quality and make it difficult to cover your costs. A price between $28 and $40 is a common range for custom-branded hats.

Here are 3 immediate steps to take:

• Calculate the total cost for one of your main hat designs.
• Research the prices of three direct competitors on their websites.
• Set a target retail price for your primary hat style using a 2.5x to 4x markup.

Step 10: Implement quality control and scale your operations

Establish your quality standards

Create a simple quality control checklist for every hat. Check that patches are centered, designs are applied straight, and there are no loose threads. A small ruler can help ensure placement is consistent, perhaps within 1/8 inch of your standard.

Track your defect rate and aim to keep it below 2%. Many new owners ship a slightly flawed hat to save time, but this can lead to negative reviews. A customer return rate under 3% for quality issues is a good benchmark to maintain brand trust.

Know when to grow

Once you find yourself spending more than 15 hours a week just on production and shipping, it is time to consider part-time help. This frees you up to focus on design and marketing, which are the tasks that actually grow the business.

Now, let's talk about equipment. If your monthly bill for outsourced embroidery consistently exceeds $500, it may be time to invest in your own machine. This gives you faster turnaround times and more creative control over new designs.

As you scale past 100 orders a month, a spreadsheet for inventory can become unreliable. You might explore manufacturing software like Katana. It integrates with e-commerce platforms to track blank hats, patches, and finished products automatically, which prevents stockouts.

Here are 4 immediate steps to take:

• Create a physical quality control checklist with at least three inspection points.
• Set a target for your maximum acceptable return rate due to quality issues.
• Calculate the monthly outsourcing cost that would justify buying an embroidery machine.
• Watch a demo of an inventory management system like Katana to understand its features.

You now have a clear path to launch your hat company. Remember that your brand's story is just as important as the designs themselves. People connect with authenticity. You have the steps, so go ahead and start building your brand, one hat at a time.

And when you make that first sale, getting paid should be simple. JIM lets you accept payments right on your smartphone with no extra hardware, for a flat 1.99% fee. It keeps things easy so you can focus on your business. Download JIM to get started.