Denari is required to help grow your party through recruitment and promotions, and it's also required to pay their wages each day in the world of Mount & Blade II: Bannerlord. Early into the game, it is crucial to make money by any means possible -- some days, you'll only be scrapping by after a large wage payment.
As your clan expands and you own fiefs, you'll have to pay for the garrison of troops defending it along with any other troops under your banner. Maintaining a constant passive inflow of money is vital to freeing up your main party for doing the things you want to do, and a Caravan can offer just that.
Starting Your Caravan
In order to start your own caravan, you first need to head to the nearest city. When in the cities' menu, hover over the names of the NPCs you see in the top right windows. Look for a person who is labeled "Merchant," and go talk to them. After a brief introduction, you'll be presented with the option for creating your own caravan out of this city.
In order to create your own caravan, you'll need a starting 15,000 denari. This down payment will provide your caravan with much-needed decently strong guards. You'll also select one of your companions to lead the caravan. During this time, your chosen companion acts as a party leader which levels up their steward skill, and it makes them a merchant you can interact with.
Managing Your Caravan
Your first goal after creating your caravan is to make sure it is well defended. While the initial starting guards provided are strong, a party of 30 can only make it so far. Caravans are prime targets for raiders, and they will be targeted by other factions during wartime. When you create your caravan, you're able to recruit stronger guards at the cost of about 22,500 denari. This increase is more than worthwhile in the long run, as you'll not have to worry about your caravans safety, allowing them to focus on trading.
Within your clan menu, you'll be able to select the companion leading your caravan and track them on the map. For the most part, your caravan will travel within your faction's land and stay away from enemy territory during war. This caravan will boost local economies and help provide items to settlements in need. Should you have multiple fiefs, caravans are very helpful and almost needed to help maintain your local economy and provide your fiefs with much-needed supplies.
The first few days of a caravan can be very expensive. You'll now be paying additional wages and won't see a net increase in your income until a few days' worth of trading have been completed. Once your caravan is trading constantly, they will be making thousands of denari a day. This can easily cover their own wages and the wages of even 100+ troop parties. Doubling up with a second caravan can quickly lead to you gaining a profit every day instead of being in the negative and paying denari at the end of each day for wages and caravan upkeep.