7 Super Fast Ways to Get to D2C Profitability

Contributor - Pravash
June 18, 2024
9 min read

D2C, or Direct-to-Consumer, is a business model where companies sell products or services directly to customers without intermediaries. The enthusiasm within the industry has put D2C brands into intense competition with each other. Some markets have oversaturated, with un- differentiated experiences, while the cost of customer acquisition through online advertising has surged, making profitability a challenge.

Here are 7 super fast ways to squeeze profitability out of your D2C business and brand. We’ve worked with a few brands that have managed this well.

1. Rehaul packaging And Cut shipping costs

Re-examine packaging for your core product lines. Packaging can be as high as 0.5% of revenue. Test for the optimal edge crush strength required for your boxes, and reduce the gauge to save on cardboard. Optimise size to each product rather than all your SKUs. Take this to the next level with a packsize machine, to optimise boxes per package. Only really makes sense if you have a high variance per package. For optimizing shipping costs, no easy way around this. You may need to use a third party service with shipping under their accounts at reduced rates, while you negotiate with DHL, Canada Post, UPS, FedEx, USPS, & More.

2. AdWords Optimisation

Conduct a granular analysis of AdWords performance data to identify keyword-level spend inefficiencies. A significant portion of brand-related search traffic is likely being over-served due to platform attribution challenges, even when employing MTA solutions. Cross-device attribution, particularly in high average order value segments, exacerbates these issues. To isolate incremental revenue, consider a 50% budget reduction experiment, holding the test duration commensurate with average customer consideration cycles.

3. Merchandising and Collection Sort Logic

A proper UI/UX design for D2C brands ensures that every interaction with the brand’s website or app is smooth and intuitive. Users can easily navigate different sections, find or discover the product they want and complete their purchase, without encountering any obstruction.

Optimising product placement within collections, menus, and homepages can significantly boost Average Order Value (AOV) and conversion rates by up to 30% by implementing collection sort logic. The best part about this? It doesn’t require a team of developers & data scientists to get the 80/20 out of results – just a few hours and basic spreadsheet knowledge. This often overlooked tactic can yield substantial returns with minimal effort.

We’ll be focusing on collection sort logic, which is analogous to the way a physical retail store picks out what is on which shelf, and where it’s placed. What is collection sort? How are your choices hurting performance? Collection sort is the order in which you show products to your customers on a product listing page/collections page.

If you do not have any logic behind the order in which products are shown to customers, then you are making it harder for them to discover your best products. This results in lower gross profit per session. Many stores default to “best sellers”. This is bad.

Why? Because it creates a perpetual cycle where your initial best sellers are always best sellers because they have the best site placements. New products do not get a shot at visibility. A product eating up a collection page slot because it sells well might not be generating much gross profit relative to a different product that could be in that slot.

Focus on maximizing gross profit per session by strategically re-ordering products. Prioritize factors like

Gross profit per product impression: There are a few ways to implement this with Google Analytics (as of GA4, it’s much trickier. Skip this unless you have a dev team). Revenue per impression is the easier way to tackle this
Product freshness: if you have strong repeat traffic, you don’t want your best customers being shown the same products over and over. You also need to find a way to give your new products a chance.
Size coverage: Big problem for footwear specifically. A common scenario is that a product gains traction, ranks near the top, then sells out of the most popular sizes. And now all that is left are odd sizes so your product page view to conversion rate plummets. Now your top performing ads suddenly look bad. And,
Variety: If you have a top selling shoe in 4 colours, that now eats up 4 slots and potential new customers have to scroll even deeper to learn that you also sell great wallets. Lifetime Value: if your brand is heavy on subscriptions, you need to factor in average gross lifetime profits at a SKU level.
Replenishment: How long does it take for a product to be replenished? How much capital does manufacturing the product tie up? What are the associated costs?
AOV by First Product Added to Cart: In niche hobby type brands, like Remote Controlled Vehicles, and drones, we see certain products trigger larger cart values. The first product may not cost much, but it could lead to a more profitable (for you) cart because of what customers think of and buy next.

How to design the right solution for your company? Our first choice is always to use a simple solution like a basic Google-Sheets spreadsheet – highest impact for the least effort – and iterate. As you generate results, consider more sophisticated tools like personalization platforms for advanced targeting.

Implement a simple testing framework – such are creating two collections – to determine optimal weightings for these factors. Use the redirect test to split traffic out between collections.

When creating your “ranking algorithm”, make a Google-Sheet with all of your SKUs, the relevant factors you want to use to generate your ranking, and then upload the final output via a relevant app for your ECommerce platform of choice.

What next?

For personalization, Dynamic Yield allows you to personalize experiences. You can customize your site based on the location of the user to do things like show season-appropriate clothing. The downside is that this will be very expensive ~$60-$120k, and time consuming to implement.
Custom sort for each ad, especially if it’s already pushing to a collection page. For example, if someone clicks on a Google search ad for “gaming PC over $2000” you’d want to serve them a collection pre-sorted for gaming PCs, each over $2000.

You will benefit most from implementing a system like this if you have many SKUs, because putting the right products in front of the right customer is a lot more challenging when you have 500+ products as opposed to 5.

Apply this logic beyond site collections to areas like product suggestions in marketing emails for amplified impact.

4. Product Design that is Relevant but Differentiated

D2C brands have adapted to changing consumer behaviour, such as the demand for sustainable products, premium offerings, and social responsibility. The ability to acquire easy and instant feedback and utilise the same for product innovation is one of the valuable assets you have. It can takes anywhere between eight weeks to two years for a product to go from idea to live on the website after passing several stages including prototype, market testing, certifications, test run, branding and marketing.

Get an award winning team whose work has shipped more than 50Mn times, and delivered $500Mn in net new revenue across multiple markets, on your side to win with your product.

Want To Save Costs In Developing A Market Winning Product, Apply to our Partnership Program

5 Get Creative Marketing Assets

Here’s where the lines between product design and marketing begin to blur. The enduring pillars of D2C marketing are,

Scarcity: Create a sense of scarcity with (1) the product innovation, and (2) limited availability or exclusive offers. This will both increase your perceived value and desirability, and prompt customers to make a purchase.
Trustworthiness: Emphasise credibility, consistency, and perceived trustworthiness in your messaging and interactions, to build confidence and loyalty among consumers. Adjust content from launch to fostering repeat purchases and positive word-of-mouth.
Emotions: Leverage emotions in marketing campaigns to resonate with consumers on a deeper level. Use storytelling, and vivid imagery and animations to create connections with customers, evoke specific feelings, and drive engagement.

Consider using BangDesign’s award winning Growth Practice to build out the perfect marketing assets for your campaigns.

6. Offshore for Efficiency

Use the GWC tool from EOS to evaluate your staff. Have your teams use it to evaluate their teams in turn. If someone doesn’t Get the job, wants the job or has the capacity to do the job, consider offshoring it to specialists.

There’s no real reason for most information roles to be in the US, especially once you factor in payroll taxes, liabilities tied to US employees. Rather than waste time sorting through 1000s of applications, use a specialist firm like BangDesign who already gets what it is like to do all product development, management, marketing and fulfilment functions.

7. Get on a plane

This should be obvious, but you need to show up in person to get the best negotiated terms and pricing, to resolve issues before they become nasty, and to build relationships of trust. Visit your vendors in China, India and SEA and attend trade shows. Stay at cheap hotels but show up.

When negotiating with suppliers in other countries,

See and understand how the product is made.
Instead of trying to beat them up on pricing, suggest instead "how can we engineer this to be X instead of Y?". Your manufacturer may have taken decisions and added features that add zero value to you and your customer, but drives up cost.
Show up with a custom design. Contract production of your design is 6+% cheaper than an ODM’s own design. This is because they know you have the option of going elsewhere.
Consider hiring a local liaison team for quality assurance. Only do this if your scale can afford a budget of about $200 per working day.

Some of our thoughts on this topic are influenced by Mehtab Bhogal’s substack. Follow him here. Did this help? Please send it to a few friends in D2C and eCommerce!

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