DTC e-commerce: Understand Margins And Revenue Of Your Product

Not every product is suitable for the DTC e-commerce model. As a DTC e-commerce seller, you should know exactly how you judge a profitable product. This requires you to subtract the unit cost of the product from the preset selling price. And you also need to estimate the total cost of marketing and delivering.

DTC e-commerce is one of the fast-growing sectors of the retail industry. It includes traditional manufacturers who sell homemade products. And also the private-label products of established retailers. In addition, there are also DTC e-commerce companies whose products are custom-made to be sold on marketplaces and their website shops.

Regardless of the seller’s form, everyone must go through the process of product selection or product development. And an important part of this is determining the full cost of manufacturing, marketing, and shipping.

Selling price

By judging price, you can initially rule out products that may not be profitable later in the product selection or development.

For example, before you sell beard care oil on Amazon, compare similar items. Honest Amish Classic Beard Care Oil sells for 2 oz/$12.22 ($6.11/oz) while Viking Revolution sells 3 one-ounce boxes of beard care oil in a one-ounce size for $17.88 ($5.96/oz). Then your pricing should be set at $6 per ounce to be more competitive.

Therefore, you need to start by targeting the retail price of the DTC product and then calculate the full cost. To determine if it will be profitable. If the cost of your product is already close to the $6 per ounce selling price, then you can exclude that product from your list of candidates.

Operating cost

Behind the target selling price, there are operational costs which associate with sales and logistics. This includes the cost of shipping, storage, labor, website maintenance, and channel-specific sales.

Again, let’s take the example of selling beard care oil on Amazon. Let’s say your beard care oil costs about $6 per ounce and is probably sold in a 2-ounce bottle using the Honest Amish sales format.

Jungle Scout estimates that Honest Amish’s operating costs are approximately $5.02. If you plan to compete with Honest Amish, you will need to take these costs into account when determining the full cost of your product.

Marketing cost

Regardless of the channel through which you sell, you will need to market and promote your new DTC product.

Marketing costs may include PPC ads placed on Google or Amazon as well as costs for content marketing, graphic design, PR expenses, etc. Therefore, try to estimate these costs when you are considering the profit potential of your product.

Take beard oil for example. The cost per click for a product ad on Amazon targeting the term “beard oil” is estimated to be about 80 cents. The cost of a broad match is about $1.14.

Packaging cost

Packaging requires the use of bottles, lids, seals, labels and cardboard, etc. These seemingly small costs, but in fact, add up to a large expenditure.

And many sellers may not be familiar with logistics. That’s why we recommend DTC eCommerce seller work with a third-party agent.

eComhub fulfillment services are responsible for inventory receipts, inventory safety storage, item picking, packing, order shipping, and product return operations.

Your order fulfillment process is responsible for all picking, packing, shipping, storage, and product return operations. A reliable order fulfillment service should be the quiet, yet crucial, and catalyst to your business’s success. That’s where eComhub fits into the picture. We partner with you, design a custom solution, and execute your business’s order fulfillment process.

eComhub international fulfillment services allow you to deliver to your customers quickly and cheaply. Our fulfillment centers make your inventory management easy and your customers happy.

Product cost

Finally, you can estimate the cost of producing the product. You may need to work with a private label manufacturer that supports customization.

Once you have identified a supplier, you will need to decide whether you want to use a custom formulation or use a finished oil already available from that manufacturer. If you wish to use a custom formulation, lab work will be required, which will add to the cost and result in a final cost price based on the final list of ingredients. Based on this year’s market estimates, the cost price could be about $1.20/oz.

In short, not every product is suitable for the DTC e-commerce model, so you will need to determine the full cost of the product for each sales channel before committing.