>“Buy mattress at $400. Sell at $1,000. Refund/return 20% of them. Keep $400, on avg. Then spend $290 of that on ads/marketing and $270 on admin (finance, HR, IT). Lose $160. Repeat.”
The unit economics of most of these companies just don't add up.
The unit economics of most of these companies just don't add up.
Well, the mattress comes rolled up in a box, but obviously cannot be put back in the box. It was impossible for the FedEx guy to fit it anywhere in his truck.
No problem they said, find a local charity and donate it, we'll issue a refund. In the end, I didn't even have to give them a proof of anything, and they sent back the money, no question asked.
I'm not one to worry about other's businesses, but at that moment I felt like I was part of a very big scam that I didn't fully understand. This was 3 years ago.
Basically mattresses are highly inconvenient to ship back once opened so it's cheaper for them to just say keep it and have a likely happy customer than make them go through the hassle of getting it back to the company only to have it burned or donated anyways
I don't know much about the business side of things but asuming the $290 on marketing and the $270 on admin don't scale less than linearly (preferably much MUCH more flatlined), then the $160 loss could be closer to a $300 profit. Even if you lower the sale price by $299 (extreme scenario), you still get a dollar in profit.
At the end of the day, I think the product has to be consistently good enough and the branding will "stick". I imagine the goal is to gain enough market share.
I'll share an anecdote: I bought an InstantPot for a decent discount a few years back on Black Friday. I've personally "sold" at least three since to people I know. I'm sure the cheaper brands are likely almost as good as InstantPot but for me to take a chance on them, I'd need to trust they have a no questions asked return policy.
Then there are customers who only need a trial (or a small amount of information "what is it") before they come on board.
Finally you get to tough sells: people who already have a good enough alternative - why would they want to pay the same amount as someone who had no systems in place? The marginal benefit to them isn't as high.
As you expand out from your original customer base, each new ring of customers is more expensive to acquire. This is the situation Casper, Blue Apron, and many others face. Meanwhile, their competition has also ramped up - providing other alternatives (which might fit niche customers better)
After being a Zenni customer for years, Warby Parker's prices seem really high. I've tried their glasses on at one of their retail stores, and I don't see much of a difference in quality.
VCs have been playing the loss leader game...thats why the metrics always go to growth. Hey we grew x% this week/month/year, they never mention how the "growth" simultaneously leads to bigger losses. Instead its always, we can turn off the growth whenever we want and then is pure profit.
It seems like it makes no sense and this could never work, but they don't need to make a profit, they just need big growth numbers, a cult like buy in of the brand, and then unload it on the public while cashing out.