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Using non real world examples is a big problem. So let's say you could convert $1 into $1.15 in revenue. You can't invest that money back into advertising beca
by raiyu 8y ago
Using non real world examples is a big problem.
So let's say you could convert $1 into $1.15 in revenue. You can't invest that money back into advertising because you forgot about costs and margin. Your product would need to have 100% margins for this to be true.
Now direct to consumer companies get no where close to that mythical margin and probably are well below 50% which means that you would need to finance a tremendous amount of inventory as a cost to get to revenue of $1MM.
So more like you need $25k ad budget and oh yeah we forgot to mention another $400k invested in inventory.
But saying you need $425k to get $1MM in revenue isn't as catchy as saying all you need is $25k.
- davidbanham 8y agoI would hazard a guess that many of these kinds of companies aren't holding inventory, though. Dollars to donuts says that they're taking that money from the customer, ploughing it back into ads, then using cashflow from future customers to actually order the goods from a dropshipper week or so later. Some would call it a ponzi scheme, others would call it a kickstarter.