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>“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, I

>“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.

mcny 7y ago
> >“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.” 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.
- mrosett 7y ago
  The marketing spend actually scales faster than linearly. These companies do a lot of direct response advertising where acquiring the marginal customer becomes more expensive as you scale up.
  - wrsh07 7y ago
    This is often the case for many companies acquiring the marginal customer, because the ones for whom it is a good fit will find it first (very cheap to acquire - they're looking for you). 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)
- PascLeRasc 7y ago
  Same with Warby Parker, I've "sold" my entire family and 3-4 friends on buying a frame, and everyone's loved them. If you have vision insurance it's typically ~$50 after reimbursement for a fantastic set of frames and great customer service. I've gotten frames fixed a year after buying them for free with no appointment or anything. I'm not interested in trying anything else or hearing about in-network frame allowances, it's just not worth my time. I'll be a Warby customer as long as we're both alive.
  - wayoutthere 7y ago
    Wait until you find out about Zenni Optical... they're so cheap I don't even bother with vision insurance anymore. My prescription hasn't changed in decades, and at Zenni prices I can buy a new pair of glasses (frames + lenses) every month for less than a single pair from Warby. I've had my favorite pair (that were originally <$20 with lenses) for about 5 years, so durability isn't an issue. Their customer service is similarly good in my experience. 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.
- Marsymars 7y ago
  Instant Pot is a cheap brand already. They basically became popular by being cheap and running frequent sales. Something like the Breville Fast Pro is the non-discount alternative and runs about 2.5x more than the typical Instant Pot.
  - asdff 7y ago
    Instant pot is also a meme at this point. There aren't any subreddits with 150,000 subscribers for the Breville Fast Pro.
mbesto 7y ago
It's almost as if...hear me out for a second... different industries have different unit economics. And these aren't tech companies, just product companies with tech operating models.
mr_isomies 7y ago
Once I bought a Casper mattress, king size, something like $800. Got in touch a few weeks later to return it, it was too big for me. They said here's your RMA, print it and send it back no question asked & you get a refund. 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.
- stevewodil 7y ago
  That's not a scam. They can't do anything with the used mattress anyways, so it's just as easy for you to dispose it for them. 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
- atombender 7y ago
  This was written about in a recent FiveThirtyEight article: https://fivethirtyeight.com/features/what-happens-to-your-mail-order-mattress-after-you-return-it/ https://fivethirtyeight.com/features/what-happens-to-your-ma.... HN story: https://news.ycombinator.com/item?id=22376248 https://news.ycombinator.com/item?id=22376248
throwaway_tech 7y ago
>The unit economics of most of these companies just don't add up. 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.

mcny 7y ago

> >“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.” 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.

mrosett 7y ago
The marketing spend actually scales faster than linearly. These companies do a lot of direct response advertising where acquiring the marginal customer becomes more expensive as you scale up.
- wrsh07 7y ago
  This is often the case for many companies acquiring the marginal customer, because the ones for whom it is a good fit will find it first (very cheap to acquire - they're looking for you). 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)
PascLeRasc 7y ago
Same with Warby Parker, I've "sold" my entire family and 3-4 friends on buying a frame, and everyone's loved them. If you have vision insurance it's typically ~$50 after reimbursement for a fantastic set of frames and great customer service. I've gotten frames fixed a year after buying them for free with no appointment or anything. I'm not interested in trying anything else or hearing about in-network frame allowances, it's just not worth my time. I'll be a Warby customer as long as we're both alive.
- wayoutthere 7y ago
  Wait until you find out about Zenni Optical... they're so cheap I don't even bother with vision insurance anymore. My prescription hasn't changed in decades, and at Zenni prices I can buy a new pair of glasses (frames + lenses) every month for less than a single pair from Warby. I've had my favorite pair (that were originally <$20 with lenses) for about 5 years, so durability isn't an issue. Their customer service is similarly good in my experience. 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.
Marsymars 7y ago
Instant Pot is a cheap brand already. They basically became popular by being cheap and running frequent sales. Something like the Breville Fast Pro is the non-discount alternative and runs about 2.5x more than the typical Instant Pot.
- asdff 7y ago
  Instant pot is also a meme at this point. There aren't any subreddits with 150,000 subscribers for the Breville Fast Pro.

mbesto 7y ago

It's almost as if...hear me out for a second... different industries have different unit economics. And these aren't tech companies, just product companies with tech operating models.

mr_isomies 7y ago

Once I bought a Casper mattress, king size, something like $800. Got in touch a few weeks later to return it, it was too big for me. They said here's your RMA, print it and send it back no question asked & you get a refund. 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.

stevewodil 7y ago
That's not a scam. They can't do anything with the used mattress anyways, so it's just as easy for you to dispose it for them. 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
atombender 7y ago
This was written about in a recent FiveThirtyEight article: https://fivethirtyeight.com/features/what-happens-to-your-mail-order-mattress-after-you-return-it/ https://fivethirtyeight.com/features/what-happens-to-your-ma.... HN story: https://news.ycombinator.com/item?id=22376248 https://news.ycombinator.com/item?id=22376248

throwaway_tech 7y ago

>The unit economics of most of these companies just don't add up. 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.