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May 27, 2021 - 05:41 PM
The Dollar Shave Club video that went viral. As of today it has 27 million views.
Thanks to technological advancements and changes in purchase behavior, now you can start an online business that sells and ships products worldwide.
On top of that, the subscription box trend continues to rise. This has opened new opportunities for entrepreneurs who want to start their own niche subscription box business.
One attractive niche has been men’s products clubs, the most successful of which is Dollar Shave Club. Started with a legendary viral-video, the company sold for $1 billion to Unilever--a handsome return on the founder’s initial $4,500 investment.
In this piece we’ll examine the general business model of companies like DSC. Similar other companies include Men’s Beard Club, Manpacks and various sock and underwear clubs. For Hims and Roman are other players in the space, peddling erectile dysfunction pills.
Business Model Breakdown: Mens’ Products clubs
There are many other successful Men’s shave clubs (check the top shave clubs for men by FiveBoxes.com), but there is likely still space for new entrants.
Companies like the Dollar Shave Club don’t produce their products. All of their products are sourced in bulk from other companies and sold to the members of the club.
It is a simple business model of making a profit by selling products at a higher price than you originally bought the item and turning it into a subscription.
The idea is to make a deal with wholesale companies for a lower price, then add your margin whilst still being more affordable than your local supermarket.
Costs
With every subscription box business, including men’s shave clubs, these costs need to be carefully balanced in order to turn a profit:
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Product cost
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Shipping cost (Shipping + Packaging + Printing)
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Marketing costs
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General Business add Administrative costs
Marketing is likely to be the biggest cost. Back in 201 w2hen Dollar Shave Club launched, it was relatively cheap to acquire customers via Facebook Ads. Today, it is prohibitively expensive and the cost continues to rise as you scale.
Try and keep your marketing costs below 30% of revenue or you are unlikely to be successful.
Marketing Strategies
Even though there is still a chance to enter the men’s shave club business, you need to come up with a unique angle to succeed.
You typically need to offer the first box free or really low priced to entice users. Many of these clubs offer the first box for just $1 and it will usually cost at least $50 to get a new customer.
This means you need to know what your customer lifetime value is so you don’t overpay for each new customer.
And once you get the customer through the door, you need to work extra hard to retain them. With so many existing options and new entrants coming out of the woodwork almost every day, churn is high!
You may want to consider building a vibrant community on Facebook to increase stickiness. Marketing influencers Rand Fishkin and Dharmesh Shah have observed that companies with active communities almost always have higher customer lifetime values.
This likely means investing in interesting content (every post cannot be a product pitch) and moderation of community discussions. Without moderation, online communities degrade fast.
Additionally, you may want to sell other related products to your audience to further increase your customer lifetime value. For example, you could use 1-click upsells after the initial $1 box.
How Much Money Do These Clubs Make?
According to publicly available information, neither Dollar Shave Club nor Harry’s (the big two) is profitable despite $100 million plus in revenue. Both are privately held and do not disclose their numbers.
As Dollar Shave Club does not make its own blades, the profit margins must be razor-thin (pun intended!) before factoring in marketing and administrative expenses. Maybe under Unilever’s ownership they will be.
Harry’s reportedly bought a razor manufacturer in Germany for $100 million so it might have a better chance at profitability long term. They received an acquisition offer worth $1.4 billion from Edgewell (a larger personal care products company) but it fell through at the last minute.
For facial products, It appears the way to make money in these businesses is to generate massive hype then sell to a bigger, boring old company.
For Hims and Roman, on the other hand charge a very high mark-up on the cost of an ED pill. They can get away with this because of the embarrassment factor in involved in buying the products in person. But the last I checked, neither is profitable likely because of high marketing costs and paying celebrities (in For Hims case).
Final Thoughts
With increased competition, these types of businesses are no longer as attractive as they once were. Coupled with this, you likely have to niche down even more to differentiate yourself, or be forced to sell products that do not naturally fit a subscription model--underwear, panties and socks anyone?
This means building a smaller company. And with acquisition being the only likely path to a pay-day, it looks even worse. Smaller companies get a smaller revenue multiple. A company with $3 million in revenue may be acquired for $9 million (a 3x revenue multiple) but a company with $100 million in revenue can enjoy a 10x multiple (Dollar Shave Club sold for a cool $1 billion).
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