Back in April I did a post entitled Thoughts on Pricing and Profitability where I basically pondered the advantages of become a higher volume, lower margin retailer:
Generating sales is the hardest thing to do in the world of business. If I find a hands-off way to drive sales AND can turn over inventory faster by doing it, I’ll gladly sacrifice some profitability.
The comments were mixed – some in agreeance, some not. And rightfully so. It’s an interesting debate with no clear cut right answer for every business in every situation.
In the time since, we’ve become more and more of a volume retailer. Our main revenue increases have come from business wholesale accounts, creative sales (particularly Mike’s newsletters and the Daily Special on Detailed Image), and increased volume on Amazon (mostly due to being the low cost leader for certain products). That’s not to say that normal sales of full retail value aren’t up as well, but the majority of that increase has come from those other methods.
The big question is whether or not we’re a better business for making this decision? I say yes, and the numbers agree with me.
First things first though, numbers aside, we have the advantage of exposing more people to our business. More sales – especially through sites like Amazon – give us more packages to include promo material in, and more email addresses for our newsletters (provided they opt-in of course). Some people will like our fast shipping and our products and come back naturally, so that’s a win. Then there’s people who get on our newsletter list and forget about us until a sale really entices them, and that’s a win too. That’s huge because every newsletter has a greater impact than the previous one. Some day our newsletter list will have 100k people on it and every single mailing will have a massive impact on sales. Doing more volume is helping us get there sooner.
Financially, pretty much the best case scenario happened:
- We dipped in profitability during Q2, with margins dropping from around 35% to around 25%
- Sales continued to increase. Compared to the same month last year, we hit our goal of doubling revenue every month this year. By September we had tripled revenue from September 2007 and had our best month in company history in a month that is traditionally one of the slowest of the year.
- When we looked at our Q3 numbers last week, margins had risen back up to 35%. We received volume shipping discounts from FedEx (and a free label printer, which I thought was pretty sweet), and we started hitting the highest volume tiers with our vendors. Those cost savings offset our sales, and essentially we’ve “passed our savings on to the customer” while growing immensely in size and volume. Overall as a company, we turned a pretty significant profit for the first time in Q3 (this is after salaries, warehouse expenses, rent, utilities, insurance, etc – in the past we’ve been closer to breaking even after all of those expenses).
Like anything else, this had the potential to backfire and I’d be lying if I was sure it would work. We could have squeezed ourselves too thin and ran out of available credit and had trouble paying bills. In this case though, it was a risk that seems to have paid off.