An increasingly popular and profitable business model in the United States for entrepreneurs is manufacturing with a direct to consumer (DTC) sales channel. This business model historically operated utilizing television informercials, multilevel marketing systems, and catalogs, however asconsumer comfort with E commerce has grown and customer engagement became easier and less expensive for entrepreneurs the opportunity has blossomed allowing virtually any company that creates a product to directly engage with their customers.
The advantages of DTC manufacturing are severalfold. First and most important, the business model allows a company to cut out the wholesale level of sales and reap retail values on the products they manufacturer. This difference in sale value can be the difference between a company struggling to make profitability and strong financial performance that encourages investment. Consider two wineries, one sells product to the wholesale market making $8 a bottle on wine that costs $4.50 to produce with the wholesaler selling the product for $12 and consumers paying $20 per bottle at the grocery. Gross profit on each sale is $3.50. If the winery sells 200,000 bottles it will make $700,000 gross profit before paying their operating and overhead costs in a winery doing $1,600,000 in gross revenue. Compare that with a winery selling wine directly to their loyal customers through a wine club. Even if this winery only sells 100,000 bottles at an average cost of $25 per bottle with more expensive ingredients and labor producing finished product at $8 a bottle, this DTC winery will produce a gross profit of $1,700,000 from gross revenues of $2,500,000 with a business model that has a probability of having lower operating and overhead costs than its competitor selling wholesale.
Second, the business model allows through customer engagement utilizing social media and follow up techniques ranging from customer service representatives to email to surveys for the manufacturer in real time to assess market demand and preferences. This “hand on the pulse” of their customers allows for customization and modification to mitigate manufacturing product without an end market. Anyone who visits websites like Overstock.com or the closeout aisle at a retail store can see failures in the marketplace where a manufacturer or retailer failed to properly gauge customer demand.
Third, a direct to consumer manufacturing business model enhances options for go to market strategies. Traditional manufacturers are dependent on retailers to market and promote their products. DTC manufacturers can employ a menu ofoptions for customer engagement ranging from stock, regularly selling products to coupon and sale specials to seasonal offerings with time & quantity urgency to limited edition “drops” requiring ongoing engagement with the business to insure purchase to pre-order opportunities to guarantee availability.
The sale of a DTC manufacturing business is a sophisticated, nuanced transaction requiring a professional intermediary with experience selling both manufacturing and E commerce companies and the ability to properly value both component parts of the company. As a market leading company in the sale of manufacturing and technology companies in the Pacific Northwest, IBA has the knowledge, experience, and ability to sell direct to consumer manufacturing companies at strong market values in an environment of confidentiality employing best practices. If you would like to sell a direct to consumer manufacturer in 2022, our transaction team working in this industry sector would welcome the opportunity to provide an overview of our client services. 100% of IBA’s fees are payable upon performance at completion of a transaction.
IBA, the Pacific Northwest’s premier business brokerage firm since 1975, is available as an information resource to the media, business brokerage, mergers & acquisitions, and real estate communities on subjects relevant to the purchase & sale of privately held companies and family-owned businesses. IBA is recognized as one of the best business brokerage firms in the nation based on its long track record of successfully negotiating “win-win” business sale transactions in environments of full disclosure employing “best practices”.