The Numbers

I'm a niche competitor of T&W in the hammocks category. I recognise lots of my competitors' products on their website.

I was going through the half yearly to gauge my own numbers against theirs. A few things stuck out.

$32.1m revenue, $19.8m COGS. This means that an average $321 sale cost $198 for the product? It seems expensive, but this is because they're paying an intermediary to dropship for them? $3.1m of inventory on $32.1m revenue suggests 90%+ dropshipped sales. Correct?

Of the $123 gross margin from the $321 revenue: $59 goes to delivery? $66 to advertising? $55 to wages? $19 to admin? That leaves a $76 loss on the $321 revenue. Though that's including fixed expenses.

They say contribution margin is 20.1% (revenue-COGS-variable sales costs). Though that completely ignores marketing, which I would consider variable (there are few sales without marketing). Including marketing, contribution margin is -0.3%. Every sale loses 0.3% even before fixed costs. Incremental sales won't help unless some of those variable costs are reduced.

I guess the variable cost they'll try to reduce is the marketing. $66 advertising vs the $2 loss on each order means it only needs to be reduced a little to make the contribution margin (including advertising) positive. Repeat customers is the obvious way this can improve.

If they're doing dropshipping, then their delivery costs will rely on each partner/supplier? Then that can't be optimised much at all.

The fixed costs are pretty frightful, but the Online Penetration Rate for furniture & homewares sales in Australia leaves me almost optimistic (AU: 3.8% up 17% YoY, US: 9.5% up 10% YoY).

I have some more research to do. All I've learned so far is that my contribution margin (including advertising) is much better than their -0.3%, though I need to increase sales volume. Being in hammocks, it goes from terrible Winters to brilliant Summers.