What Scaling to $100M on Revenue Alone Cost Us

I'm Christian Loversich, a DTC founder and operator. On this podcast, I share what I'm seeing, testing, and learning from actually building and scaling e-commerce brands. This one's about what it actually cost us the year we pushed a brand past $ 100 million on revenue alone. The same pattern I'd already hit years earlier with my own brand and what we did differently when a product took off again.

A few years ago, I was part of helping grow a DTC brand from roughly $ 40 million to over $ 100 million a year in revenue. The year we scaled really hard to hit that 100 million, our back orders got to about six weeks, and our Trustpilot score went from four point something down to like three or two. Revenue was the only target we'd really set, and we didn't look hard at profitability until afterwards. If you're about to raise budgets for Q4, I'd want you to hear this one first.

Q4 is when spend goes up and peak orders put pressure on inventory. And when you scale growth first, the cost doesn't show up in the ad account. For us, it showed up later, in fulfillment, in the reviews, and eventually in the P & L. I'm going to walk you through that year, a brand of my own that went down the same way years before it, and what happened about two years later at that same company when one of our products took off and we could have stepped on it all over again.

So here's how that year went. I was at that brand for about three years. That first year, the goal was hitting 100 million and pretty much everything was pointed at that number. We were going hard just to go hard.

Our back orders reached about six weeks, so people were ordering from us and then waiting weeks for their order to show up. That's what hit our reviews. Our trust pilot went from four point something to like three or two. Then there's the profit side, which came last.

Revenue was the number we were watching, so it was only afterwards that we really looked at profitability and it was like, oh, wait a minute. And honestly, it wasn't the first time I'd watched orders outrun what we could ship. Years before that, around 2014 or 2015, I was trying to build a brand of my own. This was a completely different company and it was a watch brand.

I'd spent a lot of time finding watches and I wanted to prove the concept. So I found a manufacturer in China, made some changes to one of their products and started running ads. And it worked. So I got on a call with them and told them I was ready to scale.

I asked how many units they had. I don't remember the numbers anymore because it was years and years ago, but I told them what I was hitting right now and what I was projecting to hit once I scaled. And they said, yeah, yeah, we got plenty, plenty of inventory. So I stepped on it.

Then they hit me up with, yeah, we don't have inventory. It's going to be 50 days until we can get your new ones. At that point, it was me and two VAs handling customer service for all of those orders. Then came the chargebacks and fighting those.

Somehow we still managed to save most of them, but it was a nightmare. And I was like, there goes that brand. One of those was me and two VAs, and the other was a brand past $ 100 million in revenue. It was the same pattern both times.

The ads worked, I pushed, and the orders came in faster than we could get product to the people who'd paid for it. That's why I want to tell you what happened at that same brand about two years after the back orders. Early this year, one of our products started taking off, and the same kind of pressure built up again. This time, I can walk you through what we actually did, meeting by meeting.

At the start of the year, that product was stock-limited. In one of our paid media meetings, our media buyer said we weren't even spending on it because of the stock limitation. A couple of weeks later, someone on the team pointed out that we had a lot of untested video ads sitting there waiting because we'd been out of stock. Nobody had put much focus on the product either because it went back and forth so often.

That same day, it came up in our S & OE meeting from the other direction. When something sells through faster than the forecast, it sounds like good news. Pull forward revenue you didn't expect. One of our executives said that could be true if you're selling at full price, but most of what we were doing on it was promo.

So his point was that if something's moving too quickly on promo, maybe you take it off promo to slow it down a little and give yourself time to get receipts in. He said retail could go the same way, where we sell through units we'd set aside for retail because we didn't have the conversation at the right time. Our ops lead said they'd start bringing velocity and sell-through rate into that meeting as early triggers, so we could flag it in advance. Inventory was coming in, though.

On my end, I'd already updated the marketing calendar to up the number of sends for that product. The plan was that as soon as we could, we'd flip everything on and go on every channel. Our media buyer wanted to be careful. His view was that our priority should be contribution margin.

So we should do it very carefully and commit to a conservative budget on a weekly basis. But he also put the bigger problem pretty plainly. He said, the very first moment we get a green flag on inventory, I'll scale it. Everybody kept saying there was a ton of inventory though.

And his question was, how do I do a ton of sales? He didn't know what volume he was supposed to be scaling to. Somebody asked whether we'd ever given the paid media team the forecast by SKU, and the answer was, not by SKU. So we agreed to share the monthly forecast by SKU with paid media, and I said I'd make sure I share it with them going forward.

The stock was due to hit the warehouse on the 16th. In our retention meeting the next day, I told the team I'd spoken with the people handling it, and they'd already been talking to customers about a little bit of delay in shipping. The orders were going to go out a couple of days late, a few days at most. So there was no need to stop sending emails on it and we kept going as usual.

Customers knew upfront and we were talking about a couple of days, which is a very different situation from waiting six weeks for your order. Then the delivery moved from the 16th to the 18th because of snow. In our go-to-market meeting that Friday, one of our executives asked what actually triggers the launch and how I'd find out it was time to flip the switch. I said we'd been going back and forth on it for a while, and everything was ready to go.

So as soon as it hits and it's confirmed, we flip the switch. Our ops lead tightened that up. Their trigger is once it's received in, because just because it's delivered doesn't mean it's received and ready to go. So as soon as it's received, they message me, there's a click-up task, and I let the rest of the team know, and we flip everything.

That lined up with something we decided a couple of weeks earlier when we were going through the purchase orders for some new products. One of our planners wanted a target for when each product would actually be received and ready to launch because the date we had for each one was really the estimated receiving date. So the question was whether we were good to launch while it was still being received or whether we wanted it fully received before we launched. I'd already been through six weeks of back orders there.

I said, I'd prefer for us to have received it completely because I've seen it before. Next thing you know, there's back orders, and then it's a whole domino effect on customer service. Bad customer experience, bad reviews. So I'd rather know it's in there before we launch all the way.

Receiving usually takes about five business days. So the planner put the target launch date in the tracker as five business days after we receive it. And I told them that on our end, we're going to work on everything regardless, as soon as we get the actual product and images. The email announcements are an easy fix because we're not that far ahead, so I can always update the calendar to match whatever the date is.

By March, that product had taken off. In our S & OP on the 12th, the numbers were up on the screen and it was performing better than one of our other offers, so I got asked whether it was seasonality. I said, part of it could be a little seasonality, but I think we just found our sweet spot on the algorithm and it's just going from there. And the way it was picking up, we were actually holding it back just to keep contribution margin as high as we could.

We could have stepped on it if we wanted to, if we weren't paying attention to contribution margin. If we could make it through the summer, I said, Q4 was going to be insane. That's the same brand where we'd gone hard just to go hard on the way to 100 million. This time, a product was taking off and we were choosing to hold it back.

Then someone said it was worth triple checking the inventory on it just so we don't run out. I remembered running the numbers with our media buyer about three weeks or a month before. At the pace we were going then, it looked like we'd have stock for the rest of the year, but we'd started scaling since. Someone said, if he was being honest, we just had to re-forecast that whole business unit.

And I agreed. One of our executives added that there's no way we bought all that inventory to be sitting on it for the full year. And I said, no way. Then our ops lead walked through what was already set aside for retail.

Once you counted that, the inventory only lasted us into Q2, until about May. The lead time had come up too. I said I believed it was 60 days out and our ops lead corrected me. It's 30 to produce, 30 on the water, and 10 for deliveries.

That's 70 days on stock that was going to last until about May. And that's when it was said in the room, we need to place more units now. Our executive asked who that actually sits with because he wanted everyone to know where to go when we're having these discussions. Our ops lead said it sits with our supply planner who places orders based on the forecast we have.

So if we're seeing increases like this, we definitely need to order more and the planner has to be informed so we can order correctly. The planner was already raising top-up orders on it. The next step was the re-forecast based on the trend of the last seven and 14 days. That goes to our supply planner, who turns it into a demand forecast of the units required to hit that number.

Then we talk about it in S & OE. Our executive wanted to make sure we understand who's accountable, when we need to make the decision, and what the revenue and contribution impact is. None of this means I stopped caring about spend. Back in January at that same brand, our spend kept dropping, and in one of our paid media meetings, I said it out loud, that I was getting very stressed out about it.

Efficiency was doing okay, better than it was, but I was afraid that if we kept letting it drop, eventually that domino effect was going to come through and affect everything. The less we spend, the less emails come into our funnel, and the less email revenue comes in from flows. So I still want to push growth. What changed for me is being much more deliberate about the target we're pushing toward.

Now I want our contribution margin target set, as a percentage and in dollars, so we're not making the mistake we made when we pushed to $ 100 million. We need to set our targets and not get so carried away with just revenue. I treat every penny like it's my own, especially on the ad accounts. The target isn't something I set once and forget either.

There's a set of numbers I like to track every week. Contribution margin dollars, MER, AMER, cost per purchase, and 30-day LTV. That's what tells me where the business stands, whether we're healthy and whether we're hitting our target. If you're deciding how hard to scale this Q4 and want direct access to me to work through it inside your own business, join me in the growth board group.

The link is in the episode description. I'll see you in there.