💸 Scaling from $0 to a 7 Figure Brand: The Ultimate Guide to Product Pricing

What up!

Welcome back! If you’re a first time reader, well.. thanks for joining us. You may want to check out some of our previous newsletters - last week we wrote about the Storytelling Playbook 8 Figure Brands Are Using to Acquire Customers.

And a couple of weeks back, we went deep into the world of Micro Apparel brands and broke down their marketing strategy (some are using it to scale to 9 figures a year) - check it out here.

While we were putting together this newsletter, I realized I wanted to provide more of a tangible guide this week. Something in depth to clear up the misconceptions around pricing and most importantly, how to price products to scale a brand as well as price for distribution. Mostly, so you don’t end up dropshipping $10 widgets on Ebay.

This one will be a little different, more granular & detailed, and there will be math involved. But it’s fun math that will fill up your bank account, so it’s all good.

I’ll run through some specific examples of a company using this strategy and the advantages/disadvantages of pricing your products for different sales channels (Shopify Store versus Amazon versus Ebay etc.).

I’m also going to run through the most common ways large brands drive traffic and acquire customers, what their distribution looks like and how pricing affects what channels they start selling on and how they design their products.

If you’re new here, this is the Up Next newsletter where we bring you the latest data, trends and storytelling to help you launch your own products and brands that actually make money.

My name’s Ken, my Ecom brand has now done close to $50 million in sales and my team does research for some of the biggest brands on the planet.. then we take what we’ve learned and share it here with you!

As per usual, before we get started I’d love to grab some details from you..

These polls let me know what to write about every week, as well as some of you are asking for consultations, some of you are requesting us to review your brands & strategies and others just want an all inclusive course or service.

We’re not sure the best way to go about it so..

Vote below and let me know the biggest problem you’re facing at the moment..

Appreciate ya and your feedback! Today we’ll be looking at…

• The most common pricing errors brands make when launching - that essentially guarantee failure 😬

• The best strategy to price your products and the importance of distribution

• A walkthrough of a company using this optimal pricing strategy to make millions on shopify and $2.5 million per month on Amazon 👇

The 2 Most Common Mistakes Brands Make When Setting Prices

Almost every startup brand I’ve come across makes 1 of these 2 pricing mistakes when launching. It doesn’t mean it’s the kiss of death for the business, but it becomes incredibly difficult to put the vehicle in reverse and turn things around after you’ve setup the wrong pricing strategy.

1. The Low Hanging Fruit - Pricing for Amazon’s Algorithm

I love amazon. I love buying there, and I love selling there. The issue is, the feeling is not mutual. Amazon’s algorithm is designed around conversions and often that means the lowest priced products make it to the top.

Most brands launch on Amazon first because of the easy distribution. Send your products to the warehouse and let them handle the rest.

This presents a few issues. You’re now competing with the other lowest priced sellers in a race to the bottom to get the most exposure. Overseas manufacturers and trading companies have the ability to LOSE MONEY because they’re able to make it up in other ways that you aren’t.

We’ve had competitors on there running at a loss for years (no B.S. I wish I was joking). We sell at 2x to 3x the price of most of these competitors and are one of the few profitable brands in our space.

We’ll get more into the strategy of how to price at 2x your competitor’s products in a minute, for now, just make note that pricing based upon amazon’s algorithm is a race to the bottom.

It also makes distributing your product on other platforms or retail stores nearly impossible. This is because there’s no margin left to acquire customers or sell to retail stores based on your amazon prices.

A brand may be selling 500 widgets a day on amazon with $1.50 profit per unit, but that profit is a huge loss when selling in Target, Walmart or trying to acquire a customer through facebook ads.

They’re beholden to the almighty Bezos, which speaking from experience is not a great place to be.

2. Pricing Based on Competitors

The reality is, you really have no idea what’s happening within the back end operation of your competitors. They could be losing money while raising venture capital funds and not making profits. They could have massively over ordered inventory and they need cash so they sell at a loss. They could have a profit share with their factory and get products made cheaper than anyone else.

Without knowing any of these for certain, it’s extremely difficult to price your products based on what your competitors are doing.

With that said, once you have a better understanding of how to calculate profitable prices (the fun math I mentioned), you’ll start to get a much better idea of why your competitors make certain decisions, who’s profitable and the overall best strategy to take in terms of building a profitable brand.

A Holistic Approach: Pricing for Distribution

Distribution is One of the Most Underrated Forms of Moat

What is “Moat” you ask? It’s a unique, intangible in business that separates you from competitors and makes it incredibly difficult for them to catch up. Much like a Moat around a castle, it’s a defense for your business that’s extremely difficult to penetrate if competitors want to take marketshare from you.

Why is distribution a great form of Moat? Not too long ago, a brand’s moat used to be manufacturing, but anyone can go onto alibaba and drop ship or order an item and then list that product on Amazon, Ebay or Etsy within a month.

There was a wild west season for the past decade where you could arbitrage bamboo utensils from Alibaba, mark them up 10x on Amazon and make 6 figures a month. Those days are long gone, despite what the rented Lambo boys tell you.

So how does distribution create Moat? Well, not everyone can bring in customers through multiple channels. In fact, the more ways you’re able to onboard customers, the more you can scale in ways your competitors won’t be able to. As mentioned before, if a competitor is stuck on Amazon and you’re able to sell on your shopify store, amazon and retail stores, they really can’t compete.

They would have to re-work their entire pricing and marketing strategy and start from square one. They should have read this newsletter.

It’s also the ultimate form of longevity and security. If you rely on 1 channel and it goes down, you’re out of business. Companies relying strictly on Facebook Ads or Email Marketing or Amazon can get the plug pulled overnight and lose their business. Not a great place to be in when you have 6 or 7 figures worth of inventory invested.

More distribution allows for more customers and more sales and a business worth much more when it comes time to sell. It’s also great for peace of mind and good sleep.

Your product should be designed around your distribution strategy.

Understand before you design a product, you’ll want to outline the best possible distribution channels for your business. If you’re not going to sell a $10 Widget on Amazon, you’ll need to have better design, branding and marketing strategies to retain customers and command a $50 or $100 price point.

You can then build the features into the product that would allow a customer to pay 5x to 10x that price. It doesnt have to be anything fancy, it can be an extra feature that’s dedicated to a specific type of user (Think Big & Tall jeans versus regular jeans).

I would suggest starting niche to an unspoken to market, price accordingly and sell in the channels they hang out.

Some Simple Numbers You’ll Need to Know:

Contribution Margin - Contribution margin is how much margin is left over after the expenses associated with manufacturing and getting your product to a customer. Here’s how it typically breaks down..

Contribution Margin = Your total revenue - Variable Costs (fulfillment, cost of goods/production, and payment processing fees)

Ex: $100 Net Revenue - $20 Cost on Goods Sold & Production + $7 Fulfillment + $3 Payment Processing Fees = 70% Contribution Margin

Often times, businesses will include advertising fees into those Variable Costs as well. The main takeaway is a strong contribution margin, 70%+ not including advertising, or 30%-50% including advertising costs, is the key to a successful business.

If we use the benchmark of 70% C.M. not including your advertising costs, you have a ton of room and margin to acquire customers through paid ads. 70% to 80% C.M. is a great benchmark to start with in my opinion if you’re trying to pencil out the numbers on your brand and pricing strategy as you get started.

If your contribution margin including advertising is 40%, the only thing left is your operating expenses allowing for huge profit margins and cash.

AOV & LTV (The Higher the Better) - Your average order value and Lifetime customer value. If a customer on average spends $100 per order, that’s your store’s AOV. The lifetime value is what each customer is worth, if they on average purchase twice from you at that same $100 AOV, your LTV would be $200

ROAS - This is simply your return on ad spend. If you spend $100 and bring in $200 in sales, your Roas is 2.0

What is the best pricing strategy for brands?

As I mentioned above, the pricing and distribution strategy will really depend on the product itself, it’s design and where your target audience is. For example, last week in our story telling newsletter, we featured Mid Day Squares who primarily sell through retail.

1. It doesnt make sense for them to sell on facebook because most people don’t buy chocolate online.

2. The shipping and logistics on individual orders becomes a nightmarre because their product must remain refrigerated.

However, most products are not like Mid Day Squares and have much smoother shipping logistics. In 90% of cases, we recommend starting out with some type of content to build demand or primarily running Facebook & Instagram Ads to build demand for the product.

Note that initially, your goal is not to build “brand awareness” - you want to drive sales, profits and a return on your investment. The Brand awareness spend is a huge misconception and I strongly advocate for a healthy, profitable business before branding any day of the week.

Sending Facebook Ads to a Shopify store is one of the best ways to accomplish this. It gives you a great chance of converting your customers and the highest chance at driving a profitable sale.

This is where we’ll factor in our contribution margin and ROAS.

If we sell a product with an AOV of $100 and a 70% contribution margin, it gives us a lot of room to work with to acquire a customer. We can now profitably acquire customers through facebook ads, collect their emails and sell more to them on the backend, further increasing profits and LTV (lifetime value).

Here’s what you don’t see (and one of the best parts).. Roughly 20% to 30% of the sales you make on Shopify will also spill over to Amazon.

Why?

Many U.S. households have amazon prime and customers often immediately check Amazon if there’s a product they’re interested in.

They trust amazon’s reviews, return policy and reliable shipping times. If you’re profitable through your Facebook Ads and Shopify sales, you’ll actually see a further increase in Return on Ad Spend (ROAS) if you factor in sales from Amazon.

This obviously requires you to have inventory within Amazon FBA, but you’re now off to an incredible start over your competitors who have limited distribution. And the best part is, you’re not competing in Amazon’s algorithm against $10 widgets that are losing money.

Furthermore, Amazon ranks products in it’s Algorithm based on Brand Name + Product Search. For example, Dyson (Brand Name) + Vacuum Cleaner (Product Search) will drive the Dyson product further up in the search results because Amazon recognizes that people are searching for this brand in big numbers.

This doesn’t mean your product will outsell the $10 widget, they will do more volume, but you don’t need to. You need a profitable product making money through shopify, bringing in sales through amazon and now getting access to Amazon’s customers because your brand name searches have the product ranking higher in the Amazon search results.

This is what a real business looks like. Not selling $10 Massage Guns on a 3rd party channel in hopes you’ll one day get reviews and Amazon’s blessing to maybe rank higher. All hail Bezos, but that game gets ugly.. fast.

No, you have multiple channels working for you and you’re building up your brand name through consumer demand. That’s the key part, the product design and ad creatives must build consumer demand and have people searching for your product.

This is also an “indirect” way of branding. People see an ad, with your brand name on it, then look it up and start researching it. It’s much better than random ads or billboards that don’t actually convert.

This is how we run our brands, price our products 2x to 3x higher than competitors and make real profits. Let them get 60% of the customers selling at a breakeven, I don’t care, nor do I want to compete with them.

You also don’t have to launch on Amazon FBA right away.

Focus on 1 strategy, master it, then move on. I suggest Shopify with content and FB Ads, maybe some content partnerships.. then move into Amazon. Continue to double down on your presence with these 2 and further down the line you can look at retail. Don’t overcomplicate things, stick to 1 strategy at a time.

Another suggestion is to focus on a high TAM (Total Addressable Marketcap) niche, which means there’s a ton of customers looking for your products. If you’re selling in supplements or clothing, there’s enough customers where you can make a great living focusing on the top 10% who are willing to pay more.

Combine that with a niche audience and customer focus and you’ve got a recipe for huge success.

An Example of How to Execute…

One company we recently came across doing this well is Lemme Gummies. They’re focused on selling to women in the health space with a line of supplement gummies.

They’re running ads on Meta (here’s a link to their ad Library) with around 160 creatives.

We estimate their website is doing anywhere from 5 to 10 Million per month, depending on the month, and their Amazon sales alone are sitting around $2.5 Million per month.

A ton of this brand awareness is driven through content and Facebook Ads, and there’s countless other companies running this exact playbook. We previously featured Ridge wallets who are also running this playbook and currently doing 8 figures a month on Amazon from the demand creation they build with paid ads and content partnerships.

This strategy really works!

From there, they continue building their community through instagram and putting out amazing content.

Lastly, there’s the retail stores that want to carry products that sell well online. Retail’s biggest fear is being lapped and left in the dust by online retailers, Amazon and Shopify.

You have unbelievable amounts of leverage when speaking with buyers from big box stores (who can place 6 figure purchase orders) and can show them how much you’re selling on Amazon, Shopify, the number of reviews you have and the social following you’ve attained.

Instant Fomo and leverage for your brand.

This is smart distribution in a nutshell and if you look closely you’ll see many brands doing this, not just with Facebook and Amazon but many different paid media outlets and 3rd party channels. We’ll dive deeper into this in our future playbooks and newsletters with more brand features and breakdowns.

If you didn’t get a chance to answer the poll above vote below and let me know the biggest problem you’re facing at the moment so I know what topics to focus on moving forward..

Hope you enjoyed this one and it gave you some insight on how to start a profitable brand. Reply to this email shoot me over your feedback and let me know what you think.

Talk Soon,

-Ken

P.S. I’m opening up 2 slots per month for 1 on 1 consultation calls for brand owners looking to launch new products and acquire customers.

We’ll send you a Google Docs sheet to fill out to get more information about your brand. From there, we’ll research your brand, market, and put together a plan for you; there are only a couple of spots, so if you’re interested, you can book it below..

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