Dollar Shave Club Business Model & How does it make Money – Unicornomy
About Dollar Shave Club, Founders, Funders and Facts
Dollar Shave Club is one business model example which is what I personally call as a Scavenger Business Model i.e. some business that is typically founded and grown to infiltrate a larger competitors market share and ultimately be sold to some larger company that can actually make sense out it. Unilever recently did prove this theory correct by buying out Dollar Shave Club (DSC as it is popularly called as) at $1 Billion i.e. 6 times its discounted annual revenue forecast.
Let’s see Dollar Shave Club Business Model now.
Dollar Shave Club is based in Venice, California that delivers primarily & personal grooming products straight to consumers by physical mail. They have conveniently positioned themselves as a cost-efficient & convenient alternative to retail chains. The products arrive monthly in a box with certain specials. Pricing is straight as a subscription SaaS model.
Dollar Shave Club Founders : Dollar Shave Club was founded by Mark Levine & Michael Dubin. They were at a party frustrated with the high price of razor blades (primarily Gillette which P&G paid $57 Billion for). With small portion of own money & Science Inc.’s investments they started & launched their website in April 2011.
Dollar Shave Club Funding : Dollar Shave Club is backed by marquee investors including Kleiner Perkins Caufield & Byers, Andreessen Horowitz, Shasta Ventures, Venrock, Comcast Ventures, New World Investors and Battery Ventures for appx $160 million. On July 19, 2016, Dollar Shave Club got acquired by Unilever for a $1 billion in all cash deal.
It’s the fourth-most valuable acquisition for a VC backed startup and it’s a tall tale about if at all the consumer products industry can get a internet business model right.
Dollar Shave Club Business Model
Dollar Shave Club Business Model is a prime example of the mail-subscription business model example that works on simple unit economics.
The cost of material + shipping and handling * 1.X = Subscription price of the pack.
Before knowing the business model of Dollar Shave club, let’s look at how does dollar shave club work to better understand its operations.
Read One More Scavenger Business Model : Jet.com Business Model
How does Dollar Shave Club Work
How Dollar Shave Club works is pretty simple. Just visit their website, select the plan that suits your grooming needs, pay, downgrade / upgrade any time you want and receive the package by mail every month by mail.
DSC offers three plans: “The Humble Twin” (two blades per razor, five razors per month, $3 per month), “The 4X” (four blades, four razors, $6), and “The Executive” (six blades, four razors, $9). Each pack comes with a compatible handle. The price includes shipping and handling charges as well.
The company has introduced various related grooming accessories like shave butter, wet wipes & man-moisturizer.
Dollar Shave Club Business Model
Business Model of Dollar Shave Club is primarily trading.
You got that right!
Trading i.e. buying something cheaper and selling it at a mark up. Dollar Shave Club buys their blades from Dorco USA (who makes it in South Korea). Since they are buying blades in such huge quantities, it makes sense for Dorco to give extensive discounts to DSC which in turn reduces the cost of goods sold (COGS) for DSC.
Business Model of Dollar Shave Club via Subscription Sale
Dollar Shave club procures stuff from economical vendors and then marks up the stuff and ships it to the customers.
The company has introduced many other horizontally integrated products in the subscription sale that actually have higher margin as compared to blade and razor sale.
How does Dollar Shave Club make Money
There is an economics theory that runs behind the working of Dollar Shave Club – called the disruptor theory. Essentially DSC is a disruptor breaking into a highly profitable industry from the lower end of the price curve. It’s typical for incumbent large organizations to (either kill them in a price war or) absorb these smaller competitors when they’re still relatively smaller.
Dollar Shave club makes money from arbitrage arising out of COGS and Unit Sale Price.
How Dollar Shave Club makes Money via COGS
COGS is Cost of Goods Sold.
For DSC COGS will comprise of:
- Unit Cost of Package Content
- Shipping Costs + Box Cost
- General Overheads (Salary and All divided between number of units sold)
Unit Sale Price = Either of 3, 6 or 9$
The corresponding Unit Economics will be Unit Price – Corresponding COGS and this is where DSC will end up making money. As of now DSC does not retain any money in the company and uses that as marketing money to drive more visitors and customers to the website to ensure more conversions.
How Unilever will make money of Dollar Shave Club Acquisition?
DSC is of ZERO Importance to Unilever in terms of sales of Razor and Blades.
You got it right! ZERO Importance.
They only bought this because of their existing customer base of 3 million subscribers. The brand value that DSC has built up over the last 5 years is of extreme importance to Unilever to make a dent in P&G’s market share (though at a lower price point).
Most of the times large organizations buy out small organizations just to dent out the other larger player in the market and this is exactly what it means to Unilever. Seeing this P&G has also launched Gillette Shave Club to contest DSC’s market dominance in the supplies via mail business.
Hope you guys have enjoyed this let me know what you think of my scavenger business model theory!
Disclaimer : All views about Dollar Shave Club Business Model, How does Dollar Shave Club make Money and How does Dollar Shave Club work are completely personal. All brands, brand names used are property of the respective corporates.