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D2C vs Wholesale vs Marketplace for sports and outdoors - financials

Comparisons of sample P&L / income statements when selling through different routes to market in sports and outdoors.

Author

Derek O'Sullivan
December 19, 2024

Hi Outdoors Crowd, and welcome to our inaugural Thursday newsletter which will be focusing on one aspect of ‘the business of sports + outdoors’. Our little outdoors industry newsletter is growing up.

There was a feeling that our Tuesday newsletter was getting a little too long, as it had drifted to 2,500 - 3,000 words plus. So, Tuesday will now be our deep dive into a different brand at 1,500 words max, while Thursday will become about one specific aspect of our business, 1,000 word max, which I hope to be able to shed a light on through thorough research, and experience.

There will be one detail topic per month. So for example, this January is about the finances of business in the sports and outdoors industry, starting on January 9th, for 4 x Thursdays. February is Product / Market fit month, and March is supply chain and logistics month. April is sales and Marketing. We’ll be citing external examples, and, mostly, our own experiences. Frankly, this will be the newsletter that I wish I had 10 years ago, when we started CRUA.

So, the flip side is that, to do this correctly and usefully, we will have to incur a time and monetary costs. So, we’re planning to launch a subscription for the Thursday NL, Tuesday’s one will remain absolutely free as it is just my own (weekend) time, and something I enjoy doing. Thursday is the more serious side of the industry and something that we must invest in. We’re planning to introduce a $39 per month charge initially and we hope this can fund what we need. There won’t be any annual plan yet, as I want to see how Q1 pans out, and to make sure you’re getting value from what we produce. For that you’ll also get access to a specific weekly community one hour call/webinar, where community will set the agenda, based on specific topics of your choosing. And, you’ll gain priority access to new business tools that we’re generating.

More on this later. I just wanted to introduce the plans to you and also to say thanks for reading throughout 2024.

So, on to today’s subject.

P&L/Income statement variances between D2C, wholesale and marketplace selling

First, the differences to consider can be considerable. Most important to note:

D2C

  • Marketing costs are much higher and can be 25%+ of revenue, and then some. Be warned. This can spiral out of control.

  • That’s excluding the actual agency costs - e.g. Google, Meta, Email, etc. These add up.

  • Staffing costs can be much higher due to the costs associated with doing digital properly.

  • No deposits or the like - you get paid when you sell - think cashflow and the difficulty in getting debt for this business model without guarantees.

  • Ship in costs AND ship out to customer costs to consider

  • Direct costs can be as high as 10% or more (depending on sales channels)

D2C contd. (marketplace)

  • Amazon, for example, takes 15% as their fee, plus shipping, plus marketing (allow 12-15%), warehousing if FBA and some other costs. It also applies penalties for warehousing slow moving product, etc.

  • There is also a high skill requirement in setting up Marketplaces properly - something that can be skimped on. So staff or agency costs can be much higher.

Wholesale

  • Higher warehousing costs

  • Trade Shows and/or much travel become a must - think time and money costs

  • Reps will usually be required, either direct or contracted. They will take a % and can be very hard to manage as, from our experience, they will focus on the proven easy sells

  • Outdoor retailers have to drive a hard bargain on margin.

A very basic and simplified example:

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What do you think of the new plan for 2025 as outlined above - that is separating the content etc.?

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What about below the line? That is, any potential differences in fixed costs. Let’s compare again:

And what about the marketplaces? Why use them at all?

First of all, if selling in the US, a brand cannot ignore the fact that Amazon is a huuuge elephant in the room.

So any brand would be naive to ignore them, unless they have a good reason. Remember - the marketplace will provide a TOFu. Conversion rate is about 3 x higher. And you can learn the rules of a pre-defined game. Take note.

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So, throughout January we’ll be diving much further into the varying business models that should be planned/incorporated, depending on routes to market. Note that the above is over simplified, for intro purposes. We’ll dig into the percentages much further next month.

In the meantime, thanks for reading. And feel free to reach out with any feedback on [email protected]

You can read the rest of our posts here. You can also sign up on the same link.

Regards,

Derek O’Sullivan,, CEO and founder of CRUA