And for both physical and online stores, this margin covers the costs of the delivery trucks and warehouse systems. These are needed to get the products from Distribution Centres (DC) on to the retail or virtual shelves where shoppers can buy them.
The retailer margin also covers all the computer and payments systems that process transactions and manage refunds and returns.
When you are selling direct online, the extra sales value you make per order needs to cover ALL these costs that the retailer normally covers.
When you calculate all your D2C costs as we will do below, if those exceed the margin you give away to a retailer, then consider very hard whether D2C is the right option for you.
Online store cost 1 – Credit Card Surcharge
So let’s go back to our $15 D2C profit on ice cream. First off, it’s unlikely we’ll receive $25 for the ice cream as the consumer will almost certainly have paid by credit card. And paying by credit card incurs a surcharge that you as the seller in this case would normally pick up. It is normally between 1% and 3% so let’s say 2% for this example. 2% of $25 is $0.50 so our $15 is now $14.50. All still good.
Online store cost 2 – Delivery from warehouse to doorstep
Here’s where it gets complicated. How much will it cost to get your product from your warehouse to the shopper’s doorstep?
If you were to use Australia Post’s current ‘standard’ offer, a small satchel delivery under 5Kg would cost $8.95 plus the cost of the satchel. And it takes 2 to 5 days to deliver within the same state.
So, there’s two problems right away. The $8.95 delivery charge would take our profit down to $5.95. Less than the $10 we were making selling to the retailer.
And it takes 2 days to deliver without factoring in temperature control, Which for a product like ice cream in a country like Australia is important.
So, what about a courier or delivery company?
We’ve worked with several of these types of businesses in the past. DHL for example.
These companies can manage the temperature issue. They will have refrigerated trucks and warehouses in their systems. And they can generally do same or next day delivery within the same city. Great. However, to provide this level of service, they will charge a delivery fee per order which will be anywhere between $12 and $20 (or more) depending on the delivery circumstances.
So our delivery charge could in theory wipe out ALL our D2C profit.
This last mile cost as it’s often called, can be one of the most challenging aspects of online store cost planning. You can read more on that subject specifically in this article in our blog section.