DTC Briefing: How startups are factoring profit into their Black Friday calculus

Still, many of the direct-to-consumer startup founders I spoke with this year said they are trying to play Black Friday a bit more conservatively this year. In particular, they’re making changes that they hope will result in a more profitable sale. Brands recognize that they can’t sit out Black Friday entirely. But, they are making some changes — like increasing minimum spend tiers or decreasing the length of the sale — that they believe will help them drive more profit while still hitting the sales volume they need to during their busiest time of the year. 

“Profit has been the center of our conversation around BFCM,” said Eric Osman, founder and CEO of DTC stroller company Mockingbird. “To determine our discount this year, we modeled out the profit we expected from various discount scenarios and selected based on that.” 

To be sure, many direct-to-consumer startups are still trying to entice people with aggressive offers to ensure shoppers spend at least some money with them this holiday season. DTC lingerie brand Third Love is offering up to 50% off everything on its website and an extra 25% off orders over $125 or more. Solo Brands, which reported that net sales were down 14.7% year-over-year during its third-quarter earnings earlier in November, is running a variety of early Black Friday deals for its marquee brand, Solo Stove. Solo Stove is advertising 30% off fire pit bundles but is also offering free tools with every fire pit and giving shoppers 20% off if they buy two or more accessories. 

But for startups that don’t have aggressive growth targets to hit to appease investors or Wall Street, many are trying to prioritize profit almost as much as sales volume this Black Friday. “I think this is very much a function of the tighter capital markets right now,” Osman said. “It’s better to be protective of your profit and cash because there’s less availability.”

It helps that many DTC startups are also now armed with several years’ worth of Black Friday data, so they have more intel on how various discounting scenarios have performed over the years. 

Take the activewear brand Mack Weldon. The brand launched in 2011 but didn’t offer discounts for Black Friday until 2021. Mack Weldon’s CEO and founder, Brian Berger, said in the early days, he was “pretty vigilant” about the fact that Mack Weldon wouldn’t have sales, though the brand did have a buy more, save more model along with a loyalty program that offered some discounts to big spenders. 

Mack Weldon wasn’t alone in this approach. For years, many DTC brands like Allbirds didn’t offer discounts on Black Friday, which they saw as a way to promote their brand equity.

Three years ago, however, Mack Weldon acquiesced and started offering discounts for Black Friday. “Just generally speaking, the entire marketplace got way more promotional, and it became very hard to break through without having an offer,” Berger said. 

For the past three years, Mack Weldon has offered a tiered promotion where customers get a bigger discount based on how much they spend. “We do that mainly to ensure profitability.” This year, Mack Weldon is actually raising the minimum spend for each tier by about $50. 

The reason why Mack Weldon is making that change, Berger explained, is because the brand believes it will result in a higher AOV. Ultimately, Mack Weldon hopes the sale will become overall more profitable, even if conversion rates decrease slightly because some customers are turned off by a higher minimum spend. 

Over the last few years, Mack Weldon has found that a tiered promotional structure sees more uptake among existing customers compared to new customers. “We are not interested in acquiring hyper-promotional customers because they are generally not loyal customers,” Berger said. “You may be acquiring revenue, but you’re not really acquiring a long-term valuable customer.” 

Still, brands attract different types of customers on Black Friday depending on what category they operate in, so a tiered sales structure doesn’t work for every company.

Mockingbird’s hero product is its stroller, a product that expectant parents spend hours researching. So Mockingbird held off on doing a Black Friday sale for years because the company believed that most parents were dead set on what type of stroller they wanted to purchase and when and didn’t think that a Black Friday discount would sway people that much. 

Mockingbird launched in 2019 and held its first Black Friday sale last year. The company offered $50 off its stroller, which amounted to an approximately 10% discount. “It sounds silly in hindsight to say… but we sold so much more last [Black Friday] than we thought we were going to,” Osman said. 

For Mockingbird, the lesson from last year was that it could offer a slightly higher discount this year and still hit the profitability benchmarks needed. This year, Mockingbird is offering 15% off its two main hero products, its stroller and its high chair. 

In order to come up with its Black Friday discount this year, Osman had his team model various scenarios based on incremental profit — that is, what type of uplift in profit would in running a certain discount during Black Friday and Cyber Monday, compared to if it did nothing at all?  

There’s no formula brands can use to figure out exactly how much profit or revenue they’ll drive for any Black Friday discount. “You start just kind of taking whatever data you have from the past to try to help inform what are essentially just guesses on what’s going to happen in the future and trying to just kind of make the most educated guess you can,” Osman said. 

But ultimately, what brands are trying to do is ensure they don’t exit the Black Friday period with any regrets — particularly during a year where inflation is still high, capital is still constrained and it’s unclear what type of economy next year will usher in.

“The last thing you want is to end the Black Friday period seeing not as significant on the sales lift as you need to make your discount pay off… then there’s really no going back. That’s a position that we’re really trying to avoid,” Osman said. 

What I’m reading

• Retail sales rose 0.4% in October, largely driven by an increase in auto sales, though electronics and appliances stores also saw a notable sales increase. 
• How Yeti, E.l.f Beauty and more are prepping their supply chains for Trump tariffs. 
• Hims’ stock price fell by as much as 18% on Thursday after Amazon announced it was getting into the hair-loss drug business. 

What we’ve covered 

• Western wear brands like Ariat, Tecovas and Filson are seeing a sales and awareness boost after the “Yellowstone” premiere. 
• How brands like Therabody are updating their websites for a mobile-first holiday shopping season.
• Amazon’s Temu competitor, Haul, which just launched last week, is already littered with nonsensical AI images.