I received my order from Dollar Shave Club today. I was eager to see how this product was and write a review because if more people focused on making just one product really good, affordable and accessible (like Netflix with movie rentals) it could really take the consumerism out of necessary consumption and remove some of the marketing mystique that itself makes products so expensive.
If you don’t know what Dollar Shave Club is have a look at this video:
Here is the envelope I received in the mail:
I ordered the Humble Twin blade, which costs $1 per month plus $2 shipping and handling. Very good deal.
This is what comes inside the package:
The handle part is very well made and feels firm, not light and flimsy like I worried it might be.
The twin blades are very small in height, though I don’t mind that really as size isn’t important really as they are the same size in width. The first test I did was to try to shave some stubble without any water or shaving cream. A very sharp razor can do this somewhat. This worked ok on certain parts of my face but not on others. Then I added some warm water. Worked a little better on certain parts of my face (cheeks and neck) but not so well on the chin or upper lip. With shaving cream the razor worked fine, but does need to be rinsed often.
I’ve used shitty disposable blades, and the razors from dollar shave club are not these. They aren’t Gillete Mach5′s either though, at least the double blade isn’t.
I think this is where their business plan becomes clear, and I don’t mean that they are doing anything dishonest, but I think they want to get people in the door with the Dollar Blades, which are usable but not great, and then have them upgrade to the 4X, which costs $4 more for only two additional blades but one less cartridge per month, or The Executive which has 6 blades for $9 per month but you only receive 3 cartridges.
Here is the cost breakdown:
The Humble Twin
$1+$2 S/H= $3 = 5 cartridges, 10 blades total= 10 cents per blade
$6 S/H included, 16 blades total, 4 cartridges= 37 cents per blade
$9 S/H included, 18 blades total in 3 cartridges= 50 cents per blade
Clearly, the best value here is the Humble Twin, though I don’t think it will work for many. The next best value is the 4X, which I think i’ll upgrade to.
Dollar Shave Club is such a great business idea because we all need razors and we all think they are more expensive than they need to be.
So how do they make money??
How Dollar Shave Club Makes Money
I’d imagine their business costs look like this:
The Humble Twin
- .60 cents FOB Los Angeles Port from Guangdong, China for the entire package, including the insert and envelope.
- 30 cents for shipping to their fulfillment center(s), overhead and labor (order processing, packing, shipping) per package.
- $1.50 for shipping to your door (rates for the 3 oz package arehere at $1.95 though this was shipped through a company called Endicia which offers volume rates for businesses. Judging by discounts my company receives on shipping a similar volume, i’d say my estimate is close)
So on the Humble Twin, Dollar Shave Club is only making about .60 cents per order, but if you consider that hundreds of thousands of people ordered it, even if we consider this a loss leader they are still not losing money. Let’s say 500,000 people ordered this. 500,000*.60=$300,000, per month. That this is a reoccurring subscription product $300,000 per month works out to about $3.6M per year in profit. Not too shabby.
Ok, but this isn’t really where they make the money. The real money comes on the upgraded models.
The 4X probably costs an additional .25-.50 each to make not just because it requires more materials but because they order in far less volume than the Humble Twin, which we will now probably file under the Marketing line in the P&L and not the Cost Of Goods Sold. That said, they’re pulling in an extra $3 net profit for each one, which more than covers the extra cost.
So let’s say that the Executive costs $2 each to make, $2 dollars to ship. They’re pulling in 5 dollars profit on each Executive razor set, each month.
If Dollar Shave Club can convert 50% of the 500,o00 to the 4x, 25% to the executive, retain 12.5% at the Humble Twin level and lose 12.5% per month their business now looks something like this:
250,000 (4x)*$3= $750,000/month net profit
125,000(Executive)*$5= $625,000/month net profit
62,500(Twin)*.60= $37,200 net profit per month
$14.2 Million Net Profit Annually
As you can see, they really aren’t in the business of selling dollar razors.
I hate to make this in any way political, but sometimes people need real life examples and this a small example of why capitalism breeds competition and innovation and why it helps everyone win, especially the average joe and the average small business owner with a good idea.
Imagine if the government made laws that razors, since they’re dangerous (can spread disease and cause injury) must only be made by companies with certain certifications, expensive certifications that only a large factory can bear. While this might sound like the government is trying to help you stay safe, most likely it’d be the big razor companies behind such legislation. And how does legislation happen? One news story is all it takes sometimes. Would it be beyond the realm of possibility for a big company to hire someone to fake an injury and cause an infection in order to push such legislation? When we’re talking about billions of dollars? I don’t think so. This is why collusion between government and industry is such a problem.
I’m in no way being endorsed by Dollar Shave Club, though if you click any of the links pointing to Dollar Shave and sign up for the service, I will receive a free month of razors. If you knew what pathetic facial hair I have you’d think it was an insult for a man like me to have to pay for shaving, so yeah, go ahead and sign up.