I have been working on this business for the last 3 years together with a business partner and we have been growing steadily and profitably (specially since Fall of 2020). However,during the last 3 months we have been struggling with declining sales, an increasing CAC and a big increase in production costs that is taking a toll in our margin.
I am trying to determine if this is just a bump in the road or if my company is letally wounded.
To do so, I am trying to analyze things with perspective and the most objective way possible. Any feedback from other forum members would be extremely valuable.
Some background:
The business is a kids fashion brand selling B2C via our own website. 95% of our sales are in Spain and 5% in Europe and Latam.
Most of our sales (75%) are organic via Google, Instagram or word-of-mouth, around 5% are from email marketing and the rest come from Facebook ads (now we are starting with google ads as well).
Our conversion rate is 1,51% (it generally varies between 1,30% and 1,92%) and 42% of our clients are recurring (the last 3 months even more, 50%). Our returns rate is less than 1% despite our policy of 30 days free returns. Our overhead is low (cheap office and no employees). Our main expenses are fabrics and manufacturing, and some ads.
Things started to get ugly on April ( with -45% sales yoy), it is true that it was a strangely cold April in Spain and that certainly played a role, but then on May and June we were -13% yoy on May and we are -15% month to date (even after advancing sales for a week).
Any significant changes these months? Several.
1) We increased prices between 5-10% in 85% of our products (we are in a mid-high price range (for Spain) but we cannot increase prices much more).
2) Our CAC on facebook ads increased 30%
3) Our organic reach on Instagram (our main source of organic traffic) got slashed more than 60%.
4) Travel restrictions on Easter holidays resumed for the first time in two years and there were 2 long weekedns on May withouth travel restrictions. So disposable incomes of many consumers went mostly there.
5) We had to advance sales season as all competitors did it and it was reflecting on our sales.
6) Our materials costs went though the roof (we mainly work with cotton fabrics).
7) The macro situation as a huge headwind.
As for the sales, 90% of our sales used to come from the baby clothes, and in summer, the smaller sizes generally sell better. However, these months, the sales of baby clothes dropped (except larger sizes) and girls´s dresses became the new bestseller collection (mainly driven by recurring clients).
I believe we are in clear breach of the commandment of control (as a change in the instagram algorithm slashed our web traffic and sales) and we are failing to acquire new clients successfully. If this is the only problem, it is solvable, just a bump in the road.
But my biggest concern is that I believe we may also be in breach of the commandment of need, and, if that is the case, then we will just be prolonging the agony.
What makes me think this? The huge effect our competitors actions had on our sales (like advancing the summer sales) and the higher than expected price sensitivity of our clients. Also the fact that our product is not indispensable, and it is actually one of the first things you cut in difficult times, like the ones ahead.
The number of returning clients and the low return rate and love messages say otherwise. However, if costs keep increasing and I cannot increase prices further, we are doomed...
Any thoughts or feedback is welcome!
Many thanks!
I am trying to determine if this is just a bump in the road or if my company is letally wounded.
To do so, I am trying to analyze things with perspective and the most objective way possible. Any feedback from other forum members would be extremely valuable.
Some background:
The business is a kids fashion brand selling B2C via our own website. 95% of our sales are in Spain and 5% in Europe and Latam.
Most of our sales (75%) are organic via Google, Instagram or word-of-mouth, around 5% are from email marketing and the rest come from Facebook ads (now we are starting with google ads as well).
Our conversion rate is 1,51% (it generally varies between 1,30% and 1,92%) and 42% of our clients are recurring (the last 3 months even more, 50%). Our returns rate is less than 1% despite our policy of 30 days free returns. Our overhead is low (cheap office and no employees). Our main expenses are fabrics and manufacturing, and some ads.
Things started to get ugly on April ( with -45% sales yoy), it is true that it was a strangely cold April in Spain and that certainly played a role, but then on May and June we were -13% yoy on May and we are -15% month to date (even after advancing sales for a week).
Any significant changes these months? Several.
1) We increased prices between 5-10% in 85% of our products (we are in a mid-high price range (for Spain) but we cannot increase prices much more).
2) Our CAC on facebook ads increased 30%
3) Our organic reach on Instagram (our main source of organic traffic) got slashed more than 60%.
4) Travel restrictions on Easter holidays resumed for the first time in two years and there were 2 long weekedns on May withouth travel restrictions. So disposable incomes of many consumers went mostly there.
5) We had to advance sales season as all competitors did it and it was reflecting on our sales.
6) Our materials costs went though the roof (we mainly work with cotton fabrics).
7) The macro situation as a huge headwind.
As for the sales, 90% of our sales used to come from the baby clothes, and in summer, the smaller sizes generally sell better. However, these months, the sales of baby clothes dropped (except larger sizes) and girls´s dresses became the new bestseller collection (mainly driven by recurring clients).
I believe we are in clear breach of the commandment of control (as a change in the instagram algorithm slashed our web traffic and sales) and we are failing to acquire new clients successfully. If this is the only problem, it is solvable, just a bump in the road.
But my biggest concern is that I believe we may also be in breach of the commandment of need, and, if that is the case, then we will just be prolonging the agony.
What makes me think this? The huge effect our competitors actions had on our sales (like advancing the summer sales) and the higher than expected price sensitivity of our clients. Also the fact that our product is not indispensable, and it is actually one of the first things you cut in difficult times, like the ones ahead.
The number of returning clients and the low return rate and love messages say otherwise. However, if costs keep increasing and I cannot increase prices further, we are doomed...
Any thoughts or feedback is welcome!
Many thanks!
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