5 Reasons Why Your Perfume Brand Needs to Focus on Increasing Direct-to-Consumer Sales

Direct-to-Consumer (DTC) sales are defined as sales that happen through your owned-media channels. This includes your brand’s website, selling through your social media e-commerce storefronts (Meta Shop, TikTok Shop, Instagram Shopping, Snap Store), email marketing, and online marketplaces like Amazon and Etsy. If your brand wants to prioritize long-term success and create a more diversified set of revenue streams then your perfume advertising campaigns need to be aligned with your brand’s owned-media channels.

Higher Profit Margin

The most obvious reason why your perfume brand should be increasing sales through its website is the higher profit margin. Retail sales involve paying any combination of:

• Wholesalers

• Distributors

• Retailers

• Brokers

• Stocking Fees

• Consignment

After everyone gets a cut of the sale, your profit margin will be thin. Some retailers will only purchase from your brand at 25% MSRP. You can be left with almost no wiggle room for profit. Sales that happen through your website incur far fewer fees. We would never discredit the importance of retail distribution or dissuade a perfume brand from seeking more retail and online retailer distribution. However, it would be foolish to completely neglect your owned-media channel sales, no matter how small of a percentage your direct-to-consumer sales are within your overall revenue.

Comparatively, when making a sale through your website, the only fees you pay are:

• Platform transaction fees (average of 2-4%)

• Storage, packaging, and shipping (flat rate pricing which amounts to $10-18)

An optimized in-house logistics system can reduce these fees even further. A Third Party Logistics (3PL) warehouse can also be a viable solution for perfume brands looking to reduce storage and shipping costs.

To put it simply, the more times your product changes hands before the final sale, the smaller your profit margin will be. While revenue is nice, profit margin is what allows your business to grow. You should be doing everything within your power to increase this margin. While it is inevitable that profit margins get compressed as brands scale, the extent to which margins get compressed is controllable.

More Brand Touch Points

When a person buys a perfume from your brand through a department store, the only interaction they are guaranteed to encounter with your brand is with your product packaging. They may have visited your website or seen your brand’s socials, but nothing is certain.

When you control the sale from beginning to end then your brand has full control over:

• Point-of-Service messaging and user experience

• Including promotional materials and extra gifts in the order

• Outer packaging

• Fulfillment and accompanying customer service

• Customer information

These extra brand touchpoints provide a greater opportunity for your perfume brand to surprise and delight customers and build a stronger connection with them. This is completely forfeited when the sale occurs through another non-owned sales channel.

You Own the Customer Information

When someone makes a purchase through your website, you get access to the requisite customer information. This includes the customer’s phone number, email address, physical address, name, device, browser, operating system, number of previous purchases, and more. What you can do with this information will differ based on the regulations of your country, however, this information can significantly help your business in a multitude of ways including:

• Retargeting for paid advertising

• Direct mail campaigns

• Reward loyal customers and incentivize your own brand’s loyalty program

• Promote social media

• Email marketing

The Stability of Owning the Sales Channel

What if a retailer that carries your brand decides that it no longer wants to carry your brand? Or an online retailer decides to increase its transaction fees or stocking fees and suddenly you are no longer profitable selling through them? You are at the mercy of other businesses discretion, and if their self-interest no longer aligns with your perfume brands then you can lose huge chunks of your distribution and revenue overnight. These things happen all of the time. Not only is this a possibility, it is almost inevitable considering how frequently we see changes in the fragrance industry and consumer preferences.

We have seen this scenario play out countless times with Apple. Apple will release a native feature that provides the exact same functionality as a 3rd party app, essentially bankrupting the app overnight since you no longer need to pay for the app to get the same functionality natively.

The less that your business relies on marketplaces and other companies, the more stable your business is and the more durable your revenue is. One of the best ways to passively bring in more search traffic aside from brand marketing, is to focus on search engine optimization (SEO).

The Brand is Worth More During an Exit

In 2022 there were 29 different acquisitions in the cosmetic and fragrance sector, with the rate of acquisitions expected to increase in the next decade as the fragrance market continues to grow at a CAGR of 6.07%. Even if your niche perfume brand is nowhere close to seeking an acquisition… even if you don’t plan on ever selling your brand, it does not hurt to plan ahead and diversify income streams.

I am not an M&A lawyer and I don’t pretend to be, however, I have listened to other business owners and individuals involved in private equity discuss the aspects of a business that make it more valuable during an exit.

Two major factors that can affect the multiple that you can sell a business for include:

Revenue diversity: How many sales channels does your business generate revenue through? The more revenue channels your business has, the more highly valued it will be in the eyes of a buyer. A company that is entirely reliant on Amazon for sales will score very low on revenue diversity and will command a much lower exit multiple than a business that derives 20% of its revenue from 5 different revenue channels.

Profit margin: The profitability of a business is an obvious factor when determining the overall worth of the business. A business that has 19% margins will be viewed much more favorably than a business with a 7% profit margin.

Both of these aspects of a business are directly enhanced by increasing your direct-to-consumer sales. Perfume brands that are looking to build a thriving business need to place more energy and attention on their DTC sales channel.