Dollar Shave Club Business Model: Simple, Yet Effective!
Dollar Shave Club burst into the scene in 2011 with a minute and a half long promotional video staring the CEO of the company, Michael Dubin. The video went viral and the web server of the company’s website crashed due to unexpected amount of traffic. Once the servers got back on, the company with help of friends and private contractors fulfilled the 12,000 orders that came in the first 48 hours. That’s how the Dollar Shave Club picked up pace and the Dollar Shave Club business model got famous.
You would not believe it, but the idea of Dollar Shave Club was conceived when the founders, Mark Levine and Michael Dubin, met at a party and complained about the exuberant prices of razor blades. They decided to make cheaper razor blades that were of good quality. Hence, the pair setup the company in January 2011 with their saved money and investments from the incubator, Science Inc.
Dollar Shave Club Business Model: Subscription
The Dollar Shave Club launched their website in April 2011, and have not looked back ever since. Since the inception of this venture, the company has 3.2 million subscribers. Dollar Shave Club follows a subscription based business model. The company is built like a membership club. Customers pay a subscription fee to be part of the club.
By being a part of the club, the subscribers get new razor blades every month. The amount and type of razor blades depend on the type of subscription. There are three subscription types: ‘The Humble Twin’, ‘The 4X’, and ‘The Executive’. The Humble Twin has two blades per razor and costs $4 per month after shipping and handling. The 4X offers 4 blades, 4 razors and costs $7 per month. The Executive ships six blades, four razors and charges $10 per month.
Not Just Razors and Blades
Initially, DSC only sold razors and blades. However, they have expanded since then. They now offer everything that is necessary for the grooming needs of men. From toothpaste to deodorants, they sell everything.
The company wants to be the one-stop for all your grooming needs. They have a holistic survey available on their website which helps them to make a personalized package for you. They ask a series of questions that helps them to decide the best possible personalized grooming package.
The best part about DSC is that you can choose to cancel the subscription anytime. Moreover, you can opt to remove products from your usual subscription. Don’t need shampoo for this month? Opt out for shampoo for your next delivery.
Furthermore, DSC has a range of hair products and fragrances for its customers. You can also buy shaving creams as well.
Funding for the Dollar Shave Club Business Model
The company was started after the initial funding from founders and start-up incubator, Science Inc. After the company took off, there were various venture capitalists who invested in DSC. Seed investors including the likes of Shasta Ventures, Andreessen Horowitz, Kleiner Perkins Caufield & Byers, and others invested $1 million in the business in March 2012.
More funding came their way in October 2012 when the same group with addition of Venrock raised $9.8 million in series A funding. The next year, Dollar Shave Club secured investment worth $12 million in series B funding. Between the funding announcements, Dollar Shave Club made a statement that they will expand their grooming product lineup in 2014.
Dollar Shave Club received $75 million in series D funding. Moreover, Dollar Shave Club was acquired by Unilever on July 19, 2016, when they bought it for $1 billion.
The Dollar Shave Club Business Model: Revenue Generation
The revenue model of the Dollar Shave Club is very simple, yet effective. The company has been successful because they are known for creating meaningful relationships with their customers. Moreover, it operates more like a club instead of a company.
The customers pay a subscription to be part of the club. Customers pay $1 as an onboarding fee to become part of the club. However, the final cost of the products is typically higher than $1 because of added cost of shipping and handling.
Dollar Shave Club has a trading business model involved as well. The razor handles and other products are brought from Dorco USA which are later re-sold by the company.
Dollar Shave Club is a customer-centric company. They willingly incur losses to bring aboard new customers. It is known as the Dollar Shave Club because they allow new customers to buy anything for $1 to become a part of the club. After the new customer is on boarded, they have to pay a subscription to get new supplies and to continue being a member of the club.
How do they make money?
Dollar Shave Club does not make anything that they sell to the customers. This is something that Amazon did for a while. Everything that is sold is procured from other companies before it is repacked and sold to its subscribers. They receive products for a lesser price because they buy them in bulk.
There model is pretty simple if you look at it. They buy products from other companies and repack them to sell it for a profit. This is an example of the trading business model.
While you are at it, why not learn about other business models as well? Read up on marketplace and aggregator business models over here.
They send new supplies to their subscribers according to the subscription plan. They send supplies monthly, quarterly, or whenever the customer asks.
They bear the cost of shipping and handling for the first sale of a new customer. This helps them to attract new customers and get customer loyalty from them.
Moreover, the cost of the grooming supplies being cheaper than other products helps to drive up sales.
The company started out as a solution for frustration of two individuals. After a series of successful funding and smart marketing strategy, the Dollar Shave Club took off. In the early phase of the company, they only sold shaving supplies, but later expanded their product line in 2014.
They make money by procuring products from different companies and then selling them for a profit. The subscription based model bills the customers automatically when they receive their latest supplies monthly, quarterly, or whenever they like.