The critical importance of dtc unit economics

29 Sept 2025 · 1 min

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Short excerpt from a YouTube video by Matthew Kelly focused on D2C unit economics. The speaker emphasizes the importance of average order value (AOV), gross margin, and acquisition channel fit (e.g., using Meta). Recommends minimum gross margin of ~50% (ideally 60–70%), warns that low-margin businesses (~20%) are likely to fail, and suggests heavy products (e.g., a five pound product) may not work well on D2C due to high acquisition/shipping caps. Founder skill set, product, and TAM are also noted as determinants of scale.

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And I'd also always come back to the unit economics. For example, I don't know, a five pound product will probably never work on D2C because you want to use Meta as your main acquisition channel and the cap would be too high. Generally speaking, there's basics like AOV gross margin that are going to define if something could work, and then the product and TAM and ultimately the founder skill set will define how well it works and at what scale. I think you want to be minimum like 50% plus in any business, ideally like 60 to 70%, which is where we are. I've seen businesses, and there was a big famous one in the UK naming no names that recently went into a administration, which is business bankruptcy, but the gross margin on that business is like 20%. Was born to fail from day one in my view.