How to Save Your CPG Business in 4 Steps
I’m Ryan Gaines, CEO of Everly Drink Mixes. Water is life and we’re on a mission to help people drink more of it. Think of us like the Whole Foods version of Crystal Light. Our drink mixes are sugar-free, packed with flavor, and made with the cleanest ingredients out there. To stand out and create a profitable business, we only sell online and in cost-effective bulk packaging. Our sales are $50k per month and we are now profitable.
While Forbes and Entrepreneur magazine make many ventures seem like an overnight success, I’ve learned that entrepreneurship is rarely so. I’m sharing Everly’s story from the beginning, which is full of tough decisions (can we make payroll? should we shut down the company?), hard lessons to swallow, and the ups and downs along the way. I hope that sharing my story can help other entrepreneurs understand the challenges that lie ahead and give them the courage to make those tough decisions when the time comes.
Step #1: Take time to think critically about your business
I joined Everly when the company was just a couple of years old. After launching with a successful Kickstarter in 2013, we were in nearly 1,500 retail locations with 3 different flavors of drink mixes.
But in early 2016, we realized that something was wrong.
We were adding retail locations, launching new products, and growing sales. At the same time, we were burning through cash faster and faster and our sales per store were stagnating even while we were investing hundreds of thousands of dollars in marketing.
We knew something had to change, but we didn’t know what. We booked a cabin in rural Tennessee and the two founders and I left for a long weekend to figure it out.
We quickly identified some key problems with our business model :
- Our gross margin was too low and our price point was too high
- We didn’t know enough about our customers and didn’t have a direct way to get feedback
- Our marketing options were limited to expensive campaigns and we couldn’t target specific customer groups
- Our products had high minimum order quantities and long development cycles
We used a giant notepad and colored sharpies to map out these systemic issues. This made us realize that most of our issues stemmed from our reliance on traditional retailers for distribution.
Take the time to think critically about your business so you can identify flaws in your strategy and pivot before it’s too late.
Step #2: Act fast
The next day we launched an eCommerce store with a live chat feature. Our goal was to learn as much as possible about our customers and what they loved and hated about our product. After hundreds of chats, calls, and emails we started to see some patterns:
- Many of our customers switched to Everly from another product that was high in sugar or artificial sweeteners
- Customers wanted to use Everly multiple times a day, but it was too expensive to use frequently
- Some people preferred more or less flavor than the recommended serving size
- Everyone loved the taste, but there was a demand for more flavors and more options with caffeine
- Our single serving sticks with only six sticks per retail box was too wasteful
To solve these problems, we created a new packaging format – multi-serving spouted pouches – the first of its kind for a powdered beverage.
Multi-serving pouches addressed many of our customer’s concerns:
- Selling online in a bulk format allowed us to reduce our price per serving by 35% (from $0.67 to $0.43) and triple our gross profit margin (from 15% to 45%).
- Using a resealable pouch allowed customers to customize their Everly for different cup/bottle sizes and desired flavor intensity
- Pouches have a lower minimum order quantity, so we were able to introduce more SKUs, including new flavors and more options with caffeine.
- Multi-serve packaging drastically reduced the amount of waste created
We launched the new packaging in less than two weeks. It has continued to evolve over time as we get more customer feedback, but the bones of the new format were in place after just two weeks. Our online metrics (sales, conversion rate, retention rate, customer feedback) started to improve immediately.
Don’t waste months planning out new products. You don’t learn until you start selling and getting customer feedback. Act fast.
Step #3: Measure marketing ROI and focus on what works
Now that we had a great product and a business model that worked, we needed to grow, and we needed to do it fast.
We created a huge list of potential marketing channels and started working in two-week sprints to rapidly test the ROI for each channel and find ones that worked. We tried Facebook and Google ads, SEO, event sponsorships, contest marketing, local media/PR, physically handing out samples, school fundraisers, large influencers and micro influencers, magazine ads, and subscription boxes (to name a few). We even created an automated texting service that allowed you and a group of family and friends to pre-schedule a series of nice texts as a gift for a loved one.
We found only one channel that worked.
Micro-influencers (people with a sizeable, but not huge social media following) was the only profitable channel (gross profit > marketing spend) among all of our marketing tests. Every other channel was way too expensive relative to the number of customers we acquired (they all cost >$50 per acquired customer, and most cost many times that).
We decided to focus exclusively on Instagram influencers. We promoted our operations lead to VP of marketing and started scouring Instagram to identify micro-influencers with a history of health and wellness posts. She reaches out to them directly and offers to send free product, then asks them to post about us if they like the product.
Lots of them do. A few months after starting our work with micro-influencers, we surveyed our customers and found that more than 50% of new customers heard about us from an Instagram influencer. It takes a lot of hard work and relationship building, but it works well for us.
As a small company, don’t do any marketing that doesn’t allow you to measure results. Be honest with yourself and abandon any marketing that never has a chance of being profitable.
Step #4: Know your priorities
By the end of 2017, we were closing in on profitability, but we still weren’t quite there. Even though we had amazing product reviews, a business model with strong margins, and a marketing channel that worked, we had been dropped by our retailers (or in some cases proactively left), and we were still only at $29k per month in online sales.
We had used up all our remaining cash building the online business, and we were about to run out of inventory. Since our sales were still below where they were in our retail days and we hadn’t yet reached profitability, it was still not a good time to raise capital. It was time for hard decisions. What we did next is not for everyone.
Faced with shutting down the business (several of our investors told us that we should), we drastically reduced our expenses, took on debt, and focused on finding ways to grow the business at little or no additional cost.
We reduced our expenses by more than 50% through a combination of:
- Abandoning our office space and working from my house
- Reducing my salary by 25% (and delaying two paychecks)
- Cutting back on non-essential subscription services
- Renegotiating contracts with suppliers
- The two original founders reducing their role in the day-to-day operations
Every dollar had to be accounted for, and only the expenses that were directly tied to growth could remain.
We found new ways to grow the business without investing cash, such as:
- Getting more consistent with email marketing
- Improving our website conversion rate through small tweaks over time
- Encouraging customers to sign up for subscriptions rather than one-time orders
- Growing our social media following through giveaways
- Sending even more samples to influencers
- Publishing recipes and other content
I also took out a business credit card that I had to personally guarantee in order to fund the next batch of inventory. The balance on the card eventually hit a peak of $30k. It was a scary time, but we believed in the company and in the results that our customers were experiencing from reducing their sugar intake, so we didn’t see any of this as failure. We saw it as an opportunity to iterate and impact even more people.
When faced with a tough business decision, use it as an opportunity to reconnect with the reasons you got into the business in the first place. Keeping your priorities top of mind will help you decide whether it’s time to move forward or move on.
By the summer of 2018, we hit $40k in monthly sales and finally reached profitability. We raised a small investment round to pay off the credit card debt and fund growth projects like new products and more content. Since then, we’ve been growing about 25% per year.
We still have a long way to go, but I am no longer stressed about making payroll each month. We can now think about what we want the business to look like in a year or two rather than having to focus on one month (or week) at a time.
Our investors have been incredibly patient and supportive, but many of them have now been with the business for 6+ years and we are starting to look for ways to help them monetize their investment.
7 years ago, two guys created the first naturally sweetened, sugar-free drink mix and have since helped tens of thousands of people reduce their sugar intake and drink more water. We’ve been through a lot, but in many ways, we’re just getting started.
Originally posted on Starter Story