You always pay for distribution

We sell through three main channels: our site, Amazon, and wholesale. Something I see a lot is a misunderstanding of the purpose of each channel, and when it's appropriate to expand past the ones you're already in. This is how we think about ours.

Three different businesses

Our site is the direct business. We create the demand with ads and content, we take the order, and we keep everything that comes with it. Amazon is the marketplace business. For us it runs on branded search, people going to Amazon looking specifically for our products. The platform takes a referral fee, then whatever ads you run to defend your own listing. Wholesale is the retail business. You give up about half of MSRP in exchange for shelf space. Online, you pay for distribution through ads. In wholesale, you pay for it in discounted product cost. One way or another, you're paying for distribution in every channel.

You own the relationship

Every order on our site comes with the customer's contact info, which means we own the relationship. When we launch a new product, the email and SMS lists hear about it first, and when a customer goes quiet, we can go get them back without paying anyone to do it, which gives us better odds of bringing each customer back. A few weeks back I wrote about what your revenue is worth to a buyer, and owning the customer was one of the four questions.

The tradeoff is volatility. The direct business can grow very quickly, and it can shrink very quickly.

Amazon collects demand

For a brand like ours, Amazon is demand collection. Most people buying us on Amazon already knew the brand before they searched, and we've seen the proof twice. The first time was when we cut promos there and revenue went up while people bought fewer, higher-priced items, which told us the demand was already there without the discount. The second time was bigger. We cut nearly all of our Amazon ad spend, moved that money into brand building on YouTube and linear TV, and Amazon revenue grew more than 20%. We stopped paying Amazon to show people a brand they already knew, and Amazon caught the demand the brand spend was creating.

Amazon purchase behavior is actually more like wholesale, where revenue moves with overall demand for the brand rather than with this week's ad spend. It's harder to move daily revenue up unless that demand grows, and it's also slower to fade, because less of the revenue is riding on direct response advertising.

Wholesale buys you presence

Wholesale runs through the retailer's relationship instead of yours. They own the checkout, so the customer data stays with them, and the order timing follows their buying calendar.

What you get is presence and trust. When you're in the right retailers, you piggyback off the name recognition and the authority they've already built. People trust the store, and some of that rubs off on whatever the store carries. It's why planning which retailers you show up in matters so much. When people see you in retail, some of them go home and buy you online.

The pro with wholesale is that it doesn't die quickly. The con is that it takes a long time to build.

The channels feed each other

Underneath all three channels there are really two jobs. The industry calls them demand creation and demand capture. Creating demand is everything that puts the brand in someone's head before they go looking, whether that's TV, ads, or walking past the product in a store. Capturing demand is catching the person who's already looking, which is most of what search, Amazon, and your own site do.

Plenty of people see the product in a store and buy it right there. Some see it and buy on Amazon a week later instead, and on paper that's an Amazon sale, even though the store started it. Most brands can tell you their capture numbers to the decimal and have no idea what's creating the demand behind them.

None of the three is better than the others. The right weight for each one depends on the business you're running, and we put the most behind the site because owning the relationship fits how we grow. A brand with a different customer or different margins could weight them differently and be right.

When to add the next one

Most brands expand too early. They add Amazon and wholesale at the same time, then wonder why the engine slows down. A new channel makes sense when the one you're in is working and the demand is starting to spill past it, when people are searching for you in places you don't sell.

If you're a DTC-only brand around $10M wondering what to add next, Amazon is usually the simpler transition, because it collects demand you're already paying to create. Wholesale is a different business with different math, and you should know the terms before you walk in.

Then match the spend to the footprint. If you only sell on your own site, keep the spend in direct response, because your site is the only place the demand can land. Once you're in more than one channel, brand spend gets a lot more valuable, because every channel catches some of what it creates.

Ignore the hot channel of the moment. We've chased a few ourselves, and looking back it wasn't the best use of the money. Run the choice through your core customer instead. Ask where they spend their time and who they listen to, and sell where the answers point.

If you weight your channels differently, reply and tell me why.