SMS #2: How to Flip an $8 bag for $170
Before Reading On…While the product/service outlined hereafter specifically targets young professional men, do not disqualify yourself from pursuing this idea if you don’t happen to be a young professional man. A startup’s customer profile(s) should always be specific, but that doesn’t mean its founder has to be.
My transition from part-time employed university student to unemployed university graduate was, for the most part, a smooth one.
Interestingly, amongst the many lifestyle changes that followed graduation (moving back to Toronto, beginning a long-distance relationship, revising my career ambitions and then revising them again, etc.), there was one modification that stood above all others as the most complicated and anxiety-inducing…
Switching from a backpack to a satchel.
Ironically, it started off as a change I was really looking forward to making. A young professional passing me on the street in his business casual attire and leather satchel slung over his shoulder looked to be in a completely different stage of life. I was a kid walking to class; He was a man walking to work.
Now if I’m going to present an idea based on the assumption that ‘satchel = cool and professional’, I’d better make sure that a big enough group of people agrees with me. Let’s go through the validation phase together — go to Google Images and search ‘Guy with Satchel’. This is the first image that shows up:
Now search ‘Guy with Backpack’. This is the first image that shows up:
I understand this is a matter of preference…but for me, picking the more aspirational, professional look out of the two options here isn’t exactly “Sophie’s Choice”.
I would have made the transition from backpack to satchel earlier, but my JanSport bag was a reluctant necessity in my student life, paramount to ensuring I could bring to school my pencil case, textbooks/assignments, laptop, chargers, water bottle, headphones, and (when I had my shit together) my homemade lunch.
What made the switch from backpack to satchel so difficult, however, was that my list of ‘must-haves’ didn’t get any shorter after graduation…I still needed space for my laptop, a few pens and pencils, my chargers, and (ideally) a lunchbox and bottle. Yes, I no longer needed to carry textbooks and assignments around, but nowadays I still like to keep a novel for commutes and a journal for notes. Indulging all my wants and needs led to this disaster:
I’ve since managed to minimize this load and have discovered that the world doesn’t go up in flames if I don’t have a pair of basketball shorts on me at all times. However, even after cutting out the non-essentials, my satchel still doesn’t feel orderly…my chargers are strung about loosely and there’s no good place for my water bottle. In fact, there’s no obvious slot for anything.
Some satchels I encountered online were better organized for my needs but, overall, I couldn’t find one bag with an ideal, compartmentalized setup.
I wondered if I was the only one playing a game of Satchel Jenga when unpacking at a coffee shop and Satchel Tetris when packing back up, so I asked a few guy friends what they currently carry in their satchels (or would do if they made the switch). Here are some of the answers I received:
There are a few commonalities across the board but it’s clear that each person has a unique packing list with items of different size, shape, and fragility. Further questioning of some satchel users yielded that most had trouble keeping their bags looking clean and orderly.
There’s an opportunity here…
Our assumptions:
- Young professionals would prefer to carry satchels over backpacks.
- Young professionals have different ideal packing lists.
- Satchel wearers have trouble fitting items in an orderly manner.
Before Reading On…Note that this article by no means represents a comprehensive business plan. Rather, it is the foundations of a full model that I give you complete authority and ownership to build from. In plain English, if you’d like to ‘steal my startup’, go ahead.
ELEVATOR PITCH 💬
Portmanteau has a message to all young men who struggle to fit their day-to-day items into their satchels with ease and order: don’t leave out the essentials. Don’t settle for disorganization. And, most importantly, don’t compromise on style.
Portmanteau is an online store that creates beautiful custom satchels, with personalized compartments for your list of necessities. Never again will you have to wonder where something fits — your Portmanteau satchel makes all the decisions for you.
REVENUE STREAMS💰
There’s not a lot of mystique in the ‘how does this make money’ question when posed to an online store. I’ll still touch on this section briefly, however, as we have the potential to monetize a single customer in a few different ways.
Sale of Custom Satchels
Self-explanatory. The price of the satchel depends on the bag selected and the amount of material used to customize it.
For more detail on this, see the ‘Supply Chain and Buying Process’ section. For an idea of the profit margins on each sale, check the ‘Crunching the Numbers’ section.
Add-Ons at Checkout
I couldn’t find a statistic (forgive me) but clearly, recommending add-ons to a customer’s purchase isn’t increasing the bounce rate to a counterproductive degree or else we wouldn’t see data monsters like Amazon doing it.
You see this on Amazon in the form of a “frequently bought together” section (e.g. if you look up an iPhone case, they’ll recommend you buy a screen protector too), and you’ve likely encountered this at several other online stores as well.
Why do they do it? Because it works.
In our case, Portmanteau would have an extra prompt before checkout with a list of complimentary items they can add to their cart and have arrive with their bag. It’s important that these add-ons are relevant to the product. Examples include:
When it comes to the buying and reselling of products that you didn’t modify, you shouldn’t run into any roadblocks (especially if you’re small scale). However, this process does come with some trademark and warranty issues that I suggest you read up on. I found this article helpful.
Recustomization
By now you may have thought, “But Rayhan, don’t people’s needs evolve? Won’t there come a time when their custom satchel no longer suits their packing requirements?”
Yes. I’m counting on it.
This opens up the potential for another revenue stream: recustomization. Customers can ship their bag back to Portmanteau and once again work with our design team to decide on a new layout, remodify the satchel as needed, and have it shipped back.
This service, like all services a business offers, should be appropriately priced so that it is (1) worth your business’ time, and (2) worth your customer’s money.
SUPPLY CHAIN & BUYING PROCESS ⛓
A ‘Supply Chain’, by its simplest definition, is a detailed representation of how a company and its suppliers produce and distribute a product to the final buyer.
Supply Chains are typically very, very complex and I do not have the knowledge nor the confidence to present a real one here (if you’d like to learn more about supply chains, you can do so at Investopedia). Therefore, I will instead provide a simple numbered list for how I imagine Portmanteau to create its supply, interact with customers, and deliver its final product.
0. Stock up on reasonably-priced bags and materials for customization from Alibaba. I should make it clear that I mean Alibaba and not AliExpress.
Think of AliExpress as a very cheap alternative to Amazon. It’s a global retail marketplace offering quality products at factory prices in small quantity. Alibaba, on the other hand, connects you with manufacturers, trading companies and resellers who trade in large order quantities — this is where you’ll find the best prices.
We aren’t trying to build a satchel from scratch here. We will have to modify them, but let’s try to automate and outsource as much of the work as possible. An example bag we could go with is this one here.
It’s made with quality materials (leather and canvas), it’s color can be customized, it comes with the option of sewing in the ‘Portmanteau’ label prior to shipping and (most importantly) it’s cheap — $8.00 USD per bag for orders over 500!
At scale, the manufacturer could be negotiated with to produce and ship not only a variety of colours for the bag but a variety of sizes too. Eventually, a broader selection of bag sizes could be offered as well.
Remember that we will be modifying these satchels for each customer and will require some raw materials to do so. Consult the materials list for the bag you end up buying and purchase more of those specific materials so the inner-compartments we sew in look uniform. You can find a variety of leathers and lining fabrics and purchase them in bulk on Alibaba as well.
1. Customer customizes their satchel, confirms the order, and pays upfront. I don’t think I need to justify the claim that consumers respond more positively to personalized experiences. If you’d like to learn more about the phenomenon, check out this study from the University of Texas here. Portmanteau indulges this consumerist desire by providing a personalized experience on the platform.
Portmanteau will first require that the customer list the items they will be packing in their satchel along with estimated dimensions for each. To make this process less arduous, one can select from commonly packed items and also use reference sizes.
This list is necessary for all following steps of the customization and checkout process.
Based on the sum volume of the customers packing list and the carrying capacity of available satchels, the automated customization portal will provide the customer with a selection that fit their needs.
At this point in the customization process — though still incomplete — the customer must checkout and pay for their satchel.
All steps thus far have been automated; all steps hereafter will begin to cost the business time and money. Therefore, it is crucial that the customer make a financial commitment upfront.
The price of the bag will depend on the selected satchel, the estimated amount of material needed to customize it, and any additional items that are added at checkout.
2. Layout graphic of compartments created and sent to the customer (iterate if necessary). Once paid for, a member of the Portmanteau design team will reach out to the customer via email within 2 business days.
Their email will include three graphics illustrating three different layouts for the compartments inside their satchel. A simplified example is shown below:
The customer can pick one, or communicate back and forth with the design team until they are satisfied with a particular layout.
It is important that the business has a refund policy for their own protection — if the process is getting too long and a customer is uncooperative, they can receive a full refund and the business can rid itself of the extra burden.
3. Compartments are sewn into the bag. Once the customer confirms their specifications, the Portmanteau workshop (housing all materials and bags), will get to work sewing compartments into the selected satchel according to the agreed upon layout.
4. Bag Ships to Customer! …With a nice box, thank you note, and all the little fixins’ that give Portmanteau that ‘premium brand’ feel.
CRUNCHING THE NUMBERS 💰
In articles like this, where the idea isn’t exactly ‘revolutionary’, I think a number-crunching section is a fun addition to demonstrate the startup’s potential. I’m going to ignore sunk costs for now and attempt to guesstimate what we’d make per sale of a bag (no add-ons included).
Let’s take the satchel we looked at in the ‘supply chain & buying process’ section for example. At a minimum order of 500, we’re looking at $10.50 CAD per bag.
We can highball and assume that each bag will require half a meter of leather and a meter of lining fabric for each customization. This would come out to roughly $4.00 CAD per bag.
Even if you’re the one doing all the work yourself, always factor in labour costs when crunching numbers. For two reasons: (1) you need to pay yourself, and (2) if you eventually outsource the labour, you will be happy you factored in those costs beforehand.
For each order, let’s assume an individual designer puts in an average of 1 hour communicating with the customer and producing potential layouts for their bag (given templates and cooperative customers, this could be a much shorter process). We will also assume that an individual seamstress puts in 2 hours of time cutting/sewing in all compartments and another worker puts in 0.25 hours packing each satchel with all the required add-ons and branding materials. At an average rate of $20/hour (reasonable for a new startup), we’re looking at an additional $65.00 CAD per bag in costs.
Other miscellaneous costs will include digital marketing efforts, an e-commerce platform subscription, domain name registration, etc. I’m going to err on the side of caution here and highball again. Let’s call this $15.00 CAD per bag.
We’re looking at an average cost per bag of $94.50 CAD.
Looking at mid-to-high-end brands like Ted Baker, Roots, and Fossil who price many of their bags at $200 or well above, we could justify setting our price point around there for our premium, customized experience.
However, our opportunity lies somewhere below this price. We want it to be expensive enough to corroborate its value, but also low enough that those who cannot afford the $200+ price tag of alternative brands can look to Portmanteau for a similar feeling of class and quality.
Let’s say the average price of a Portmanteau bag is set at $170 to start with.
Therefore:
$170.00 — $94.50 = $75.50 profit per bag
This math is crude. Very crude. But it should demonstrate that though this idea isn’t blowing anyone’s mind, it has the potential to be the basis of a highly profitable business
SHORTCOMINGS🤷🏽♂️
Despite my enthusiastic presentation of this potential business, I acknowledge that every idea has its shortcomings. Here are some for Portmanteau.
- Tough to Scale Quickly:
Unlike a SaaS business where a spike in the userbase may simply require expanding server space and customer service teams, there’s a whole supply chain that needs to be considered and scaled with precision and care.
These kinds of problems are completely beyond me, but all I know is that setting up a brick and mortar fulfillment center, hiring employees, and calculating just the right amount of raw materials to purchase in bulk can’t be easy…
Do any of those incorrectly and you may have dug yourself a hole you can’t recover from.
Another possible route would be making Portmanteau a premium brand like Supreme which can thrive off creating a limited supply of items and letting an aura of exclusivity drive up your prices. How you get to that level of brand awareness, however, is complete sorcery to me.
- High Bounce Rate When Customizing Packing List:
As discussed in the ‘Supply Chain & Buying Process’ section, it’s important that the customer provide a rough list of items they’ll be carrying in their satchel. This is needed for further customization and eliminating satchel options with insufficient carrying capacities.
However, this is quite a hands-on process for the prospective customer and could lead to a high bounce rate. This process should be made as quick and painless as possible for the customer, incorporating checklists for commonly used items and reference sizes for new items — they should rarely have to input the dimensions of their items themselves.
- Buying Large Quantities Upfront is Risky
Ordering satchels, raw materials, and checkout add-ons as needed for each purchase is not a winning strategy. Not only will this lead to a very long turnaround time, it will also be costly as you lose the economies of scale from purchasing these items in bulk.
However, buying these items upfront is risky. Doing so will cost you several thousands of dollars in the initial stages, which could bury you if you can’t sell your stock or are forced to lower your price point.
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Until next time…
