Ecommerce & Digital
What DTC Really Means for Your Margin
1 June 2025
Direct-to-consumer is frequently presented as a margin improvement strategy. Cut out the retailer, sell direct, keep more of the revenue. The logic is simple and the conclusion is wrong often enough that it is worth examining carefully before you commit.
DTC can improve margin. It can also destroy it. The difference depends on costs that do not appear in the simple comparison between wholesale margin and retail margin.
The comparison that misleads
The standard DTC margin argument compares wholesale versus ecommerce by looking at the wholesale price you receive from a retailer against the retail price you charge a direct customer, and concludes that the difference is yours to keep.
It is not.
The retail price includes a cost base that the retailer was bearing and you now have to bear instead. Customer acquisition. Fulfilment per unit rather than pallet. Returns handling. Customer service. Payment processing. The technology platform. The working capital tied up in holding retail-level inventory rather than manufacturing-level stock.
None of those costs appear in the simple margin comparison. All of them appear in your ecommerce P&L.
Customer acquisition is the variable that breaks the model
The hardest number to get right in a DTC model is customer acquisition cost. In wholesale, the retailer acquires the customer. Their footfall, their shelf space, their loyalty programme, their brand recognition: these are what put your product in front of buyers. You pay for that through the margin you give them.
In DTC, you acquire the customer yourself. Through paid media, SEO, social, influencer partnerships, email, or some combination. The cost of doing this effectively varies enormously by market and category, and it tends to be underestimated in DTC business cases.
If your customer acquisition cost is higher than the margin you recover by going direct, DTC is not a margin improvement. It is a margin reduction with additional operational complexity.
Where DTC genuinely improves margin
DTC works on margin when customer acquisition is efficient, when lifetime value is high enough to justify acquisition investment, when you have a returning customer base rather than a one-purchase relationship, and when fulfilment costs per unit are manageable relative to the product value.
High-value, repeat-purchase products with strong brand loyalty are natural candidates. Low-value, low-repeat products with no existing direct relationship are not.
DTC also generates data and customer relationships that wholesale does not. That has strategic value beyond margin, but it is a different argument.
The transition cost
For businesses moving from wholesale to DTC, there is a transition cost that sits outside the margin model entirely. New systems. New processes. New skills in the team. Customer service infrastructure. The cost of returns in DTC that did not previously exist. The wholesale model handled all of this invisibly. DTC makes it visible and gives you the bill.
I went through this transition under pressure following Brexit, with a compressed timeline and no margin for a slow build. The operational reality of running a DTC business is significantly more complex than the financial model suggests. The model can still work. It just needs to account for the full cost of what the retailer was doing on your behalf.
The question to answer before you commit
Before building a DTC business case, answer this: what is your realistic customer acquisition cost, what is your realistic lifetime value per customer, and what does the unit economics look like over two and three years, not just at launch?
If you cannot answer those questions with reasonable confidence, the margin comparison is not a business case. It is an aspiration.
Maebh Collins is a Chartered Accountant (FCA, ICAEW) with twenty years of operational experience as a founder and senior finance leader, including building and running DTC ecommerce operations.
Maebh Collins is a Chartered Accountant (FCA, ICAEW), Big 4 trained, with twenty years of experience building and running international businesses. She specialises in finance transformation, ecommerce operations, and digital strategy.