Built for: Founders of device brands selling $3M or more a year, where the device needs a subscription to work.
What it answers: Whether the subscription earns back what you lose on the device, which channel brings the customers worth having, whether a big-box deal and your discounts pay, and how much cash the next holiday build ties up.
See it live: Wearable demo · a made-up company with invented numbers
Most device founders I talk to have made peace with losing money on the hardware. The subscription is supposed to make it back. What they usually can't tell me is how long that takes, and whether it's true for every channel.
Here's how I'd walk a founder through it, using a sample dashboard we built for a made-up company called Skipjay. It makes a kids' GPS watch with calling, and the watch does nothing without the Skipjay Plus plan: $12.99 a month, or $129 a year paid up front. It sells on Shopify and through two big-box chains, Best Buy and Target. Skipjay sold $11.1M in the last 12 months, up 55%, and about 49,000 families pay for the plan.
The page opens with one chart. For each channel it shows what the watch keeps or loses, then adds three years of the plan for the families who turn the watch on and keep paying.
A family who finds Skipjay through a Shopify ad is worth about $155 a watch. A Best Buy family is worth about $100. A Target family is worth about $70.
Skipjay loses about $4 on a Shopify watch once the ads are paid, about $5 at Best Buy and about $13 at Target, and the plan earns all of that back within three months. The gap between channels comes from the plan. Almost every Shopify buyer turns the watch on. At Target only about seven in ten do, and the ones who do leave sooner.
The best customer is the referred one: even after $30 off the watch and two free months, that family is worth about $170.
Two numbers do most of the work in a product business. Gross margin is what's left after the product itself. Contribution margin is what's left after it's been sold, shipped and marketed, before salaries and rent.
On Shopify a Skipjay watch keeps 42% of its price after the product. Then selling it takes about $61 (about $46 of ads, plus fees, pick, pack and shipping), and the watch ends at about –3%.
Target looks like the opposite. There's no ad line, but Target's margin comes off the price, so the watch keeps about 1% before co-op and markdowns take it to about –16%. Retail pays for its marketing in deductions instead of ad bills.
Only referred watches make money once they're sold. The thin line on each row is what the plan adds, and that's where Skipjay makes its money.
The watch costs $78 landed from the factory against a $149 list price. On Shopify the ads take about $46 a watch. At retail the chain's margin takes $61 to $67, then co-op, markdown money and return credits take more. Retail has no ad line, but co-op and markdown money do the same job, and Target takes its co-op on every watch it buys, sold or not.
Five months in, 85% of referred monthly families are still paying, against 77% from Shopify ads, 68% from Best Buy and 64% from Target. My guess is gifts: a watch picked off a shelf in December gets less use than one a parent researched. Annual families can only leave at renewal, and about six in ten of Shopify's renew.
The cheapest fix costs a few cents: put the referral card in every retail box.
Skipjay met Target's buyer at the January consumer-tech show, tested 180 stores from April and went to 420 for the holiday.
Target has bought about 10,000 watches and sold about 4,900 to shoppers. The rest are on its shelves for the holiday. The sell-in number is the one you'd quote, and sell-through is the one to plan on. Target also pays about 95 days after a shipment and keeps about a quarter of each invoice for co-op, markdowns, an end-cap fee and returns.
Even so, a Target watch is worth about $70, and it would only lose money if fewer than about one buyer in nine turned it on. The lever is activation: every ten more buyers in a hundred who turn the watch on add about $11 a watch, and a set-up card in the box plus a store demo cost a couple of dollars. The $59K show that landed the account has already brought in families worth several times that.
The annual plan is 17% off. An annual family pays $129 on day one and is worth about $175 over three years, against about $155 for a monthly family, because they can only leave once a year. The discount pays.
The referral offer costs about $60 to win a family (the $30 and two free months), against about $50 of ads. The referred family brings in about $25 more over three years, so it wins. Keep both.
Skipjay has $1.7M in the bank, and $1.3M of it is annual plans paid for service it still owes. Another $2.5M sits in factory deposits, watches on the water and in the warehouse, and retailer invoices not yet due. The bank balance is the number you'd quote. The free cash is the number to plan on.
The factory takes 30% with each PO and the rest about 16 weeks later, and retailers pay 60 to 90 days after shipping, so holiday stock is paid for in summer and collected in winter. Target's buyer wants Skipjay in 700 stores from April. On that plan cash drops under a $500K cushion in August 2027 and bottoms out around $250K. At 420 stores Skipjay doesn't need a line. At 1,000 stores it needs about $1M.
Here's how I'd read it:
Holding Target at 420 stores is the safest cash move on the page, and it gives up about 5,000 subscribers. That's a growth decision, and the line is what lets you make it on purpose.
We connect read-only to your Shopify store, your subscription billing, your 3PL, your bank and your accounting, close the books each month, and run the plan forward with your factory's real payment terms and each retailer's real payment days and deductions. What a customer is worth by channel, the cash low point and the line you need then update every month.
That's CFOptimize for Inventory Brands, and it starts with a free unit economics review on your own numbers: what each channel keeps per unit, what a customer is worth once churn and discounts are counted, and how much cash your next production run and retail rollout tie up. Book your free unit economics review.
Mark
Skipjay is a made-up company, and every supplier, trade show, family and number in the dashboard and this post is invented. Target and Best Buy are real retailers, named to show where a product like this sells; Skipjay's accounts with them, including stores, orders, terms, deductions and payments, are invented and say nothing about how either actually trades. The cushion, the borrowing base and the credit terms are rules of thumb, not quotes, and nothing here is lending, legal or tax advice.