DTC Dive #5: Scaling a DTC Brand from 7 to 8 Figures with Felix Kleine, Health Routine

In this insightful edition, we dive deep into the success story of Health Routine, a Direct-to-Consumer (DTC) brand that has remarkably scaled its business from 7 to 8 figures. 

For more perspectives on scaling DTC businesses, follow Admetrics on LinkedIn. Engage with a community of e-commerce experts and DTC advocates, delving into a variety of topics that shape the DTC industry. 
Join us as we sit down with Felix Kleine, the co-founder of Health Routine, to explore the strategies, challenges, and learnings encountered on their journey to significant growth. This post unpacks the key elements that propelled Health Routine's rapid expansion, offering valuable insights for entrepreneurs and marketers alike. 

Key highlights include:

  • The delicate balance of meeting market demands while ensuring product quality, and the role of experts like pharmacists in product development.
  • The strategic importance of self-funding, cash flow management, and maintaining good margins, especially through in-house production.
  • Insights into effective marketing channels with a focus on Meta, particularly Facebook, and the innovative use of presell pages for customer education.
  • The critical role of building a strong team and establishing product-market fit in scaling a business.
  • Engaging with target audiences through pre-market testing and feedback for successful product development.

How to scale a DTC brand from 7 to 8 figures: An interview with Health Routine's co-founder Felix Kleine

Prepare to be inspired and equipped with actionable strategies that can help scale your DTC brand to new heights. Let's dive in!

Markus Repetschnig, Admetrics’ CEO: 

Hello and welcome to the latest edition of the DTC Dive Podcast. My name is Markus, co-founder of Admetrics. I'm here today with Felix Kleine, co-founder of Health Routine. Hi Felix!

Felix Kleine, Health Routine's co-founder: Hello Markus, thanks for the invitation. 

Markus: Felix, you've been very active on social media, especially on LinkedIn, and you've been giving back a lot of knowledge to the community, which is super strong. But for those who don't know you and Helsroutine, could you introduce yourself? Who are you, what do you do at Health Routine, and what products do you sell?

Felix: Yes, of course. As you mentioned, I'm one of the co-founders of Health Routine. We're a founding team of four people. I mainly take care of marketing and sales. We develop various health products at Health Routine, including dietary supplements for intake and products for external application. I often describe us as a natural online pharmacy, offering natural products for common health concerns and supporting people with specific health challenges. 

Markus: Recently, we did an audit of your ad account, and I saw that you've significantly scaled up. That's actually why I invited you. There must be many learnings that you would like to share. Could you briefly tell us about the major leap you've made this year?

Felix: Yes, last year we ended up at nearly 6 million. This year, we set a goal to increase it to 15 million in revenue. We are pretty much on track. As of the 6th of September, we're at about 10 million. With the upcoming Q4, where you can usually add more, we should be able to reach our target. In the beginning of the year, we made a good jump, especially in January, at the start of Q1. However, I think it also depends a lot on the niche. With health and wellness products, the beginning of Q1 is usually a strong time. Throughout the year, there's usually a dip in the summer, but in June, we scaled up well, reaching about 1.6 million. We also added Amazon in April, which gave us significant leverage – a channel we had almost completely neglected before. Two months later, it already accounted for about 20 to 25% of our sales. We are also quite strong on Meta, which is where a good portion of our ad spending goes.

Markus: Congratulations on becoming an eight-figure DTC brand. Can you talk about the biggest challenges in scaling and the learnings from that?

Felix: The challenges are in every area, both in marketing and operations. We handle all our fulfillment in-house and produce some of our products locally in Innsbruck. This brings us a significant advantage in terms of margins and allows us to implement our vision. However, these areas need to grow with the rest of the business. We've developed our systems throughout the year so they can scale with our goals for the next year. In marketing, you face increasing CPAs, and you have to decide whether to expand your product range. Everything that grows in the frontend needs to be supported in the backend to maintain customer experience. It’s a big challenge to find the balance between pushing growth and ensuring our systems can support it while maintaining the level of customer experience.

Markus: Can you talk about the financing aspect? How did you manage that??

Felix: We are entirely self-financed. We haven't worked with external financing. Everything comes from our cash flow. We have good margins on our products, especially since we manufacture them ourselves, which has been a significant advantage for us. This has led to fewer problems with purchasing inventory. For dietary supplements, it's a bit different because we still source them through contract manufacturers. So, you need to finance inventory for a few weeks. But for our cosmetic products, like for example, the NAK Pen, our bestseller, we manufacture them ourselves, which was a game-changer. It makes us very adaptable. We negotiate directly with suppliers for ingredients, but since we control the composition ourselves, we can scale up more quickly. This approach doesn't impact our margins as much because we don't have the large cost factor that most have when a contract manufacturer adds their margin. 

Markus: Interesting. Can you tell us a bit about how you are set up in the marketing channels? Which ones are most important for you? Do you divide your marketing activities into different funnel segments like brand conversion, perhaps retention, and which channels work best for each area?

Felix: Sure, in terms of acquisition, Meta is definitely our strongest channel, particularly with a focus on Facebook. The reason is that we cater to an older demographic, around 40 to 50 years old, who are still very active on Facebook. Therefore, we are quite strong on Meta, with about 60 to 70% of our acquisition activities running there. We didn't start with Google initially but have been including it for about two years now. Google accounts for about 20 to 30% of our efforts. Other channels we use include affiliate marketing, and we're also exploring influencer marketing. But the main growth channel, especially for first touchpoints and gaining eyeballs, is definitely Meta and particularly Facebook. We work a lot with presell pages, as it's known in the health market. There's a lot of education involved. People need to gain a lot of information before making any purchase decision. We work a lot with landing pages or editorial pages to provide this education and to explain our product. This is the case whether it's Google Search or Meta. Of course, with Google Brand, you can direct people directly to the shop, but for all the first touchpoints, we work quite strongly with such page.

Markus: Product development in the health sector must be complex. How do you find products that meet your revenue goals? Do you test them pre-market? What's your proces?

Felix: We have developed a process, and it's constantly evolving. At the product development level, we always wear the marketing hat, looking at exciting markets, especially when scaling the product portfolio broadly. But we also need to consider the quality of the products. You can't just develop any product for every topic that brings benefits. It's about finding a balance. We choose areas where there's a market for the product and ensure that there are natural ingredients that help. We have a scientific partner, a pharmacist on our team, and we work with external pharmacists and doctors who support us in recipe development. For all our acquisition products, we have our own formulas. For example, we recently added Omega-3 to our portfolio. For all our other products, we have our own formulas that we developed with pharmacists and laboratories. From a marketing perspective, we have a well-proven in-house process for pre-testing products, like shadow testing, to see if the market is receptive to the product. We had two brands fail before because there was no product-market fit, which was a huge learning for us. You can have the best marketing in the world, but if there's no product-market fit, it either makes life very difficult or doesn't work at all. Therefore, it's essential for us to be able to test beforehand whether a product has potential. How it scales is another matter. We've had cases where premarket tests looked very positive, but the product didn't perform well in practice because the total addressable market was too small. But in about nine out of ten cases, these premarket tests with shadow testing can give a good indication of whether the product will succeed or not.

Markus: That's very insightful. Can you elaborate on how these premarket tests are conducted?

Felix: The approach depends on the sector. In the health sector, there are many distinct topics, so it's easier to identify potentially interesting areas. You can look at health websites, Wikipedia, or check out top-selling categories on Amazon. In other industries, it might not be as straightforward. What has worked well for us is testing the target group in advance. For example, you can conduct surveys and directly seek feedback from your audience. You can ask various questions about hypothetical scenarios, desired product attributes, price points, and what issues the product should help with. It's all about engaging with your target audience early on and not just developing a product based on your assumptions. Sometimes, you can even ask for phone numbers in surveys for deeper follow-up conversations. This pre-interaction with your target group is crucial for successful product development.

Markus: I think if you have a reasonably large existing customer base, it makes a lot of sense to approach them for feedback. After all, they are the target group to whom you'll be selling your products again. It's not always just about acquiring new customers, but also about retention and upselling to existing customers. Can you share how important margins are in scaling from a seven to eight-figure business? You mentioned you have your own production. What are the general rules you have for margins, especially when scaling up?

Felix: Yes, that's a very important aspect. In the nutritional supplement and general health sector, high margins are well-known, and that's advantageous for advertisers because you have more leeway in cost per acquisition. For example, it's different for a high-quality fashion brand, as higher-quality products mean higher margins. It's crucial to keep an eye on your unit economics, but it's hard to generalize. If you have strong retention or financing backing you up, you might have more room to maneuver in the frontend, perhaps even acquiring at a small loss, knowing you have a strong Lifetime Value (LTV). For products that are only purchased once and where reacquiring customers is difficult, it's more challenging. In such cases, it's even more important to be profitable on the first sale. High production costs can eat into your margins. It's also important to understand that not every product is suitable for paid advertising, especially if it has a narrow margin and a low Average Order Value (AOV). In such cases, strengthening your brand before launching something new might be the better route.

Markus: Thanks, Felix, for sharing those insights. To conclude, is there anything else you'd like to share with the community? Any key takeaways from your scaling experience?

Felix: First, building a great team is crucial. It's not just about working with competent people, but also about enjoying the collaboration. A team that works well together can achieve more and be happier in the process. From a marketing perspective, focusing on establishing product-market fit is essential. It might take some adjustments to find the right fit, but it's worth the effort. While there are cases like Liquid Death in the USA, selling water at high prices and making millions, such cases are rare. It's much easier to serve a market with a 'starving crowd,' as they say. My advice would be to invest time in developing a great product and then fine-tuning it until you find the right market. This approach simplifies the marketing that follows.he better route.

Markus: Thank you so much, Felix, for being here and for the wonderful insights. We wish Health Routine continued success.

Felix: Thanks for having me, Markus. I hope the audience found some useful takeaways. 

The importance of relevant educational content

When it comes to scaling DTCs, the importance of educational content cannot be overstated. As consumers increasingly seek not just products but also knowledge and trust, educational content becomes a cornerstone for building long-term customer relationships. It transcends the traditional approach of merely highlighting product features, instead offering value through insights, expertise, and relevant information that enriches the consumer's understanding and experience. This approach, particularly effective in sectors like health and wellness, empowers consumers to make informed decisions, thereby fostering trust and credibility. Health Routine, a notable player in the DTC health products market, exemplifies this strategy by employing educational pre-sell pages, which provide essential information to consumers before a purchase decision. By prioritizing education, DTC brands can enhance customer engagement, elevate brand loyalty, and ultimately drive sustainable growth in an increasingly competitive market.

Testing pre-sell pages

Testing pre-sell pages in DTC marketing is a strategic move that can significantly enhance the customer journey, leading to more informed and confident purchase decisions. Pre-sell pages act as a bridge between the initial customer interest and the final purchase, providing a comprehensive overview of the product, its benefits, and its relevance to the consumer's needs. This method is especially effective in industries where products require a deeper understanding, such as health and wellness, where informed decisions are crucial. By presenting detailed information, answering potential questions, and addressing concerns, pre-sell pages help demystify products, thereby reducing purchase hesitancy. For instance, Health Routine's use of educational pre-sell pages showcases the efficacy of this approach in building customer trust and increasing conversion rates. By leveraging pre-sell pages, DTC brands not only enhance customer satisfaction but also position themselves as credible and customer-centric, essential traits in today's competitive market.

Expert driven product development

The importance of involving domain experts in product development, particularly in sectors like health and wellness, cannot be overstated. This approach ensures that products are not only market-driven but also uphold the highest standards of quality and efficacy. Health Routine's strategy of engaging pharmacists and other health experts in product formulation exemplifies this practice. By doing so, they ensure that their products are scientifically sound and meet the specific needs of their target market.

This expert involvement is crucial in industries where consumer trust hinges on the perceived credibility and safety of the products. It's not just about meeting market demands; it's about creating products that genuinely benefit the consumer, backed by scientific evidence and expert knowledge.

Moreover, the emphasis on in-house product development, as seen with Health Routine, speaks volumes about the control and flexibility it offers. This approach not only allows for better margin control but also ensures adaptability and responsiveness to market trends and consumer feedback. It's a strategy that enables brands to quickly iterate and refine their products, maintaining a competitive edge in fast-paced markets.

In summary, the integration of expert knowledge in product development and the focus on in-house production are pivotal for brands looking to establish themselves as credible and customer-centric in the health and wellness industry. These practices lead to high-quality products that resonate with consumers, ultimately driving brand loyalty and business success.

Effectively scaling trough self-funding

The financial strategy of being self-funded and relying on cash flow, especially for a DTC brand, is integral to scaling effectively. Health Routine's approach of self-funding and focusing on internal cash flow is a testament to the benefits of this model. By avoiding external financing or loans, DTC brands like Health Routine maintain greater control over their business decisions and avoid the pressures and constraints that often come with outside investment.

In-house manufacturing = margins control

An essential aspect of this financial strategy is the emphasis on good margins, particularly achieved through in-house manufacturing. By producing their products, DTC brands can significantly reduce costs associated with outsourcing to third-party manufacturers. This control over the production process not only improves profit margins but also allows for greater quality control and quicker adaptability to market changes or consumer feedback.

This approach is especially beneficial for scaling as it enables a sustainable growth model. Relying on internal cash flow and strong profit margins means that the business can grow at a pace that it can support, reducing the risks of over-expansion or cash flow problems. It also means that as the business grows, it can reinvest its profits back into the company, fueling further growth and innovation.

In summary, the financial approach of self-funding, focusing on cash flow, and maintaining good margins through in-house manufacturing is crucial for DTC brands aiming to scale effectively. This strategy allows for sustainable growth, greater control over the business, and the ability to quickly adapt to market and consumer needs.

Scaling success prerequisites 

The success of a DTC brand is significantly influenced by two crucial factors: building a great team and establishing a solid product-market fit. These elements are fundamental to their scaling and overall success.

Building a Great Team: The importance of assembling a passionate and competent team cannot be overstated. A great team forms the backbone of any successful enterprise. In the DTC space, where agility and innovation are key, having a team that not only possesses the necessary skills but also enjoys working together is vital. This positive working environment fosters creativity, encourages problem-solving, and drives productivity, all of which are essential for growth and adapting to market changes.

Establishing Product Market Fit 

Perhaps the most critical aspect of a DTC brand's strategy is ensuring that their products align perfectly with market demands. This fit is not always achieved on the first attempt and often requires adjustments and iterations. Investing time in developing products that resonate with the target audience and meet their needs is crucial. Once a product-market fit is established, marketing efforts become more straightforward and effective, as the product naturally appeals to its intended audience.

These two aspects, building a great team and establishing product-market fit, are not just beneficial but essential. They simplify marketing efforts and significantly enhance the potential for a DTC brand's success. By focusing on these areas, brands can navigate the competitive landscape more effectively, ensuring long-term growth and sustainability.

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Q&As: FAQ: Scaling a DTC Brand from 7 to 8 Figures

Q: What are the key factors to consider when scaling a DTC brand from 7 to 8 figures?

A: Key factors include focusing on product-market fit, building a strong and cohesive team, understanding and optimizing your financials, and continuously adapting marketing strategies to align with consumer needs and market trends.

Q: How important is product-market fit in scaling a DTC brand?

A: Product-market fit is crucial. It involves developing products that resonate with your target audience and meet market demands. Achieving this fit can simplify marketing efforts and increase the likelihood of success.

Q: What role does team building play in scaling a business?

A: Building a great team is essential. A skilled, passionate, and well-aligned team drives innovation, efficiency, and adaptability, which are vital for navigating the challenges of scaling a business.

Q: Can a DTC brand scale effectively while being self-funded?

A: Yes, scaling effectively while being self-funded is possible, especially with careful financial planning, maintaining good profit margins, and reinvesting cash flow back into the business.

Q: What marketing strategies are effective in scaling a DTC brand?

A: Effective strategies include leveraging educational content to inform customers, testing pre-sell pages to gauge market response, and utilizing various marketing channels like social media and Google Ads. Tailoring marketing efforts to customer preferences and market trends is also essential.

Q: How crucial is in-house product development for DTC brands?

A: In-house product development can be very beneficial. It allows for better control over product quality, quicker adaptability to market needs, and can potentially improve profit margins.

Q: What is the significance of financial management in scaling a DTC brand?

A: Effective financial management is fundamental. It involves optimizing cash flow, ensuring good profit margins, and making strategic decisions on investments and expenses. Good financial health is key to sustainable growth.

Q: How do you maintain customer retention while scaling?

A: Maintaining customer retention involves continuously enhancing product quality, offering excellent customer service, and engaging with customers through effective marketing and community-building efforts.