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Why brands are going big on pre-orders
Selling products that don’t yet exist can help brands get their hands on cash, while also minimizing waste. Inside how three brands approach pre-orders.
In the era of same-day Amazon deliveries and apps that promise to have groceries to your door within 10 minutes, a number of brands are choosing to take things slower. They’re asking customers to fork over money upfront, and then wait for the item they’ve purchased to actually be produced.
For small e-commerce brands, it can be difficult to predict how quickly products are going to sell. The choice is often between making a conservative estimate and missing out on sales, or going for a bullishly large production run and ending up with stock hanging around past its sell-by date.
Pre-selling provides a solution to some of these problems, and it's becoming increasingly popular among internet-first brands. In the apparel space, the likes of Paynter in the U.K., Asphalte in France and Fame and Partners in the U.S. are building their business models around the concepts of limited run and made-to-order apparel, which they see as less wasteful (because every product made is guaranteed to sell) and more cost-efficient.
For brands that are just getting ready to launch, taking pre-orders is a great way to boost bank balances (which may be looking a little low after months of product development) and also generate some press attention. It’s a strategy that’s been tested by a number of brands in the Thingtesting directory, from air conditioner company July to cleaning brand Homethings.
It can also be a great way to learn more about demand for new products. Kitchenware company Kana is currently running a pre-order campaign for a new range of its Milo pots and pans, while Danish company LastObject, which makes reusable versions of personal care items like cotton Q-tips and tissues, has launched every one of its products via a Kickstarter campaign.
But taking money for items that customers might not receive for weeks – or months – after they’ve parted with their cash isn’t without its challenges. If there are delays in shipping that product out, the wait can be frustrating for customers. Brands also need to factor in the time and effort required to answer customer questions about a product that hasn’t yet been released into the wild.
We spoke with three founders to learn more about how brands manage the complexities that come with pre-selling – and why they’re willing to go for it anyway.
Kana: testing new product lines
Since Milo – a cookware brand owned by Canadian lifestyle brand Kana – launched in 2018, its pots and pans have come in a limited range of colors, from a classic white to a dark, muted emerald. For 2021, it was time to mix things up.
The team had an idea of what new colors they wanted to launch, but there were still a few tricky questions to answer. Like, would "dijon" – a mustard yellow – be more popular than "eucalyptus" green? And how many of each color should they ask their supplier to make?
“Launching only one new color doesn’t have the same impact as launching many colors at the same time,” Marise Perusse, Kana’s kitchenware brand manager says. “[But] it also involves a lot of money up front to place these orders.”
It made sense, then, to put the questions to customers. On April 7th, Kana launched a Kickstarter campaign asking customers to pre-order their pots and pans. When the campaign closes on June 6th, they will be able to move forward with the most desired colors.
“It allows us to test and learn. These colors are going to be something we have eventually in our lineup, but it’s important for us to know which ones really resonate,” Jen Patterson, partnership manager at Kana, explains. “That will allow us to gauge our inventory as we carry it forward.”
As of today, May 10th, more than 402 pre-orders had been placed through the Kickstarter campaign, to the tune of CA$80,946 ($66,700).
Patterson says the advantage of managing the pre-orders through Kickstarter is that it allows the company to reach an audience beyond those who are already familiar with the Kana brand. The company has also been spreading the word by sending out samples of the new colors to celebrities and influencers, including TV host Stacy London and Bake From Scratch magazine editor Brian Hoffman.
In a bid to minimize any potential delays – orders are currently expected to ship out in December – Kana says it held off launching its Kickstarter campaign until it was happy with the samples it had received from its manufacturing partner, and a production slot had been booked. “They know exactly which shade of terracotta they need to produce,” Perusse says, adding that it's now simply a case of telling the factory how many of each color needs to be made.
Spruce: project runway
As a bootstrapped business that had just spent eight months developing the formula for its refillable cleaning products (without making a single penny), British brand Spruce decided a pre-sale campaign would be a good way to start generating revenue.
And while the campaign was a success – it raised £25,233 ($35,284), more than five times the £5,000 ($6,990) goal originally set – founder Mahira Kalim says that running a Kickstarter isn’t the most lucrative of financing options.
“There’s quite a bit of cost associated with it – there’s the platform fees, you have to make a video and create [other] assets, and then there’s the time you have to put in,” she explains. “Any money that comes through is just to fund those orders. [For Spruce], it was all about gaining access to those early customers.”
Platforms like Kickstarter and Indiegogo charge fees of between 5% and 7% of the cash raised. Spruce also worked with BackerKit, a post-crowdfunding management platform which helps brands send out surveys and other sorts of communications to their backers. The platform charges a percentage fee of its own. While she was able to cut the cost of making her campaign video (a Kickstarter requirement) by roping in a friend to help, she says it’s not uncommon for brands to spend as much as $14,000 putting their production together. Finally, any money raised also needs to cover the usual costs associated with selling a product, from taxes to manufacturing and shipping.
One positive, however, is that she was able to sell product in larger quantities – backers of the Kickstarter campaign were able to purchase supplies for six months or one year – than the monthly subscription Spruce now offers.
Getting the product out to customers, though, was tricky. As orders were being prepared for shipping, Spruce was hit with a double whammy of delays: first the U.K. went into a nationwide lockdown, closing its borders, and then it left the European Union’s single market. “We could have done a lot more communication, but things were changing on a daily basis,” Kalim says. “A lot of the delivery trucks were just sitting at the U.K. border for six to eight weeks. So we actually had no idea when the items would be delivered.”
Kalim says that while there were a few upset customers, most understood that the situation was largely out of Spruce’s control. By February 2021, all orders were shipped out, and Kalim is confident that many of her early backers will become repeat customers.
July: pandemic pivot
Just as July was getting ready to launch its easy-to-install air conditioners to the market in April, the pandemic hit.
It left the brand’s founders in a difficult position. They were no longer sure when they would actually be able to get the units out to customers. But, equally, with air conditioners being a seasonal item, they didn’t want to have to wait until summer was over to start taking orders.
Given the circumstances, pivoting to a pre-sale strategy seemed like the most sensible option, cofounder Muhammad Saigol says. “We didn’t want customers’ first interactions with us to be one where we didn’t deliver,” he says.
The company quickly amassed a waitlist of 20,000 people, which the brand was able to start communicating with while they waited for the product to launch. “We were given the opportunity to casually tell them about the product and about its features,” Saigol explains. “So when it came time to convert, these customers were already primed, they had the information they needed and they were excited about the product.”
As July started confirming its production runs, it reached out to people on the waitlist to let them know that it was their turn to place an order. Saigol estimates that these emails had a 10-15% conversion rate, while Modern Retail reports that the company sold $30,000-worth of units in the first two weeks of July.
Saigol says the big advantage of managing a customer waitlist is that it helps create more accurate sales forecasts. The brand also took $50 deposits for its units in December and January, boosting cash flow during the "off season" for AC sales. “It really helps us as a business to plan inventory purchases, and it helps with investor conversations as well when you have this eager base of people who want your product,” Saigol adds.
After one final push to the waitlist in the coming weeks, July plans to switch back to a regular on-demand sales model. But Saigol doesn’t rule out running another pre-sale waitlist in the future – and says this tactic is currently being considered for the company’s next home appliance product launch.
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