Online furniture retailer Urban Ladder expects to break even on an operational basis when its revenue reaches $200 million, which may happen by the middle of next year.
“Once we get to a $150-200-million net revenue range by middle of next year, we will focus on getting our contribution margin to the 25% zone,” said Ashish Goel, CEO of Urban Ladder.
Contribution margin is the selling price per unit minus the variable cost per unit.Ashish Goel said that contribution margin has to be at least 10 percentage points over marketing costs for most eCommerce businesses to make money or drive profitability.
“For the first 18 months of our business, our contribution margins were over our marketing, since we have been pressing on growth (recently). So our marketing spend has increased, but we have that differential under control,” said Goel.
The move comes as Indian startups have sharpened their focus on unit economics after growing rapidly over the past two years. The Bengaluru-based company hopes its revenues will grow five fold in the current fiscal over that in the previous year.
“We expected growth of six times. However, sometime midyear we decided to slow down for two months and focus deeper on the customer experience. We pulled back on marketing, pushed back on category launch, focused on certain top categories, operational efficiencies and redefine architecture,” said Goel. If the company had not done so, it would have seen some erosion in customer satisfaction, he said.
Launched in 2012, Urban Ladder provides online furniture via an inventory-based and controlled supply model. It competes with Pepperfry and FabFurnish, along with online marketplaces such as Snapdeal and Flipkart, In its latest round of funding, the company raised $50 million from investors led by Sequoia Capital, TR Capital, Steadview Capital, SAIF Partners and Kalaari Capital.
Pepperfry had in July raised $100 million from Goldman Sachs, Zodius Technology Fund, and existing investors Bertelsmann India Investments and Norwest Venture Partners.
Although only a small proportion of home goods are purchased online, investors are expecting things will change as more people who have grown up shopping online hit the age where they buy homes and need to furnish them.