This is how profitable it is for US brands to sell D2C in Mexico

We’ve written a couple of times about the rapid growth of e-commerce in Latin America. This remains true, and every day we see US-based D2C brands that have partnered with Cubbo and entered the Mexico market grow month-over-month. Fast.

More US e-commerce brands are taking notice and interest in the region is growing. As with any expansion, the main questions revolve around what the possible ROI of expanding into Mexico could be.

‍

How profitable is it for e-commerce brands to do business in LatAm?

Let’s dig in using Mexico as an example…

The cost of e-commerce logistics is $7 USD per order for storage/ pick & pack / shipping (same day & next day) / customer service, and returns. 

Using an FOB cost of $6, shipping 10k units from China through the Manzanillo port (usually the minimum we recommend, or a number of items that will result in at least $100K in sales), brings us to a total cost for insurance and freight (CIF) of $68k. This would result in a total import cost to get products into MX of 39% of FOB. 

Assuming an average order value of $50 (the average we see), the total profit per order is $10!

This includes most of the OpEx expenses we see that a global brand could spend (CAC, Shopify expense per order, etc.). 

In all, doing business in Mexico generally results in a 20%+ profit per order, from manufacturing your product, getting the product into Mexico, and making the sale. 

Doing business in LatAm for a high-growth brand is a no-brainer strategy to scale profitably! This is especially true given how expensive ads are in the US and the amount of competition in the space.

‍

Some brands could argue they are already selling in Mexico via international shipping options. We notice these brands are a bit hesitant to go all-in on the Mexico market because they are not getting many orders in Mexico at the moment.

This is a fallacy for a couple of important reasons:

1. We typically notice these brands are not doing any paid marketing in Mexico either. This leaves only organic traffic as potential buyers. With little brand presence in the region, it’s very difficult to get traffic and convert it into sales.
2. International shipping affects conversion. Anyone that has made an order using international shipping knows the pain involved. Many times, packages get lost or delayed in transit. Whenever a package does arrive, the carrier will charge duties and taxes upon arrival at the customer’s front door. The customer never knows if they will get their package and how much it will end up costing if they do receive it. This is enough friction to demotivate the customer, which leads to fewer sales in the region.

‍

The way to solve this is simple.

1. Invest in paid ads. We’ve seen case studies of companies that started by spending 10% of their daily ad spend in their core market in Mexico and growing incredibly fast from 0–1, then scaling ad spend.
2. In-country fulfillment. Using a partner like Cubbo, you’d ship a truckload to our warehouse in Mexico City, and take care of all the import/duty fees upfront. Customers would get their packages in 24 hours 93% of the time. Transparent and fast for your customers.

‍

Based on the growth opportunity and simplicity of offering fast deliveries to customers, it makes sense for most US brands doing a few million+ in revenue per year to experiment with selling D2C in Mexico.

If you’re curious about what profitability for your business could look like, we’ve built a calculator that can do that for you! See it here: https://imports.cubbo.com/roicalculator

‍

Other resources:

1. Here’s my take on the growth of the market: Read Article   
2. Cubbo brings time to launch in Mexico down from 12–18 months to 90 days using our importer of record service: Here's an article that explains how.