Levine’s investment for Bessemer in what looked like a risky venture begins paying off, as Lore and Bharara modify the high-volume, low-margin formula that failed for other e-retailers like Pets.com and Webvan. The company uses software that it wrote to analyze orders and select from among 25 different types of box to avoid U.P.S.’s oversize shipping charge, saving $2-$3 on a typical $100 order. It also places its two warehouses in zones where 45% of customers can get free overnight shipping. Lore:
When you’re shipping diapers, wipes and formula, after shipping costs are taken out, there’s really nothing left in the way of profits. But you add in shampoo, lotions, feeding bottles and those things come out with 35 to 50 percent gross margins.
This brings overall gross profit margins to about 13% compared with 4.6% in 2005.