When you hear the word “business”, it’s common to think of board rooms, people wearing uncomfortable clothes, and investors counting cash by the pool at their summer homes. And to be fair, there ARE plenty of businesses that fit this stereotype.
But there are also lots of businesses that exist to make the world a better place and prioritize social and environmental responsibility above shareholder value. And while the saying “no margin, no mission” is absolutely true, we think the idea that a business’s sole function is the pursuit of profit is a pretty jaded and cynical take on capitalism.
But here is the hard part. Greenwashing in business is a real problem and it’s incredibly difficult to distinguish between companies that walk the walk and those that don’t. For non-profit organizations and publicly traded companies here in the United States, there are legal transparency requirements that can help you sniff out the fakers. But for private companies like ours, there are minimal requirements that let customers look under the hood. This is one reason why we became a certified B Corporation, to let an independent 3rd party asses every detail of our business and give us a score.
But we don’t think that is enough.
We’ve created this page to share with you our annual financial details so you can understand where exactly your money goes when you buy one of our products. Below you’ll find snapshots from past years and a brief discussion about each category. Our hope is that this information gives you a better understanding of who we are and how we operate.
A snapshot of our financials from 2023. Previous years can be found here - 2020, 2021, 2022.
Cost of Goods Sold - By far our biggest expense is the cost of making our products, which in our opinion, is how it should be. This includes paying recyclers for post-consumer bottles, extruding those bottles into fibers, weaving the fibers into fabric, cutting out the patterns, printing them, and sewing them together. It also includes shipping costs and transaction fees which can really add up for e-commerce businesses. If you compare us to most apparel brands, our COGS are pretty high. This is because we prioritize local, high quality manufacturing. All of our products (except bottles and hats) are made locally. Our organic cotton products are made in California, and our recycled polyester products are print, cut, and sewn in Central America from fabrics that are made in the United States. We do this to minimize the distance that items need to travel as they work their way through our supply chain, which reduces the environmental impact of making them.
Operations - The category that encompasses all expenses related to operating our business. Things like rent, payroll, insurance, software fees, and all that boring stuff. As a small company, we take pride in doing a lot with a little, which is how we’re able to keep these costs relatively low.
Marketing - Arguably the biggest variable cost for e-commerce brands, these are the expenses associated with running paid ads on social media, Google, and any other promotional activities like affiliate programs, paying guest blog authors, media production, or advertising in a magazine, TV program, or podcast. Different “experts” suggest different budget targets, with established brands able to spend as little as 5% and new ones having to shell out as much as 25% or more. As we grow and more people experience our products, we hope to rely less on marketing to reach new people and more on word-of-mouth recommendations from our customers.
Donations - Up until 2024, we’ve committed 10% of profits from our advocate apparel line to our amazing ocean science & education partners you can learn about HERE. Technically speaking, when we said “profit” we really meant a product’s profit margin, excluding operating expenses. So if a product sold for $100, cost $50 to make and get to you, we’d donate 10% of what was leftover, $5. The problem with this approach is that it wasn’t transparent, which has always bothered us. So starting in 2024 we’ve switched to a new model where we donate 5% of sales. So if a product is sold for $100, $5 is donated. Easy math. When we analyze the past four years of data, this new philanthropy model will result in slightly larger donations to our partners, so this switch results in us giving more, not less.
Profits - Simply put, profit is how much money is leftover after all the expenses are paid. We’ve never received outside investment nor do we distribute profits to shareholders. Instead, we use what is called a retained earnings approach, where the profits from the company finance its future growth. This is especially important and challenging to manage when the company is growing because we have to spend a lot of money to make our products and stock inventory. For people who aren’t familiar with the inner workings of a business like ours, profit is often synonymous with “greed”, when in many cases, it is the lifeblood of a company.
Let’s illustrate with an example.
Imagine you start the year with $100,000 in cash and spend it like we did in 2022. Let’s say you’re bullish and spend everything on inventory (bold move). Keeping with our previous examples, let’s say the products cost $50 to make and sell for $100, so you turn $100,000 worth of inventory into $200,000 of sales. Awesome! But those sales came with marketing and operating costs and a donation. With a 5% net profit percentage, you’d end the year with $110,000 in cash to pay for the next year’s inventory, which should be plenty to do the same thing as the year before.
But what if demand is growing, you anticipate more sales and want to launch a new product (cough, bikinis)? Now you need $150,000 to manufacture all that inventory, but you only have $110,000 in the bank. At this stage, most businesses will get some kind of loan to bridge the gap, but in doing so, they also take on risk. If the year doesn’t end up as good as they planned, they may find themselves sitting on unsold inventory and without cash to pay their bills. Worse yet, they could go bankrupt.
This is why a healthy profit margin is so important to a business’s survival. We feel like a target of around 10% is ideal. It gives us enough funds to grow, develop new products, and not take company-ending risks, but not so much that we’re being greedy.
