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 Mexican market growing month after month. Fast.

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

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

Let's dive in using Mexico as an example…

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

Using a FOB cost of $6, shipping 10 thousand units from China through the Port of Manzanillo (usually the minimum we recommend, or a number of items that will result in at least $100K in sales), we arrive at a total insurance and freight cost (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 might spend (CAC, Shopify per-order fees, etc.).

In total, doing business in Mexico generally results in 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 an obvious 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 might argue that they're already selling in Mexico through international shipping options. We notice that these brands are somewhat reluctant to fully commit to the Mexican market because they're not receiving many orders in Mexico right now.

This is a fallacy for a couple of important reasons:

1. Typically we notice that these brands aren't 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 who has placed an order using international shipping knows the pain involved. Many times, packages get lost or delayed in transit. When a package arrives, the carrier will charge duties and taxes at the customer's door. The customer never knows if they'll receive their package and how much it will end up costing them if they do. This is enough friction to discourage the customer, leading 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 spending 10% of their daily ad spend from their main market in Mexico and grew incredibly fast from 0–1, then scaling ad spend.
2. Domestic fulfillment. Using a partner like Cubbo, you'd ship a full truck to our warehouse in Mexico City, and you'd handle all import fees/duties upfront. Customers would receive their packages within 24 hours 93% of the time. Transparent and fast for your customers.

Based on the growth opportunity and the 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 might look like for your business, we've built a calculator that can do that for you. Check it out here: https://imports.cubbo.com/roicalculator

Other resources:

1. Here's my take on market growth: Read Article
2. Cubbo reduces launch time in Mexico from 12–18 months to 90 days using our registered importer service: Here's an article explaining how.