Dollar Shave Club's $1 price was a loss leader — and became a billion-dollar exit

In 2011, Michael Dubin was frustrated with the high cost of razor blades. The market was dominated by Gillette, which charged premium prices for its multi-blade razors. Dubin saw an opportunity to disrupt the market with a subscription service that delivered razors by mail. The price was $1 per month — a price that was deliberately low but also unsustainable. The cost of the razor, the packaging, and the shipping exceeded $1.

Dubin had no experience in the razor industry, no manufacturing facility, and no distribution network. He learned about razor manufacturing from Chinese suppliers and built a supply chain from scratch. The business model was simple: acquire customers at a loss and hope they stayed long enough to become profitable. The $1 price was a loss leader — a bet that customers would stay for months or years.

Dubin made a viral video to promote the company. The video, titled 'Our Blades Are F***ing Great,' cost $4,500 to produce. It featured Dubin walking through a warehouse and explaining the value proposition in a humorous, irreverent style. The video went viral, receiving millions of views within days. The company received 12,000 orders in the first 48 hours after the video launched. The pricing strategy was working.

Dollar Shave Club grew rapidly. By 2015, the company had 3 million subscribers and annual revenue of $150 million. In 2016, Unilever acquired the company for $1 billion in cash. The $1 price point that was losing money on every sale had built a billion-dollar company. The loss leader strategy had paid off — the subscription model created a customer base worth far more than the initial losses.