Over the past couple years I’ve spoken to various founders and CEOs of SME D2C brands. Each from different sectors and with different backstories. But all carrying the same scar.

A Covid scar.

When we were all locked indoors during the 2020 pandemic, demand went bananas for many (even most?) consumer industries. Orders flew in. Products flew out – and, for many, ran out. And with it came a sense of inevitability: this is our new normal.

To capitalise, many did what any growth-focused brand might do – they invested. In stock. In people. In product lines. In marketing. In warehouse space. There was a sense that if this was a rising tide, they’d better build a bigger boat.

But the tide does not stay high for long.

The Covid surge wasn’t growth – it was distortion. A temporary shift in behaviour caused by exceptional, global circumstances. In many sectors, the market for stuff hadn’t grown, it had been brought forward – leaving a gaping hole in future demand. In other sectors, demand outstripped supply, driving up inflation and putting a big squeeze on disposable incomes (compounded by the war in Ukraine, amongst other things). And when demand and spending patterns swung the other way, many brands were left dangerously exposed. Fewer sales. More cost. Little to no margin.

How does one remedy the situation?

The temptation might be to cut marketing –  a discretionary spend that is often first in the crosshairs when the belt needs tightening. But that can mean cutting profitable demand – the very thing keeping the lights on. Others find themselves tempted by discounting. It may help the top line, but at what cost to margin? Both strategies flirt with the risk of a death spiral that is near impossible to climb out of.

So what’s the antidote? If you’re in the thick of this now – or trying to avoid it altogether – here’s what we recommend:

1. Know your margins – properly.

A friend of mine ran a fast-growing e-comms business selling quirky lifestyle products. Covid supercharged sales to nearly £10M, so he doubled down: introduced more brands to the range, invested in more stock and scaled the team.

Twelve months later, the business was burning cash.

A visit to their office was a revelation. An extraordinary amount of time was spent benchmarking competitor pricing and debating the discount levels they would respond with. I wondered how much money these heavily discounted products were actually making – and whether the hustle was worth the effort. So I dug into the margins.

Turns out 95% of the products they sold were loss-making.
Not low-margin. Loss-making.

The problem? While they had written a business case to justify each new product/brand they had added to their range, they had calculated their projected margins based on ideal conditions: full price sales with no assumption for discounting. But when demand dried and the market was saturated with product, they had no chance of selling anywhere near to full price if they wanted to shift their stock. Not only that, they had not factored in the full costs of selling and fulfilling those products, including any assumptions for marketing investment.

By the time they realised, it was a little too late. They knew what needed to be done but they’d run out of time. And sadly they went into administration.

Here’s the takeaway:
Know what really makes you money.
Not just on paper. In practice.

Build your margin model with real-world numbers such as actual selling prices, not RRP. Be sure to factor in all the other incremental costs that might be incurred by selling that product (even things like after-sales). And if you’re unable to extract an exact number for any given cost, then make some back-of-envelope assumptions. A cost based on a well-considered assumption is way better than missing that cost out altogether.

Do this, cull the loss-makers and put your energy into developing and marketing fewer products, more brilliantly. Not only might this flip you back into the black but it could put you back on the growth path.

2. Know your minimum viable ROAS.
When times are tight, brands often cut marketing, typically targeting efficiency metrics like “% of sales”. But this risks cutting spend that is delivering a positive profit contribution to your other overheads (like warehousing, head office, people, etc).

The result is more efficient marketing but a less profitable business.

Instead you need to calculate and work to your minimum viable ROAS – the lowest return on ad spend that will still deliver a positive profit contribution to your fixed overheads.

If you have areas of marketing spend delivering below that threshold then you should absolutely consider cutting it. But if there are areas in your marketing that are delivering nicely above your minimum viable ROAS then you might find that the most profitable path is to actually spend more.

Establishing a minimum viable ROAS should be a pretty straightforward exercise if you’ve been able to establish a firm understanding of your margins (see point 1 above). Measuring marketing performance against it can be a little trickier with attribution data becoming increasingly murky. But don’t be afraid to plug in any gaps with assumptions or gut feel if needed. Just be mindful of your own biases and potential tendencies to be overly optimistic or pessimistic.

3. Forecasting without ego and unfounded optimism.
Moore Large was a British bike distributor, founded in 1975, representing well-known brands like Forme and Vitesse. During Covid, when demand for bikes exploded, they ordered huge volumes of stock to keep up.

By the time that stock was made, shipped, and arrived, the boom was over. In 2022, bike sales dropped 27% below pre-Covid levels – the lowest in two decades.

Moore Large was left holding £35 million in unsold bikes and accessories. After 50 years in business, they went into liquidation.

I have no direct insight into what motivated Moore Large to invest so heavily in stock but I can only conclude they did so without properly forecasting their sales or they did a sales forecast with way too much optimism baked into it (perhaps riding high on growth coupled with a sense of urgency to capitalise). 

To be fair, it’s very difficult to predict the future and forecast accurately – as the saying goes, “you’re either wrong, or you’re lucky”. But a decent forecast isn’t about being 100% accurate. It’s about putting in the critical thinking to avoid being blindsided by market factors you could’ve anticipated. And it’s about being ready so you can minimise the financial risk to your business (whether that be flexing stock, media spend, recruitment or something else).

At Loaf, we never assumed sofa sales had permanently shifted when we experienced our own Covid boom. People weren’t suddenly buying more sofas, more often. It was a shift in timing, not behaviour. Understanding this helped us plan more cautiously and avoid overcommitting.

Smart forecasting isn’t fortune-telling. It’s:

• Looking at historical performance and adjusting for outliers
• Understanding what actually drove demand (internal and external)
• Mapping your own marketing plans and external market context into your future projects
• Stress-testing assumptions so you’re not caught off guard

It gives you a benchmark – a reasoned, reality-based “best guess” – so you can spot shifts early and act fast. Without that, you’re left reacting instead of steering. Over-order and you tie up cash in stock or discount aggressively. Under-order and you lose sales. Either way, you lose margin.

So don’t try to be perfect. Just be prepared.

In summary?

Get clear on what makes you money. Push harder where you’re profitable. Get smart about the stock you hold. And above all else, resist the urge to treat symptoms without diagnosing the root cause.

The post-Covid comedown has been real. And for many, it still is. But with the right tools – and a bit of discipline – it’s a hangover you can recover from.