The Situation

Northridge was a direct-to-consumer brand selling premium home goods through their website and Amazon. They'd grown revenue from $8M to $32M over three years, which looked impressive. The problem: they were losing money.

Gross margins had compressed from 54% to 41%. Customer acquisition costs were climbing. They were burning through inventory financing and had maxed out their credit line. The founder knew something was broken but couldn't pinpoint where the money was going.

The investors gave them twelve months to get to profitability or they'd be forced to sell at a distressed valuation.

What We Found

Revenue was up, but profitability was down for three reasons:

Product portfolio complexity was destroying margins. Northridge had launched 87 new SKUs in two years to "give customers more choice." But 60% of those products represented just 14% of revenue. Worse, the low-volume SKUs required custom packaging, longer lead times, and higher per-unit costs. They were spending a disproportionate amount on inventory carrying costs for products that barely sold.

Amazon fees were eating the P&L. Amazon represented 38% of revenue but only 19% of gross profit after accounting for referral fees, fulfillment costs, and advertising spend needed to stay visible. They were subsidizing Amazon growth with DTC margins.

Fulfillment operations were inefficient. They were using two warehouses—one on the West Coast, one on the East—to reduce shipping times. It sounded smart. But order volume didn't justify the fixed costs of running two facilities. They were paying for redundant staff, systems, and overhead.

What We Did

We restructured operations around profitability, not just revenue growth:

Killed 52 low-performing SKUs. We analyzed contribution margin by product and eliminated anything that wasn't covering its fully-loaded costs. Yes, this meant walking away from $3.8M in revenue. But those products were generating only $340K in gross profit while tying up $1.4M in working capital and creating operational complexity.

Repriced and repositioned Amazon as a customer acquisition channel, not a profit center. We reduced Amazon SKU count, stopped competing on price, and used Amazon primarily to drive brand awareness. Customers who discovered the brand on Amazon were retargeted to the DTC site where margins were 28 points higher.

Consolidated to a single fulfillment center. We closed the West Coast warehouse and consolidated everything to the East Coast facility. Yes, shipping times increased slightly for West Coast customers. But we cut $780K in annual fixed costs and improved inventory turns by consolidating stock.

Renegotiated supplier terms and optimized order quantities. With a smaller, more focused product line, we had more negotiating leverage with suppliers. We shifted to larger, less frequent orders and negotiated payment terms from net-30 to net-60, improving cash flow by $420K.

The Result

Twelve months post-engagement:

• Revenue declined from $32M to $27M (by design)

• Gross margin improved from 41% to 58%

• Operating cash flow went from negative $180K/month to positive $290K/month

• Customer acquisition cost decreased 34% as marketing spend focused on high-LTV products

• Inventory carrying costs reduced by $1.6M annually

Northridge reached profitability in month seven and has sustained it since. The founder told us later that killing half the product line was the hardest decision she'd ever made—it felt like moving backward. But it was the only path to building a sustainable business.

The company is now preparing for a growth equity raise at a valuation 3x what the distressed sale would have been.