The Smart Debt Playbook for DTC Brands
In the latest episode of the Scalability School Podcast, Zach, Brad, and Andrew dove into one of the most misunderstood growth levers in DTC: using debt to scale. Debt has a bad reputation in e-commerce often associated with bankruptcy, failed Shopify loans, and risky ad spend but when used intentionally, it can unlock massive growth.
Zach shared the story of scaling Hollow, his DTC sock brand, from $1M in revenue to $20M+ without raising equity capital. The secret? Understanding the math, building airtight financial models, and leveraging debt for the right things.
Start With the Math
Too many skip straight to ad spend without knowing their numbers. Zach broke it down simply:
Expected CPCs: Around $2–$5 depending on category (higher in health/wellness).
Conversion rate benchmarks: 3–7%.
Resulting CPA: Often $50+ for a new customer in 2025.
That means if your AOV (average order value) is only $60, you’re fighting an uphill battle. Brands need $100+ AOV (or strong subscription/returning customer rates) to make the math work. And don’t forget landed margins. After COGS, pick-pack fees, shipping, and 3PL charges, you should still aim for 60%+ margin once the product reaches the customer.
Negotiate Everything
Margins aren’t just about raising prices. Hollow improved profitability by negotiating everywhere possible:
Better rates with 3PLs
Shipping discounts (saving $1.50 per order adds up fast)
Manufacturer terms
Even agency contracts
The lesson? Everything is negotiable. Every $0.50 saved per unit compounds at scale.
Why Choose Debt Over Equity
When Hollow hit $1M in its first year, Zach and his co-founder faced a choice: slow growth with limited inventory, raise equity, or take on debt. They chose debt.
Why?
They had confidence in their funnel—$1 in ads reliably turned into $3–4 in revenue.
Debt allowed them to keep ownership.
Inventory financing made sense because socks are a tangible, low risk asset (unlike gambling on a risky influencer campaign).
They partnered with Wayflyer, building robust models to prove their ability to repay. Hollow forecasted $9M in 2023 and hit it almost exactly, which built trust and unlocked more funding for their next leap.
How to Convince Lenders
Even as a young brand, Hollow secured favorable terms by showing lenders:
Detailed financial models (P&L, 12-month cash flow, inventory forecasts)
Proven results (agency case studies + Hollow’s own growth)
Clear use of funds (yarn → socks → sales → repayment)
Lenders don’t just want rosy growth goals—they want to see how you’ll pay them back and why the money is essential.
When Debt Makes Sense (and When It Doesn’t)
Good uses of debt:
Buying inventory you know you can sell
Negotiating better supplier terms with upfront capital
Fueling predictable, low-risk growth
Bad uses of debt:
Funding risky ad tests or influencer campaigns
Launching unproven products
Covering short-term gaps without a clear repayment plan
As Zach put it: “If you don’t know exactly what you’ll do with the money and when, you shouldn’t take on debt.”
Key Takeaways
Know your numbers. Start with CPC, conversion rates, CPA, AOV, and margins.
Aim for 60% landed margin. Build in all costs not just COGS.
Negotiate relentlessly. Shipping, 3PL, manufacturing every $0.50 matters.
Use debt for assets, not gambles. Inventory = yes. Risky ads = no.
Build robust models. Show lenders exactly how debt fuels growth.
Be transparent. Overpromising kills trust; consistent results build it.
Secure funding before you need it. When things are good, lock in the next round.
💡 Final Thought: Debt isn’t a silver bullet but in the right hands, it’s a powerful accelerator. Hollow is proof that bootstrapped brands can scale to eight figures without giving up equity, if they have the math, the margins, and the models to back it up.