In today's FirstScroll, we open up the glamorous world of D2C, those slick Instagram-famous beauty and wellness brands you keep buying, and ask a simple question. Behind the pretty packaging and the influencer hauls, are these companies actually making money? The answer is messier, and far more interesting, than you'd think.
The Story
You know these brands even if you don't realise it.
The face wash your favourite influencer swears by. The "toxin-free" baby lotion with the minimalist label. The beauty app where you spent way too much during a sale. This is the D2C world, "direct-to-consumer", brands that skip the old middlemen and sell straight to you through Instagram, their own apps, and slick websites.
For a few years, D2C was the hottest thing in Indian business. Funding poured in. Every other person was launching a candle brand or a protein company. The pitch was irresistible: build a cool brand online, sell directly, skip the expensive shops, print money.
So here's the uncomfortable question nobody asked loudly enough. If the model is so genius, why are so many of these brands struggling to actually turn a profit?
To understand that, you need to see the one number that secretly runs, and ruins, most D2C businesses.
The villain of the story: the cost of getting one customer.
Picture a normal shop. It sits on a street. People walk past, see it, walk in, buy something. The footfall is basically free.
A D2C brand has no street. It lives on the internet. So how does anyone find it? Through ads. Instagram ads, Google ads, influencer shoutouts. And here's the catch, those ads cost money. Real money. Every single customer a D2C brand gets, it usually had to pay a platform like Meta or Google to bring in.
This is called Customer Acquisition Cost, or CAC. And it's the silent killer.
Because the moment you depend on paid ads for customers, you're locked in a brutal trap. The more you want to grow, the more ads you have to buy, and the more expensive those ads get as everyone competes for the same eyeballs. You're effectively renting your customers from Meta and Google, forever.
So the entire game of D2C comes down to one question: can you get a customer for less money than they'll spend with you over time? If yes, you win. If no, you're just setting cash on fire with prettier packaging.
And this is exactly where the story splits into two very different paths. Let's look at the brand that shows the danger, and the one that cracked the code.
Path 1: Mamaearth, the growth machine that has to keep paying.
Mamaearth (run by parent company Honasa) is the poster child of Indian D2C. Toxin-free, mom-friendly, beautifully marketed. It grew at lightning speed and even went public. Impressive stuff.
But look under the hood and you see the CAC trap in full view.
In FY25, Honasa spent a staggering ₹744 crore on advertising. That was a jaw-dropping 36% of its entire revenue of around ₹2,067 crore. Read that again. For every ₹100 the company made, roughly ₹36 went straight back out to ads to keep the engine running.
And here's the truly worrying part. Even while spending all that on ads, its repeat purchases were declining, a problem the CEO himself has publicly admitted. That's the nightmare combo. You're paying more and more to bring people in, but they're not coming back on their own. So you have to keep paying, again and again, just to stand still.
That's why Honasa's profits have been a rollercoaster. It made ₹72.6 crore profit in all of FY25, down 32% from the year before, even posting an outright loss in one quarter. To be fair, it has since staged a real recovery, tripling its quarterly profit to around ₹69 crore in Q4 FY26 by getting more disciplined and pushing into physical stores. But the core tension never fully goes away: an online brand built on ads has to keep feeding the ad machine to survive.
This isn't a Mamaearth flaw. It's the D2C flaw. Most pure online brands hit an invisible ceiling where ads get so expensive that growth stops being profitable.
Path 2: Nykaa, which quietly stopped being a "D2C brand" at all.
Now here's the plot twist. The biggest D2C success story in India isn't really a D2C brand. It's a D2C shop.
Nykaa doesn't just sell its own products. It's a platform, a giant online beauty mall where hundreds of other brands (Lakme, L'Oreal, Maybelline, plus premium names) come to sell. And that changes the economics completely.
In FY26, Nykaa crossed a massive milestone: revenue of ₹10,022 crore, its first billion-dollar revenue year, with a net profit of ₹204 crore. Profitable. Growing. The dream.
So how did Nykaa escape the CAC trap that squeezes Mamaearth? Three clever moves.
One, it became a destination, not a product. People don't go to Nykaa to buy "a Nykaa thing". They go to browse everything, like walking into a Sephora. That means once you've made Nykaa a habit, you keep coming back on your own, without the company paying for an ad each time. Lower acquisition cost, higher repeat visits. The exact opposite of the Mamaearth problem.
Two, it sells other people's brands. When you buy a L'Oreal serum on Nykaa, Nykaa earns a margin without having spent a rupee inventing or marketing that product. It's the landlord collecting rent from hundreds of brands, instead of being one brand desperately advertising itself.
Three, and this is sneaky-smart, it went offline. Nykaa now runs over 300 physical stores across nearly 100 cities. The very "expensive shops" that D2C was supposed to kill, Nykaa embraced, because a store on a busy street gives you that free footfall and brand trust that online ads can't.
So Nykaa basically became a modern retailer wearing a D2C costume. And retail, done at scale, actually works.
But here's the catch even for Nykaa.
Don't mistake "profitable" for "wildly rich". Nykaa's ₹204 crore profit on ₹10,022 crore of revenue is a net margin of just about 2%. That's wafer-thin. For comparison, a strong FMCG company might make 15-20%.
Why so thin? Because retail is a low-margin grind. You buy products, store them, ship them, handle returns, run warehouses, and every step nibbles at your profit. Nykaa wins on volume and habit, not on fat margins. It's a game of moving enormous quantities while keeping costs brutally tight. The fact that it makes any profit at all puts it ahead of most of its peers, but nobody's swimming in cash here.
So, how do Nykaa, Mamaearth, and the D2C boom actually make or lose money?
It all comes down to that one number: the cost of getting a customer versus what that customer is worth to you. Pure online brands like Mamaearth live or die by it, forced to keep buying ads to keep growing, which is why their profits wobble. Platforms like Nykaa beat it by becoming a habit, selling other people's products, and embracing the offline stores D2C once mocked, though even then, the margins are painfully thin.
The hard truth the D2C boom is learning? Building a brand that looks cool on Instagram is the easy part. Building one that customers come back to without being paid to is the whole game. And the winners aren't the ones with the prettiest packaging. They're the ones who quietly cracked the maths.
The glamour was never the business. The unit economics always were.
Until next time...
