Dan Wick

We built software with computational algorithms to determine what the optimal number of boxes to have in the warehouse is and what the sizes of those boxes should be. Should we stock five different kinds of boxes to ship product in? Twenty kinds? Fifty kinds? And what size should those boxes be? Right now, it’s 23 box sizes, given what we sell, in order to minimize the cost of dunnage (those little plastic air-filled bags or peanuts), the cost of corrugated boxes, and the cost of shipping. We rerun the simulation every quarter. Using the right box probably adds close to 1 margin point.

That may not seem like a lot, but the difference between a supersuccessful Internet retailer and a so-so Internet retailer is just a few margin points. Amazon has about a 4 percent operating margin, but they’re at this massive scale. Anything less than massive, you have to be more efficient. The year we started, our gross margins were 4.6 percent. Today, they’re in the teens.