How This Hearing Aid Company’s Customer Service and Prices Are Blowing Away the Competition

Shaving startup Harry’s makes $600 million a year. Schick bought it for $1.37 billion.

Eyeglass wear company Warby Parker makes $250 million annually. It’s worth $1.2 billion.

And shoe retailer Zappos makes $635 million a year. Amazon scooped it up for roughly $900 million.

Razors. Glasses. Shoes. All huge markets. All markets where products are becoming less affordable.

That brings us to another huge market about to get disrupted. And the company that leads the disruption could be the next Harry’s, Warby Parker or Zappos.

The stakes are BIG. And early investors with the foresight to invest in this company could earn an outsized return.

The market is hearing aids. A market worth more than $6.5 billion. By 2024, it will go to more than $9 billion.

And the company disrupting this arcane and inefficient market? Audicus – a startup that is making it easier, faster and cheaper for people to buy high-quality hearing aids.

Disrupting the Status Quo

Three things stand between you and a good, reasonably priced pair of hearing aids.

1. Hearing aid manufacturers

   A small, cozy group of manufacturers control the market. These manufacturers don’t exactly compete on price. In fact, they don’t compete, period. There’s more than enough business for the roughly half-dozen of them and no incentive to rock the boat.

2. Insurance

   Or more specifically, the appalling lack of insurance. Only 23 states mandate insurance coverage of hearing aids for children. And only three states require hearing aid coverage for adults. And Medicare, which is supposed to cover the needs of the elderly, provides NO COVERAGE for hearing aids. Industry surveys done over the past decade show that only 13% to 25% of people receive help from their medical insurance (or health maintenance organization) when paying for hearing aids. Affordability is holding back the market.

3. Audiologists

   They are the ones giving you the hearing test and then suggesting the hearing aids you should get… usually at an outlandish markup. A pair of hearing aids costs more than $4,700 on average. The markup from wholesale to retail can be more than 5X… easily. Customers are getting screwed.

Now, I can’t tell you how much it costs to make hearing aids. That information is highly protected by the industry. But I can tell you how much Audicus pays for a pair, which includes a markup for the manufacturer. It’s $350. And that’s for its best ones.

Audicus charges only $1,499 for its top pair of hearing aids.

And the slashed prices are just the beginning of its “hearing solution” package. Audicus provides FREE customer support throughout the testing, purchasing and post-purchasing stages.

If a user needs to recalibrate their device, Audicus offers free reprogramming for the life of the device. That’s in addition to Audicus’ extensive product manuals and video tutorials. And this high-quality customer service isn’t going unnoticed. Consumer Advocates gives Audicus a 9.2 out of 10 for “additional services.” And Shopper Approved gives its customer service rating 4.5 out of 5.

Audicus also offers a free, unique and proprietary 15-minute hearing assessment online. It developed the test using sophisticated algorithms, leveraging thousands of clinical tests. It provides users with an instant score (ranging from one to five) while also offering breakdowns by ear and frequency. It uses the test results to tailor a hearing solution that best meets the needs of each recipient.

Audicus’ current hearing aid products, the Clara and Clara Enhanced, were launched in November 2018. The devices are programmed under the supervision of an audiologist. The hearing aids also come with various user-driven customization options, including classic or Bluetooth remotes and rechargeable batteries. Audicus’ Bluetooth remotes facilitate connection to anything with a Bluetooth output, such as a television or cellphone.

The company also offers free shipping, a 45-day money-back guarantee, unlimited customer support and a one-year warranty. (Click here to find out more about the hearing aid device and everything that comes with it.)

Market, Monetization, Management, Margins and Moat

I usually evaluate startups based on the four M’s: market, monetization, management and metrics. But that particular set of criteria doesn’t apply to Audicus at its current stage. So instead, I’m looking at five M’s: market, monetization, management, margins and moat.

Market. I’ve already noted that it’s big and getting bigger. But the market is also rather conveniently coming to Audicus in a very important way.

In 2017, President Trump signed the Over the Counter Hearing Aid Act into law. It allows adults with mild to moderate hearing loss to access over-the-counter (OTC) hearing aids without a visit to a hearing care professional. The U.S. Food and Drug Administration (FDA) must formulate a plan to regulate the devices by mid-August 2020. A conclusive rule must then be enacted within 180 days. So consumers should be able to purchase hearing devices without needing an authorized hearing evaluation in the first quarter of 2021 at the latest. (Audicus currently requires customers to sign a waiver acknowledging that they are forgoing a medical evaluation recommended by the FDA.)

While Audicus’ business is thriving as is, it should do even better when it’s able to offer its products OTC. And by 2021, Audicus could have a much greater market presence and brand recognition. So it should be in a great position to take full advantage of a more hands-off policy on hearing aids purchases.

Monetization. Audicus’ customers are not only buying its products but also buying them at a price that allows the company to grow. Audicus pulled in $3.2 million in revenue in 2018, a 22% increase over the previous year. Since 2012, it has sold 24,000 hearing devices.

To boost revenue growth, the company has just begun a B2B (business-to-business) sales strategy that has huge potential. It’s targeting nursing homes, assisted living communities, telehealth companies, prison systems and more. And it has already made a couple of sales to corporate customers. It plans on using the proceeds from its current raise on MicroVentures to significantly step up its B2B efforts.

It also intends to launch a monthly “hearing as a service” subscription model. Subscribers will get product upgrades, accessories, dedicated account representatives, free adjustments and experiential offers. Audicus plans to price it at $39 per month under a two-year agreement.

Both initiatives will facilitate recurring revenues. The B2B business could be captured through annual, and eventually multiyear, contracts. And the subscription model builds in recurring monthly revenue.

Margins. The beauty of the online “direct to consumer” model is that low prices (compared with legacy providers and sellers) do not mean low margins. For its most expensive device, Audicus pays $350 per pair and sells it at $1,499. Salaries, sales, marketing expenses, and shipping and returns eat into that margin. But on a gross product margin basis, the company keeps around $0.70 of every dollar it makes.

Management. Before founding Audicus, Patrick Freuler worked for Bain Capital and McKinsey. After a couple of long conversations with him, I learned Patrick has an impressive understanding of the hearing aid industry and where it’s headed. I was most impressed with his commitment to invest $200,000 of his own money into this current round. It shows Patrick is all-in.

He believes he has brought the company to this critical juncture when its revenue can really take off. “Now is the time to monetize,” he says. But Patrick is being modest here. He’s already monetizing at a nice rate. The fact that he wants to accelerate that rate speaks to his belief that all the major pieces are in place for the company to scale and become a dominant player in its space. I think he’s right.

Moat. Success attracts imitators. So what’s going to keep Audicus’ competitors at bay? For one, its customer service. Patrick has it humming at a high level, and he’s determined to keep it that way. He says this, together with Audicus’ hearing assessment technology, manufacturer relationships and unique brand, will prevent newcomers from stealing market share.

In terms of price and service bundle, Audicus’ closest competitor is iHear Medical. But iHear’s in-home hearing test is $69. Audicus’ test is free. And none of Audicus’ other competitors even come close to having the same range of services, free offerings, a quick and easy-to-use online hearing test, and post-sales support.

Overall, Audicus offers a superior suite of services, assessment tools, user experience, support and hearing devices at a price that is at par with, if not better than, its no-frills online competitors. The moat is more than big enough.

How to Invest

This deal is being hosted on MicroVentures, a licensed broker and dealer. We have worked with MicroVentures on a number of recommendations over the past few years. The portal takes good care of our members.

The first step (if you don’t have a MicroVentures account yet) is to go here.

Then click the orange “Invest” button and follow the site’s instructions.

If you run into problems at any point, please call our friends at MicroVentures directly at 1.800.283.9903.

Editor’s Note: If you’re new to investing through startup portals like MicroVentures, or if you just need a refresher on how to invest in startups through portals, check out our video tutorial “Investing in Startups Through Online Portals.”

Audicus is an early-stage tech investment, and like all such investments, it’s risky. Do not invest money you can’t afford to lose.

Also, remember that these types of investments are not liquid, meaning you can’t buy or sell your stake easily. If and when an exit opportunity arises, you’ll be informed immediately.