Welcome to the process, to e-com profit podcast, where we know top line sales, just isn’t enough to have the business of your dreams, learn to run a profitable business online that doesn’t run you.
Welcome to the process to e-commerce profits podcast. we are excited today to share a little bit about, turnaround stories. So, I’ve talked to clients that have been working with Cindy for a while. A lot of them will tell me, you know, we were in a really bad spot and, they were able to turn things around and, whether or not you ever use Cindy or not, we wanna make sure that, you know, that those kind of turnarounds are possible in e-commerce businesses. and so, we’ve both worked with those businesses that have been in dark places. but we wanna talk about profitability. And so, Cindy, you know, when you work with clients, what’s the main problem when, you know, like a client’s not profitable or they’re really in a bad cash flow place, usually what is the main problems that you see there?
Well, first off, they don’t really understand all of their numbers. They, they, they see that they don’t have money in a bank account, but, but they don’t really understand how they got there. And, and what the real problem is that’s driving that, the problems can be, businesses, leak money, a lot of different ways. They can be excessive operating expenses where people are just not paying attention to the subscriptions. And they’re, they’re laying out money for things that are just not necessary more commonly, I would say. I mean, there’s, there’s probably that in every business, just, you know, a little bit of sloppiness in the OPEX, but for clients that are, are continually just really working it, but not figuring out how to get ahead. A lot of times the problem exists at the gross margin level where they’re either have a, a product that is, that is not generating enough money to actually, grow a business on, or they’ve got a portfolio of products that one or two products is requiring a lot of cash to keep in stock, but is not contributing to the, cash flow because it, you know, it doesn’t sell very quickly or there’s not good margin there.
So just really getting a handle on gross margin at, at the, portfolio level to understand where there, where there can be improvement, gross margin is, is, is the key. I think it’s just hugely important. And it’s where we start with a lot of our clients.
So I know that, you know, it, it can be. So, when we were in a bad spot financially, when we were selling, like we, we tried to grow too fast, and I didn’t know enough about managing cash flow and kind of got ourselves kind of backed into a corner. And the, you know, the bookkeeper would send us the financials and I just wouldn’t open them because I was afraid of what they would say good or bad. I didn’t, you know, I just didn’t wanna know. it, you know, when it comes to knowing your numbers, do you think that that’s kind of like the primary reason that, you know, kind of like, maybe if I don’t open the, if I don’t know, then it’s not happening or, you know, why do, why do people avoid knowing their numbers?
Well, I think a lot of people get into business as, as a side hustle that maybe they’re really great at something else. You know, we’ve had people that were firemen that, you know, started to sell on. and, and they weren’t trained from a financial perspective, or maybe you did work like outta a school nurse or a teacher. There’s just a lot of, a lot of professions that people can participate in E even I’ve had people that are financial people that worked in corporate, but, you know, really understanding the whole picture of a business is something fairly unique. And most people have not got the training in that. So, there’s the first problem is just really not having the background to know what to look at with the numbers. So even if the, if they do open the email and look at it there, there’s this question of, okay, now what you know, so is that good? Is it bad? Does it, what is it? Tell me, so really understanding what to look at is, is hugely important.
What I’m talking to people about business and about understanding their financials. And I think when they’re trying to like, avoid their financials, sometimes it can be that they, you know, they don’t under, they, they’re not able to see that how knowing those numbers makes a difference and how knowing those numbers can open new doors and new paths for actions to be taken.
Right. I mean, there’s that part of it, but then there’s also, they’re so busy doing so many things that when in the day are they gonna make time to, to, to do something that doesn’t feel like it’s absolutely critical to get product out the door, you know, and financials are kind of backward looking. most, most accounting firms are, are generating things that have happened, you know, in the couple of weeks before. So, it just doesn’t feel like, well, I gotta do that today, or it’s not gonna be good tomorrow. You know? So, it’s, it’s really easy from a, from just a time perspective to say, I’m gonna do that later. you know, we talked, with one of our guests as we’ve been recording. And one of the things that they do in their business is they look at, every six weeks, they kind of take a, take a retreat, and look at things holistically.
And I thought that was a really cool idea because, you’ve scheduled it in to, to make the time to do it. And then while you’re, you know, they do it in a retreat. So, they’re, they’re not distracted by all the boxes around and everything that they have to do. They can just focus on looking at the numbers. So, I think there’s just the not knowing what you, what to do with what what’s presented, as well as it being something that is not as time critical as getting product out the door or, or changing and, and add for a product. There’s so many things that, can seem that, like, they’re more important than looking at something that’s already happened.
Well, you know, I, I was with somebody and that, you know, they, and they were trying to get themselves out of a, a tight spot and they’re like, well, save sales solves everything. And I think that, that you would say, I, I would say that sales doesn’t always solve things. In fact, sometimes it can make it worse. you know, people are so focused on, like you say, getting the inventory out the door that they don’t realize, hey, I don’t need to buy any more of that inventory because it’s not profitable. And if I just reallocated that budget over here, I could have profitability, I could lower my stress level. I could be present with my kids, all of those things. Do you have any examples of like, you know, where somebody like by looking at their financials and having that open up new path to action, as far as like in their business, that, that kind of gave them a new sense of freedom or, you know, access to kind of turn things around.
Yes. we’ve had a few clients who, who had really dramatic change who went from, you know, one of, one of the things that we see happen quite often is there’s some attachment first product, and then they’ve released three or four more products. Well, that first product is not selling. for whatever reason, like it used to, there’s probably more competitors in the marketplace than there were when they started, but they hang onto that. And when we, we look at all the cash that is going into keeping that product there, it means that they weren’t able to put the money into growing some of the, the other products they weren’t able to allocate the ad, spend, across products that are really have the opportunity to grow. And the stress of just trying to, to make sure that you’ve got the dollars in place to buy that next round of inventory.
It’s huge. And, and if you don’t have those dollars, if things aren’t selling through and generating enough dollars to fund your operating expenses, then you have to look at, okay, how can I operate more frugally or more efficiently? And a lot of times as small business owners, we don’t have a big organization to cut off 20%. We just say, well, we’re gonna, we’re gonna have to do these things. And that’s our nights and weekends. And it just, it just compounds because there’s not enough dollars flowing through to actually build the, the, to build the, the business up it. And it takes time. What I’ve, what I saw with one client was that they, they had no time to actually spend to think about their business. And by having the calls that they had with us, it was one time, a, a week where we focused on what they were gonna do to grow. And, the rest of the week, you know, they, they were out there putting out fires, but that one time a week, we could focus on what it was they were gonna do to grow. And with just a little momentum behind them, they were able to then to, to cut out some of that, dead wood from the product perspective, and then, reprogram those, those that cash. And it just relieved a lot of pressure for them,
Because sometimes it is just, you know, it, by taking a look at those numbers and by reallocating that fund, that can be the difference between you having to work every night and borrow another Amazon loan and, or take a second job. I’ve even seen people do that because they can’t make the payments otherwise. and being able to be proactive, you know, you know, I’ve, I’ve seen that with cash flow too, you know, by being proactive around the cash flow, it keeps ’em from making that last buy that would’ve put them in a precarious place, you know? Yeah,
What kind of, exercise, you know, one, the other thing that, you know, the operating expenses of your business can, you know, that can really impact your overall profitability and, and your margins. and it’s really easy, especially in eCommerce to let all of those subscriptions kind of run away with you. what kind of exercises should business owners be doing to kind of help shore up that operating ex operating expenses? so they can make sure that those aren’t kind of running away with any profitability they might have had in their business.
We recommend an exercise. We call the cut, reduced, keep exercise, and it’s to, to go through your, your operating expenses. You can look at bank statements. You can go into, if you have QuickBooks or zero, you can go in and just pull out all the, transaction that’s run through the expense section of your P and L. it’s really easy to print out a P and L and then just drill down into each, category. If you’ve got, you’ve got a P and L open say for three months, I would, I would look at a three-month time period and every three months just go in and look, what am I spending money on? And do, can I cut it? Is there, am I getting this same thing some from something else? Do I still use it? Do I still need it? do I need as much of it? Can I reduce it? or am I gonna keep it, it’s, it’s providing value to my business. So just simply once a quarter pulling up your P and L going through the operating expenses, looking at cut, reduce, and keep, and doing that quarterly gives you just kind of a rhythm to make sure that never gets totally out of control.
And, you know, a lot of times people will be, you know, when I, I see people going through this exercise, they’ll be like, oh, well, you know, I haven’t used this software in six months, but I’m gonna use it next month. You’re not gonna use it next month. and most software’s, you can cancel it and you could always restart. You maybe might even get a better promotional deal. you know, and, if there’s a big difference in price, you know, like, oh, I’m grandfathered in, look at how many months you’d have to be. You know, if you didn’t use it for three months and you cut it out, how many months would it take for it to actually end up costing you more? Cuz a lot of times I see people who’ve had the same software, the $300 software for, you know, four years that they’re gonna start on any day. and sometimes being honest about what we’re really gonna do and what we really have time for. you know, another hot topic in the eCommerce community is margin. and you know, I, these people, you know, I actually was asked just by client, like what’s a good benchmark for gross margin. Maybe, maybe start with like what you, you know, what the definition of gross margin is and like kind of what that, that benchmark is.
Okay. Yeah. I think, I think gross margin is, is the, is the location, location for, for e-commerce sellers and, and really for any kind of business, real estate people know that where your property’s located really drives the value in your business. Well, knowing what your gross margin is and, and, and hitting some benchmark numbers is really what sets your business up to grow and be profitable and, and achieve the, the objectives that you’re wanting. So, first of all, what it is if you, if you take that number that we all focus on the top line sales, and then we subtract from it, what the cost, the direct cost are, the cost of goods, and the cost of sales. So, for an e-commerce seller, it’s the, for the products that you sold to get that top line revenue, how much did it actually cost you to have that product, available to sell?
So that may be what you pay your supplier. It may be your fulfillment house. It may be your employees that you have in your warehouse. It may be, some kind of, prep and ship. Those kinds of things, all are taking your product and getting it to your, to your, to your buyer. Those direct cost, taken from your sales dollars, lead you with your, gross profit. Then if you simply divide that gross profit dollar number by the revenue number and multiply it by a hundred, you get a percentage. And that percentage is the standard that you can look across all industries and tell how you’re doing and a baseline for all industries. And, and I know people are gonna argue and say, well for eCommerce, it’s different. Well, I can tell you, I see hundreds of people’s books. It’s no different.
you need to be at about 30% if you want to grow. And, and people will also say, well, you can’t really achieve that. I see it every day, achieving 60, 70, 80%. So, if you’re not, getting to that level, if you are gonna to argue and say 30% is unreasonable, then I recommend you really look hard at what your, your product costs are, what your pricing is, because those things are contributing to, you know, that number that, maybe is substandard for where you really need to be to be able to grow your business.
And there are some businesses that do have a smaller, gross margin, and they’re, you know, that, and they, they feel happy with those numbers. So it’s not to say that if you don’t meaning that, that you’re a loser or the numbers, you know, that you’re a bad, you have a bad business, but what I’ve heard you say over the years is of the businesses that you see are healthy, where the owners are able to have a mentally healthy balance between their business and their work life, where they’re able to consistently pay their employees and not rack up a lot of debt. They’re not borrowing money to get themselves out of trouble. That those are the businesses that have at least a 30% gross margin.
Yes. I mean, that’s exactly right. They’re also the businesses that are able to reinvest in the next product to be able to grow. I mean, in, in the eCommerce space products. And I think this is probably true in all retail, but my experiences in eCommerce, but products have a, have a life. And, and many times what you launch and what’s out there starts to have competitors offering something similar. And that one product may not carry you at that, at that gross margin level forever. So, you want to be generating enough cash to be able to grow your next product, to always have something that is gonna give you a growth opportunity. Otherwise, you get caught up in, pricing wars and all of those kinds of things start to drive down your gross margin and ultimately will pinch, your operating expenses, which is where you pay yourself and pay others. And it just creates a lot of stress and pressure. So trying to, to stay at that level from a portfolio basis really will help, really will help you have, the peace of mind and the stability in your business that I think most of us dream of when we start our business
And you know, it, it is, it might not be possible with somebody might say, well, it’s not possible. I’m, I’m looking for inventory and I’m not finding it. Sometimes it means you have to look longer. Sometimes it means adjusting what, you know, where you’re, where you’re sourcing your product. but you know what, so what would you say to those that say, you know, there’s no way to get that to that number. you know, I’ve tried, you know, what are, what are some things that you see some of your existing clients that are successful doing in order to get to those numbers?
Well, they, they don’t stop after, you know, first few attempts. I I’ve got one guy and I I’m so impressed with him. I mean, he had, he had a wholesale model, he was doing a little bit of resale. He had a wholesale model and he just, we tried to work on some profits, first stuff, but he just didn’t have enough gross margin. He, it, the margins were just too slim and, and there really is only so much you can cut. I mean, I, you know, I don’t think operating expense should be bloated, but you do have to have, you know, you do have to have some operating expenses. So, you, you, you can’t necessarily just grow a profitable business by cutting operating expenses. So, working with him over time, he just continued and, and he hit roadblock after roadblock sounded like he had a really great private label product.
but it got hung up on, on inspections and there were huge costs to getting, getting it through customs. And, but he just didn’t stop. He just kept learning and figuring out. And finally, he hit on that product. And I look at his numbers now and I’m like, you know, he he’s like that, Energizer bunny, he just kept working, just kept going, just kept going. And he finally, he, he figured out the, the, the, the thing that worked for him and, but it wasn’t the first time. And so, I think the thing is know that if, if you’re not seeing the opportunity, if it, if it doesn’t, if it doesn’t pan out, that doesn’t mean nothing will pan out. It just means that particular thing wants, and it may be that that particular thing can be resolved. You know, maybe it, it is looking for a different supplier.
Maybe it, maybe it is looking for a different way to get your product in front of people. maybe pricing can be altered from what you were expecting. what can you do to be different to, you know, to offer something that differentiates you? it, what, what you learn from going through and becoming an entrepreneur is that when something doesn’t work out, then you, then that’s an opportunity to learn, you know, check that off. Yeah. That didn’t work. So now we look for something else. And, so I think that’s, my advice is just keep trying. And if you’re, if you’re dedicated to, wanting to be your, to be an, when things look like a problem in one of, their, you know, one month they see something that looks like a problem. And two months later, it, it actually turned out to be an opportunity for them and vice versa. So, we don’t always know the rest of the story, but by continuing to work at it, it it’ll start to become obvious that yeah, there’s something out there for you too.
And I know when a lot of people are trying to turn around their finances, you know, especially when they come to one of us, especially you, is because they’re trying to implement profit first. but would you say that sometimes it’s, it’s important for people even before they start before, they can really start implementing completely profit first, just because they’re so in the negative they’re, so in the red, that they really do have to address the gross margin issues, because like you said, there’s only so much you can cut from an OPEX.
Yeah. I, I, I really think gross margin is the number. And, and, and shortly behind that would be a number we call contribution margin that also looks at what you’re spending on advertising. I think, I think it’s a commonly held belief that is true occasionally, that you can spend more money on advertising and that’s gonna get you more sales and that’s gonna make you more profitable. And that’s not always the case. And what I see, is people spending on advertising, that’s not actually getting them a return. So being, being smart about the product mix, you know, making sure you’ve got products that are generating a good margin and that you’re not then turning around and spending all of that margin on advertising so that you’re, you know, not, it’s not contributing to the rest of your business. You know, those, those kinds of things have to be analyzed at a, at a product level.
And if you have a lot of products, I’ve got one client that has hundreds and hundreds of products, and he’s like, how do I even, how do I even start to do that? And I told him, I said, pull off the top 10%, let’s focus on 10%. What are your top sellers? What are generating the top, the, the most revenue for you. And then let’s look at the bottom 10%. And so, you just start to, you start to work on it. And every month he would work on the top 10% and the bottom 10%, and then he would go down a tier. And by, by working on profitability, you know, one of the things he found was that his vendors had changed pricing and more that he had never updated the pricing on his website. And so, oh, I mean, another, another thing that he found was, sales tax, his, something was checked in, in his, online platform that, they were not going to collect the sales tax from the seller, but the, they were actually remitting it. So, he was funding the sales tax for every sale. Oh my, oh my gosh. So, you know, digging into those levels of, of, of operations is what, what you have to do to be sure that, that everything is, that you’ve considered everything. And it doesn’t mean you’re considering consider it all at the beginning, but you take off little bites and you, and you dig in and you start to understand what what’s really working and what’s not.
And even if you are a numbers person getting into these numbers can be intimidating because you know that there’s gonna be things that you have to address. And so there can be this natural, very natural reticence to get into those numbers. So just like you would hire a personal trainer to get you into the gym and make you accountable to actually do the work. that’s what I’ve seen with, you know, some folks that end up working with Cindy’s team is, you know, it gets them to, you know, make the commitment to set aside the time and they have somebody there to kind of help them and make sure they don’t hurt themselves. , you know, as they, as they’re kind of going through those numbers and, to be able to tell them what’s normal and what’s not normal, you know, because I think that a lot of these Facebook groups can, they can be a really great supportive place, but people don’t share all of the numbers.
So, you know, I’ve had, I’m sure you’ve had this too, you know, clients that are like, oh, well, my business is, you know, not as good as so-and-so’s business and we’ve seen so-and-so’s books and, you know, and, they’re doing really, really well. but because people only share that the glossy and the pretty stuff in those Facebook groups, you know, it can be helpful to have somebody who’s seen lots of other books to be able to tell you, okay, that is normal. Or, you know, this is a, this is a potential problem that I know that you need to address.
Yeah. We’ve had people who are in, in mastermind communities. And one of, one of them, shared with me, I was, I was so proud of how, how his business was growing and how he was doing. And I was saying, you know, you’re just doing amazing. And he’s like, yeah, I appreciate you saying that. But I’m in my mastermind group. And when I see what all these other people are doing and how I’m like, okay, hold up. because first of all, when we started working together, you told me you were very debt averse, and you have grown tremendously without taking on debt and look at all the cash in the bank. And I said, I can’t speak for how these other people are growing, but I can tell you that you have worked your program in what makes you happy. And at the end of the day, that’s what matters is, you know, have you created something that, that helps you live the life you wanna live and, and you sleep at night instead of, and everybody’s got a different place for that.
I’m not saying that borrowing money is necessarily bad, but for some people who have said up front, I don’t wanna borrow a lot of money for them to, to go down the same path as someone who that doesn’t bother them at all, that would’ve been a bad path for that person. So, helping him to understand that. Yeah, it’s, you’re not seeing the whole thing and you gotta do you, you can’t do your business the way somebody else does. That’s, what’s really cool about being an entrepreneur is we get to do it the way that we wanna do it, and the way that makes us happy. And, by trying to compare ourselves to other people, it is irrelevant because we’re trying to do it our way. We, we, our only measure of success really is, is the ability to, to create something that supports us. there’s a quote from Anne Lamont that I really love. And it says you can’t compare other people’s outsides to your insides. And I think that’s really true. You know, you can’t compare what you see out in the world that somebody else is putting out in the world with what, you know, intimately from, from your own perspective.
I think that’s 100% true, especially when it comes to being an entrepreneur. you know, there are a lot of things that, you know, it’s hard to share because so much of your identity, you know, even when people are well intentioned, you know, so much of your identity is set around your business. It can be hard to share when you’re struggling. and so, you know, one that’s isolating for you, but two, it can sometimes leave people feeling less than because, you know, you’re, you have all of these things together when in reality, you know, none of us do, we’re all doing the very best we can and, you know, and, and, and in some moments we’re Superman and some moments we’re just barely getting by , you know, but you know, it is just about making sure that you can get as getting, getting to where you’re consistently being able to feel good about the progress. You have a plan, you know, you’re not meandering, you know, but you have, and, and that’s, that’s what I’ve seen, from people that are working with Cindy is being able to kind of get that predictability, in the results that they’re getting. So
Thank you, Robin.
Well, thank you so much for joining us today for the profits for eCommerce profits podcast. And now we’re gonna go to our five-minute fix. This is Robin Johnson with your five-minute fix today’s five-minute fix is about making sure you have access continually to your Amazon account. One of the things that we’ve seen, clients have issues within the past is they forget their password, or somebody hacks into their Amazon account, and then they don’t have access to that account. Well, the problem is there’s still orders that need to be shipped advertising that needs to be adjusted. And if you don’t have a backup, it can cause a big problem. Now that main admin account, it’s very important that you keep that password in a secure place. You don’t lose that password. You make sure you keep access to the primary email so you can reset your password. Additionally, we also wanna make sure that you’re utilizing, all of the, the, all of you’re utilizing a second account as a backup account in case you need to have access.
Narrator : (29:07)
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