Must Read For Ecommerce Sellers
I recently sat down with Cyndi Thomason of Bookskeep to talk about her new book Profit First for Ecommerce Sellers: Transform Your Ecommerce Business from a Cash-Eating Monster to a Money-Making Machine published earlier this month. Cyndi shared where the idea to write the book came from, how she believes eCommerce sellers can stay competitive, what sellers really need to know to run a successful business, and much more.
Tell us a little bit about the origins of the book and where the idea came from.
I’ve been working with Mike Michalowicz and Profit First and just that philosophy since 2014, and I saw what it would do for my business. I have an existing client base that was a variety of types of businesses and was working with them on implementing Profit First.
Working with Profit First as an organization that serves accountants and bookkeepers and coaches, part of what I learned was through coaching with Mike. His advice was that I needed to pick a niche specialization of clients that I liked to work with, that I had something in common with, and that I felt like I could focus on and grow. I think that’s really good business sense for any business.
Ecommerce was something that I was working with a few clients on that I was intrigued by. A lot of them were like me, which was early 50’s, kind of at a second point in their career, needing flexibility for either taking care of kids or taking care of elderly parents, wanting to travel or just ready to do something different. I just felt like I “got” those folks. They were kind of technologically savvy so we could work together effectively virtually, and I wanted a virtual practice, so that’s kind of how it got started. Through working with a couple of clients, they made recommendations to friends in Facebook groups, and it just started out mainly growing through referrals.
When I met Robyn Johnson, who has the Best From the Nest community, she and I started working closer together. What she was seeing in her coaching was that people needed a lot of help in the area of their finances. She’s also a Profit First professional. We started collaborating, and really just meeting Robyn was kind of a point where I had a lot more exposure to people as a result of my interactions with her and her understanding of the need for Profit First.
You state in the book that as of 2017 more than half the units on Amazon were from third-party sellers, and there are currently more than 300,000 small and medium businesses selling. What would you say to entrepreneurs who are trying to stay competitive in that kind of market?
First of all, they need to understand and know their numbers. One of the biggest issues that I see is that they’re so busy doing so many things, because there’s so much TO be done, that they don’t always stay on top of their numbers.
Things change so quickly with competition, with new fees, and with tariffs coming in. There are just so many things that can impact your business from a financial perspective that if you don’t really stay on top of that and understand it, you can easily find yourself in a situation where a particular product is not profitable anymore; it’s something you’ve spent a lot of time and invested in, but for whatever reason the market has changed and moved on.
So the first thing would be stay on top of your numbers, and the second thing would be continually innovate. As those changes happen, you’re kind of dead on your feet for a little while, so you need to have something in the pipeline to always be ready to introduce that next thing as the old thing kind of phases out for whatever reason.
How important is having historical sales and profit data to running a successful eCommerce business, and what specific types of data should sellers be paying the most attention to?
I think historical information is one thing. It’s useful to kind of see where you’ve come from and what your history might predict about the future. To me, it’s all about gross margin. You’ve got to pay attention to what your gross margin is. Then if you’ve got that nailed and figured out, you can start to understand and have enough money to allocate into the operations side of your business. The operations side of your business can easily get out of hand too.
The Profit First side of things, the dashboard that we create for our clients, is logging into your bank accounts and seeing online how much you’ve put aside for your inventory, how much you’ve put aside for your own pay, for your taxes, for your profit, and for your operating expenses. It gives you a real-time dashboard of how you’re doing with each of those buckets which you have to maintain.
So while the history is important, things change really quickly, and if you have those cash buckets working for you and dialed in appropriately, when something starts to get amiss in one of those buckets, then you’ve got an early warning sign that you’ve got an issue to be paying attention to.
An example: advertising is not one of the initial accounts we start out with people on, but some of our clients are spending hundreds of thousands or a million dollars in advertising. It’s a big spend for them, so we will create an advertising account. They’re investing in advertising on the belief that they’re getting a return, but the return really comes down to what that advertising does to drive sales.
We’ve seen repeatedly where people are investing in advertising, but their sales aren’t moving up in a way that can support that spend. They may spend $200,000 on advertising and get $50,000 in sales. Well that’s a bad investment! If you use Profit First and use the buckets to help you manage those key components of your business, you can see right away I’ve run out of advertising dollars, I must not be putting the funds in at a high enough level to be able to support this. Therefore I may not be getting the return I thought I was getting.
Data is very important. Historical data can give you some idea of what you might want to do in the future, but I want people really looking at something more real-time so that they have the ability to make better decisions when they’re managing their business day to day.
You say in the book that having less money to run your business will make you more frugal and innovative. Can you give us a good example of how one of your eCommerce clients was able to use innovation and creativity to boost sales & profits without spending more?
One is Mark that I talk about in the book. He always had issues with inventory. Because of the way we were managing his accounts and setting up the buckets for each of the different areas, he was able to segregate out inventory in a way that he realized he needed to have a different relationship with his warehouse. He needed to have more product available at the warehouse to be shipped than what he was typically placing an order for. He made a decision that rather than place an order, get it in, and send it all to Amazon FBA, he would pay for the factory to generate the product and hold it in their warehouse until he was ready for it. Then he had the ability to do a quicker shipment, he didn’t have to wait on the manufacturing process. So that’s one area where he was able to cut down his order time based on realizing the need to have inventory at Amazon quicker, but at the same time not wanting to place those big orders all the time.
What is the biggest misconception about inventory management?
The one that makes me mad is people believe (because coaches are out there telling them), you just need to put more money into inventory. You just need to buy more inventory, and when you get enough inventory out there, that will provide the cash flow to make your business work, and it is absolutely false. If your business is not working for whatever reason, and typically it’s not having the margin, pouring more money into it doesn’t make it work better. It doesn’t optimize anything. Putting more money into a system that’s not functioning makes its dysfunction that much more spectacular! It just makes me crazy that that’s the advice, to buy more, buy more, and it’s not the right answer.
You talk about Parkinson’s Law, the concept that “work expands so as to fill the time available for its completion”, and you give a couple of great examples of this. The first is that the reason expanding a road to ease traffic congestion never works is because more cars will just show up to fill that space. The second is that if a client gives you a week to complete a project it will take a week. However, if you’re given a day to complete it, it will get done in a day. How does Parkinson’s Law apply to eCommerce inventory?
To inventory, that’s a good question…..hmmmm……
Or does it really apply more to the financial aspect?
That’s the way I use it with my clients, more from the financial aspect. Particularly, the trap that people fall into and the reason that we set up all of these accounts and designate a purpose for them, is that if it’s all in one bucket and the bucket looks like it’s filling up, then we think, ooh, we get to go buy and do all of these cool things because our bucket’s looking pretty full. Part of that bucket really should have been for inventory, another part of it should have been to pay yourself. But we don’t think about all those things, we just look at the bank account and go hmmm, this is looking pretty flush. Maybe it’s time we buy that new software or maybe it’s time we launched that new product.
When Parkinson’s Law takes effect, we look at that one bucket and we see that it’s got money in it, then we make decisions because we’re going to use what we’ve got. Now if what we’ve got in that bucket was really for some other purpose and we’re not paying attention to that, then we end up misapplying those funds to something that is going to hurt us later when we have to pay for inventory and we don’t have the money.
Regarding seller expectations and possible setbacks, what’s the most important thing to keep in mind overall?
It doesn’t matter what business you’re in, whether you’re in eCommerce or retail or services, there are going to be things you can’t prepare for. Having the discipline to set aside funds over time to prepare for that future issue will give you the opportunity to think more clearly and be able to weather those storms. If you’re sitting there and don’t know how you’re going to make payroll, don’t know how you’re going to pay your rent, and you’re really stuck and your only options are to take out very expensive payday loan types of credit, it’s really hard to get over.
I think just understanding that if you want your business to be sustainable and ultimately to be able to sell it, which is what most of my clients want, you have to build it from the perspective that it’s not about growing quickly, it’s about growing smart. It’s about setting yourself up to weather those challenges. Because if you’re not prepared, then the ways you get through it are very expensive with credit, and those are hard cycles to break once you’re there.
You’ve said that cloud software technology is what really sets online retail businesses apart. How can this technology help eCommerce sellers become more profitable?
It is phenomenal the data you can get from looking online. There are so many great software solutions. Just Amazon’s platform itself, while it’s not always easy to navigate, there’s just a wealth of information out there! And things like InventoryLab, without a lot of effort, you get a lot of really great data.
The flip side of that is you have to understand what those numbers are telling you and if you’ve put in good numbers to begin with. Some people are basing decisions on data that they get, not realizing they haven’t kept the information up to date or didn’t really understand what should have gone into the information and what variables might change over time. When your data gets old or changes, you’ve got to go in and keep it up to date. That’s the challenge around it, but with a little bit of care and feeding you get a lot of good information.
If you could give eCommerce sellers only one piece of advice, what would it be?
My advice would be separate your inventory account from your operating account. Most businesses are operating with one bank account and everything goes through it. If you just separate out your inventory from your operating, you’ll start to see the difference in cash flow between those two things.
When you get your funds in from Amazon or your other platforms, if you designate a portion based on your gross margin to replenish inventory and what’s left goes to operating, I think you would have a whole lot better understanding of your business and where your problems are. If you run short on inventory, then you don’t have the gross margin that you need. If you’re constantly running short in the operating account, then you’re living beyond your means from an operating expense standpoint. Those are two pieces of data that most people don’t understand, and it’s really critical to understand where you need to focus in your business. Having those two accounts would give you that information.
On a more personal note, what’s something about you that would surprise people?
Gosh, I’m so transparent, I feel like everybody knows everything! I really love British comedy. I could spend hours watching Michael McIntyre, John Bishop, and Graham Norton!
Cyndi, thank you so much, I really appreciate you taking the time to speak with me. It’s a terrific book.
The thanks is all mine because you’re helping me get the word out. I just really do hate when I get clients that have put their 401k at risk to start this business and they followed bad advice. I’m hopeful that this will get the message out there that you CAN do this, you CAN be successful, but you’ve got to do it in a way that doesn’t break the bank!
Cyndi Thomason is Founder and CEO of Bookskeep, an eCommerce bookkeeping business that helps online business clients with all of their accounting needs.
Cyndi notes in her Bookskeep bio that she enjoys spending time on her farm in Arkansas, being in the great outdoors, spending time with her husband and daughter, gardening, and caring for her horses and dogs. You can find out more about Cyndi and Bookskeep at www.bookskeep.com.