How to scale my business and finally profit

[CaptainAmerica]

I'm a huge fan of the Profit First structure:

Sales – Expenses = Profit
Sales – Profit = Expenses

Here's a two-page overview.

Ask around to see who else is using it, and how it might help.

 

[Walter Hay]

So far a very important factor has not been mentioned. Are you getting the products at the best possible price?

Profits begin with buying. If you pay too much the effect on profits is obvious. Therefore the first place to look for a possible remedy to your problem of insufficient margin is your buying process.

Here are a few questions that might help me to help you:
1. Are you importing?
2. If so, if it's not confidential, from which country?
3. What freight method do you use?
4. Is the $10 cost you mention a total cost of goods? A COG must include unit price ex factory + freight + insurance + freight forwarder charges + Duty on the total of those costs + sales tax (if charged at the point of entry) on the grand total of those charges + local freight to your premises.
If you use packaging and labeling as sales aids, which you should, that cost should also be added.

Other factors already mentioned by members should not be ignored, but in my view buying is most likely the #1 issue.

Walter

 

[Jon L]

I'd be curious as to how your various expense categories matched up with industry averages. For example, if your warehouse expenses were 30 percent of revenue, and industry average is 15 percent, you know you have something to work on in the warehouse.

Not that you want to be average.

But its a place to start.

 

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[amp0193]

It seems we can't ever further distance our profit from expenses. It's a continuous cycle.

Either:
1. Intentionally slow your growth and focus on profit, not revenue.

or 2. Get a capital infusion to support the growth.


Growth at all costs, while being under-capitalized, is a mistake. You're one bad business cycle away from going under.

(Said by a guy who focused only on revenue, went through a bad cycle, and is now trying not to go under)


Read the book Simple Numbers, Straight Talk, Big Profits.

 

[1step]

Simple, add more value.

I can tell that you aren’t adding much value since your expenses high, meaning others are providing the value, not you.

This is what happens when you sell nonremarkable products.

$2.2M in sales, jaws drop. Says $2.2M in expenses. Just lol

This is just an asinine post.
You cannot tell the type of products or value he is selling based on his sales and expenses.


We recently started implementing the profit first system mentioned above, definitely recommend looking into that!

 

[Jon L]

here's another question ... how well are you tracking your finances? Are you working with an accountant? If you're continually growing, you could be running into a cash flow problem, but still be making a profit, on paper at least. This is a pretty important point to nail down.

 

[Antti]

I don't sell clothing but based on my experience in other categories there is simply not enough room for profit if your cost is $10 and you sell for $25. Have you tried raising prices? Buying for $10 and selling for $35 would sound much better.

 

[broswoodwork]

Hey guys!
I run a successful clothing line. We are projected to hit our 2019 goal of $2.2M in revenue by end of year. Growth is double from 2018.
I have 2 questions.

#1 How do we increase profits? When we hit $2.2M our expenses will be right up there close to that $2.2M. How do we further separate income from expenses?
Our main expense is inventory. For example, say we order 2000 tshirts. Each shirt is $10 per. That's a $20,000 order. That inventory will sit on the shelf for a few weeks until we sell them. We typically sell them for $25 per. So our profit is eventually there but not realized until they are all sold. In the meantime, we're ordering more shirts, or more hoodies, or more apparel. It seems we can't ever further distance our profit from expenses. It's a continuous cycle.

#2 All of our profit and revenue is immediately put right back into the business for more re-orders, staff salaries, operating expenses etc. At what point in a growing business does the CEO (myself) get paid? How does that payment structure look?

Any advice is greatly appreciated, I look forward to your insight!
-Tyler

Can you add a smaller higher margin upsell item at the register?

If my math is right, you're cranking the register 88k times per year, if 20% of the time someone buys something that puts another $5 in your pocket, without adding much in the way of additional expense, that could be your salary.

 

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[CareCPA]

Also, don't confuse reinvesting into inventory as an expense. If you bring in $2.2 million, spend $2.2 million, but have inventory of $500k at the end of the year, then you didn't really break even.
Make sure your numbers are not on cash-basis so you have a true picture of your profitability. Cash flow =/= profit.

 

[Tyler11]

Hey guys!
I run a successful clothing line. We are projected to hit our 2019 goal of $2.2M in revenue by end of year. Growth is double from 2018.
I have 2 questions.

#1 How do we increase profits? When we hit $2.2M our expenses will be right up there close to that $2.2M. How do we further separate income from expenses?
Our main expense is inventory. For example, say we order 2000 tshirts. Each shirt is $10 per. That's a $20,000 order. That inventory will sit on the shelf for a few weeks until we sell them. We typically sell them for $25 per. So our profit is eventually there but not realized until they are all sold. In the meantime, we're ordering more shirts, or more hoodies, or more apparel. It seems we can't ever further distance our profit from expenses. It's a continuous cycle.

#2 All of our profit and revenue is immediately put right back into the business for more re-orders, staff salaries, operating expenses etc. At what point in a growing business does the CEO (myself) get paid? How does that payment structure look?

Any advice is greatly appreciated, I look forward to your insight!
-Tyler

 

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[Tyler11]

I'm a huge fan of the Profit First structure:

Sales – Expenses = Profit
Sales – Profit = Expenses

Here's a two-page overview.

Ask around to see who else is using it, and how it might help.

This sounds exactly like what I'm looking for. I will dig in, research and see if we can start implementing some of these strategies. Thank you!

 

[DeletedUser0287]

This is just an asinine post.
You cannot tell the type of products or value he is selling based on his sales and expenses.

In ecommerce, you can actually.
99.9% of the time, based on the numbers he gave, he is selling low magnitude (value), high volume. Low margin businesses have little room for error.
And you can tell what type of product he is selling because he said what he is selling.

Long Term Solutions:
1) Develop new product with much higher value. (Recommended)
2) Reduce Expenses either by brining some processes in house, so OP is actually creating the value and not the manufacturer.

Although, there is upfront investment to do both of these. Not immediate solutions.

Short Term Solutions:
1) Penny Pinch, go through every expense and make cuts where necessary.


Your intuition isn't high enough. which is why you called my post asinine. He stated what type of product he is selling in the OP.

 

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[liero1]

Also, you don't talk about marketing costs. Just because you sell a COG 10 for 25 still means you need a decent ROAS on your campaigns. Actually something around 1.8 just to break even. And as Walter said, is 10 really the whole COG.

 

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[Lucky Lu]

where?

The overall experience explained about a "successful" business with no profit is something to learn about.
Also the replies have a lot of value. At least according to my take. Every discussion about a real experience and possible solutions has a lot of value.

Cheers brother, can't wait to learn from you

 

[Jon L]

We are constantly researching new manufacturers, making new relationships etc to find the combination of best price and best product. It's definitely an on going process. Everything we print is in the USA.

The $10 per shirt was just a very generic example, not exact. That's our cost from the manufacturer. We set the price. Currently selling the shirts for $25.

Some hoodies for example are $16 per and we sell for $39.99.

have you experimented with raising prices? for example, raise prices by 15% or something for a certain portion of the country, or for a certain small window of time, and compare it to similar locations/ days of the week or whatever makes sense.

Ideally, you'd find that you cut orders by a small amount with the price increase, but increase profit substantially.

 

[DeletedUser0287]

Simple, add more value.

I can tell that you aren’t adding much value since your expenses high, meaning others are providing the value, not you.

This is what happens when you sell nonremarkable products.

$2.2M in sales, jaws drop. Says $2.2M in expenses. Just lol

 

[Chitown]

So far a very important factor has not been mentioned. Are you getting the products at the best possible price?

I was thinking the same thing, Walter. Saw your post and realized I didn't have to ask the question.

 

[ZCP]

@Tyler11 what is your gross margin? net margin? 5 biggest expenses as percent of sales?

DM me. Be happy to look through your P&L with you and see if we see anything!

 

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[Jon L]

We have. It's so hard to determine if that price increase slows down sales or hinders them in any way. Do you have any insight how we could potentially track that or find the correct price?

I don't have specific experience with this so take the following with a grain of salt. I do have experience doing general data analysis.

My general approach to data analysis is to export it to Excel, and then, using pivot charts and graphs, start playing with the data. Look at it from various angles - time of day, type of user (browser, OS, location, etc etc etc), quantity ordered on an order, and on and on and on. Eventually, you'll start seeing patterns. You'll get curious about something and realize, 'hey, if I looked at it this way, I could see this particular piece of data that might be interesting.' The only way to have this happen is to spend a number of hours/days with the data, playing with it.

You need to be able to compare like to like. In other words, time of day, day of the month, month of the year, type of user, mix of user, etc, should be the same, or should be controlled for, somehow. You can look at previous sales data to get a baseline. This is why playing with the data like I suggested above is important. You'll likely find that certain times of the day, days of the week/month etc will have the same type of sales, the same sales volume. Once you have that baseline, you could increase the price by a good amount and see what it does to sales for that item. If you have enough quantity of sales to look at, you can start to get a sense for whether the price increase had any effect.

 

[csalvato]

How do you determine where value matters to our customers? (We obviously found made in the USA does. How about type of shirt etc?)

Remove the feature from your sales process (eg your sales page) and see how it impacts conversions. Is that possible for you?

also, pick up the phone and call 100 customers and send out a survey to all previous purchasers asking what’s most important to them.

 

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[Ronak]

Just some ideas off the top of my head:
Get your average order value up, split test either a 2 for $40 or buy 2 get 3rd free promo (maybe test with your customer/email list). Make sure your cash flow can support it, of course. Yes, margins as a percentage will go down, but absolute profit should go up. Do you have a free shipping threshold?

Another high value task is CRO. Use something like optimizely to run tests on your website and over time you can bump your sales up.

How's your inventory turnover? Unsold inventory eats up cash, as do returns, both of which can be huge in apparel. Try looking at SKU level data.

Are you ordering from your supplier and then just reselling, or is there some other processing in between? When you tried drop shipping, was it with your current suppliers or some other print on demand service?

I think the most important thing will be getting your accounting in order. Run numbers on both cash and accrual basis so you can see what's really going on, I think of it like a blood test for business. Ultimately, the advice above is like a Dr trying to diagnose without an examination.

 

[csalvato]

Remove the feature from your sales process (eg your sales page) and see how it impacts conversions. Is that possible for you?

Assuming you're selling on a website, and that site has a page for each product, you probably outline the features/benefits of your product somewhere on that page, right?

Go onto that page, and remove any instances that says things like "Made in the USA!"

See if that impacts your conversion rate significantly. Ideally, do this in an A/B test with a tool like Optimizely or VWO. Do this with a few different features. You will see what people are really looking for in the product to buy using process of elimination, then you can probably cut costs by eliminating costly but useless features.

For example, if you remove all references to `Made in the USA` and your conversions aren't heavily impacted, you can probably get your goods produced in China or Mexico and instantly rocket up your margins.

 

[Lucky Lu]

This is an awesome thread. So much value in here.

Are you selling online only or also retail? Do you manufacture by your order and desing or buy what your provider already makes? I'm guessing China?

Congratulations on your success, you will get that profit making a few adjustments.

 

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[Icecreamchild]

This is an awesome thread. So much value in here.

Are you selling online only or also retail? Do you manufacture by your order and desing or buy what your provider already makes? I'm guessing China?

Congratulations on your success, you will get that profit making a few adjustments.

where?

 

[Tyler11]

here's another question ... how well are you tracking your finances? Are you working with an accountant? If you're continually growing, you could be running into a cash flow problem, but still be making a profit, on paper at least. This is a pretty important point to nail down.

Yes we are working with an accounting firm. We are definitely having a cash flow problem. We have a line of credit opened and use for re-orders

 

[DeletedUser0287]

We use a program called Shipstation

Isn't Shipstation just for managing Shipping Orders? I think what he meant was, your storefront. Unless Shipstation provides storefront services, that I am unaware of.

Thank you!
We sell online. We use different manufacturers for different products. Each seems to have their niche they're good at. Most all made here in the USA.

Maybe reanalyze value skew? Do your customers actually care about the “Made in USA”? Where are they located. If not, then you are paying extra for a product feature that doesn’t matter. So you do custom printed items?


This business seems prime for drop shipping then, not sure why you are holding inventory for these types of products.

Hard to give advice, if I don’t know what these designs look like.

1) how do you recommended adding value? I personally think our product has a ton of value. All custom made, in the USA, details galore, ver high quality materials
2) We can definitely do this. Keep in mind the machines to print shirts/hats etc are not cheap. We're talking $100k+ machines. Also add a $30-$40k salaried employee to operate.

But do your customers care about that stuff? If they do, Mark up. $25 is too cheap for what you stated. I ask this question again because majority of the time people in the printed items business just choose cheaper blanks because the graphic is the value, not the medium/canvas it is printed on.

Don’t add value where it doesn’t matter to your customers.

 

[DeletedUser0287]

Maybe I'm not sure what he was asking then.

Yes...our customers are extremely critical in wanting products made in the USA and a lot will not buy or will make a big fuss if it isn't.

We've tried drop shipping and print on demand. In our experience, we lost A TON of quality and value with this method. The products were just not to our standards or our customers.


How do you determine where value matters to our customers? (We obviously found made in the USA does. How about type of shirt etc?)

Oh ok, great. $25 seems way too cheap then. Would mark it up.

If you have social media following, I would just creep on the customers. Look at what other accounts they are following and Facebook audience tool. Hang out where they hang out. Maybe there is a specific forum or subreddit. Read every comment and post. Your intuition will grow about your customer and you will know what matters.

 

[Champion]

I'm a huge fan of the Profit First structure:

Sales – Expenses = Profit
Sales – Profit = Expenses

Here's a two-page overview.

Ask around to see who else is using it, and how it might help.

SO MUCH VALUE.

Thank you a lot!

 

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[Rafiko77]

Hi can you tell us witch platform do you using to sell clothing ? You own website or selling through amazon ?

 

[Lucky Lu]

Where do you live / based?