In today’s episode you’ll learn:
- Why revenue is a deceiving metric, and how Jason determines the profitability of a business
- Jason’s insight into how much businesses should spend on customer acquisition
- Financial tips and tricks (including important data metrics and what they mean for your business) that support healthy profit growth
- Profitability versus cash flow for capital intensive businesses (like eCommerce)
Where to find Jason, the books and podcasts he talks about on the show:
Where to find Jason
Books Jason recommended
Podcasts Jason recommended
Courses Jason recommended
Transcript:
Dahna Borg:
Hi, and welcome to the bright minds of the eCommerce podcast. I’m Dahna, founder of Bright Red Marketing, your eCommerce advertising specialist. Today we’re here with Jason Andrew from SPO financial. Jason is a chartered accountant, founder, and business adviser to high-growth businesses. His accounting firm SPO financial focuses on helping high-growth businesses with their numbers ranging from bookkeeping and financial control to profit and cash flow maximization strategies. He’s the author of the entrepreneurial accounting book stock naked numbers, termed the Barefoot investor for entrepreneurs. You’ll want to have your notepad and pen ready for this episode, and maybe be freshly caffeinated as we talk some serious profit-boosting strategies to make sure your business is as financially stable and ready to grow as possible. So let’s get into it. Welcome to Episode 18.
Dahna Borg:
Welcome, Jason.
Jason Andrew:
Thank you very much. It’s an absolute pleasure to be here.
Dahna Borg:
I’m so excited to have you. So can you explain to those listening, what makes you different from the traditional interpretation of an accountant?
Jason Andrew:
So when most people think about accountants, they think of tax returns, right? So everyone’s got a friend who’s an accountant and it’s always sad to find a year in Australia. And so other people are asking me, “Hey, Jason, what can I claim this year?” Or “can you do my tax for a case of beer?” And we usually say, “Well, sorry, I can’t help because we don’t do any tax.” We don’t actually do any tax. But I mean, we help businesses with the GST and in wages and things like that, but we actually administer tax returns. Now the reason why we don’t is that we’re too busy doing other things, helping business owners with their numbers centered around, cash flow improvement, improving the profitability, and helping them really understand their margins and get a grip of their financials. So yes, we’re accountants, but we don’t do tax returns. Our focus is, yeah, all of the above helping businesses know their numbers and make more money, ultimately.
Dahna Borg:
Fantastic. Everyone wants to make more money. So what would be some of the most influential numbers that an eCommerce store owner should know about their business?
Jason Andrew:
So straight off the bat, I think when a lot of the spectrum of eCommerce brands about growing their company, a lot of people obsess about revenue. So it’s like how can I grow my sales? How can I increase my ARV, my conversion rates? it’s all about that front-end metrics, that actually, revenue is sometimes quite a deceiving metric to look at in either by itself, because it doesn’t actually help you understand if you’re profitable or not, right. So you can have a very, you can grow top-line sales as much as you want but doesn’t necessarily mean you’re making any money from the sales. So from our perspective of how we assess the financial health of the business, we encourage all eCommerce businesses should can be intimate with at least three profit loss metrics of their business. So the first one is the gross profit margin, which is the revenue less all of the direct cost of sales associated with getting your product to your customers, as the cost of the product, the shipping, the merchant fees, stuff. And then obviously, operating profit or net profit is an also important one to look at, to help you understand if you’re actually making money in your business. That’s another important one. But I think another big consideration that people need to think about is the customer acquisition costs as a percentage of revenue. And so when I say customer acquisition costs, that’s essentially your Facebook ads, your Google ads, agency fees that you pay. And basically, what is that total cost divided by the amount of sales that you’re currently generating.
Dahna Borg:
Yeah, brilliant. And I assume that’s what you help your clients to work out.
Jason Andrew:
Yeah, it’s funny, because a lot of people have a common question, I’m sure you ask this a lot and get asked a lot is like, how much should I spend on customer acquisition? Right? Like, what is a good number? And we always say, well, it really depends. It really depends on your what your gross profit margins are, if you’ve got a process on your product that hasn’t got a high gross profit margin, naturally, you’re going to have a lot more profit to be able to invest in customer acquisition. If you’re, if you’ve got low gross profit margin, maybe you can’t afford to spend as much because the risk is that you spend more than the gross profit margin more, you’d be losing a dollar and every sale losing money on every sale, which is, have a great business, no business ever made any profit under that regime. So yeah, it’s a really critical metric. And it really it’s fundamentally depends on your brands and how you position them price in the market.
Dahna Borg:
Yeah, definitely. So suppose obviously working out your you know, gross profit margins and things? What are some of the best ways for people to increase their margins or things that you often recommend to your clients in terms of increasing those margins so they can make more money?
Jason Andrew:
Yeah, so I am a big fan of upselling. So you know, when most people think about growing their top-line revenue, a lot of folks just default to “Oh, we need to spend money on ads to sell more orders”. I’ll actually be fairly bundling or packaging products together so we can increase ARV and ultimately improve your gross profit dollars all from the same customer where we are trying to find new customers to buy the same products, we can just find more products to these existing customers. So big fan of upselling; big fan of spending saves. So you know, when you’re trying to offer a discount, or perhaps a deal to a group of customers, forcing them to spend a certain minimum threshold of ARV is beneficial because number one, it helps to protect your gross profit dollars that you’re generating to your business. So you’re not just giving away profit margins to your customers. It also works in the same effect where your customers feel like they’re getting a bargain if they feel like they’re getting a deal from you. And so hopefully, that should naturally increase conversion rates as well.
Dahna Borg:
Yeah, fantastic. I do love a good upsell. It’s one of those things that from a marketing perspective, obviously, we run Facebook ads. So if you can get that average order value up by getting the two-by-two products instead of one, you’ve increased return on ad spend quite significantly, rather than trying to get that cost per purchase down, it’s probably easier to get a customer to buy a little bit more.
Jason Andrew:
Exactly right. And particularly because they’re in buying modes already, it’s much easier to upsell them into existing products rather than trying to find more customers. I mean, it’s just this the classic you know, “would you like fries with that?” An analogy from McDonald’s. It’s literally a playbook that’s been running for probably since the start of the industrial age, I guess.
Dahna Borg:
Probably. So obviously, when you’re doing things like advertising, you really need to know what your breakeven point is. What’s so important about your breakeven, and what’s the best way of kind of calculating that for a business?
Jason Andrew:
So breakeven points are a really important metric to help you understand; firstly, what does my business need to achieve just to stay in business? So when I say breakeven, that is essentially I’m not making money, I’m not losing money, I’m just kind of covering my costs. Calculate your breakeven point, I encourage everyone to do, particularly eCommerce because it is really important you get intimate, it helps you, forces you to be intimate with your margins, and actually can help you set those goals for the growth of the company. So for example, to know how to calculate your breakeven point, it starts with understanding what we call a contribution margin. Now, I know that’s probably a foreign term for a lot of folks in perhaps listening to this podcast but for all intents and purposes, your contribution margin is exactly the same as your gross profit margin. So it’s your sales less the cost of sales which is your product, merchant fees, and shipping. But then you also need to consider your variable advertising spend. Now when I say variable that basically means if your ad spends is directly correlated to your sales, that is a variable cost. So the more money I spend on Facebook, in theory, the more sales I should make. Therefore Facebook ad spend is a variable cost. If you pay marketing fees to an agency, that fee, the fee that you pay your agency typically is a fixed cost. So irrespective of how much work they do for you usually that the agency fees the same each month. The same goes for your rent, same goes for your you know your director, salary, all these other things. So these are fixed costs, variable costs are anything that basically moves in the same proportion or relative to your sales volumes. So the contribution margin is simply all of your, it’s your basic revenue less all of your variable expenses to repeat that to iterate on that, that’s your cost of goods sold, emotion fees, your shipping annual variable ad spend, and then that percentage is informs your contribution margin. So once you’ve established the contribution margin The next step is to then; to calculate what is my breakeven sales point. And to do that, you start with “what are your monthly fixed costs?” So that is like what are the monthly fixed expenses I have in my business? Being, you know, my wages, rent, agency fees, etc. And you then divide that by the contribution margin percent and what you’re left with is a number, which is your breakeven sales point. So that number will tell you what sales you need to do every month depending on the monthly annual basis, what your business needs which even sales just to break even on those costs.
Dahna Borg:
Yeah, fantastic. I know that when people are doing this kind of analysis they always tend to forget some things. What are some of the, like, most easily to forget expenses when you’re calculating these sorts of things?
Jason Andrew:
I think people when they think about the gross profit margin so I obsess about gross profit margins because is by far the most powerful financial aid in your business. Like if you can optimize your gross profit margins in your business that will be the most beneficial lever to improving profitability and even cash flow in certain instances. So, everyone, I encourage everyone if is a key takeaway from today, obsess over the gross profit margin and be really intimate with that percentage. Now when I look at like usually when I review sets of accounts, most people will just look at them their gross profit margins as their revenue less their cost of sales like the cost of their product, but then they forget all the other little devils that way percent margins like after pay fees, you know, they cut off, sometimes up to 6% of your revenue can be absorbed by after pay membership fees. Like that is a massive hit to imagine, you know all the other payment gateways that you’re paying your shipping, you know your shipping rates, your fulfillment like all these little one-percenters can really add up and they might say I’m like, I might feel immaterial or very small and insignificant at the beginning. But as you grow at 1% of a million dollars is that’s it. That’s all money that could be going to your bottom line profit.
Dahna Borg:
Yeah, definitely. So how often should you know a store owner be reviewing their finances, and we are going through these numbers?
Jason Andrew:
If you’re just starting up your store, chances are you’re doing the bookkeeping, so you’ve probably got a zero file or a QuickBooks file. And you’re just like doing the numbers whenever you get some time if you like to kind of run your business. And I think the finances always kind of left to, you know, put in the bottom drawer, they kind of left Sunday night or Sunday afternoon when you’ve got a bit of time to crunch them out. And I think the common mistake I see with a lot of first-time business owners is that they see bookkeeping and accounting as kind of a thing for tax purposes. It’s like, hey, my boss is coming up, I need to do my bookkeeping. So I might, my bookkeeper can do the bears and my cat can watch the bears. Now, I encourage everyone to refrain that. If that’s you, I’d encourage you to refrain that idea. The fact that you’re here about bookkeeping is not for tax purposes, bookkeeping is to help you understand your numbers, it’s there to help you understand if you’re making money, right? So I encourage that you just do your books every week, at least. And if you do your bookkeeping yourself, that’s good, because you’ll naturally start to understand or see the ins and outs of your cash from making the count. But what you need to do then is actually look at your financial position like a profit or loss or balance sheet. So when I look at when I encourage you, encourage everyone to look at that kind of way. if you can. If you can’t do that weekly, at least do it monthly. So look at… And then monthly is a nice snapshot of the entire period because it helps too. Weekly sometimes isn’t too useful because you know wages some if you’re not paying your employees every week, and might be every month or fortnight, you know, you’re going to have quite one few results on a weekly basis, but the month is a really good snapshot of the entire period. So, encourage everyone that should be looking at least on a monthly basis from a high-level perspective. But on a micro basis, you should be quite intimate with your cash flow position on a weekly basis.
Dahna Borg:
Yeah, I think that’s good advice. Because I think a lot of people just get so overwhelmed that they just don’t touch it. So on that note, for those who are incredibly overwhelmed by the numbers and don’t really know what they’re looking at, what’s kind of your advice for those people?
Jason Andrew:
Yeah, I think most people start their business, they kind of assume that their accountant is the person to help them with engaging, with to engage in numbers. And the unfortunate reality with a lot of accountants is that your accountants are great, but their focus is mostly on your taxes. So again, they’ll help you stay compliant with the tax office, get your lodgements done lots of stuff. When it comes to helping you understand if you’re profitable, sometimes your counsel isn’t the best person to help you with that. And I encourage every business owner to really take the time and make the time to understand numbers because numbers are yes, it can be intimidating, it can be scary, but they are literally like a superpower. If you can understand your financial position through the lens of profit and loss or a simple cash flow, it will be game-changing to how you operate your business. So in terms of like where to start with learning the system, this sort of stuff. Previously, there weren’t there wasn’t a lot in the market, to be honest in terms of, like, making accounting or finances quite accessible to first-time business owners. So actually read the book not to plug it but I wrote a book to solve this, by the way. Though it’s called stock-making numbers, it’s basically the Barefoot Investor by Scott Pape for business owners. So if you’re new to numbers, you have no idea what you’re looking at when it comes to financials or panels or balance sheets, I really encourage you to check this book out. You can find it on I’m sure the links will be in the show notes. But also recently did a course with Shopify. Shopify has a free program called Shopify Campus where there’s a bunch of, like free online courses on their website, and we actually do a course with them, called you know, How to Build A Profitable eCommerce Business and it gives you basically the finances 101 on how to build a profitable online store. So there’s like videos, and there’s even a spreadsheet to help you work out your unit economics and your profitability. So again, I’m sure this will be in the show notes. But I encourage everyone to check that out as well.
Dahna Borg:
Yeah, definitely. I think I definitely your book is on my to-read list. But I think that the Shopify course would be great as well.
Jason Andrew:
Yeah, absolutely.
Dahna Borg:
So obviously, with business, there are so many different, you know, variables and things. There’s this huge rise in return culture. So people were just buying a lot of, you know, especially in fashion, which is a lot of my clients, you know, they’re buying a lot of things, drying things on and then returning them. Have you got any strategies around coping and accounting for those sorts of things? Because obviously, that’ll have a huge impact on your margins.
Jason Andrew:
Absolutely. Yeah. Returns are killer. Returns and discounts are two killers of margins. And returns are the worst. I think that historically… We all want to be customer-centric, you know. Make it really, the risk is: do risk purchases as much as we can for our customers. So particularly new ones who don’t necessarily know who you are or what your brand is that the cost of that literally returns right? If you are too generous with your policy, you end up with exactly return rates as high as 50%, which is not great. Because particularly sometimes your job shipping cost is: pick and pack charges that you need to manage with all this stuff. Sometimes you can’t get rid of the products I’m sorry, can we sometimes you can’t resell your product if you’ve been sold. So classy example if you’ve ever bought a koala mattress, or any online mattress, sorry, any mattress online, if you return that mattress, guess what happens?
Dahna Borg:
Can’t go anywhere. You can’t sell it.
Jason Andrew:
Yeah, nothing. landfill, unfortunately. So they tried donated to charity to Red Cross the same minis. But a lot of the charities won’t take mattresses for the same reasons that I’ve been used by someone. So I’ll actually end up in a landfill. So a lot of brands can actually, sometimes can’t resell returns. And so it’s not great for the environment, not great for business. And the customers are sometimes oblivious to it because they don’t really care, right, they just like, “Hey, I tried this thing. And I’ll move on to the next thing.” So in terms of like, how to really keep a pulse on returns, I mean, I’m sure there’s a lot of tools and I know there are maps and new products in the market to help to make returns a bit more easier for both merchants and customers to deal with. But I think the biggest challenge we see with either this, I say his blindsight, that effect that we see merchants with his own probably understands what the impacts of returns are to their financials, and so what we encourage is in your Shopify, or shimmy or on Shopify, or WooCommerce, whatever eCommerce platform you’re using, there will always keep track of what your returns are, as a metric, you know, in fashion is usually quite high you sometimes it’s up to 25-30% sometimes so that is a true cost of business. And so what we encourage everyone is to do is every month when you’re doing your profit or your accounting, actually, quantify the value of the returns that you’re that you gave or you made in the business and actually put that in your profit loss statement. When most people do their accounting, the sales on their profit loss will just show the net sales, that’s the cash that has been received. But it’s usually not it that’s after the return to discount. So we encourage everyone to do is gross up their sales. So you can actually see the return dollars on your P&L just as a gentle reminder to say, Hey, this is real dollars that, you know, that can be avoided through you know, smarter copy, working with certain apps to help reduce the return culture and it’s a very actionable metric for people to do to directly improve profit-building.
Dahna Borg:
I suppose that comes down to your gross profit margins as well like that would be included as almost an expense in terms of its money that has gone out the door. Really?
Jason Andrew:
That’s exactly right.
Dahna Borg:
Yeah, we focus a lot on that with our clients and just trying to make sure that you know, sizing is really clear, got photos of our on different models and things to even get an idea of, you know, fit and what it’s going to look like and those sorts of things, which I think really do help.
Jason Andrew:
Absolutely.
Dahna Borg:
Perfect. Now we sort of touched on this before and it all I suppose comes down to those margins, but specifically for my clients who are you know, they’ve employed me to do their Facebook ads, a lot of businesses really don’t know what they can afford to spend on, you know, their digital advertising, you know, what their breakeven points and things are. Do you have any tricks or strategies around how to work that out, so that you are profitable with your advertising?
Jason Andrew:
Yeah, I encourage everyone to build what we call a pro forma profit loss statement. So just all that means that I said the jargon in that phrase, but basically, all you need to do is do a spreadsheet, calculate what your fixed costs are, and calculate what your margins are, basically, for every product that you sell. By the way, all of this is within that course, I mentioned in the Shopify, like including the template, so I probably just watched that do that course watch the video, and then use a spreadsheet to do this exact exercise. But basically go through the exercise and then you’ll be able to work out based on specifically what your ARV is, what your gross profit margin is, what your fixed costs are, that the last flavor of that is your ad spend. So as I said, ads are variable costs. So usually, depending on what your return, you’re getting three rows will definitely have a direct correlation to your profitability. So be able to tinker with the spreadsheet and play with that will give you an idea of kind of how much you shouldn’t budget for customer acquisition costs. But I will say as a rule of thumb, based on our experience working with a lot of eCommerce brands, our, what we encourage is that your ad spend should be as a proxy or rule of thumb between 10 to 15%. If you’re aiming for profitable growth, over the long term, yeah, between 10 and 15% of revenue should be on that it’s that’s kind of the rule of thumb that we work with.
Dahna Borg:
Yeah, fantastic. I like that. And I think we might even link directly to that spreadsheet in the Shopify, in the show notes, just so people can kind of find where to do that particular exercise because that sounds like something most businesses should be doing.
Jason Andrew:
Absolutely.
Dahna Borg:
Another big thing that we really like to focus on and I hear you have a slightly different and much better way of calculating it is the customer lifetime value. So for those who don’t know what it is, can you explain what a customer lifetime value is? why it’s important, and how you get that number so that it’s a little bit more accurate, I suppose.
Jason Andrew:
Yeah, so your customer lifetime value is essentially trying to put a number on each of the relationships you have with your existing customers. So for example, if I was coming to your store, and I would have bought a t-shirt from your store, and assumed that I really liked that T-shirt, I’ll probably come back into the future, come back to the store in the future. Maybe three, six, maybe 12 months later, and buy another shirt. And assuming I can again resonate with a brand I’ll become a repeat customer. So what the lifetime value equation tries to do is quantify how much am I worth as a customer to your brand. And why that’s important is because naturally, if you’ve got lots of repeat customers, or a loyal following of customers that always come back to your brand and shop with you, obviously, the more value they are, valuable they are, right? And so if you can start to quantify the value of your customers, it helps with decision-making things like hey, how can we nurture this particular customer? Like you know, they’re already brand advocates, how can we nurture them more so they can increase their lifetime value? That’s one option. The other but most importantly, what it’s useful for a marketing perspective is helping to determine how much we can afford to spend to acquire that customer. So basically, what all that means is, if a customer is worth to us, let’s say $300, the question is what how much we spend to acquire them in lifetime value. If the cost to acquire a $300, customer was $500. So in other words, we spent $500 to acquire a $300 customer, that doesn’t really make sense does it means we’re losing $200 and every customer so you wouldn’t, you wouldn’t do that. So your goal is basically to get your customer acquisition cost lower than the customer lifetime value cost. Now, what is that percent? Or was that ratio rule of thumb, it’s three to one. So for every dollar that you spend on customer acquisition, you should try to aim for at least three times the return on their lifetime value.
Dahna Borg:
Yeah, I love the customer lifetime value calculations and like working it out, because it’s such an important metric to know, especially with us with Facebook advertising. You know, we’ve got a couple of clients that do subscriptions. So they’re actually okay, losing money on Facebook on the front end because their customer lifetime value is so high because their customers or subscribers now. So if they can keep the customer for 12 to 18 months, you know, even if they’ve lost money on their initial Facebook ads, they know that it’s worthwhile in the end, and you can really kind of work out, you know, your marketing based around increasing the customer lifetime value, but then also working on, as you said, decreasing the cost of acquiring them in the first place.
Jason Andrew:
That’s precisely and you know, what people question, look at Uber or, or Snapchat or these like the listed tech companies who never make money, they always just seem to raise billions of dollars and always lose money. Everyone’s kind of scratching their heads. It’s like, well, how is this sustainable? Like, why aren’t they profitable? How can they just keep raising more money from investors? And the reason why is because a lot of these software companies have high lifetime value, because they’re subscription-based, its high gross profit margins, because it’s selling software or digital products, there’s recurring revenue, so usually buying a license or subscription to the SAS products or the software products. And so the lifetime value is very, very high, well, relatively higher to other kinds of products, compared to one-off purchases, like you might see in eCommerce. You can afford to spend a lot of money in customer acquisition to acquire these customers because over the lifetime, you’re still making profits. And so it’s from a different lens. You’ll be almost crazy if the lifetime value is so high, you’d be crazy not to just raise a bunch of money and spend it all advertising to acquire these customers because they actually value and creative to the business over the long term. And hence why you’ll see a lot of like software companies raising bucketloads of capital from investors, because in theory, they should have nailed or they probably have nailed their cat LTV metrics, and for them, it’s just like, well, I’m spending $50 now but I’m gonna make $500 over the lifetime. So this is definitely worth it to us. But from a profit loss perspective looks terrible right now, over maybe a three or five-year time period, it will start to pay itself back.
Dahna Borg:
But I suppose that’s why it’s so important to know your numbers because if you know that you know that you’ll be profitable in future and you can plan for it. If you’re just kind of not knowing what’s going on. You’ll have no idea whether it’s worth doing what you’re doing.
Jason Andrew:
Exactly right is it means you’re just literally flying blind. And, yeah, it’s a good place to be.
Dahna Borg:
On that note a little bit, I think discounting is one of those things that really can, I suppose, affect your customer lifetime value. And it’s so heavily used by a lot of marketers, especially with, you know, Black Friday and first-time discounts and just, you know, big sales and things, and can often result in a loss for businesses. How can a business work out kind of what’s sustainable and profitable in that sort of space?
Jason Andrew:
I think discounting is a tool used a lot by growth marketers and people to get initial to help again, to help de-risk the transaction, right. So they’re trying to attract new customers into the brand, and you want to give them a bit of an enticement to, you know, to check out what you got, and see if I like it. The risk with that is that if you just can’t do whatever it is that sometimes it starts it’s like a start of a bad relationship, sometimes, you know. If you’re, if we meet for the first time, and you’re offering a 50% discount to try your product, I’m already going to have a fairly, I’m over in my mind thinking about oh, wow, that’s a massive discount for me to try, there’s something wrong here, or maybe you’re just one of those like discount then kind of retailers like the others, right. And so it’s sometimes a risk with discounting too aggressively is it sets a bad tone from the beginning? And yeah, and like give you a short term kind of sugar hit because they’ll call it Look, we have new customers, and it’s made a little bit of bump to our top line orders and revenue. But they… you need to start to question, “are these actually the type of customers you want?”, because again, if we’re coming back to buy from you, or maybe they might come back to buy from you, but only once a year during Black Friday, and also probably the best customers that you won’t feel brand.
Dahna Borg:
I finally can train customers to just wait for the discounts too.
Jason Andrew:
Exactly! And you know, I think the biggest, one of the biggest challenges with e-commerce is you know, fall into the trap of, you know, just having very cyclical sales, depending on sales periods, you know. It’s usually if you look at the spikes of revenue variants and it’s like, all of your sales are usually like in the fine shoe sale, that’s in June-July. You’ve got Black Friday, Boxing Day, and you might have like an Easter sale or something. So if you what everyone wants is a predictable kind of consistent revenue, or consistent sales month or month, right? But if you become one of those brands, where you’re just running sales in a during sales periods, the risk is that you’ll have you know, auto sales and those sales periods that have nothing, no sales happening in the off-sales periods. And again, you just fall into the trap of and it becomes an actually a vicious cycle because, you know, your customers always expected discount. So and you know, to compete with others or to get more you just find yourself discounting even more and discount yourself into bankruptcy.
Dahna Borg:
Yeah, which no one wants to do.
Jason Andrew:
Exactly.
Dahna Borg:
That’s all I’ve got in terms of questions for you. Is there anything else that you think we’ve missed, that would be good to share?
Jason Andrew:
No, I think we spoke a lot about profitability, I think it’s probably worth noting about talking a little bit about cash flow as well. So when a lot of brands think about building a successful business, they think I need to be profitable and profits, you know, the thing that will make me successful over the long term. That is kind of true, but not exactly true. And I think a lot of people struggle with the concept of profitability versus cash flow. And this is particularly important in eCommerce businesses. Now a lot of people think that profit and cash are the same things, but they’re actually very different, different things in your business. So you can be profitable in your, you can be profitable on paper, but most of the time, your profit doesn’t translate to cash in the bank. And for capital-intensive businesses like e-commerce, a lot of your cash flow will be tied up in stock. So your inventory that’s sitting in your warehouse, it’s kind of sitting there doing nothing. So yeah, you could be profitable, but all of the cash is all already been invested in stock, which is sometimes slow-moving, hanging around, it’s been there for months. And so what I encourage everyone to do is right, in addition to your profitability, think about your inventory turnover, and how quickly you’re turning your stock and converting your stock into cash. That is kind of the second level of building a successful, profitable, and cash-rich business over the long term is being able to manage your profitability, profitability, but also managing your stock. So you’re caring, just enough so you’re able to fulfill orders, but just enough to fulfill orders, but not too much so that it eats up all your cash and you’ve got, you know, 1000s of screws sitting there clicking gas.
Dahna Borg:
Yeah, I think that’s great advice because I think that is something that a lot of businesses get stuck with. So I think that’s brilliant. Thank you very much. Before we finish up we have a couple of questions that we like to ask everyone. So the first one is: Do you have any strategies or habits that you follow every day to help you stay on track?
Jason Andrew:
I have tried a habit of writing every morning. So I have a journal. Also, do simple blogging for the business and just even just your personal diary to stuff and I try this rather than thinking about like allocating time every morning to write. I usually do a word count target. So my goal is to write 500 words every day. And again, usually, it’s garbage it’s just this crap stuff just random thoughts and things. Sometimes it’s actually good content you know, that I’d use and repurposed into an article or whatnot that I find the act of writing is a really good cathartic exercise and one for myself personally, to help just get my thoughts might be thinking about something or something that’s been on my mind. And I feel like the art of the craft of just putting it to paper is quite helpful for me just to unmowed my, what’s happening in my brain, but also helps to clarify my thoughts as well. So as I say, clear writings is a sign of clear thinking. So if you’ve got some ideas or concepts that you know might be buzzing around your head, I find it really useful to put them to pen and paper and really try to articulate them in a way that makes sense and that you can keep forever. So I really encourage writing as a habit.
Dahna Borg:
Fantastic. I like that. Other than your own. Do you have a favorite business book?
Jason Andrew:
Oh, I’ve got a few but I think my favorite business book is probably Shoe Dog by Phil Knight. It’s the story of Nike and probably relevant to your audience and yourself potentially. It’s a fantastic business book, where it just goes through the story of fulfillment, who’s the founder of Nike, and kind of how he grew up from literally selling running shoes from the back of his car to obviously now is a multi billion dollar brand global brands.
Dahna Borg:
Yeah, brilliant. Do you have a favorite podcast?
Jason Andrew:
Oh, favorite podcast? I do. And it’s I’ve only come across it recently, probably in the last six months. It’s called My First Million by Sam Parr and Shaan Puri, I think it is. It sounds gimmicky. And it kind of is I think it’s intentionally clickbait podcast time. But it’s really great basically these two guys just reviewing different business ideas and themes of entrepreneurship, tech, eCommerce, just things that happen in the market. Really, really engaging. It’s quite funny as well. Yeah, but it’s basically a couple of guys just shooting the shit on business and tech. So it’s quite interesting.
Dahna Borg:
I love that. And if people want to get in touch with you after this episode, what’s the best way for them to do that?
Jason Andrew:
I don’t really do much social media except LinkedIn. So I’m pretty prolific on LinkedIn to try to post something every day with respect to business, finance, accounting, wealth creation, that sort of stuff. So you can find me on LinkedIn just search Jason Andrew, or you can check out one of our websites for our accounting business SPO financial, and we have all blogs and case studies on there for people to check out rather than to eCommerce.
Dahna Borg:
Amazing. Well, thank you very much for joining us. It was absolutely incredible amount of information you’ve shared so I’m really appreciating that. Thank you.
Jason Andrew:
You’re very welcome. It’s absolute pleasure to be here.
Dahna Borg:
Thank you for listening to the 18th episode of the bright minds of the eCommerce podcast. Don’t forget we load all the links and show notes onto our website. You can find everything at www.brightredmarketing.com.au/shownotes/episode18. The link will also be in the episode description. Thanks so much for listening.
