Last week, Megan and I talked about cash flow and early-stage financing for her ecommerce business. We continue to talk a little bit more about financing in this episode, specifically Amazon loans, then move on to the next big issue: Facebook ads.
Any ecommerce entrepreneur knows how important Facebook ads are in any ecommerce business. However for a business like Megan's which is still at its early stages–and an Amazon-only business at that–focusing on Facebook ads might not be the best idea. Doing Facebook ads at this point might push her to get her own Shopify/BigCommerce store so that she can fully utilize the power of Facebook ads, and that could mean a lot of work, taking her focus off the more important things like Amazon listing optimization and PPC. It boils down to prioritization and not biting off more than what one can chew.
To break things down, here are our conversation points:
- Bank financing
- More on Amazon loan specifics
- How to be laser-focused on what needs to be prioritized for a young ecommerce business
- Why Facebook ads are not recommended for an Amazon-only business
- Focusing on listing optimization, PPC, and brand registry first
- Utilizing the power of YouTubers to promote products
If you're interested in becoming an Under The Hood guest yourself, just sign up here. Thanks for listening and happy selling!
Full Audio Transcript
Mike: This is Mike, and welcome to episode number 116 of the EcomCrew Podcast. Welcome back to part two of this interview with Megan in our Under the Hood segment. And just as a quick reminder, you can go to EcomCrew.com/UndertheHood to sign up to be on your very own episode of Under the Hood. We hope you guys enjoyed part one. We're back here with part two. We're going to hop right on into it, and we'll talk to you on the other side of this break.
Mike: I’d rather own 80% of a 100 million dollar company than 100% of a ten million dollar company kind of thing.
Megan: Sure yeah.
Mike: And that's a decision I have to make this next couple of years.
Mike: Just real quick, there's also a couple other services out there like Kabbage, that's one that I've used, Kabbage with a K. Most of them have just absolutely egregious terms. So you’ve got to be very careful, and fully understand what you're getting yourself into. Kabbage is one that I applied for and got there for a $100,000, I guess you can call it a loan. It's not a line of credit because you have to pay payments. I was approved for it, never took advantage of it. It was always there as like our backup option.
But you got to be very careful because the interest rates are higher, and the payment terms are pretty aggressive like you've got to pay I think every week or every two weeks. And if you're not good at math and financing, you can get yourself in a situation where you have to keep on taking more and more loans from them to just pay the loan payments. It could be a very bad situation to be in. But if you use it wisely, I think it could be a very good tool.
And for us it was always there as a peace of mind thing. If a situation came up where things were selling quicker than we were anticipating, we needed to place another emergency order. Again these are all things where you're having to order more inventory because you're selling so quickly, that's a great problem to have.
Megan: Yeah absolutely.
Mike: And for me I'm always thinking long term. I'm not thinking about like how much am I going to make on this order. Maybe I'm having to pay an extra $10,000 in interest to service that debt, and therefore it eats into my profit or completely wipes out my profit. But the reality is the next time I make that inventory turn I’m not going to need that loan, and I can get ahead of the game there. Again thinking longer term for me, it's just thinking two or three or four years out what that extrapolates out to in our business, and not thinking about it like I need to pay my rent this month kind of thing.
So, just everyone is in a different position. I respect both angles because sometimes people are in a position where this is their livelihood and they have to — they like literally need to pay their rent with the profit. And you got to be thinking about your business differently in that situation.
Megan: Yeah absolutely. What about just going down to your local bank and meeting with the business anchor there, is that something you guys have done or do you know other Amazon sellers that have gone that route?
Mike: I have, we are actually in the process of doing that ourselves right now. We weren't able to get financing until this point because every bank is going to require you to be in business for at least two four years, and have two four years of tax returns, which means that you're really in business for at least two and a half years realistically, and even potentially more depending on like when you got started. And we’re at that point now. We have a couple of years of tax returns under our belts.
And the unfortunate thing for us is I've been in business for about 15 years for myself with various companies, and they've all been profitable, and we have a great personal tax return. But they don't look at all that history when it comes to an individual business. They're looking at it on a EIN by EIN number. And unfortunately we've started a new business for this e-commerce business after we sold treadmill.com because that was a separate EIN that we had, which I wish that we just kept the same company now looking at it from a financing standpoint.
It's frustrating in the United States sometimes because I look at it as like a three legged stool. And I look at your profitability, your taxes, I'm lending like I’ll be one leg, and you can never can have all three. It's like the stool just falls over when you're trying to look at it one way. If you're looking to pay less taxes which is a smart thing to do, you're going to try to make your expense as high as possible for that particular — you're not doing anything fishy or anything. But like it's December right now, and you could make a good case for like I want to pay a bunch of SaaS things upfront or other things up front right now to like lower my tax bill for 2017, which is a perfectly legal and permissible thought process where this…
Megan: They take a profitability ahead.
Mike: Yeah, they take a profitability just like when you go like to talk to a bank, they're like, oh you only made so much money where it should be like, no I front loaded all these expenses. And they don't want to hear about that because you're — so yeah it's definitely a damned if you do, and damned if you don't kind of situation, and we do our best to balance that. We tried to load all expenses in different years and stuff because of that just to show the profitability the best we can. But now with the tax cut about to change drastically, and no one even knows what that's going to be at, who knows, we're going to end up falling and the last week you will probably make a couple of quick decisions on that. But getting a little bit off topic I guess with financing.
Megan: Very good, so when you go back – so I have not yet received the Amazon offer, but I'm pretty sure it’s coming because like you said I haven’t been in business a year yet, and I had heard that was about the time frame. But my seller metrics are all very good, so I expect to see something into that. So I kind want to get part of it so I can I already have an idea of what I want it to do. As far as payback on those ones, what does that look like? Are they taking it out of your fees that they draft out to you every two weeks, or how does that work?
Mike: Yeah, so the Amazon loan you get some option, some flexibility. So when they offer you the loan, like I'll just actually go into my dashboard right now because they have a loan for me right now. It's a round number which normally never happens; it's like literally exactly 750,000. So I’ll just go over the terms that they're offering me right now. But basically they’ll offer you to be able to do either six, nine, or twelve month paybacks. So that will be a dropdown where you can select whether you want to pay this back quicker or less quick basically.
And the most current loan, I remember looking at this, they only offer me actually either nine or twelve months, but before they had a six month option. So I'm not sure exactly why that changed. They also typically will offer you in thousand dollar increments or something like that. So let's just say they offer you a $10,000 loan, you can elect to take nine, eight, seven, or six let's say. For me in this most current loan, it's they only have an option of 750 or 747. Those are the only two options.
I don't quite understand what's going on there. It's actually kind of weird and then they offer either nine or twelve months. So if I were to take 750,000 over twelve months, so basically dividing that up in the twelve equal payments plus the interest on those payments. So as you pay the loan down, you're paying less interest each month. So it's just much like a bank loan, which it's the most fair way compared to something like Kabbage where they charge you upfront more interest and stuff. So it's actually there's no prepayment penalties or anything like that which is really good. So you can elect to pay this thing off quicker if you wanted.
But for me what they're showing here is that the monthly payment will be $67,337.10, which they'll automatically deduct out of one of the two payments per month. So like one month your payments are going to be way bigger than the other. And for us the 67, we're doing way more than $67,000 every two weeks because we've been doing this for a while now. So they’ll chop that out of one of the payments, and your principal goes down each month. And if you want to pay it off or refinance it with a different one you can. So that's basically the way that it works.
For me I've always taken the longest term possible which is the twelve month, because I'm trying to again leverage as much as I can to buy as much inventory as possible. Our goal was always to launch as many new products and buy as much inventory to make sure we don't run out of stock without doing something crazy where you end up with a huge excess. That's just kind of like the general philosophy and direction we’ve taken.
Megan: Yeah that makes sense, and it’s worked for you guys?
Mike: It has, I mean without a doubt. Again without the financing we'd still be sub one million dollars, I mean without question. And that was after putting $300,000 of our own money in it to begin with. I mean we had money from other businesses that we had done, and so we put a substantial amount of money in it ourselves. I put 300K in it, and we wouldn't probably – it probably would be sub two million I guess to probably be more fair.
And that Amazon part of it has only really been the last couple of years. I mean we've been doing this for four, but Amazon part of it has really only been the last couple. And having the extra financing has been rocket fuel to those. Organically we wouldn't have been able to grow anywhere near this rate.
Megan: Yeah well it is exactly because what you said. It is this thing you're trying to just reinvest off the profit is just going to be slow even if your profit margin is really good. It’s still probably never going to be as fast as you wanted to grow it.
Mike: Yeah and I can tell you even with the financing component, paying the interest which we obviously put in our PNL, I mean our net profit margin is still healthy. It's still really healthy. The business is more than able to support the interest payment. If we were to take that out, the net profit would be higher, but again I'd much rather have a higher net profit total number than I’m taking home, or be able to reinvest in the business even more than just being stubborn about paying interest, which is just — that's just a stubborn thing saying, I’m not going to pay anybody interest.
That was kind of like my mindset before really Bill kind of gave me the kick in the butt. And I’m definitely glad that we did that now.
Megan: Yeah because look where I'm coming from is exactly that like we said before is just I don't like the idea of having debt. But it is a difference between using it as a hard asset and using it to buy crap from Target on a credit card for your house. So I just have to remind myself of that when the time comes.
Mike: Yeah excellent cool. So, any other questions on the financing part of it?
Megan: I think that was a really good discussion and it helped a lot, so I appreciate it. I think that'll do it for that.
Mike: Cool awesome, and we talked a little bit beforehand and I know you want to talk a little bit about Facebook ads as well. So let's kind of dig into that real quick on this topic number two.
Megan: Yeah absolutely, so it's something that I know I need to do. And every time I started to go and try and work on it a little bit, I just get overwhelmed. And there's other things that I can do that I feel like I know how to do now, so I go do those things instead actually sitting down and learning what to do with Facebook ads, how to target, how to retarget and all that fun stuff. So I don't know, maybe we just — like where do we start?
Mike: Yeah, I think this is a great conversation because I think what ends up happening here with this is people listen to podcasts like mine and other ones out there, and you hear all these awesome things other people are doing. And the tendency is like, man I've got to do this, and I got to do that, I got to do this, I got to do that. What I've been trying to tell people a lot lately is put things in perspective for yourself. I mean you have a $17,000 company at this point, it's just you. You only have so much resources and so many things you can do.
So I think when you're at the stage it's like more important than ever to be laser focused, and only like bite off what you can chew. And realize that there's other things out there that you could be doing, but that doesn't assume that you should be doing them right now at the stage that you are at. I think that I haven't looked at your Amazon listings yet, maybe you could get those over to me.
Assume like I’m looking at one of the listings, but are you doing – I will look at other things, like are you doing Amazon PPC efficiently, or is you're listing completely built out like 100% efficiently, do you have like really amazing photography and listings, is your backend keywords right? Things like that without knowing all the answers to those questions, I think there is building blocks to do that stuff.
And trying to do Facebook ads with just a pure Amazon businesses is tough. It's one of these things where it's just if I was forced to only have an Amazon business and I had also my Facebook ads, I already know how much more difficult that becomes, because you can't track things definitively with Facebook in Amazon because they don't give you a Facebook pixel to know when something is converting. So it becomes very difficult.
So the tendency is to then start your own Shopify store or BigCommerce or whatever it might be to be able to track that stuff off Amazon, which is very alluring because it's like, okay now I can I can get business from another direction. But I firmly believe that trying to do that at an early stage when you're like where you're at is going to have diminishing returns of just launching another product or focusing on your Amazon business, because trying to diversify when you're at the revenue levels you’re at I think is inefficient I guess would probably be the best way to put it. So that would be my philosophy on that.
Megan: That is very fair. And I think you're right, it's just you hear everybody saying I do this, I do this, I do this. I’m like; oh I should be doing that too instead of focusing. So what I have done, I haven't done as I'd shared with you, I haven't done any Facebook ads or marketing. What I have done is with the niche that I'm in, with the people that use my product.
I've been targeting YouTubers and sending them my product and having them do tutorials on it, which has served two purposes, one is to get the product that I sell in front of the people that use that, but then also to get feedback from the people that are on YouTube that I'm selling the products to. And that has been good, but what I did because I wasn't really sure maybe you have some insight here, I just send them my products, and I send the link on Amazon. And I said you just use your Amazon affiliate link. If you want to put a link in the comments and try and sell from it and get some affiliate commission that’s fine.
Well I did ask them to put the link to the product in the description, but I told them they could use their affiliate link. But then without letting me link there was no way to track whether or not that was actually successful. So I don't know if there is a way to set up a campaign or an affiliate link or something that gives me tracking to know if what I'm doing is profitable or not sending out these to YouTubers but also give them an incentive through Amazon affiliates to promote the product?
Mike: Yeah, this another one of these damned if you damned if you don't kind of things. We go through the same situation. I mean whenever you use an influencer on YouTube which by the way I think is a better use of your time than trying to run Facebook ads yourself just for record, that's kind of the dilemma, because they're going to want the affiliate revenue. That's a part like they are marketers themselves, they understand what that means to them. A lot of times the price that they'll quote you for the video will be a little bit artificially low because they're hoping to get some affiliate income in addition to what they're charging you for the video.
Now if you're using your affiliate link, you can track it one by one, but it's very difficult to convince a YouTuber to allow you to use your affiliate link. And once you use their affiliate link without going back to them and asking how many sales did you generate and hoping that they'll be honest with you about those numbers because they obviously have a reason to kind of inflate it because they want to work with you again or show that they made you money, it's impossible, there is no other way to track it.
So yeah it's difficult. We've done this many times. We're going to be doing a lot more YouTube influencer stuff with our Baby brand. And it’s just something that we've kind of had to accept. I look at the extrinsic value of what I'm getting besides just having the video on YouTube. I look at knowing that outside traffic to Amazon is a ranking factor. I try not to launch too many influencer campaigns at once so I can kind of look at my previous sales and look at something like Sellics where you're looking at it day by day.
You can also do this through Amazon's backend, but look at the sales day by day and just see if the needle moved any. But it's still hard to tell because a lot of times influencer stuff might only get you on or two sales per day, and then that could be like just an anomaly in the Amazon traffic and sales. So it's hard to tell unless an influencer has like really blown up in a good way for you.
But I also look at the video content that I do get from them as an asset. So if I'm paying 50, 100, 250, whatever dollars to have a video done, usually like one out of four, one out of five of the influencer videos I get can become a really great piece of marketing collateral for me. Some of these YouTube influencers make videos that are probably worth $5,000 to you or more if you were to go out and have someone make a review video for you or a product video for you.
And usually when you work with a YouTuber, they will allow you to use whatever video they produce for you in any way that you want. So I'll just turn it into an ad. When you talk about Facebook ads, a lot of times you can use like 80% of a YouTube influencer video, chop it up a little bit, and then I turn that into a new Facebook ad. And again realizing that that we do run Facebook ads and do all these different things, so I look at the different value I get from them besides just doing the review.
Megan: Yeah now it's just been a good partnership too so far just meeting people in that space, getting to know them, and asking for feedback on other products that they would like to see. And so it's worth it definitely for other reasons.
Mike: Yeah, that definitely makes sense yeah. I think that getting feedback from them is invaluable especially if you're at that stage. And if they're willing to do that for you, that’s definitely awesome without a doubt. I was asking about Amazon PPC, are you doing that right now?
Megan: I am, I have three campaigns going right now, the automatic, I have manual and then I have one manual exact match for the keywords that I want to target.
Mike: Okay, perfect, yeah that’s definitely the proper way to set it up. So it's good to hear that you're doing that. Are you brand registered?
Megan: I'm in the process, so I didn't get in before they made all the changes. So I’m in the middle of a trademark application waiting period right now. I'm waiting to hear if I get the trademark, and then I'll finish the registration.
Mike: Okay perfect. I mean the reason I’m asking these questions, these are the things I think I would work on first before like the Facebook ad part. And typically like the Facebook ads that most people will run for Amazon revolve around some type of discount code, so you can you can track how the performance of that is going. So it just depends on what your gross profit margin is on the items, and what kind of discount you can offer, and how the product can respond on Facebook.
What we do is use ClickFunnels for those, and I talked about this in a previous podcast. So we have some funnels that we've done where we're sending Facebook traffic to a landing page and then you give us your email address, and then we send you the coupon code. And we actually have the coupon code emailed to them and on the thank you page. So it's in both spots.
And then on the thank you page, we have our affiliate links, so we're able to track the sales that we are getting, plus you can also look at the times that the coupon is being used. So we have like a lot more control of that. It's just a matter of do you want to run coupon codes for your product to try to boost velocity basically. I think in my mind you have to have a business case for wanting to do that, like you don't want to just sell extra widgets just to sell the extra widgets.
I mean are you in a situation where you rank 25th for your main keyword, and you think that by giving away three to five units per day, or using a coupon to sell three to five units per day at a discount can get you to the first page, which will then organically hopefully push you up a little bit higher on that first page, then it's been it's probably worth it. But just to sell widgets, just to sell them, I don't think is necessarily the best strategy.
Mike: Now if it's a part of product launch it's a little bit different. Obviously when it's brand new you kind of do want to sell widgets just to sell widgets to get your review count up and get your velocity up. But if it's an existing product and again unless it’s a business case scenario where you're trying to resurrect a dead product or you're trying to rank for particular keywords, I don't really see the value in doing it.
Megan: Yeah and I have managed to without — well I've given away I guess eight products now with the YouTubers, but I haven't done any discount codes or giveaways or anything else like that. And I'm still on the first page consistently with my products. Before I went out of stock this last time in early November, I was bumping around between probably like the third and fourth slot. And so it's like I don't need to do giveaways. I mean and even — so I don't know my sales are not — daily sales volume isn’t as high as I think it should be, but it's still really good ranking for not giving away a bunch of free or discounted product. So I’ve been okay with how that concept works.
Mike: That is really good. What it tells me is that you're not in a ultra competitive niche for that particular keyword which is good when you're first getting started like that. And the product is converting well for that keyword because conversion is what actually allows you to rank for something. So if you're ranking third or fourth, you can spend some time trying to optimize the listing in a way that will help you convert just a little bit better for that keyword.
So let's just say it's black garlic press, we’re always using garlic press for these things. But let’s just say like it's black garlic press, in the photo like it would be highly in the fact that it's a black garlic press, and obviously all the features and stuff like that and trying to make sure that your listing communicates through pictures and words what it can do for somebody for that exact keyword, and really optimize for that keyword and not just the title, but making sure that the imagery also coincides with that.
And you can look at your conversion rate for an individual keyword or item basis, and see if it's going up and you'll see a halo effect from over a two to three week period. If you're able to increase your conversion rate let's say from 14% for that keyword to 15%, that will have a dramatic difference in where you rank for that keyword.
Cool, so I’m trying to think of any other things on my end, I can't think of much other things. Any other ask questions that you had on your end that I can be happy to answer for you?
Megan: No I think you’ve really given me a lot to chew on here and think about in the next few months while I'm waiting to hit that one year anniversary mark. So I really appreciate it because until I heard that podcast a few weeks ago, I was pretty much like, oh I'm not going to take financing. And then you and Greg both said like, oh you should take it as soon as you get it, and I respect both your opinions. And so it just kind of took me aback for a second, and I’m like, okay I guess this is something I should consider. So it's been really helpful to hear you kind of talk about the pros and cons of why you would do that.
Mike: Yeah, that’s definitely – I’ll put that on my regrets list. I don't typically have many of those, but I wish I did that sooner, because it was available to us more than a full year before we took advantage of it. And we would probably be one or two million dollars further ahead now, because of that if we had done it sooner. That's how much it amplifies and magnifies things a few years down the line.
But things have worked out well, and you can’t change the past. So I don’t have much to complain about.
Megan: Yeah absolutely. No I think that's great, I really appreciate it.
Mike: No problem, awesome. Well I appreciate you coming on the Under the Hood segment Megan. Hopefully you found all this stuff helpful. We’ll have to catch up in six to twelve months and see how things are going because I think the funnest thing of the segment will be catching up with people and seeing how much of an impact it did or didn't have on their business.
Megan: Yeah absolutely we’ll do it. And if you're going to be down at Seller’s Summit again this year, I'll be there.
Megan: For the first time, so I’m excited about attending.
Mike: Cool, yeah I am definitely going; Steve has already asked me to come and speak there. So I will definitely see you there. I have to leave, I think it's the Sunday morning after the event and fly up to Virginia for a wedding. So I've already coordinated all that as well, and that's going to be — it'll be a little bit hairy. But I’ll be there to speak and as soon as I get done, I'm probably going to get on a plane and head out, but it's unfortunate. But the funnest part for me is the Saturday night after everything happens.
Megan: Yeah I can imagine. Well I'll look forward to meeting you there.
Mike: Cool excellent, I look forward to it. Thank you so much Megan.
Megan: Thank you, take care.
Mike: And that is a wrap folks. I hope you guys enjoy this two part series of Under the Hood with Megan. Again if you guys want to sign up and go to EcomCrew.com/UndertheHood, you can be on your very own segment of Under the Hood. We love to have you on it. We've pre-recorded a ton of these already. They are great episodes to plop in when I'm traveling, and we also want to make it a regular segment for EcomCrew throughout 2018.
If you remember, one of my goals in 2018 was to do at least 100 episodes of the EcomCrew Podcast, and we're well on our way here as we get towards the end of January. I love checking off goals, and we have a bunch of really interesting goals this year. If you go back and listen to that episode if you haven't listened to that so far, it's going to be a fun year.
We're already well on our way to doing some of them, and some of them I’ve realized are going to be a bigger struggle than I thought as we started planning some of the stuff out. So it'll be fun to do some recaps as we go out through the year about those goals. So we'll be back later this week with another episode of the EcomCrew Podcast.
Again just a couple last reminders, go to EcomCrew.com/UndertheHood to sign up to be on the Under the Hood segment, or go to EcomCrew.com/116 to leave us a comment or a question about this podcast. We'd love to hear from you. So until the next episode guys, we'll talk to you then, and happy selling.