E195: Road to 1M – Dave’s 18th Month Update on His New Ecommerce BusinessNovember 8, 2018 in Ecom-Crew-Podcast
It’s Dave here. I’ve taken the reigns from Mr. Jackness in order to bring you an update on the status of my second ecommerce venture.
Regular listeners to this podcast will know that I sold my first company two years ago. After going on a hiatus for a couple of months, the call to entrepreneurship became too strong to ignore. So in June of last year, I started another business with the intention of generating a million dollars in revenue by March 2018.
It’s been 8 months now and I still haven’t broken through the 1M mark. But, revenue projections are on an upward trend and profit margins have increased. There have been some hiccups along the way but the business is growing. Given the numbers, we’re in a strong position to achieve $1.75 million in revenue by 2019.
- Getting brand registered (finally!)
- Amazon.ca continues to be a big revenue driver
- Google Shopping and Facebook Remarketing ads are also doing really well
- Hired a full-time VA
- Dispute with the buyer of my first company
- A major quality issue with a product that caused it to be removed temporarily from Amazon
- Slow eBay sales
- The Canadian version of our website was a complete flop
For more details of my 18-month ecommerce journey, check out the accompanying blog post here.
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Full Audio Transcript
Dave: Hey guys, in this episode of the EcomCrew Podcast I’m going to talk about my 18 month update on a newly launched ecommerce company that I started 18 months ago. Now this is a series that I’ve been doing over the last 18 months and it involves an ecommerce company that I started basically about a year after I exited my previous ecommerce company. And I’ve given multiple updates along the way basically in six month intervals except in the beginning where I gave closer to monthly interval updates.
So, in this episode I’m going to give an update of basically where the brand stands right now in terms of revenue, in terms of profits, some of my wins, some of my losses, and the direction I have going forward. So let’s get into it. And let’s get into the numbers because that’s what everybody cares about it seems. So, I’m going to give you basically an overview of the revenue numbers over the last 18 months. So, the official kind of starting date of this brand, depending how you want to measure it was somewhere around May or April of 2017.
I basically made my starting point the day that I placed a deposit for a first round of products. So two months after this, so two months into this ecommerce brand, I did $13,515 in month two; six months into the brand I did $9,544 in revenue. In April of 2018, I did $45,000 in change in monthly revenue and drum roll–we don’t do sound effects on this podcast so unfortunately, you’ll just have to visualize that drum roll in your mind–in October 2018 the monthly revenue 18 months into this brand was $72,580 and 92 cents.
Now my goal when I originally launched this brand was to get it to a million dollar run rate, then that basically works out to around $80,000 per month in monthly revenue. Now, that $72,000 that I achieved last month, that’ll be last month by the time you hear this podcast, that $72,000 is just short of that $80,000 mark. So overall I’m pretty happy. I do kind of wish 18 months in that I would be a little bit above that million dollar run rate but $72,000 isn’t that bad. What it does now it’s October as I’m recording this, that $72,000 Mark really sets up nicely going into 2019, and basically getting all my ordering in place before Chinese New Year.
So let me talk about some of the highs and the lows of running this company for the last six months or so. Now my biggest high and also my biggest low was settling a dispute that I had with the buyer of my previous company. And when I sold my previous company, part of the deal was signing an APA, an asset purchase agreement. Now this document is basically a contract governing the sale of the assets, a very common document anytime you sell a business. And part of most APAs is a non compete clause.
Now, as you may or may not know, my previous company basically sold boating products, so part of the non compete said that the seller shall not sell boating products for a certain period of time. And it also had a couple of other smaller clauses in there about things that I could not do. Now, these other clauses were written rather broadly and ambiguously. And if I was more experienced, I would realize that those were going to be a problem. But me being a naive first time seller, I didn’t really pay attention to them too much and I didn’t really question them. And neither did my lawyer for whatever reason.
So basically, what happened was the buyer caught wind of my new company, and I’ve done nothing to hide this new company, either from the EcomCrew audience obviously, or from the buyer so he uncovered what I was doing pretty quickly. And he basically said, hey Dave, well, what you’re doing now is a violation of our non compete clause, and therefore I’m going to stop paying you what’s remaining on our seller note. Now, as soon as he did that, the first thing I did partly on the guidance of the beloved Mike Jackness was to contact my lawyer and have him draft up a letter to their party and basically saying, hey, you have to pay up because what Dave Bryant is doing is not violating the non compete.
Now, long story short, what happened, we basically went back and forth over five or six months. And eventually we came to a settlement where I basically took a discount of around 50% on the amount of money that he was remaining owing to me. And we more or less scratched those ambiguous and broadly worded parts of the non compete clause. And the whole experience left me feeling a little bit bitter, basically, for the fact that this was business done in a way that I’m not used to.
I felt that the buyer was basically grasping for straws, and he was basically using the fact that the amount of loan remaining that he owed me was not anywhere close to the amount of money that would cost me to pursue him repaying the full loan in court. Every estimate I got to actually take this to court and try to get my money would have been into the high five figures. I think he knew the calculus there, and so he was throwing his weight around a little bit. I’ve tried to kind of see it from his perspective; I’ve had a hard time doing it.
Now that being said, the whole ordeal was an incredible learning experience. There is a saying in business, that you’re not a real business until you’ve been sued by somebody. So I guess I’m a real business now in some capacity. And it taught me more about I guess, business law that I’ve never learned in business school or in business law 101, which I did take in business school. They never taught me about any of the things which I went through. So I think it makes me better prepared the next time something like this comes up. And I’m somewhat young, and I’m almost certain that at some point in the future, I will probably be sued again, or I’ll need to sue somebody.
And I think I’m now better prepared for the fight than I ever could be otherwise. And overall, I mean, the amount of money that I basically settled with for the buyer was a relatively insignificant amount relative to the overall transaction size of me selling my business. So it was probably in retrospect, a fairly cheap learning experience, and hopefully one that will pay itself back in the future.
Okay now going over a couple of my other wins from the last six months, our big win was finally getting brand registered. And when Amazon rolled out with Brand Registry 2.0, the requirement to get a trademark, that makes the whole process of getting brand registered a lot more complicated. Now, what I did was basically apply for an actual word mark that got rejected. Then I applied for a design mark and that got approved. But the problem is with the USPTO the company that – not the company, the organization that governs IP in the United States, it takes at least 12 months to get that registered from start to finish. It’s a long time.
It’s something I’ve kind of learned along the way that if you do want to get a trademark really quickly, one that basically gets you EBC Brand Registry, the best thing to do is to get a design Mark registered in the UK. In the UK, it only takes about four months or so to get your mark registered. So that’s a quick little hack. If you want to get enhanced brand content that as soon as possible, just get your trademark in the UK. Of course, that’s not going to give you a lot of intellectual property rights in the US, but it’s going to get you brand registered.
And another big win and this is kind of a continuation of the trend for this company in the last 18 months is amazon.ca continues to be a significant revenue generator for my company. Amazon.ca is now nearly 30% of our revenue, 28.8% to be exact. Now the great thing is that not only is this a big revenue driver, profit margins are a lot higher on amazon.ca and they’re about 25% higher for this company than amazon.com. And a big part of that is that the cost of advertising which is so important in today’s Amazon world, the cost of advertising is way lower on amazon.ca. It’s at least half of what it is on amazon.com in terms of an ACOS.
A couple of other quick wins, Google Shopping continues to be very profitable. If you do it as an ACOS basis, it’s about 25% or below. Google AdWords – sorry not Google AdWords but typical ads through search, they’re performing dismally and in fact I’ve turned them all off but Google Shopping continues to be really strong. And the same thing goes with Facebook remarketing. Our remarketing ads are performing very profitably. I’ve yet to figure out the perfect equation though to target cold traffic effectively. It looks like we’re about to break even possibly a little bit either in the negative or the positive depending how you want to value the lifetime of a customer. But Facebook remarketing overall though tends to do really well for this company.
Another little high was I’ve now hired a full time VA. And again, something I’ll touch upon here shortly is that with ecommerce now being so margin dependent and basically the person with highest margins is going to win, one of the ways in getting higher margins is to hire staff strictly overseas, at least at this point in time. So getting a full time VA to handle a whole bunch of things at basically $500 a month, you cannot beat that cost. So that’s been a nice win. And it’s nice to have somebody else kind of on board now that can help lessen some of my workload.
Okay, touching upon some of the losses, insert crying emoticon here. Like I mentioned before, the dispute with the buyer of my previous company, that was a huge time sucker. It literally took dozens and dozens of hours of my life. It was a huge time suck. But aside from that, we also had a major quality issue with one of our top products. We basically order 300 pieces of a product and these products were about 50 bucks each, so it was a $15,000 order, and this entire order turned out to be missing a significant part. And I contacted the factory, the factory said, oh, we’ve been producing this item for years and years and we never forgot to include this item.
We went back and forth for quite a while. Eventually they air shipped over a bunch of product — not product but missing pieces of that product. And we had to reassemble the product, get them all removed from Amazon and get the missing part added back on. And this cost a lot of money and time, not just have the items recalled and then repackaged, but during this time, our return rate creeped really high on Amazon. And Amazon of course, when that happens, they suspend products. And it happened actually twice with this product.
We were able to get reinstated pretty quickly each time, but still, it still took two or three days to get the item reinstated. So again, we just lost sales simply because a factory made a pretty bonehead mistake in forgetting this additional piece that was needed to operate this product. And to be fair, actually it was a bonehead mistake by me. I should have had this shipped and inspected to make sure that piece was there.
Another loss was that our eBay sales are very slow. And that basically comes down to the fact that our seller rating is below standard. And that all resulted from basically having to cancel a whole bunch of shipments in June. And the way that eBay’s platform works is that it’s very punitive to a new seller. It’s pretty hard to get out of the hole. It takes about six months to get out of that below standard rating. Now, most of you listening to this are probably saying, what the heck is Dave smoking? Why does eBay even matter in 2018?
Well, the truth of it is, eBay is still very strong for certain categories and eBay Motors in particular. So anything automotive, boating, that type of thing, eBay Motors actually is pretty strong. I expect eBay is going to be a minimum of 10 to 20% of our sales once we get it rolling, but because of this hole that we’re kind of stuck in right now the below standard rating that’s not coming to fruition. Hopefully it does here in the next month or two, though.
Another loss was we launched a Canadian only version of our website, basically a dot ca version and it was a complete flop. I threw basically 1,000 or $2,000 added in advertising, we got literally one sale. So, no matter what product you’re selling, you’re paying $1,000 to acquire a customer. That is not very good metrics. So the website was a complete flop. Aside from just the monetary cost, it was absorbing a lot of my time trying to maintain it and basically I just killed the site. It wasn’t worth the effort. I was hoping it would turn out a little bit better. I thought, hey, we can really market this as a Canadian source of offroading products. That didn’t work at all.
Okay, let’s move on from that and talk about money, money, money, money. Now, if you’ve listened to this podcast, you know that one of my favorite sayings is revenue is vanity, profits are sanity. So revenue really doesn’t mean anything. And I absolutely hate it how we’re in an industry where everybody measures himself with revenue. Revenue means absolutely nothing. So, let’s talk about profit a little bit. And that’s something I’ve been pretty proud of in this new ecommerce company that I’ve started.
So I’ve managed to inch my profits up to about 13% when I first started two months in, and now profits, I’m very happy to say are 30.1%. And that profit margin takes into account all variable expenses. It does not take into account though things like advertising. That’s a huge one, of course storage fees. And that’s pretty much the big ones because it doesn’t take into account overhead. But fortunately, I do not have any real overhead, so to speak in this new brand.
And I’ve done this very deliberately. I’ve kind of been on the mentality for the last two or three years that ecommerce growth is still going up. We still have not hit the peak, at least in my opinion. I think it’s going to continue to grow at that 13 to 15% rate that it has been growing at basically I guess for the last decade, if not more. But what’s happening is that margins are continuously being pushed down. So, I’m a big believer that the person who’s going to win in ecommerce in today’s day and age is the one who has the lowest cost center, who has the lowest cost is able, therefore have the greatest profit.
And when you have the greatest profit, it means that you can do a lot of nice things like spend more money on advertising, and hopefully put more money in your pocket at the end of the day. So I’ve been very conscious of this. And I’ve resisted the urge to get out of basically working in our bedroom with a three year old daughter and a dog and not to mention a wife. So I resisted that urge. Even though I’m pulling in fairly decent money right now, I resist that urge to get overhead like that.
Now, I did recently hire a full time VA in the Philippines. Again, this was another trend that I think is occurring in ecommerce. If you have to pay a Western salary for work, again, that makes it really hard to compete. In my previous company, we had two full time Canadian staff not to mention contractors and all that. Those two full time Canadian staff are well over $100,000 a year in expenses that we had to pay. And that’s a significant hit to your profit margin. So I’ve avoided, again, all that temptation to absorb any overhead whenever possible.
So aside from reducing our overhead costs, what I’m also trying to do is really limit our basically our product costs. And that includes not only the product costs, but also the cost to fulfill those items and get them landed in America or Canada. So, the big thing that I’m doing is basically every quarter we’re making an order and every quarter we have four containers being shipped. Two of them are going to America; two of them are going to Canada. And there’s one container for oversize items and one container for standard size items.
And what that does is when you split those shipments up into oversize items and standard size items, it basically reduces the number of fulfillment centers that your products are going to have to go to with Amazon. So, in the case of our standard sized items, whether it’s Canada or the US, they almost always go into one fulfillment center. With our oversize items in Canada, they only go to one fulfillment center. In America, unfortunately, they almost always go to multiple FCs. So we basically have to have a 3PL in the middle, breaking up those items and splitting them into multiple FCs across America.
But by reducing the number of FCs we’re shipping to and shipping directly into warehouses with Amazon, it reduces costs upwards of $2,000 per shipment. What a lot of people don’t take into account is that Amazon when they receive a container, they do not charge the stuffing charges or pick and pack charges or any of those other fees. Of course they charge you pick and pack fee when they’re fulfilling the item, but to receive the items they do not charge you anything. Most 3PLs are going to charge significantly for that. They’re going to charge to unstuff the container and they’re going to charge when you need to ship those items into different warehouses. They’re going to charge you a pick fee. By shipping directly in Amazon you avoid all of that.
The other thing I’m trying to do is to optimize our packaging as much as possible. And I’m doing this in two different ways. The first way is to package items as efficiently as possible and reduce dead airspace in those packages, and reduce weight as much as possible. So, for a lot of our items, we were shipping a lot of basically dead air in the box. And we’ve managed to save up to 50% in some cases. So, I think all of us are guilty of having items which are overpackaged, and if you can save even a couple of inches, if it can mean getting you into a different product size tier, it can save you $1 or two per product which really adds up over the course of the year when you’re shipping thousands of products.
And the last thing I’ve been doing and this is an obvious one, but it’s to negotiate costs down as much as possible with our factories. So now we’ve basically gone from five or $10,000 a month in order volume up to the point now over $70,000 a month. And obviously, that’s not growth explicitly in one SKU, but all our SKU volume has grown significantly. So now I’ve used this as a leverage to go to all our factories and say, hey, look at our volume. It’s grown so much over the last year; we’d love to increase it even more but we need to get a little bit of a price discount of that. And I’m normally aiming for somewhere around five to 10% as a price discount.
Now this is a great time of the year to look for those price discounts. Right now, all factories are trying to meet their goals, their revenue goals for the year and they want big orders coming in not only just to pad their 2018 sales but also they want to start 2019 with a bang. So, by asking them now for that price discount in return for you giving them a big order, most factories are going to be more agreeable now than they ever have been throughout the year previously. So the end of the year is a great time to start asking for those price discounts I have found.
Okay, wrapping this podcast up, let me just quickly touch upon a few of my goals going into 2019. My big goal is to get this company to doing $1.75 million as a run rate. So that’s going to work out to by my math around $150,000 a month. And I think on its current trajectory without any new products or anything, it will get to about $1.25 million in revenue. But to get to $1.75 million, it basically means that we’re going to have to grow the product line by 40%, which would mean somewhere around 12 to 15 new products for 2019.
And hopefully, I’m kind of on my way to getting that. I have quite a few products in the pipeline. We’ll see how it turns out with Chinese New Year. Chinese New Year is a couple of weeks early this year. But hopefully, they arrive in time for the start of the New Year and that way we can kind of get them some traction going into the summer, which is basically our Christmas.
Another thing I’m looking at doing is getting a complete brand makeover for the brand. And a big part of that brand makeover is going to be getting professional videos done of all of our products. Now, getting videography done for most products isn’t actually that hard. You can find great videographers, a couple of that we link up to in one of our articles on EcomCrew. Getting a pretty good videographer to do a nice little EBC video for your enhanced content or enhanced brand content video, you can get it done for around 500 to $1,000.
And when you have these really tricky products like automotive products, it becomes a lot trickier basically because these are huge products, they require a vehicle for mounting, and normally they need to be shot on some type of location. And in my case, it would be a big bog, a big mud bog and with trucks and four by fours, basically abusing these products. That’s not something you can easily find online. And I’ve been talking to a couple of different videographers; including the one that we use for EcomCrew, the great David Couillard.
And as I’ve been talking to a couple of a couple different companies trying to get it done, again, it’s logistically it’s just a real big challenge. I know it’s going to involve a big part of me having to organize a vehicle basically to be on set and trying to organize that thing. So that’s a big goal for 2019. It’s going to be a big endeavor, but I’m a big believer that one of the biggest advantages of EBC is being able to add video to your listings. And the only way you can add video to your listings is to have videos. So that’s a big thing is that get those videos done up.
And unfortunately, in October 2018/ November 2018, we’re in a situation right now where there are a bunch of tariffs that have been stated on a lot of Chinese products. These tariffs are being increased on January 1. Now, fortunately, only two of our products have been hit with these tariffs. But you can kind of read the writing on the wall. And all the remaining products that do not have these surcharges being applied to them, they are going to get hit at some point in 2019 unless good old Donald Trump and Xi Jinping can come to some kind of deal. And I still am a big believer that they are going to come to a deal sooner rather than later.
I had made a prediction that this would happen before the midterm elections. I think this prediction is going to fall flat. But I do think a deal is hopefully coming sooner rather than later. And this isn’t a worry that I have to address. But if it does come, I have to be prepared to basically take that hit which will be a minimum of 10 to 25% in additional duties on our products. And one of the ways I’m kind of, I guess trying to preemptively weather the storm is to gradually push our prices up.
There’s one good thing that’s come out of these tariffs is that a lot of people probably realized that they weren’t charging enough for their products. And I think a lot of people me included, we kind of get stuck charging too little for our products. And when we’re launching products, I don’t know if you’re like me, you probably price your products a little bit cheaper in the beginning and then you’re so afraid to rock the boat once you get traction that you don’t push your prices up. I don’t know, it’s been my experience that normally your products sustain bigger price increases than you realize. And so that’s something I’m doing preemptively just inching up our prices ever so slightly.
And the last goal, and this is kind of a continuation of a strategy I’ve been using over the last 18 months is to continuously be trimming SKUs. So as well as growing the number of SKUs that we have, I’m also continuously looking for SKUs to kill. And it sucks killing a SKU because you normally put a lot of time and effort into developing those products and then to kill it off, well, it’s just a hard feeling. But I am a big believer that almost every ecommerce company is going to follow the 80/20 rule. 80% of their products are going to do kind of average, and then 20% of the products are going to do either extremely well or extremely terrible.
And doing the math that basically means 10% will do really well and 10% will do terrible. And so my big goal every year, a couple times a year is to kill those 10% of our products which are doing terrible. And what it does is it frees up a lot of cash and then I can take that cash and apply it to other more profitable products. So like I mentioned, it really sucks doing that, but I think it’s a critical task that all ecommerce companies need to be doing from time to time. It’s definitely something I’m trying to be proactive about.
So, looking ahead to 2020 enough feels like forever away. We’re entering a new decade and that point. Looking ahead to 2020, I’ve said from the get go that part of my goal starting this new company is after about two or three years, I really want to take a chance to evaluate whether this is the company I want to continue running or whether it’s the company I want to basically flip. And I think there’s merits in both things, keeping a company running and just basically taking the cash flow from it or selling a company.
I thought I would be able to say more definitively which way was better or worse after selling my previous company. I am still unsure which way is the better decision. But regardless, in 12 months from now, I’m going to evaluate whether I want to flip this company which will mean I’ll have to do a couple of different things and primarily getting it even more profitable to get a higher return, or probably bring on some local staff specifically somebody who can manage day to day operations. It’s not something I suspect that I’ll want to be involved with nine to five. That’s just not kind of where I’m at in my life right now. So either way 12 months from now, that’s a decision I will have to make.
So, that kind of wraps up my 18 month update on my new ecommerce brand. I will give another update I guess later in the spring of 2019, and that will be a full two year update. Hopefully, I’ll have some new and exciting things to share with then. And until then, you can check out the blog article that accompanies this podcast at EcomCrew.com/18-month-update, and that will take you to the blog article. And until the next podcast guys, happy selling.