E281: Mike and Dave Break Down Their NumbersSeptember 9, 2019 in Ecom-Crew-Podcast
Dave’s joining me on the podcast today as we drill down on our business numbers.
We cover Amazon sales and the big-ticket items on our COGS.
You’ll want to skip the part where I slipped on one of the boardwalks while doing the West Coast Trail (boring story) and dive right into the good parts of today’s episode.
Here are the timestamps to guide you:
- How Pat Flynn influenced this episode (6:51)
- Latest numbers for IceWraps (7:28)
- Latest numbers for Offroading Gear (8:55)
- Adding the cost of tariffs (9:55)
- What makes up these costs (13:55)
I hope you found that deep dive into each of our business’s numbers informative and helpful. If you’d like to hear more content like this, please leave us a comment below.
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Till the next one. Happy selling!
Full Audio Transcript
Mike: Alright, here we go. This is Mike.
Dave: This is Dave.
Mike: And thi– that was. Horrible.
Intro: Welcome to the Ecomcrew podcast. The Web’s most transparent podcast from two seven-figure sellers who share the good, bad and the ugly about running an e-commerce business. You’ll learn how we build our brands, find products and develop marketing strategies that will help you start and grow your own million dollar e-commerce brand. And now your hosts, Mike Jackness and Dave Bryant.
Mike: This is Mike.
Dave: This is Dave.
Mike: And welcome to Episode #281 of the Ecomcrew podcast. So glad to have you guys along with us today. And Dave, we’re recording a live podcast here together and trying to do the whole kick up the Ecomcrew podcast on our level thing. So I don’t know what’s going to happen with you on here, but I’m doing my part.
Dave: I’m trying here. We are doing it remotely, even though we are very close geographically. You’re only about two hours away from me driving. We tried to record it in person, but we’re still stuck doing it over Skype and contending with your kind of crappy internet. But so your quality of recording sucks. And we’ll see how my performance measures up.
Mike: Nice. Well, speaking of performances, let’s talk about our performance on the West Coast trail.
Dave: Shall we give ourselves grades?
Mike: I’ll give myself a grade. I give myself an A++. (Laughs). Well, I give myself 120 out of 100.
Dave: All right. I give myself an A to the power of three.
Mike: There you go. But in all seriousness, it was a great trip. And I’m glad that we came up there and did that together. We had Dave Coulliard with us as well. The other part of Ecomcrew and our Superfan or Goofy as we call him, Mike Ketchum or as your daughter calls him, Mike Ketchup came into the trip with us. And you’re the only one that didn’t rack up any fractions or full points on the fall tally on the trail.
Dave: I don’t know. Did Coulliard get a fraction of a fall?
Mike: He was arguing. When you’re arguing against it, that usually means that you’ve earned something, but don’t want to admit it.
Dave: Alright. So I’m the only one who escaped unscathed.
Mike: But I managed to slip on one of the boardwalks, like hundreds of feet, in the first hundreds of feet of the trail. It was just like, come on really right now. So I was just kind of adjusting my pack and my trekking poles and all that and like stepped on some slippery wood and boom.
Dave: You’re missing the first part of that story and I’ll tell it for the sake of our listeners so–
Mike: Oh no.
Dave: We potentially– 5 to 10 minutes before Mike’s big fall, he was standing confidently at the beginning of the trail with a group of other hikers telling them how light his pack was and giving them basically worldly advice on how to hike a trail and things they should do and things they shouldn’t do, basically sounding like the gospel of Jesus for hiking. And 5 minutes after that, Mike had a little tumble on the stairs. Thankfully, though, your uh– who did Jesus, what did he call them? His disciples, I guess. Your disciples were far out of sight and nobody’s seen your little fall.
Mike: Yeah, except for Dave Coulliard, who had his camera like on instant ready mode and got a picture of it all.
Dave: Yeah. So I guess the good thing is, as long as those people are not listening to the Ecomcrew podcast, they’ll never know that your hiking expertise was a bit of a fraud.
Mike: I did finish the trail first, though.
Dave: You did and I’m throwing you under the bus. You’re actually a fantastic hiker.
Mike: (Laughs) You’re one hell of a walker, Mike.
Dave: And your selection of gear was fantastic. Your water filter was amazing. I wouldn’t have been drinking water without you.
Mike: You were jealous of my tent.
Dave: Well, that too. Your tent that you had three chopsticks holding up.
Mike: Right, yeah but it was light so– But in all seriousness, anybody that ever gets an opportunity to do the West Coast trail, man, what a great experience. I think probably my favourite part even though it was frustrating at times, just having no Internet and knowing that there was going to be no Internet the rest of the day or the rest of the evening. It’s worse when there’s like one bar and it’s like just dripping in really slow and its more frustrating, but you still check it. But when you know it’s not there, after a few hours, you just accept it. And remember that there was a life before the Internet. And it was kind of freeing to be out there for a couple of nights and enjoying the fire and the sound of the oceans on the shore and realizing that we hit the weather lottery and had great weather and each other’s company.
Dave: Yeah, it was awesome. I think I kind of hit my limit for length of time I can go without the Internet. But two nights and three days I can do, I think.
Mike: I think I was impressed when there was a spot about two or three miles to go where the Internet came back in and you can tell cause like everyone’s phone’s like lighting up like a Christmas tree. And you were the, like, the only one that didn’t like reach for his phone and stop for a few seconds and see what was going on.
Dave: Oh, I noticed too late, that was the problem.
Mike: I see, got it. Well, we have some exciting stuff to talk about today. We have some numbers we’re going to go over in both of our accounts, that’s why we both wanted to hop on the podcast today but before getting into that, I do want to remind people that Ecomcrew premium opens next week. And just talking about one of our popular courses real quick, which is our “Importing from China Like a Pro” course, it’s one of my favorite courses. On this course, we talk about our criteria for vetting and selecting products to import from China, how to find the best suppliers. We talk about how we use techniques in this course that really like (Inaudible) get the cost of our products down for ColorIt by 15%, which we end up doing an Ad back for which got us literally like six figures, and an extra valuation for ColorIt when we sold so all that stuff’s packed into this course. If you want to join the waitlist, you can go over to Ecomcrew.com/Premium to get notified as soon as it opens next week. A reminder that space is limited. We’ve been limiting it based on number of people we add each time we open this up to make sure we can provide good service. So go check that out at Ecomcrew.com/Premium.
So Dave had the great idea as we were talking about podcast ideas that could add more value and try to make the Ecomcrew podcast better moving forward, is to talk about more real-world numbers and stuff. So we cracked open our Sellics accounts and started comparing numbers of our accounts and found some interesting similarities, some interesting differences and stuff. So thought it would be good to go through and compare real world actual numbers from our Sellics accounts. What do you think about that, Dave?
Dave: Yeah, I think people always find a lot of interest in seeing the actual numbers of a company’s business, not only just revenue, but bottom line profit and then also a breakdown of where costs are being spent. I know when I first got started in digital marketing, Pat Flynn’s podcast was one of my favorite. And the reason was because he would always do a monthly revenue report of the revenue that his company was bringing in. And every month I was so intrigued by seeing his numbers in his company and his transparency. So we’re hopefully stealing a little page out of Pat Flynn’s book here and doing the same for our Ecommerce companies.
Mike: Yeah. And I actually used to follow that stuff that Pat did as well. Ironically, he stopped doing it. I’m not sure exactly why he stopped showing those numbers, but, you know, it’s obviously his prerogative and I can definitely understand why you might want to do that, but we’re gonna throw out some numbers here. So from my account, this is for– now remember, did several podcasts about how we broke all of our accounts out. So IceWraps, Wildbaby and TAC9ER are now all in their each individual account.
Mike: So this is our IceWraps account. And we’re going to be talking about trailing 30 days numbers here, so for my account, we did $318,587.60 to be exact. And this is top-line revenue through Sellics. This doesn’t include the IceWraps.com revenue, which is something but insignificant compared to some of the Amazon stuff, I guess. But we are just talking about the Amazon numbers here just want to make sure we’re clear on that. And then we have total costs which we’re going to go through line by line. So you can understand how all this breaks down for us of $252,425.70. And so that leaves us a few– it says operating profit here in Sellics. This definitely wouldn’t be net profit. It’s not gross profit either because it includes a bunch of other fees. So let’s just call this some modified number, blended number.
So it’s basically all of our expenses without freight and overhead and stuff like that. So the operating profit here is $66,161.88. So it’s right around 20.7% net for us there. So that’s what Ice Wraps looks like. And you just did an update, Dave, so people kinda have an idea what you’ve been doing the last month. If you can kind of go over exact numbers for what your account looks like. We’ll start with that.
Dave: Yep. So the Amazon numbers for Offroading Gear and this is incorporating both Amazon.com and Amazon.ca. Amazon.ca is about a quarter of these sales, but Sellics blends it all into one kind of converted USD gross revenue total and the total for the last 30 days was $96,634. Total costs were $73,000 operating profit or with quotation marks there, operating profit was $23,062. So which brings a percentile of 25%. Now these numbers are off a little bit because these numbers incorporate Trump’s new duties in them, so my profit margin is actually a little bit lower than this, not actually a little bit, significantly lower than this, once adjusted for those duties, but ignoring those duties for the time being, living in a dreamland, profit margin’s 25% as defined by Sellics as an operating profit margin.
Mike: So you’re at 25% net, which I know in our competitive world, you’re all happy that you’re beating me there. But keep in mind, as you mentioned, you don’t have the tariffs built-in, and we do. But one thing to also keep in mind with us, the tariffs haven’t affected IceWraps as much as some of our other stuff because our best selling product is actually imported from Canada. We haven’t had to add the tariffs in, but we have added them in on our COGS for everything else. And we also incorporate all of our freight cost inbound in there as well. I’m not sure, are you adding that in as well, Dave?
Dave: Yeah. So we add back in all of our inbound freight and also there’s a small number added for 3PL costs too, even though a large percentage of our stuff is going directly into Amazon. I basically have it, I think it’s a 25% handling charge per case essentially added into each item.
Mike: Got it, okay. Alright. So let’s talk about what makes up these costs. Because I think that’s important to just do some comparison there. Again, we’re running realistically relatively similar operating profit percentages. 21-25%, 4 points actually is a relatively sizable amount at scale, but it’s in the range that I think most people want to probably find themselves in. Anything too much lower than 20 %, you’re going to have a hard time when you start adding an overhead cost or other cost. Having a profitable business, anything more, you’re probably most likely either in makeup or jewellery or probably overcharging and not getting the line that you could otherwise, it would be my guess. So most other industries are kind of falling in that window.
Dave: Yeah. So when we say that most people kind of want to be in that 20% to 30% range for profit margins–
Mike: I think so. I mean–
Dave: If looking at it from a Sellics angle.
Mike: Yeah, I think so. I mean, if you’re– again, if you’re below that, it’s just going to be difficult to run a profitable business realistically, long term and we had a really interesting lunch today with someone here in the Seattle area.
They probably don’t want me mentioning them specifically. So I just kind of keep it anonymous. But they’re running a lower-margin business and they have been running a lower margin business for a long time. But the thing that was interesting was they were talking about how their top line was going up and their bottom line was actually going down because margins are getting thinner and thinner. So I think that that’s going to be the case Amazon wide. So it’s something to keep in mind as you’re building your business now. Yeah, you might have a let’s say a 10% margin business, but three years from now, it might be 2% or 4% % like because there’s going to be margin erosion year over year. And that’s pretty natural as a part of the business cycle with marketplaces like this or new technologies and things just like through history. When something’s new but popular and there isn’t as much competition on the seller end yet, margins are going to be higher. As more and more competition comes into marketplace, margins are going to erode.
There’s always gonna be the guy in his basements, you know, his mom’s basement in his underwear that has no overhead. That’s gonna be willing to sell for less than you are with your overhead and everyone that’s listening has different overhead structure. But for people like Dave and I, we have these relatively low overhead businesses now, but there’s still more than someone operating out of their basement. My overhead structure before used to be significantly higher when we had a warehouse and a bunch of other employees here. So these are all things you need to make sure that you’re leaving room for in terms of margin structure. And over the course of the next few years, you can handle the margin erosion with all that built into it.
Dave: Yeah, and it’s funny because three or four years ago when I had a previous brand, Anchoring.com, having a million or two million dollar business meant a lot more than it does today because margins were pretty close to double what they are today. So that’s kind of the interesting thing that’s happening with FBA businesses, is that everyone’s revenue seems to be going up and there’s a lot more seven and eight-figure sellers than there were previously. But profit margins are so much lower that that seven or eight-figure business doesn’t mean quite as much as it used to, even as little as a couple of years ago.
Mike: Alright. So in terms of breaking down these expenses from the $252,000 in cost, let’s talk about where that money is coming from. So the bulk of it, which as you would expect, is from cost of goods sold. For us, that’s exactly a third, 33%. Where does that fall for you?
Dave: It’s 42% for me. So that’s really interesting. Your cost of goods sold is nearly 10% lower, which is going to be interesting to see where the other costs come from my business, because our profit margins are pretty similar. But clearly, you’ve done quite a bit of a better job of getting your COGS lower than I have.
Mike: Yeah, I mean, it’s hard to compare, because it’s not exactly apples to apples, different industries, different price points. There’s just a lot of other factors that go in there, but it does seem a little high to me.
Mike: I think we always try to operate on this like a third, a third, a third principle. So a third for us, a third for Amazon, a third for our cost of goods sold, in general, is where we want to be. And then, there’s obviously other costs that go into that as well. But that’s kind of where we– So we’ve been targeting that and we say no to a lot of products that fall outside that range, pretty strategically for us. But obviously the net result for you is as good or better than us. So you can’t look at things in a vacuum and just be like, well, I’m not going to buy this thing because my costs of goods are a little bit too high, maybe because you’re in a less competitive niche. You can spend less on ad spend and things of this nature. So that’s something to kind of keep in mind. So as we go through this, we’ll see where some of these other discrepancies come from.
Dave: Yeah, I think a couple of things are probably at play. #1 is higher price point items generally have higher costs of goods sold. So if you’re selling a $1000 item or $100 item, your cost of goods sold is typically going to be higher than if you’re selling a $10 item. So there’s a little bit of that at play.
Also, I think the more important thing at play is that you have more established brand and over time you’ve probably gotten volume discounts. You’ve probably been a little bit more aggressive with negotiating on your costs and trying to get them as low as possible.
Where with me, having a much younger brand, cost optimization hasn’t really been a focus as of yet. But seeing these numbers and how low yours is and just seeing how high mine is relative to yours, it’s definitely gonna be a focus point for 2020.
Mike: Yeah, so one of the spots that I already know that is causing some of this discrepancy. And this just I don’t know if you lucksacked into this or this was planned from the very get go, but my Amazon referral fees are 15% like just about everybody listening to this. But you’re at 12% because of a little known caveat with your products.
Dave: Yes. Hopefully Amazon’s not listening to this and jacks up the fees in automotive, but automotive, that category, referral fees are only 12%, which is a godsend because 3% means a whole lot. And that basically counts for our profit margin difference there, because our 25% profit margin is actually 24.6%, so it’s just barely rounded up to 25%. But that referral fee difference basically accounts for the difference between our profit margins.
Mike: Yeah, and there’s a couple other categories that have lower fees as well.
Mike: We found one that, on the other side of the coin, that had significantly higher fees, which was books, and it’s not the 15% referral fee, but they have this new final value fee that they added a couple of years ago, which was well into our business cycle and just kind of out of left field. They added this, I believe was a $1.80 extra fee. So on a $20 product, it’s almost 10% more. So it’s just, a lesson in Amazon controls the strings and this type of stuff can change at any time and just always be careful. You’re trying to run too thin of a margin business because these things are going to happen from time to time. What’s not going to happen is Amazon coming in and saying, “Oh, you know what? We feel like we’re making too much money. We’re gonna lower our referral fees down to 10%”, like that’s never going to happen. So you just need to be in a position to always be ready for the next chink in the armour when it comes to the margin erosion stuff.
Dave: Yeah, absolutely agree. And for any listeners listening, looking to get into a really low referral fee category, tires are the lowest category on Amazon, 8%. So anybody lookin to sell snow tires, Amazon’s working in your favor, only 8% referral fees.
Mike: I think we should start a tire business, man.
Dave: I looked into it. It’s a tough business.
Mike: Yeah, I imagine. Alright. So let’s go to the next biggest category on here, even though I ended up skipping out a little bit. But FBA shipping fees for us is 22% and there’s like some inside information.
Mike: Yeah, that’s probably high on– I don’t know what, we’ll find out what yours is, but I know for us it’s high right now because we have one product, which is our second best selling item that is being classified as oversized right now and will eventually, hopefully in the next few weeks, as we kind of work through this problem, be reclassified finally, as standard size again.
And so that’s going to change the FBA fees dramatically on our accounts. It is our second best selling product and dramatically increase our profit margin. It should add about another $8,000-$10,000 a month to our net. So these numbers are going to change significantly. But lessons learned here, even I would say fairly sophisticated sellers like us. You know, just one of the things that one of the people in our supply chain just lost sight of was the second shorter side of standard size versus oversized products. So the measurements, I believe, are– I’m going to get this wrong but I think it’s 18, 12 and 8, so it can’t be longer than 18 inches on its longest side. 12 inches on the second-longest side and then 8 on the shorter side.
I could be off there. I’m going off the top my head. But the second measurement is what got us in trouble because everyone in our office always has the 18 in their head because we’re talking about it all the time. But that second measurement got us in trouble. So like one of our products was like 12 and three-quarter inches or whatever the stupid thing was, and it was classified as oversized. This cost, there was some significant 5 figure mistake on our part that’s really throwing things off for a while for us.
Dave: Yeah, it baffles me that you’re at 22% because we’re at 12% and that’s a huge difference. And 12% is definitely more in line with what I’ve experienced in other brands. 22% of overall sales, that’s really high. I wonder what–?
Mike: So I have some theories on why this might be and we can kind of talk about it. I’m actually not sure, but I think that we’re producing more transactions to get to our numbers. Right. Because they’re cheaper products. So I think that if you’re selling a $13 product as a percentage of sales, the FBA shipping fees are going to be significantly higher than if you have a $100 product. And I could be wrong about that but my intuition is that that probably has a lot to do with it.
Mike: Yeah. I mean, that’s the only thing that comes to mind for me.
Dave: I’d like to dove into this little bit more actually off the podcast and see what’s going on there, because I– my suspicion is that one of our numbers is not accurately being reported by Sellics because that is such a big delta between those two numbers.
Dave: So it requires further investigation.
Mike: Now, I know part of it is gonna be that, you know, the products classified, we have a product that’s oversized, as I mentioned. So our shipping fees are higher than they would be, but I don’t think that would make up for that big of a delta. So it is interesting.
Dave: Yeah. It’s interesting. Yeah, because all most of– Yeah, well over half of our products are oversized. But again, higher price points. So that’s working in our favor. But still something weird going on there. But either way, seems probably one way or the other. That’s room for improvement for you. Looks like I have room for improvement on costs of goods sold and you probably have room for improvement on FBA shipping fees.
Yeah. Alright, so the next biggest thing on our list here is ad spend. And I want to spend a few minutes just kind of talking about this in general. It’s something that we’re gonna be spending more time trying to get our ad cost down on even more. We’ve already done some optimization in years past, as we’ve talked about on the podcast. But ad spend for us is 6% of our overall sales, which is, you know, trailing 30 days here was $18,711. Again, 6% of our overall sales. Let’s at least start with you and that number and then, we’ll talk about the over thing I wanna talk about here real quick.
So for me, it was 7% of overall sales. And the other interesting thing too, here is that PPC accounts for 39% of our overall sales where I think you’re quite a bit lower there. So whereas our ACOS is way lower than yours, PPC makes up a much higher percentage of our sales than it does for you. And that’s part of the reason why our Ad spend is about a % higher than yours.
Mike: Which is actually what I want to talk about next so our organic sales make up 81% of our sales and our PPC is 17%. There’s some little gray bar here that I can’t read that makes up the other little sliver. I’m not sure exactly what that even says. And I can’t even imagine what that would be.
Dave: It’s sales tax, the little grey bar.
Mike: Oh really, interesting. Okay. So you know we’re– Let’s just say 80/20 rule. You know, 4.5 of our sales are coming organically, which I think is very healthy and the rest is coming from PPC.
But again, we’re gonna work on balancing that even more in our favour, working more on organic. One of the things we’ve been really analysing is conversion rate, organic conversion rate vs PPC conversion rate and trying to get that more in line. So, you know, we’re overspending with PPC. We’re gonna cut that down. I think that’s gonna eventually help with our organic sales even more. It certainly eliminates some wasteful spend, get our ACOS down, ultimately bringing our net profit dollars higher and margin percentage higher, which is what I really care about, not the top-line number, although also take care more about the top-line number when Dave gets closer to me and I can’t let him beat me. So I did– I’d make a bunch of really stupid business decisions just to make sure that doesn’t happen.
Dave: Yeah, that’s gonna be a bet I strive for. You know how to beat me at. You can beat me in tennis, but this one, I’m going to try to get ahead.
Mike: Did we talk about the 6-0, 6-0, 6-0? Yeah, I think we missed that on the podcast.
Dave: So anyways, getting back to PPC.. so 39% where we’ll not talk about tennis today on this podcast, that will be Podcast #999 that we’ll talk about that. But regarding PPC sales, that’s amazing that your PPC sales are only. What was it? 11%?
Dave: 19% of your sales.
Dave: 17% of your sales.
That’s incredible, because even talking with other premium members, most people kind of fall in the 30% to 50% range for PPC sales as a total of their overall sales. So being at more or less around 20%, that’s a huge win for you. We could probably spend an entire podcast speculating why yours is so much lower, why your organic ratings are doing so well. Brand age probably has a little bit to do with it. Yeah, but more than that, probably just better-optimized listings.
Mike: Yeah. I mean, I was actually gonna say let me talk about it for one minute and brand age is exactly what I was thinking and I– we were actually talking about this at lunch today as well. No doubt this makes a huge difference. We were even having a conversation of could you start IceWraps, let’s say, or the other brands that we were talking about at lunch today in 2019 versus when they were started in 2015 and earlier, the answer’s probably no. Or will be, you know, at least a significantly more difficult now than it was. So there’s definitely a lot to be said for having established products. And so, I mean, if you can get products like over that hump and get them established, you know, there’s a long term margin gain to have there and something to certainly be thinking about.
Dave: Yeah, absolutely. It also is one of the things that kind of supports this whole theory that an Amazon business gains value, the older and older it gets. A lot of people do hit a, I think, kind of, a stress pivot point in their Amazon business where the stress gets to them and they want to cash out after three or four years. That’s an argument to be made for holding onto your business, because the longer it ages, the longer your brand ages, chances are, the better your organic ranges are going to be and the higher your profit margins are going to be.
And that’s one thing I definitely learned selling Anchoring.com, a couple years back is that, jeez you know, if I held onto it just a couple more years, probably our profit margins would have been even better than they were when I sold. So that’s fortunately, one of those things that you can learn selling a business. But definitely it’s been one of my big learning points is that brand equity and brand age really means a lot.
Mike: What I’ve realized now is that every time I bring up the 6-0, 6-0 thumping in tennis, you’re going to remind me why it was a bad idea to sell ColorIt.
Dave: We’re in the same boat in that regard.
Mike: We’ve both been down the same path.
Dave: Both been down the same path, and one day, I will take tennis lessons and–.
Mike: It still won’t matter.
Dave: And hopefully one day, win a set over you.
Mike: Nice. Alright, let’s talk about some of these ancillary things here, because all the rest of this barely adds up to another percentage point or I guess two percentage points. So I have promotion cost: 1%, returns: 1%. I think you’re probably somewhere similar to that.
Dave: Yep. So promotion costs, I can’t even see on my–, oh, are 1 %. It’s actually– it’s funny, mine is showing -1%, well–
Mike: Oh, that’s actually the same, -1%. Yeah, that’s what mine says, I actually just realized it was a negative number.
Dave: Yeah, which makes sense. I mean, it’s a cost. It’s just kind of funny the way Sellics reports it. So yes, minus 1% return costs is 2%. So 3% spread around return costs and promotion costs and promotion costs I believe is basically just all the free shipping promos that Amazon gives on behalf of us sellers. So those are probably going to be fairly static no matter what seller is looking at their numbers.
Return costs is probably the more interesting one. And sorry, you cut out there a little bit on our crappy internet we both have got going right now. What did you mention your return cost was?
Mike: It’s 1%.
Dave: 1%. Yeah. And our return costs 2%. We can speculate why your return cost is so much lower. Couple reasons which I would speculate. Number one, you just have better quality products. Again, a more established brand and you’ve taken feedback from customers over the years and built a better mousetrap. The other thing is a lot of our items do require specific fitment, their automotive products. So if you buy a part for your Chevy pickup and you accidentally buy the part, that’s for a Ford pickup that is not going to work for your vehicle and you’ll have to return it.
So that’s a couple of the reasons why I think my return cost is a little bit higher than yours. 2% is definitely high in my experience. And so, again, that’s one more area I think that I can work on improving for our products going into 2020 and try to get that closer to 1%.
Mike: Yeah, and I mean, I think our return costs are high. It drives me crazy. We have a few products that are problem children for us. So things for people that are listening to think about and at least in my experience, just never, never get into: anything that has sizes. Just, man, what a disaster. And so I’ve thought over and over again, about getting back into clothing because I’m really into like Merino Wool stuff these days. And I want to get into something that I have a personal interest and passion in, or maybe some type of footwear or things like this and I keep reminding myself what a nightmare returns are with anything with sizes, because you got to try it on, it doesn’t quite fit then you get negative reviews because it didn’t fit, not because of the quality of the product. Your return costs go way up.
Not only that, it’s also a logistics nightmare because now you’re having to order stuff in all these different sizes. Inevitably, like no matter how good you are, one of the sizes is going to run out before the others. So you’re having to place like a panic reorder for that size, which is inefficient, or you’re placing a larger order than you want to at the time, which is bad for your cash and it’s just basically bad all around. And typically these types of businesses have higher margins to help support this. But even still, after having the opportunity to sell over all these different niches, I remind myself that the ones that don’t have these issues make me much happier in the long run.
Dave: Yes. Size variations are definitely a pain in the butt. Thing I’ve learned over time is that it’s fine being in those product categories with a lot of size variations. But if you’re going to be in those product categories, you definitely have to add return costs as a line item when you’re during your profit calculations and assume that at minimum you’re going to have 2 to 3% of your overall cost of goods bumped up. So if you think that you’re buying a product for $10. The truth of it is after you factor in return costs, it’s going to be more like $10.30 to $10.50. And you have to factor in that return cost when you’re doing your calculations. When your return costs are sub 1%, you don’t necessarily have to factor that in. But things like clothing and other fitment issue product categories, you definitely have to calculate that when you are doing kind of your product projections.
Mike: Yeah, I couldn’t agree more. Alright, so the other categories that are here, the next one is FBA storage fees. And for me, I’m registering 0% there, which I’m actually pretty proud and happy about. It’s obviously not exactly 0%, there is a number here, but it’s less than 0.5%. Otherwise, it would round up. We’ve worked really hard at this and just getting our supply chain more efficient. It’s been one of the things that we’ve helped improve our overall net profit margins. So it’s something that didn’t come easily, but that’s something that because we have a more established business and we’re planning better. We’ve kept our ancillary fees to a minimum.
Dave: Yeap, and we’re at 1%, which I’m okay with until I see your number at 0%, 1% I think is doable. That number is probably going to go up significantly come October, November, when storage fees go up three to four times, which is a little bit scary that all of a sudden profit margins are going to go down roughly 2 to 3%. But 1% right now, I think that’s a fair target. We can’t all be at 0% like Mike. So if you’re at a 1%, I think that’s a pretty good target and I’m pretty happy with that 1% number.
Yeah, I think that and it’s probably in line when you’re at 1%. I think that we’re just doing abnormally well and it definitely won’t be 0%, as you mentioned, in October, November, December, which is really annoying, you know, and any 1% that you take off the bottom line, I always remind people it’s that, you know, it’s not 1%. It’s significantly more than that. In our case, it’s 5% change in our profit margin. We’re at 21% overall profit margin.
Mike: FBA service fees is this other category out here. For me it’s 0%, I’m not sure if it’s 0% for you as well.
Dave: We’re showing 3%. I’m not sure what that 3% is composed of. Yeah, again, Sellics kind of changed their reporting a little bit here and I wonder if that’s kind of a carryover from their new, I guess beta profitability dashboard that they have going on. But yeah, we’re showing 3% for the reporting period. Again, I’m not quite sure what that makes up. If I look at the last week, we’re showing 0%, but I believe FBA service fees typically are making or composed of inbound freight to Amazon, which we could see a significant lag on. So perhaps we sent in a lot of shipments during our reporting period and that’s where the FBA service fees are made up. And you didn’t send in a lot of stuff using partner carriers during that period.
Mike: Yeah, we send everything in partner carrier, but it is– actually, that’s not true. We do. We do have one thing that we send in without partner carrier so that could definitely be a thing. But it’s also pretty distributive for us. We’re doing it on a pretty consistent basis.
Dave: It’s interesting. Again, it’s just one more error to kind of narrow down those discrepancies there. But we’re showing 3%. Yeah, gonna have to figure out what exactly is going on there to count for that 3%.
Mike: So what about this miscellaneous service fee category they have here?
Dave: I’m not seeing anything on our end. So what were you showing on your end?
Mike: It’s 0 % for us.
Dave: 0 % for us, too. So we’re both excelling at the miscellaneous Amazon fee category.
Mike: We have none other miscellaneous fees. Interesting. Well hopefully, you know, everyone listening found this to be interesting data. I mean, I do. I find it to be fascinating. I was really curious to compare against Dave. I wish we could get everyone’s numbers and compare as well. If you have any desire to share with us, we’d love to hear from you. You can email us at [email protected] It’d be cool to get that data, we can post on our Facebook Wall. If you want us to keep it to ourselves, we will. But its just always good for us to write blog posts and have this data.
We had some Ecomcrew premium members share some of this with us. We appreciate that. We don’t post that stuff public. But if you are interesting in joining Ecomcrew premium, that is going to be opening. As a reminder, next week we have a limited number of spots opening up. If you’re interested in getting on the wait list to grab one of those, go over to Ecomcrew.com/premium. Reminder you get all of our full length courses, two monthly webinars. Probably the most important feature is you get access to Dave and I for 1-on-1 e-mail support. You can e-mail us any question and we’ll get back to you within a couple of days except when we’re out on the West Coast trail, falling down and starting fires and not having cell phone service takes us a little longer.
Dave: We’re pretty good at catching up, though. I think we got back– we caught up in all our e-mails within a day or two.
Mike: Yeah, but then we like fall behind again because we were doing other stuff when we were in Vancouver. So I feel like I’m getting back on track now.
Dave: Yeah, I think the wagon is back on the tracks now.
Mike: Wagon’s back on the tracks.
Dave: I only have about– I only have approximately 10% of my inbox with little yellow stars beside the emails.
Mike: And none of them are from me, so I don’t fill up your inbox. That’s one good thing from me.
Mike: Cool, thanks for doing it this week, Dave. Hopefully you guys are enjoying the new format that we’re doing with the Ecomcrew podcast. If you have any comments about any of that, please let us know. We love hearing from you guys. If you have a chance to, leave us a review over on iTunes. We also greatly appreciate that the reviews help us get more exposure over on iTunes and other platforms. Plus, we just love reading your comments. It’s fun reading both the positive and the negatives. We get negatives every now and then but most of them are positive. And that keeps us motivated to keep doing this crazy thing that we call the Ecomcrew podcast. For now, 281 episodes. If you want to leave a comment on this episode and go to Ecomcrew.com/281. Any last words Dave?
Dave: Nope. I think that’s it because as you were talking about problem children a few minutes ago, my problem child just walked in.
Mike: Awesome. Well, go say hi to her and give her a hug for me and until the next episode, happy selling and we’ll talk to you soon.
Outro: We hope you enjoyed this episode of the Ecomcrew podcast. If you haven’t done so already, please head over to iTunes and leave us a review. It helps more than you know. Did you know that Ecomcrew has a ton of free content, including e-commerce courses? Head over to Ecomcrew.com/free to check it out today. That’s going to do it for this episode of the Ecomcrew podcast until the next one. Happy selling and we’ll talk to you soon.
Michael started his first business when he was 18 and is a serial entrepreneur. He got his start in the online world way back in 2004 as an affiliate marketer. From there he grew as an SEO expert and has transitioned into ecommerce, running several sites that bring in a total of 7-figures of revenue each year.