Welcome to the first ever episode of the E-Commerce Crew Podcast! Since this is the first episode, introductions are in order:
We are your hosts, Grant Yuan and Mike Jackness. Both of us have been involved with business for most of our professional lives, and we have a similar background in online marketing and the affiliate industry. Grant started working with affiliates in 2003, focusing on online gaming and a lot of poker sites. Mike is a lifelong entrepreneur who started running his own businesses at 18 with nothing but a pack of business cards and a pager. He worked with online marketing for many years before he turned himself on to buying and selling host names for websites, and that’s how he got involved with buying, owning, and selling his own e-commerce businesses.
Our podcast is our opportunity to share all we’ve learned with the rest of you out there struggling and succeed to run your own e-commerce businesses. Each episode will focus on the tips we’ve learned, the ones that didn’t work so well, the progression we’ve made over the years, and where we think we’re going to be heading into the future. There will be guests on air to share their insights, and we will be covering a range of topics, including:
- Where trends are going and how you can stay on top of them
- How to buy smart with keystone pricing
- How to negotiate shipping prices for your specific business focus (pro tip: the best items to ship are socks)
- Pros and cons of paying cash or credit for your wholesale supply
- How to avoid leaving money on the table
Over the next few weeks, this podcast will evolve to become one of the most important tools you use to become and stay successful at running your online business.
Stay tuned for episodes on buying and selling online businesses and domains, selling your products on Amazon, building your brand, and how to prepare your own exit strategy so you can continue to expand your interests and develop new businesses.
Leave us a review iTunes and head over to our site www.ecomcrew.com for more news and updates on what’s working for e-commerce today.
Full Audio Transcript
Intro: Welcome to the EcomCrew Podcast, with your hosts Mike Jackness and Grant Yuan.
Here you will learn the lessons, tips and tricks that these ecommerce pros have learned over their years running and growing their very own seven figure ecommerce businesses. Each week we dig into the ins and outs of ecommerce, the truth about affiliate marketing, how to build your own brand and sell on Amazon. And how we have stumbled and then quickly rose to success. The world of ecommerce is changing rapidly and here you will find the trusted resources you need to take your business to the next level. Alright enough of the fluff, let’s get over to your hosts Mike Jackness and Grant Yuan.
Mike: Hi, my name is Mike Jackness and I am your co-host along with my other co-host Grant Yuan. Welcome to the Ecommerce Crew Podcast Episode number one.
Grant and I figured since this is episode number one; the best thing for us to do is to probably introduce ourselves first and to give you a little background, so with that I am going to turn over to Grant and allow him to go first and give you a little background on himself.
Grant: Hey everybody, this is grant and I am happy to meet all of you guys. I know we can’t see each other and you are just listening to us but we are happy nonetheless.
So my background is in online marketing and I have been doing it for over a decade and I started getting my feet wet in the affiliate industry around back in 2003, and back then I was in the online gaming industry and we had quite a wild ride in that industry for a few years. Anyhow, I ended up being one of the top affiliates in the industry for some of the major poker sites out there and got pretty well known. Eventually left that industry and started getting into ecommerce and also owning businesses in real life; such as a franchise and so the most recent projects that I have had on my plate are treadmill.com and cuttingboard.com and we are just really getting into becoming ecommerce experts and doing a lot in that industry now.
Mike: Cool, and let me give you a background on myself; I am a little older than Grant so mine is going to take a couple more minutes. But I am basically a lifelong entrepreneur; I started my first business when I was 18 years old, with a box of business cards and a pager doing computer consulting and from there one of my clients actually hired me full time and I did the corporate thing for 7 years and was a director of IT for a couple of hundred million dollars company in northern Virginia. But after 7 years of that I kind of got bored of wearing a suit and tie to work every day and not really having full control over my life and my destiny and started actually doing affiliate marketing as well.
Grant and I did not know each other back then but we were kind of doing the same thing. Both in the online poker space, and it was mostly SEO and then marketing and grew a pretty big company. In about 2010 I got sick of doing that just mostly if you can think of all the stereotypes that kind of come from that industry, a lot of them were true. I was kind of sick of the people and the industry and got out of that and for a couple of years my wife and I took a semi-sabbatical in an RV, we drove up and down the coast and across the country a couple of times. And while we were doing that, one of the things that I really got into was buying and selling keyword domains and the first ones I kind of got into were websitehosting.com, wordpressthemes.com, onlinestores.com, graphicdesigns.com etc. And one of the domain names that we bought during that time was treadmill.com and that is actually how we get into ecommerce.
Eventually we will get into that but Grant and I have been business partners for quite a while in that online marketing space and when I got into keyword domain investing, we kind of teamed up again and that’s how we got in the ecommerce. As of right now, I’ve been running icewraps.com. After we sold treadmill.com and the main thing that we’ve working on behind the scenes is building a lot of my own brands. And that’s something I really want to talk about as a part of this podcast as we move on.
Grant: Yeah! And I think what we are really going to tell all of our audience in the future is really not just what we're doing in terms of nuts and bolts but kind of the progression that we’ve made over the years and the affiliation of how we got to where we are. Where we think we’re going to be going and I think one of the things that is going to really be able to separate our podcast out from a lot of great sites out there. What’s going to separate us out in particular is we’re going to tell you where things we believe are going to be going and what we’re doing right now to get there. I think that’s a lot of what you’re going to miss from some other podcast that might just want to tell you how to add things into your store or whatnot. There’s nothing wrong about that of course. We have been doing this for such a long time that there’s a lot of interesting things. We could be wrong, we could be right but you’ll get to find out along the way.
Mike: Grant and I have been talking about some segments so they can potentially be doing on the show. One of them will be basically how to buy an ecommerce business. Maybe once a month we’ll go on bizbuysell and kind of talk about what’s out there. I personally have had a really successful run at buying stuff off over there. The latest thing is icewraps.com where we bought it at basically on 1x multiplier and completely turned the site around, made our money back really, really quickly. The other thing that we talked about was I think it’s important as also where we failed. Kind of like egg on our face segment or whatever we call it when that kind of comes but I think a lot of podcast and things that I listen to are just so upbeat. It seems like roses but the reality of being an entrepreneur and running any website is that not everything always goes right and I think that by sharing some of those experiences and helping people not make the same mistakes can be a really fun segment.
Grant: Me and my guys always joke that we’re experts at failing forward, we just know how to land properly at the end of the day and that’s one of the things that Mike and I both have experienced in which is absolute failure; something that most people don’t want to admit to but we always laugh at it, given how often it happens to us. There’s that stage where you realize you can take it one or two ways to be there. Just roll with the punches or you just let it destroy you at the end of the day and obviously we’ve learned how to rollout the punches. We’ve been in hairy situations especially back in the younger days when capitals are always there. There wasn’t always that support system that you have when you’re more mature in the industry. You’ve got connections and other things like that. That’s really a lot of what we’re hoping to impart just some of our especially our early day adventures and challenges and making sure that you don’t step into the same landmines that we did. What do you think Mike? I think we can probably talk about affiliate marketing in a little bit and why we decided to jump away from that.
Mike: Yes sure. You and I got both got our start in 2003-2004 and I love talking about the book, “Who moved my cheese”. It’s certainly applicable here. We have been doing affiliate marketing for the better part of a decade and it was really fruitful for us. In 2013ish, 2012 maybe you and I really sat down and made a bold decision to get away from affiliate marketing and completely changed our business even though it was still working for the most part at that point. But we kind of saw the writing on the wall and realized it wasn’t the future for what we want to do, especially with the keyword domains that we have purchased.
Grant: Yeah, I think one of the things that is really hard for most people to understand these days is that a lot of the advise that you read now about having this concept or this online business idea that you need no money and just bootstraps immediately. That actually used to be true and affiliate marketing really one of the wonderful business models of the day that you could just really take absolutely nothing. Just yourself, a webpage editor and maybe just few graphics and slap yourself in affiliate site and you can officially call yourself a business. That model is essentially going the way of the dodo bird and we really think that the future doesn’t really have a lot room for affiliates. Short of very specific niches and we both really didn’t want to be the ones sitting around the campfire saying, “Well, things used to be great”. We really realized that we needed to make a big pivot; especially based on the fact that our all business was around the affiliate model. It was a hard choice but when we knew we had to make.
That’s one of the things that’s going to be a common theme in our podcast. We’re really going to tell people that they’ll have expectations. You are in an age where things are just changing very rapidly. Things do not stay static. You have to be able to know how to adapt. What is true one day is not going to be true the next day. If anything, this podcast is going to evolve very rapidly too. In the next 3 years it might not even be an ecommerce. I mean it can be about something else and that’s just because that’s the way that we’re going to adapt and I think Mike is a great example of adaptation. Even in the days of the affiliate industry, he used to be an EBay apparel seller and then he ended up transitioning throughout the different routes that made him the most money I think but he got to where he is now because of his ability to just not try to fight the type that go with it.
Mike: Yup. The only thing constant is change. In the affiliate thing, the thing that really was the Aha moment for me or the thing that finally sway me as when I really agreed with Google stop process on this. They’re trying to push affiliate sites down in the search engine results. For the longest time I was just frustrated with it because obviously it was hurting our livelihood. But the more I thought about it the reality is if you search for something like treadmill or best treadmill, things like that. If you come to a review site that has thin content and you just see a picture of a treadmill that’s the same picture that’s everywhere else in the internet. And you click the little Buy button and you’ll end up on another site like sports authority or something like that.
Most people don’t even understand what just happened. They typed in treadmill or best treadmill, treadmill for my home, whatever. They saw a picture of a treadmill that says Buy Now and they’re thinking that they’re going to add up to their cart. It’s kind of the affiliate trick you click Buy Now, the next thing you know you’re on sports authority or some other site. Most people don’t understand and just get lost and it’s frustrating and that’s not what Google is trying to do. At the end of the day, I agree with them. I mean, much rather have treadmill.com be a site that provides something to the end user and adds value to the world rather than just basically being a leech in the ecosystem and not providing any value.
Grant: Because of that, we decided we’re just going to take treadmill.com and turn it from just a site that we’re really helping, you know just making money from leads and selling affiliate programs to an actual ecommerce site and that in and of itself was a huge challenge because we had really not done anything like that before. Mike and I had run like Mike said an incentives program and we had, what was it Mike about 300,000 customers?
Mike: Yeah, about that.
Grant: It was paying out millions and pay outs per year to customers. We knew how to develop a pretty large platform but ecommerce was different. You don’t really want to go to ecommerce building out your own platform, sometimes you do but we didn't really want to take such a large step. At the same point, treadmill.com is a fairly large project so we did a lot of research we looked at different platforms and we looked at Magento for example. We looked at 3Dcart, Opencartshop, 5bigcommerce and we both have a good tech background and I feel a decent amount of coding. I can do the front-end, back-end, CSS, HTML, just about a little bit of everything and even for me looking on all the options it was very daunting. So for your average reasonable person to take on a look on all these options, it’s probably a little intimidating. I don’t know Mike, how did you feel when you saw all the options that were out there?
Mike: It was daunting. We knew really nothing about ecommerce as you said. This was probably a good segway into our first segment on how we failed or things we did wrong and we were just made a decision one day we’re going to turn treadmill into an ecommerce site. For better or worse, we didn’t think through all the pitfalls and certainly picking software and the first site that we do we actually used to consulting company to help us with that. That was kind of something that much more and dealing with others and treating with nature. Things we can get into was certainly a daunting task because were so many good cart options that were hosted that we were looking at and were like spin the roulette wheel to pick one.
Grant: That roulette wheel eventually ended up on Bigcommerce. For what it’s worth, I think we are both pretty happy with Bigcommerce at the end of the day. There’s a few limitations I think with every platform and certainly Bigcommerce has some of the limitations too but given that, I have now an experience with at least with three different platforms. Mike has experienced with Bigcommerce in Yahoo. I think for what we got a pretty good deal on Bigcommerce and at first we thought we would bring in some experts on trying to help us out. We hired a Canadian company that had pretty good reviews and the long story short was that they ended up really doing a bad job for us.
They actually copied another sites’ design without us even noticing until almost I think 6 months after the fact they didn’t deliver on time. Everything else was great upfront and though we actually thought that based on our experience in project managing that we would have a pretty good finger on it. The guy was pretty slick. I have to admit that and as business owners we really hate admitting when somebody got essentially an upper hand on us. But that is what actually kind of happened in this case. We ended up just having to pay the guy out and getting delivered a half shoddy product and the silver lining though is that essentially I got to take over everything on the technical side because we had a website that didn’t work. So I became somebody I was looking at maybe taking about a year to really get to know Bigcommerce. I really need to know everything in about two weeks. And in two weeks we had a website and I was running. I don’t know how much sleep I got that week. I think I was pretty low and there’s probably a bunch of typos on our website. You can check out everything was working and I can safely say I know a lot about Bigcommerce and I feel like I’m an expert now.
Mike: At the end of the day, from the day that we launched to about a year later we did just under a million dollar in sales. We were doing something right along the way which is kind of cool but definitely lack a sleep along the way for sure.
Grant: I think that’s one of the things that we’re going to cover on this podcast which is really just that dynamic of a business owner how do you really balance out everything that you need to get done. You’ve got your business going on, you’ve got your vendors over here that you’ve got to talk to. You’ve got your tech guys over here. I think honestly in ecommerce you’ve got to be able to do a little bit of everything. That doesn’t necessarily mean you’ve got to be build a code but you got to be able to understand how to talk to a coder at least. You’ve got to understand what platform you’re using and the limitations and other things like that. If you kind of outsource that, you’re going to be in for a very very bad time. If we can get taken advantage off, I don’t want be the bearer of bad news but there’s a lot of guys out there looking to get your money. It’s a difficult market especially if you’re on a challenging field.
Mike: Yeah, definitely. Let’s talk a little bit about treadmill since that was our first site. I don’t think we’ve kind of revealed yet on this podcast that we actually sold out now which we sold back in January of 2015 and we are recording this in July 2015 and it won’t air for a couple of months but basically we had treadmill for a couple of years. And over that time, we learned a lot about ecommerce and learn and what we wanted to be doing moving forward which really was getting away from drop shipping, getting away from products that need to go LTL which is less than truck load which is basically going on a truck to trailer and something that weighs 300-400 pounds that would get damaged quite often that took two weeks in transit. Showed up late especially in the winter time when there was weather delays.
Dealing with vendors that were selling products directly on their own sites and also using channels like Wal-Mart, Sports Authority, which I mentioned earlier and other sites like that. That doesn’t adhere in that pricing in operating in very low margins. Those are all things that we just kind of learn, that’s not where you want to be in ecommerce and we’ve now moved to things like cutting boards and icewraps and the branded stuff that we’re doing which are relatively light, relatively easy to ship. Things that can go by the post office or UPS, FedEx, etc., and are really hard to damage in shipping and stuff that we can inventory ourselves and get away from the drop shipping model where we control our own destiny and conditionally make a much happier customer. Our customer service ratings on both on cutting board and icewraps are basically 5 out of 5 stars and we do everything we can to make sure that we don’t end up when a customer is not happy versus on treadmill. We put the same amount of effort and still couldn’t get to that 5 out of 5 stars because it was just a such frustrating experience for the customer from every angle.
Grant: Just to give some definitions when Mike mentions map pricing and what he is saying is the minimum advertised pricing and you’ll hear that decent amount when you talk with a vendor and what map means is that there is a floor on the pricing. Nobody is supposed to ever sell underneath that, the whole idea behind map is that you’re trying to preserve margin for everybody in that space. Because if you going into price for generally, nobody wins. The vendors are unhappy because they're not making any money. The manufacturers eventually going to be unhappy because a lot of their vendors are going to stop carrying their product and at the end of the day, in the long run, I personally think the customer ends up unhappy because when you don’t have anything to control other than price going down.
The price has only one direction, that’s down. The manufacturer will eventually start skimping out on what they put into their equipment as well. That’s really kind of map pricing in a nutshell. I think a good segway for that is, for Mike, since he mentioned about drop shipping and some of the reasons why the way the industry operated the way it did in treadmill. I think a lot of that has to do with the margins. Kind of the map that we’re talking about here so maybe we can go over kind of the general business model of treadmill.
Mike: On treadmill we were doing a 100% drop shipping and the margins were basically in the average over the site we’re about 13%, let’s just say 15% to use in real numbers. When we first got into it we’re like. “Oh that’s great because even though it’s the margin we’re selling a thousand dollar machine”. So we’ll make a $150 on the machine and that seems like the money. In reality, that $150 would get eaten up in PPC cost and marketing cost and the cost of renting a warehouse and the cost of just doing business. The cost to return shipping especially being $300-400 to get the unit back really eaten to that as well. What we really realized over the period of the couple of years, it doesn’t really matter what the sales praise is on the unit and how much you’re making per transaction. You really need to be at 50% or higher margins and that’s where we’re at with everything that we do with cutting board or icewraps and especially these products. We really keep our margins as high as possible. It’s my opinion that if you’re going to be anything in ecommeerce, you know 40% margin should really be your absolute floor. We’re analytical people but Grant and I, at the end of the day, there’s a lot of expenses that add up that you don’t necessarily think about and we’ve crunched those numbers now and realized that it’s just impossible; really, really impossible to make a good living at least at less than 40% margin.
Grant: And Mike has mentioned the margin, we’re not talking your net profit margin. We’re talking about cost of goods margin from sale so if you had a $100 product, 50% margin so you’re buying that for $50.
Mike: Right, and that’s known as keystone pricing and that’s another industry term you’ll hear a lot. If you’re buying a keystone pricing it’s typically 50% margin where you’re selling the item at a 100 and buying it for 50.
Grant: If you ever get into a negotiation with a vendor and they’ve got a $100 item, they want you to buy that 70 you just turn the other way and walk unless you’re the only guy on earth or maybe two other guys on the internet that can sell that product you don’t want to be near that because it’s going to make your life a whole lot harder. Specially if you need to operate good service and I think good service really comes down to it at the end of the day as maybe around 5 to 10% margin. That’s just a number that you have to be willing to live with or you don’t.
Mike: Definitely. That cost is pretty expensive. We have a full-time guy doing support just for icewraps and it’s getting to a point where he’s pretty busy and we might need to hire our second person and it really does E in the margin. But we try to operate our business with the Nordstrom level of service and that’s the way that we’d want it for everything that we do and that’s kind of built in margins. If you want to provide shoddy service you can probably be close for the 30% but it’s hard to run an internet business with shoddy service because we’ve used our out there for everyone to read and if you’re getting bad reviews. That’s going to be hard to continue to sell product.
Grant: Yep, and you can give a little bit of insight because that just on the Brick and Mortar industry. You know running a franchise business actually two franchise businesses there is a pretty interesting element out there just in the food service which is where my business is. You either are a very low cost price sensitive type of business or you’re charging a higher cost and the issue with both of them especially something like food is that the way that the people are conditioned now you’re always conditioned to expect the top service no matter where you go. In the past people used to go Nordstrom’s and Macy’s and really expect a high level of quality. You know the Nordstrom way and I live in Seattle, so Nordstrom came out of here so really we have a local environment that really embodies that culture which is that we were trying anything. Did you damage it? We’ll return it. We’ll take it back so the customer’s always right that kind of thing.
That’s really what people are used to now. So even if you were the guy that’s selling at the bare minimum price and you’re not even making a few points on that piece of equipment. If somebody gets it and they find a scratch on it, they’re going to want to return it just because that’s what they’re used to. Regardless of you are 50% cheaper than the next guy. They’re going to want their satisfaction. That’s nothing bad about the consumer, that’s just the way things are. That’s kind of me and Mike’s attitude on the ability to adapt. The consumer has adapt and so do you. Part of that adaptation is knowing that you have to provide that service otherwise it’s going to come and bite you.
Mike: And a lot of the Amazon effect, they usually have great customer service. They’ll take things back for any reason. We know all too well just because Grant and I both sell on Amazon and we see a lot of returns and those are costly as a seller on Amazon because they charge you fees just to do a return. People are used to being able to return things online for any reason and the other things they’re used to is click shipping which is something else that we’re OCD about. When somebody orders something from our site, typically before 3:50PM we leave the office around 4PM, we'll get it out the same day and take it down to the post office and we ship out most of our stuff priority mail which Grant can’t do with cutting boards but he’ll still ship same day. We get a lot of positive reviews for “Oh my gosh it got here quickly. I can’t believe how fast they got here” but again that has a cost as well. I mean it’s not easy to get things out there quickly. It’s more expensive to ship with a higher level of service but it’s something we’re looking to get a 100% positive reviews for our service.
Grant: Yep and shipping time customer service again let’s all stuff that by bites into your margin and another reason why you can’t be operating that low 30% or anything like that. Just because shipping is really going to be the crux of operating your internet business and I think one of the greatest lessons we took from treadmill was that when we look at a business we look at shipping before anything else even matters and it’s surprising because normally you would want to say hey let’s look on what kind of market this has or what are the margins over here. What anything else and I think both me and Mike we just immediately go what’s the cost to ship that item and how well can it ship? Does it take a lot of damage or returns or whatnot?
We’ve always joked that the best items to ship are going to be socks or probably clothes. But clothes aren’t even great either because clothes have an incredible rate of return if you look at Zappos; word on the street is that they get 20% return rate and that’s just because they really shove it in your face. Try on our shoes, we guarantee you’ll like them or we’re just going to take them back. People will take advantage of that of course. The socks, you can’t really return socks at least, I wouldn’t hope so. It kind of goes to show that it’s a very light item, it’s not going to get returned, doesn’t cost much to ship that. It’s like the three main qualifiers right there. If you take something like icewraps, it’s almost quite very close. It’s light, it’s easy to ship and the returns, I don’t know. Mike, what are the returns on icewraps?
Mike: We’re under 5%, I mean somewhere under 3 and 5% depending on the month and variations and seasons. We get a lot of returns in the Springing time when people are buying those stuff for their son for shoulder and elbow stuff and they don’t realize how much their son has grown. That they’re actually an adult now size. It's a little bit higher at that time of the year. It’s on the 3-5% range. It’s relatively low.
Grant: I think with cutting boards we’re at a fairly lower return as well, I think. We’re probably right around 3-4% and those returns are pretty bad because cutting boards cost a lot and we’ve actually have a revamped policy a little bit just because people are taking a little bit too much leeway with their prior return policy which was kind of we were going to just go ahead and eat a lot of the return cost and people will simply buy a board that’s too big and we’ve had to eat the cost. With the cutting board, shipping cost is almost 25% of the item. You ship it 2 ways, you flop 50% right there, if your origins are only 50% which it is. You may have lose money because of the and credit card fees. Now you’re wasting time and we have to modify that policy really dropped our return percentage down a bit and it’s not one of the things that you really like because you know that it ends up hurting your conversion at the end of day that sometimes you have to make these business decisions but luckily we're at the position that we can and it doesn't affect us too terribly with something like treadill.com. We had some direct cut in in our current policies just because taken our return back on the 400 pound piece of equipment is just going to destroy you on your operating that low margins.
Mike: You’re talking about shipping and thinking about that first, I've actually taking it to the next level where as I was designing some white label products. Their being designed specifically around USPS box sizes. I mean, there's regional rate A boxes, regional rate B boxes, and medium flat-rate boxes that are incredibly, I don't want to say, lucrative but advantageous to use, is probably a better word. Just the shipping cost on those, is a fraction of shipping with UPS are fraction of using even USPS by weight. So, if you aren't using regional rate A or B boxes, I highly encourage you to look into those, or the flat rate products. When we bought icewraps dot com, they were spending an average per shipment of $10.65 and we got that down to $7.30 by just using smarter packaging and shipment methods.
Grant: Yeah, and with cutting board our average shipping cost went down. Good, I would say, fifteen percent by utilizing in negotiated rates with UPS and were using a third party shipping consolidator that really helps everything. On freights, from going from one off-orders that we get quoted through UPS or what not. I know that, again, we're going through a consolidator. Our shipping freight rate is almost like fifty percent cheaper than what it was. We almost kind of kick ourselves in the head a little bit sometimes because we weren't using- we were using negotiate rates with UPS on treadmill but we probably could have had a few more points with some third party services that we aren't utilizing, but yeah, you've live and learn. It's one of those things where we just sometimes you get so busy doing stuff that you can't focus on other aspects but we'd be happy to share some of those consolidators for anybody else that's really looking at reducing your shipping cost.
Mike: I think what I've really learned about shipping costs, there's been- over the last two to three years since we've been doing e-commerce now. We renegotiate our rates every three to six months whatever kind of works out. Each time, we get down to the end of that process, make a little victory parade and hug each other or whatever. We just save that much money on shipping and we think that we have the lowest shipping prices that anybody out there at least for our size at that point, and you can't possibly do any better.
When we come back around every three to six months when we get introduced to a new consolidator or a new- whatever it is, we keep on finding out that we can always do better. I think, I've kind of come to the line of, “We have the best rates.” It's a continuing saga of pitting other vendors against each other and looking at new products in the market and going back and renegotiating as your volume goes up because you can always do better.
Grant: Yeah. Just to give you guys some numbers right off the top of my head, I think when we started our negotiated rates on UPS freight for treadmill was around, I think seventy percent, Mike?
Mike: Actually, I think it was higher than that. It was something crazy like eighty-eight percent, which I thought couldn't possibly ever hit any lower. It was pretty high. I really think eighty-eight percent was the right number.
Grant: Yeah. It doesn't quite mean that if the previous quote was one hundred, that were paying twelve because there's a lot of different surcharges like carriers add-on but the way it works is about half of that is going to be the base rate. So, if the shipping costs were a hundred and fifty it's going to be kind of the negotiable area. Not saying that the rest of it is not negotiable. It is, but that's really the part that they're negotiating. So, if we had a hundred dollar shipping freight cost, and we had eighty-eight percent knocked off, that be like eighty-eight percent off of fifty, which is still a pretty big number.
Other things that can be negotiated are for example, lift gate delivery services, residential delivery, gas surcharge, that's normally not very negotiable but I've heard that if you don't do volume, it's on the table. Remote area and other factors like that. So, with cutting board our rates, I mean, we're looking at close to eighteen to twenty percent based on the weight that were in. There are different tiers for the weight. If you're shipping, you can go from like one to five, five to ten, ten to fifteen, fifteen-twenty and so on.
A lot of the really great rates that you can be in, if you're using a big consolidator and you're doing volume is around the mid-thirties or what not. If you're doing two day shipping, you can even get fifty percent off your rates because they're just so high. Going into the door and just knocking and making an account, you should be able to get at least five percent off your rates with almost nothing. That's just by putting FedEx, and UPS against each other. I found in my experience that FedEx is generally more willing to give you good rates off the bat without any previous business history. UPS, they will give you a fairly good rate if you tell them, “Hey, I'm going to do ‘X' amount.” But, if you don't do X amount then, they're just going to knock your rates back down and probably not raise them up. It's always kind of good to be honest and maybe push it a little bit but you got to be fairly honest.
Mike: Another thing you can negotiate as well is the DIM factor, the dimensional weight. There's a divisor that they use if you can negotiate that as well. It's something, I was just talking to my Mastermind Group about. The newest thing I just heard about that I'd never heard of before is that evidently FedEx, I'm not sure if UPS does this or not, they have a credit that they'll give you back basically for every, let's say, ten thousand dollars that you spend per year, you get X amount of credit. I don't know the exact numbers but the guy I was talking to in the Mastermind gets basically a new computer every year for free. A nice Mac-type computer. A couple thousand dollar computer. It's something that credit goes away every year, and if you don't use it, you lose it. Most people don't know that even exist.
Another neat trick is, UPS will provide you a free printer for labels and they even have some hidden items in their catalog. They offer free boxes which are incredibly useful for us. There are just nondescript boxes, cardboard. Technically, you're supposed to use them for UPS only but they don't know. They will give you so many boxes based on your volume but we get all these free boxes that would cost us a dollar each or more otherwise. So, there's other things you always can look out for, besides just the rate, so to speak.
Grant: That really goes and touches on everything which is that, in the world of business, everything is negotiable at the end of the day. There is a game that I used to play with some of my friends kind of called the, negotiate for the impossible, which is that, try to think about something that normal people would never negotiate and try to negotiate for it.
Of course, I'm Asian, there's stereotype a little bit too close to home, about the Penny Pincher guy. But, we really do this more of just kind of a mental exercise to just see exactly what you could get away with. We did crazy things like going into a store like Bed, Bath and Beyond and see if we could negotiate for an order or something like that. I'm not saying that you should go in there and negotiate for like a special. I don't think that's going to work. A legitimate example, if you're going to go in, fill out a condo or you may be just move to a new place and you need to get a bunch of kitchen equipment, I bet you can walk in there and you can grab a manager and say, “Listen, I'm about to buy X, Y, Z from you. I am looking to buys this. I'm wondering what can you do to make and how can we work together and make this work out?”
That guy, he's going to be interested just as you getting a big order for the day. So, that's the language of business – everything is negotiable.
Mike: The thing I think that people really need to realize is that, even just getting one point here or there makes a huge difference. Just to use a random example, if you're able to save a dollar on a shipment, when you're making fifty points or whatever, you're actually adding two or three percent to your bottom line to make and actually add quite a bit here in that profit. It makes a huge difference at the end of the day. In the example, where, let's say, you're saving a dollar for shipment on a one hundred dollar item that you're sending out, you have fifty dollars gross profit, but by the time you pay for shipping and you pay for all your other overhead, you might be left with fifteen dollars of net profit.
But if you can add one dollar of that going from fifteen to sixteen dollars, that's what five percent or whatever that works out to fuzzy mouth at the top of my head. It's a huge increase to your bottom line when you can do these little negotiations and add that money to the bottom line.
Grant: A few other kind of random tricks that we do and we write about this on our Ecom Crew Blog, for example, me and Mike both use a Spark business card. It's a two percent cash back business card and everyone has access to one percent card out there. Everybody does it. I mean, this is two percent cash back which is a huge deal. That's knocking two percent off your expenses for the year.
Every supplier is going to be more than happy that you're willing to pay cash up front. Most people want to negotiate net-thirty, net-sixty and when we walk into an Ikea, we just want to pay cash or put on the card and get two percent off. Nobody will ever say no. If you go like an Amex maybe, that might be an issue but we used to have an Amex two percent as well. Nobody had any objections because cash is king. If you're going to tell somebody that you're going to pay them now, most likely they're going to want your money and in fact, I've often heard and never actually done it myself. Mike might know, but I've even heard about people negotiating in cash up front deals for fairly large volume purchases, instead of being on net-thirty or net-sixty or even net-ninety terms.
Mike: I'm at something that we've negotiated with every vendor. We use that Spark card to buy one hundred percent of our inventory, at least the things that we have from existing manufacturers. We haven't been able to successfully use the credit card yet to buy things from overseas when we're making our own brands. One hundred percent of the inventory we buy from existing manufacturers, we use our credit card for all of them have given us better terms as far as discounts based on paying quote unquote cash up front.
We're getting sometimes five to ten percent discounts for using our credit card which sounds funny because they're paying a fee for us to use the credit card and we get basically two percent of that back of the fee that they're paying. But for them as Grant said, “Cash is king.” Instead of having to hunt us down thirty days later or sixty days later for the money, they know they have it in the bank and they can forecast based on that. To them, it makes us a better partner which is great for us. We become the second or third largest partner for a lot of the companies we work with, with Icewraps. I think a lot of it goes to the fact that we pay cash up front. They really enjoyed that.
Grant: With cuttingboard.com, exact same thing. We're starting to become a very large partner with a few brands that we work with and we pay up front. That goes against a lot of what people teach you, which is use other people's money to help bootstrap your company. If you have to, obviously, if you can't pay up front and you need to go net-thirty, then go net-thirty.
The ecommerce industry is not an industry that is like traditional industries and that price is very much the issue. As other areas, you can have a little bit of a slop. In e-commerce, you really want to try to clean up as much as that slop as possible. What I'm saying, slop is, I'm talking about margins that you're leaving on the table. This one percent here, one percent there. Like I said we're making two percent on this card. Somebody else is making only one percent on the card. That means I can sell my product for a dollar less. If I'm selling at one hundred and he's selling at one hundred one and that makes all the difference between one of us stand in.
Another point would just be on the shipping negotiation. Another point would be probably just even on a box. Like Mike said, it cost me a dollar fifty, two dollars per box if I'm getting them. That's another few points there. So, actually you add up everything together. You start to come up with some legitimately seriously serious money.
Mike: Putting that in perspective real quick. If you have a million dollar a year store and you save one point at the end of the year, that ten thousand dollars in your pocket and you do that a few times, and that's a real money. It's an extra car in the driveway or a nice vacation or whatever it might be.
Grant: For people that think that percentage is not a big deal, look at grocery stores, they operate on a two percent margin or three percent margin. We're talking in net profit at the end of the day but they're going through ten million dollars, twenty million dollars in sales a year. They're making a decent amount of money at the end of the day and profit, after they've paid everybody.
If they can even make one more percent, that's like it's not tripling but slightly increasing their sales by a third practically. So, these scenes really do matter. Even things like merchant accounts. Everybody think, Stripe is really easy or just PayPal, two point nine percent plus thirty cent fees or what not. We have other merchant providers. We use other guys that can get us to two point four, two point five when we were with treadmill dot com. I was leading the negotiation for merchant account and we got Interchange plus, which means that we're paying literally what the interchange fee was is, which is what the credit card companies pay plus hundreds of the point on top of that.
Our effective rate was close to about 2.2%. Even that's high if you compare that to the brick and mortar industry where you can get sub two, high ones and what not. Everything matters at the end of the day.
Mike: A lot of people focus on things like conversion rate because it's obviously a lot easier to convert the traffic that you already have and the customer that you already have. This is the same exact thing. You need to get in that mindset where it's a lot easier to save some money on existing expenses and fees that you're spending, than it is to get new traffic. Because that's obviously the most expensive traffic. Getting a new customer in the door, just evaluating existing expenses can be have a huge amount to your bottom line.
Grant: So, I would say to anybody that's listening out there, one of the pieces of hallmark that I would really like to give to you all is to try to find somewhere in your business based on what we said. I was really saving a bit of money and it's not going to take a lot of time out of your day. It's maybe going to take an hour or few hours just to do the research. Do some phone calls and follow up, but if I went up to any one of you guys or a business owner and just literally just ripped twenty bucks out of your pocket, you would do everything to stop me. You would just call the police, you'll slap me or you just push me away, because that twenty dollars is money that you earn.
It's really strange when we talk about the idea of leaving money on the table which is that if there were potentially- even if you're running a quote unquote small business where, let's say you're doing a hundred thousand in sales a year or even fifty thousand, if you're leaving one percent on the table you still got five hundred dollars. How do you feel about five hundred dollars just being ripped out of your pockets? In reality, it's on the table and you just didn't take it.
At the end of the day, it's the same as- not even the same amount of money. It's the same idea except on a much larger scale. So, it's worth your time to do it. If you're not doing it, you should be and you don't have an excuse.
Mike: Couldn't agree more. So, unfortunately we're kind of running to the end of our time here for our first episode and it's been a lot of fun. It's rewarding, getting the first one out of the way. Before we sign off, Grant, is there anything you can think of that we missed that we want to go over?
Grant: I think, what we can do is just talk about what's going to be in our next few podcast episode and I think you could probably do a good job about that Mike.
Mike: I could talk about the beginning. We are looking at some segments like buying existing e-commerce business. I think, it would be fun to talk about. How we want about purchasing icewraps.com and how you can probably do the same exact thing with one of countless sites out there. Right now, I'm bizbuysell. One of things that I really want to talk about is selling on Amazon and building your own branded products that's been doing really, really well for us. That would be a future episode.
Maybe we want to go over the treadmill dot com sale on a future episode just kind of how that materialized and how you can sell an e-commerce business. Everyone should probably have an exit strategy. Nothing lasts forever and I don't think anyone expects to run their e-commerce site for the rest of their life. So, having an exit strategy and thinking about that, I think is another good episode.
Grant: Yeah. I think that will make everything really nice. If any of you guys out there have any questions or want us to talk about anything in particular, you can always contact us by going to ecomcrew dot com. We will have our blog over there. You can either comment on our post or contact us via the page over there. You can also e-mail us. You know, it's funny, I don't know if we have an Ecom e-mail set up at this point right now.
Mike: Just the contact form. We have our personal e-mail addresses but I think the best way is to just go to the contact form at Ecom Crew.
Grant: Yeah. We look forward to hearing from you guys and until next time.
Mike: Definitely. Thanks everybody. Have a good one.
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