Episode 90: 10 Ways to Increase Profitability in Your Ecommerce BusinessOctober 12, 2017 in Ecom-Crew-Podcast
Today, Dave and I talk about the tricks and tips we have found running our businesses that have helped our bottom lines. There are a total of ten tips and we share some personal insight with each tip. If you are running your own ecommerce business, then today’s episode could be a helpful resource for you.
Here’s what we covered during this episode:
- Why you need to keep your accounting books current.
- How to trim your product catalog to save money.
- How to cut back your advertising budget effectively.
- Why you should consolidate shipments.
- How to find the right manufacturers to save money.
- The evils of air shipping.
- How to trim back your SaaS tool budget.
- The items or prices you should always negotiate.
- Why Canada is a good source of cheaper labor right now.
- How to choose a high margin product.
Some of these topics are covered in our online course called, Build A $1,000,000 Private Label Business Importing Kickass Products From China. Check the link out below if you are interested in taking part in it. If you are planning to get into the importing business, we tried to build a course that will get you started on the right foot!
We hope this list was useful to you and we plan to be getting back to the live episodes soon. If you want to be part of our live episodes just look for our Facebook page. That’s www.facebook.com/ecomcrew and like our page. You will get notices about when we’re about to go live.
We also have two sponsors for this episode. Stamped.io, which is a great tool if you need to get some quality reviews for your Shopify store. As well as, AsiaInspection, both Dave and I use AsiaInspection when we have to inspect a shipment from China. Both of these sponsors are great partners and we’re happy to have a relationship with them.
Resources Mentioned Today:
If you have any questions or anything you’d like us to discuss on the podcast you can now email us directly at ecomcrew.com! Just send those emails to [email protected] Also, we would really appreciate if you would leave us a review on iTunes. Thanks for listening!
Full Audio Transcript
Mike: This is Mike.
Dave: This is Dave.
Mike: And welcome to this edition of the EcomCrew Podcast. This is episode number 90, and it’s good to have Dave back on board with us. As we’ve talked about before Dave is mostly working on the content on the website. So if you guys haven’t been to EcomCrew.com in a while, you guys have got to go check out the content. Dave has written some pretty prolific articles that are just really awesome, and we’re probably going to end up doing some podcast episodes in the future just kind of recapping some of the articles. But besides that, Dave, how’s it been going man? It’s good to have you in the show.
Dave: Good, calling you from 7am in Beijing here. So yeah good on me for waking up.
Mike: Yeah, pretty crazy which is why we’re not recording this one on live. And this will probably be the last non live episode in a while, because we’re going to be — I’m going to actually be coming to China and joining you over there. I leave for Hong Kong on Wednesday which will be the day before this podcast comes out. So when this podcast comes out, I will already be in Hong Kong probably jet lagged as hell.
Dave: Yeah and time differences aside, there is no way Chinese internet can keep up with video streaming, so…
Dave: People are stuck without video this week.
Mike: Yeah and I will be in Hong Kong, so I think the goal is to record a couple episodes as Dave and I’ll be in person together. We don’t get that very often. So in the future look for some of those episodes. We’re hoping to put some quality episodes together, even increase our frequency maybe about a couple times per week. Not indefinitely moving forward, but we should have enough stuff here coming up that we’ll be able to do more than one episode a week for a while.
Dave: Wow, you are on the record as saying that we’re doing the podcast twice a week.
Mike: No, I said not indefinitely. So I left myself an opening.
Dave: Okay, so what’s the topic for today?
Mike: Well, today’s topic is Ten Ways to Increase Profitability in Your Ecommerce Business. And I’m definitely excited to talk about this today. We’re actually going to be talking about this in China as well, something I think people don’t talk about enough. We mentioned this on a podcast before, people love to talk about their top line revenue numbers. And as you love to say “revenue is vanity and profits are sanity”. So I think this is a good topic for the day.
Dave: Yeah, I think so too. I think we may not be the most two qualified guys, I mean counting our financial perspective, but I think we have like real world experience which I think can help people, and hopefully get their bottom line a little bit higher than necessarily the top line.
Mike: Yeah, so the first thing I have on my list which I think is the most important, the rest of these are not in any particular order. But the number one item I think is the number one item which is to know your numbers. And it’s interesting how difficult accounting can be especially for ecommerce. I mean it’s definitely the most complicated business that we’ve run. We have multiple brands, multiple channels, I mean just sales tax, and all these other things you have to deal with and versus — it’s accrual accounting versus cash accounting.
And it can be difficult, and there’s a lot of things that can really trip you up with accounting and ecommerce specifically how to calculate your cost of goods sold and preparing for taxes, and all these different things. But just like any other business, it’s like know your numbers, know your numbers, know your numbers.
Dave: Well, I think the place where people make the biggest mistake in that one is that they don’t do the books until basically the end of the year. So a lot of people aren’t up to date on their books every week. But a lot of people don’t actually even do their books until the end of the year, and then they realize, crap, I didn’t make nearly as much money as I thought.
So I think my big hint there would be, if you’re not doing your books on a weekly or monthly basis, like at the very minimal, make sure they’re done quarterly to have some idea of whether you’re making money or losing money, and then you can kind of adjust and actually have some time to adjust it.
Mike: And for me, I feel like it’s the utmost importance to get it done monthly. This is something that we have been on like flies on poop from pretty much the beginning. It took almost a year to get it right in three different accounts, and so it was a pain in the butt. However, the numbers are accurate now, and I look at them as gospel and make decisions on them based on our profitability.
It’s real easy to be running a business that is cash flow negative, but you think you’re making a profit, and at the end the day you’re actually like you’re saying you’re losing money. So there’s like nothing worse than like having a negative net profit and a negative cash flow. That can be a real detriment obviously, and unless you got deep pockets or Daddy Warbucks or whatever, that’s not sustainable. So it’s really important.
And for us, I mean we invest a lot of our own personal money in this business, and we knew we were going to be running cash flow negative because we’re investing in all these new products and constantly putting money back in the business. But I just want to make sure that we are actually turning a profit at the end the day which we do. And I want to know exactly what that number was to make sure that we weren’t making stupid decisions.
Dave: Yeah, and I think – sorry to cut you off…
Mike: No it’s fine.
Dave: But I think in terms of being cash flow negative, I know that sometimes an intimidating word, and so there is a big difference between cash flow and profitability. So if I today spend a $100,000 on a shipment from China, I’m going to be negative $100,000 in cash. And if I only have $100,000 in the bank, I’m basically have zero cash. That doesn’t necessarily mean I’m not profitable, like I’m $100,000 in a hole. It doesn’t mean that, but I don’t have any money in the bank. So it’s two really different things, but both those things are basically the same in terms of importance for your business.
Mike: Yeah definitely. So we could probably do a whole half hour or an hour episode about this one topic. I’ve actually been looking at possibly getting an accountant, like a professional accountant to come on, an ecommerce accountant and talk about this subject. So, hopefully that will happen sometime between now and the end of the year, or early next year. So we’re not going to harp too much on this too much more, but it’s definitely really important. So moving – I’m sorry.
Dave: Yeah, and I think moving on to the next topic, so this is kind of a broad picture view of your accounting for your whole company, but I think the next thing that you need to be doing is looking at the profitability per SKU. So if you have a catalog, I mean Mike was just talking about this. If you have a catalog of 100 products, and you haven’t looked at your profitability per SKU, I almost guarantee you that there is two or three products in that mix that you’re actually losing money on. Like not breaking even, not making just a little bit of money, but actually like every time you sell that product you’re losing money. And you need to either cut those products right away or increase basically the amount that you’re selling them, or try to get your costs down on them.
Mike: Yeah, we actually try to do this every couple of months. There’s a couple of ways to do this, in Sellics you can do it if you have — if you’re only on Amazon, you can do it through Sellics, you can sort — there’s a profit tab within Sellics which is really cool. I look at this all the time, and you can sort by profitability and basically reverse sort it. It’s like anything that’s losing money would float to the top of that report.
We just actually had an item on there a couple weeks ago when Jacqueline our new director of ecommerce, I was going through some of this with her, and sure as can be there was a product there that – it’s a product that we buy and resell from another manufacturer. We’re selling it at MAP price, so we just kind of put the MAP price in there. But because it’s a relatively heavy item and doesn’t sell for a lot of money, after Amazon fees we were actually losing money by selling this product. And it was like that, well will be obviously need to increase the price of those to at least break even.
It was an extra pack of ice packs. We don’t really necessarily need to make money off of that, but we sure as hell don’t want to lose money every time one goes out the door.
Dave: Yeah, I think I’ve played around with Sellics, I think it’s great definitely for giving you that quick picture. There’s a couple things that it does miss, number one, storage fees. So if you’re storing a container of goods at Amazon, and you’re selling one of those products a month, well storage fees eventually are just going to destroy your profitability on that product. And along with storage fees, shrinkage. A customer returns the thing and they return in absolute garbage condition, things just get lost and stolen.
So if you’re floating around a four or five percent profit margin on a tool like Sellics, chances are that actually when you calculate all the costs that aren’t taken into account that you’re probably losing four or five percent.
Mike: Yeah, no doubt. We also use Skubana, and Skubana will give you a report on this as well, and it includes more information than Sellics does. It’s a little bit more accurate and you can add basically a blended overhead rate, so it will include things like storage and rent and employees if you have all that.
Mike: And it’ll – it should be that across all the SKUs in your catalog and give you a better clearer picture on that.
Dave: Interesting, I had no idea that it would actually blend in storage fees.
Mike: Yeah, you get to enter in overhead numbers and stuff like that, but it does take an account of storage fees, PPC, returns and other cost.
Dave: Yeah, it does it on a percentage basis I guess?
Mike: Cool. So yeah moving on the next one, the next one I have here is advertising expense. And this is one that can lead you in a rabbit hole into the dark side, whatever you want to call it, because it’s easy to convince yourself that this is important, that yes I’m losing money on these advertising campaigns, or breaking even, or getting a low ROI or whatever bucket you might be falling into. And you’re like, oh this is an investment in my future, or whatever other excuses you might come up with.
But we’ve actually talked about this on the podcast before. I mean early this year, I thought Dave was here. I spent a couple of days just kind of digging through all of our Amazon PPC campaigns. I was able to cut out about $300 per day in spends, so that’s like $9,000 a month. A couple employees’ worth of wasted spend. And on top of it after playing with all that, our sales actually went up. So you would think that you lost some sales, but it actually had a positive effect, because as a part of doing all that, we were just bidding smarter.
So I guess the bottom line is take some time and look at your ads, and make sure that the money that you’re spending there is going to more good than bad. I mean if you think about it again, I mean $9,000 a month is a big number that I can be spending on something else that can have a much better impact on my business. And that’s certainly something we’ve done now. I mean we’ve now hired a couple more employees and done some other things with that money, so put it to better use.
Dave: Yeah, advertising, it’s almost like being in a bad relationship. You know that you need to end it, but you just can’t handle the fact of actually doing it. Because once you do, you’re in a good position where you cut those ads and you actually increased your top line. But more often than not when you’ve cut the ads, even if it’s a losing product, you are going to lose some revenue, even though revenue is actually losing you money.
And it’s just part of you just kind of sucks to lose that revenue, because we all see a sale coming, and we don’t look at the profit. We just look, hey I got a sale. And we start losing those sales; it’s kind of a short term just kick in the butt I guess, or a kick in the stomach losing those sales. But this is something you have to suck up the pain and realize you’re going to lose some overall revenue, but your bottom line is going to increase.
Mike: Yeah and that in turn helps you increase your top line down the road.
Dave: Yeah absolutely, in the long term yeah definitely your top line will recover.
Mike: So the next one I have on here is consolidating shipments. So, something that I know that you do a really, really good job of, something that we talk a lot about in the new course — just a plug for our course that we released at EcomCrew.com/course. A shameless plug, but talk about how you’ve been doing this. It’s actually — I’m going to combine two things here Dave on you, because the next one we have on the list is working with fewer manufacturers which inherently helps consolidate shipments. But yeah talk about that for just a couple minutes.
Dave: Yeah, so I think if everybody lives in Mike’s world, that he imports a 40 foot container of one product, you don’t have to worry about this. But if you’re kind of a slumdog millionaire like me who imports the MOQ of a bunch of products, shipping 50 products from China is never that cost effective from a shipping sample. So one of the hacks I do is try to consolidate all those MOQ shipments into one shipment.
And your freight forwarder can work with you on that, or you can simply, if you’re working with two suppliers, you can have supplier one ship the goods to supplier two to consolidate them into a container, and then you’re going to save a lot on shipping costs like that. So that’s kind of the hack I’ve used over time. If you can’t fill a container up with one or two products, then simply you can get a few different products, and you combine them into a container.
Mike: Yeah, and the other part working with few manufacturers, obviously that makes it easier because they are geographically closer, or if you’re only working with one manufacturer which is even better. But this is something that we’ve been trying to do more and more of over the last couple of years. I mean if we’re in a situation where — and it helps that we have more brands now and we’re doing more products, but if we find a manufacturer that we like, we hold on to them for dear life, and also do everything we can to think out of the box – I hate that term sometimes, but to think out of the box and come up with different items that they can make for us.
So someone’s really good at sewing for instance, there’s all kinds of things you can come up with. And there might be products that you weren’t originally thinking of developing. But if you have a good manufacturer that you know can do things reliably and get the stuff out the door, that’s really important. And then on top of that, that helps you order more from that manufacturer to help build a better relationship, build terms with and help fill containers with. So it’s definitely something I recommend.
Dave: Yeah I know absolutely. And I think over time that’s something I think one of my little expertises I’ve built is kind of folks in a couple geographical regions and kind of knowing what they produce there. And being able just to work with fewer suppliers, and then have everything done locally as much as possible rather than having to buy something from the south of China, you get it shipped up to the north of China, waste all that time on shipping, and also the time to get there.
So, yeah absolutely. Not only does reducing the number of suppliers, but also reducing the time and the distance between them.
Mike: Yeah, so the next one I have here is no air shipping. This is something I think that I don’t know; maybe we’re unique in this I don’t know. But I’ve also talked to other people that have done this. So I don’t think that we are unique. But you end up in the situation of the devils on one shoulder and the angels on the other shoulder. And you’re about to run out of inventory because you didn’t plan well, or whatever other reason it might be, and the devil is like, uh man get the air shipments, it’s going to do well. And the angel is like, don’t do it, it’s going to cost you lots of money.
And you just kind of wait back and forth because you’re kind of darned if you do, damned if you don’t. But the easy way to fix not having to do air shipping is to either A, have more confidence in yourself and your initial orders so you don’t run out. Or B, make planning for inventory a higher priority in your business and don’t run out that way. And I’m happy to say as we’re recording this episode on October 9th, we have made it through all of 2017 so far without having to do one air shipment.
Dave: Wow, good for you, because I know in 2016 you were quite heavy into that rabbit hole of air shipping.
Mike: Yeah, we spent just in Q4 last year $40,000 on air freight. And the most painful part of that was we air freighted a part of the shipment that was going to be in a container anyway. So we still had to pay the full container price. Like we airshipped about a third or a quarter of a container whatever that was, a couple of different containers of the stuff over here to get it here three weeks quicker, because we just weren’t prepared for the holidays and everything else, because we were still relatively new at this.
And I realize that everyone listening to this is going to go through the same cycle of life that we probably did where you kind of learn from your mistakes. But man this has definitely been a huge money saver for us this year. That $40,000 has gone to much better use. I could tell you this year this year, and that was again that was only what we spent in Q4. So our total bill over the year was more than 40K.
And like I said we’ve made it through all year so far. There was a moment last week where I was like, oh my God we might have to air ship something to get it here for the holidays, but we’ve realized that we aren’t going to need to do that, and we’re going to be okay.
Dave: Yeah and kind of on that note, yeah it’s funny. It might be completely unrelated, but there was, a couple years ago I had a good friend who was importing makeup brushes from China. And one day he sends me this picture of almost like a half a container, a 20 foot container being air shipped on a plane. And I was just absolutely flabbergasted. I had no idea you could actually air ship that much product.
Anyways fast forward about a year, I get an email saying, how’s it going, how is the business going, and business is completely out of business. So there’s definitely a connection there I do believe between keeping an eye on your shipping costs and being responsible with it, and also the health of your business.
Mike: Yup, definitely I couldn’t agree more. So, this next one is one of my favorites, the nagger SaaS products, reducing SaaS products, and just subscriptions that you aren’t using. I’m sure you probably have fallen victim to this as well Dave.
Dave: Yeah, I mean I’m a lot better than you with my SaaS products. I have my core products that I use. I’m stingy, I would much more be inclined to email a friend and say, hey, can I borrow your password?
Mike: I’m calling you out man. I’ve talked to you before where like you signed up for a free trial or something, and four months later like, yeah I probably should cancel that.
Dave: I know and we should mention to the Ecom people, they are on our affiliate links, definitely do not cancel great stuff fast.
Mike: Right, never cancel, period. Never cancel those, cancel everything else but those ones.
Dave: But no I’m pretty good with my SaaS products. I’m pretty stingy. I am guilty of the fact I sign up for a free trial, and then I’m sorry everybody, I forgot to cancel it. That’s particularly why I don’t sign up for free trials normally and just – I don’t know, I’m kind of a dinosaur and use my same two or three products over and over and over.
Mike: Yeah, I mean I guess we’re on the other side of the pendulum, and I get sucked into them all the time. I’m like yeah F it all, I’ll sign up for a free trial. And then months later I realize I let that go, I forgot to go back and check on it or whatever. Definitely gotten a lot better about this as of late, and it’s a column on the PNL that I look at every month, and try to like, okay do I need this or not?
The ones that kind of catch me sometimes are the annual subscription ones which I think is why they make you do that, because they bill you for the whole year, then you forget you even a log in for it. And then you get billed again a year later. It’s like, oh well crap, I probably don’t need that thing.
Dave: I got to say actually on that note, last week to Amazon’s credit; I hadn’t looked at my credit card statements for six months. I was really bad and didn’t even realize I was being charged 50 bucks a month for some AWS service that I never even touched in six months. I was playing around, but I guess early this year. Emailed them and said, hey I’ve never actually used this, do you think I can get a refund? And lo and behold they actually granted a refund for all six months.
Mike: Well it’s like the opposite of the QuickBooks. I had a QuickBooks account one time that was for like an old company that I was having an old credit card that I don’t get any more. And they’re like; yeah we’re not giving you a refund for any of it, too bad. It’s like; no one’s even logged into this thing for two years, so come on.
Dave: I know, I was absolutely shocked with Amazon. So for everything evil Amazon does in the world, give them credit for that one.
Mike: This is the one thing. So the next one we have on here is kind of a broad topic, but negotiate, negotiate, negotiate. I mean there are so many things you can negotiate. I guess the first thing that comes to mind for me is shipping. In bound shipping from China, shipping from the port to your warehouse or into Amazon, or shipping from your warehouse to the customer.
There’s all these different shipping pain points. But these are all negotiated numbers with the exception of USPS, until you get to a very high level. But Dave, I know that you’ve actually had some pretty good luck with this in the past with shipping. Can you kind of give us a little bit of magic under the hood there?
Dave: Yeah negotiating on the shipping, if you’re working with a freight forwarder, definitely you can you can negotiate with them. Whatever they’re charging you, and if you haven’t negotiated that rate ever, chances are that they’re kind of giving you their defaults, let’s hope they don’t try to negotiate the rate. Most freight forwarders, they have a little bit of buffer room built in there to negotiate with you.
So yeah, that’s just simply if you’re working with a freight forwarder, ask them. Besides from shipping, a couple hacks, a couple of things I’ve saved on, number one is merchant fees. So if you’re not selling on Amazon, obviously if you’re selling on Amazon predominantly, you can’t really negotiate on those fees, at least not that I know of. But if you’re selling through your website and are working with either Stripe or PayPal, chances are if you haven’t negotiated those rates that again you can get a lower rate, because PayPal, I know, has some pretty decent volume discounting, same thing with Stripe.
If you actually email them privately and say, hey you know we’ve done five figures in the past whatever timeframe, chances are they can give you a better rate than even what they’re posting on the website. So merchant rates, definitely try to negotiate that. So if you can save 1% on your merchant rate, that’s over 1% of your overall gross revenues that you can add back into your pocket.
Mike: Yup, so I was going to mention one for me, insurance. We obviously have business insurance; it’s something I recommend everyone stop what they’re doing right now, and go get business insurance if you don’t already have it. This will cover — we have like umbrella policy that will cover anything up to like two million dollars. So it can be someone burns themselves with one of our products, we get sued for some stupid trademark infringement thing; there’s a fire in the warehouse and all our stuff like burns down.
So it covers everything, and that’s something you can certainly negotiate. We went around and we actually found a business insurance broker that helped us get our pricing down last year. It’s someone that we’re going to continue to use, but that’s something you can definitely negotiate.
Dave: Yeah, what do you think a ballpark for people? I know I have my experiences, but what do you think a good ballpark, we can give people for say a million dollar insurance liability coverage, or in your case two million dollars?
Mike: Yeah, so I mean our policy has gone up now, it’s $9,000 a year. It’s pretty expensive.
Dave: It’s not bad actually.
Mike: But it’s a solid policy. So it’s a million dollars per occurence and it covers fire for — and we have $900,000 for the inventory. So the bulk of this is based on two factors. It’s the amount of inventory you have under a roof that you’re insuring against. So they look at if a fire came through, like what’s their total exposure for something like that. So again we had $900,000 of the value that we put on that. And then they also look at your sales, your total overall sales. So I think the number we used for that, for the cost when we did it was five million.
And so what they’re looking at there is, okay if you are selling five million dollars worth of the goods, what are the chances that someone’s going to hurt themselves. Or not even hurt themselves, but sue you regardless that they’ve hurt themselves on purpose or not. So they’re looking at all those factors. So for me it’s just a peace of mind thing. I mean we’ve been through frivolous lawsuit stuff in the past, and it was a big wake up call to make sure that we have insurance.
And we also didn’t have physical products we were selling in the past, I felt like our liability was incredibly low before, and we still got someone that came after us for complete frivolous thing. And if we had insurance I think they would just left us alone immediately, because like that’s kind of the MO for a lot of these trademark and patent issues, because they know if you have insurance that you’ll fight it.
And we did end up fighting because I’m just a stubborn proud person. I was like we did nothing wrong, I’m not going to just give up. But that’s one of those — you lose if you win and you lose if you lose situation. So yeah I mean, so that just kind of gives you an idea for what we’re doing in California which is probably one of the most expensive states to get insurance because fire risk obviously is high here, and everything else that California brings with it for higher prices. That’s kind of why we’re at $9,000 for the year for those specs.
Dave: I think the big takeaway there is again consolodating your insurance, because I know we were paying about $6,000 a year just simply for product liability insurance. And combine that with all the other coverage including like shipping and the fire and warehouse damage, you can actually kind of combine that all into one policy, and you save a lot of money. So don’t go for one just coverage area. Try to combine into as many coverage areas as possible. And if you are working with an insurance broker, they’re definitely going to try to up-sell you. And one time where you don’t necessarily need to kind of tune out their up-sell, it’s actually a lot of times pretty valuable.
Mike: So that policy for us covers everything but workman’s comp, that’s a separate thing yeah. Can you think of anything else as far as like an easy negotiation thing?
Dave: I think aside from what we talked about would be negotiating with your suppliers. Just go back to them and try to get one or two percentage points off. You’re only a part of their business, so giving you a one or two percentage decrease in cost, they can probably live with. Don’t try to negotiate 10 or 20% discount. Try and get one, two, maybe even three percent lower cost of goods sold especially if your volume with that supplier has been growing. And again that’s going to be money that you add into your pocket, whereas your supplier is probably not going to feel it all that much.
Mike: And the thing to remember is that if they give you one point off, it’s just like almost something that’s not worth having a conversation about. It doesn’t increase your net profit margin by 1%, it increases it by three or four percent. Because you’re going to look at what – the money that’s going to go directly to the bottom line, and the net profit itself is going to increase significantly, because that number is always much smaller than your revenue number. So it makes a big difference.
So the next one I have here is arbitrage labor. This is something that I have talked about a lot on the podcast before just our Philippines team. I learned this just from living in Costa Rica. It was my first experience exposure to this. Obviously a lot of companies hire people from India or from Costa Rica or Panama or obviously the Philippines and Vietnam.
Dave: Or nowadays Canada.
Mike: Or Canada because Canada – especially because of the conversion rate. But you know this is a globalized world, and everything is relative. So, median salary in the United States might be $40,000 a year, while a median salary in the Philippines might be $6,000 a year, and that’s to live a similar lifestyle. This is not because they’re living in abject poverty although obviously it is a third world country and there is a lot of poverty, I don’t want to ignore that.
But for a similar lifestyle salary is just going to be significantly less just for all kinds of other reasons, global economic reasons. So you know like I said before in this podcast, we all arbitrage physical goods for the most part. I mean that’s what we all are doing. We’re buying goods cheap and selling them for more money, or hopefully buying them cheap and selling for more money, at least that’s the objective. So, I think that that’s something you can certainly do the right way by outsourcing labor to another place.
And this doesn’t mean that you are hiring slaves or chain people like crap. I look at this quite the opposite way. It’s an opportunity to do some good in the world, and it’s much easier to do that when the numbers are smaller on a relative basis to your operation. So this is something that we’ve done quite a bit with.
Dave: Yeah, the only counter I would give that too is that you don’t even need to arbitrage to like a developing country. So wherever your business is based in the world, take a look at how the rates there are relative to even nearby countries. So in the US right now the strength of the dollar, the US is actually a pretty comparatively expensive place. The UK is always really expensive. So if you’re in the US — I joked about it kind of but I’ve heard lately about outsourcing to Canada.
But Canada is right now just simply the currency fluctuation which really is knowing it doesn’t really have any bearing on quality of work or anything, but just because the currency has been lowering in Canada right now, you can basically get a 25% discount outsourcing American work to Canada, same thing in the UK. Wages in the UK are pretty high. Even if you’re paying a local contractor, you might be able to outsource it to America or Canada, and the rest of the EU for much cheaper than you could to get it done locally.
So you don’t always have to look at the Philippines, Vietnam, these developing countries. Sometimes even in other developed countries which for whatever currency reasons are much cheaper at the time, you can probably get a lot better bang for your buck than necessarily getting it done locally.
Mike: Yeah and even within the United States to some this is applicable, because like the average salary in California is almost double that of probably Cheyenne and Wyoming for instance, right? So yeah, I mean there’s definitely a lot of this that can go on. And so for us it’s even more prevalent and more impactful to our business because we’re in one of the most expensive places in the country to hire from.
So I mean it’s definitely brutal here. So this has definitely helped us significantly, and there’s a lot of almost like Mechanical Turk play pass to have to happen within an ecommerce business that you just can’t justify sourcing or doing that in some place like San Diego. So your options are either you don’t get them done at all or you can get them done at a price that makes it actually feasible. And that’s kind of what we’ve chosen to do.
Dave: Yeah, I couldn’t agree more. And it’s amazing, if you haven’t used a VA in the Philippines or Vietnam, I haven’t had a lot of experience with VAs in Southeast Asia prior to probably three or four months ago, and the quality of work that you get done there is absolutely amazing. And I know people have had bad experiences, I think just because hiring at any place in the world is hard. But if you do find the right person, I mean you are going to be blown, mind-blown, by how good of the work that they can actually produce is.
Mike: yeah, I couldn’t agree more. So all right, so the last thing that we have on here, this isn’t like a big revelation by any stretch of imagination. But it is something that we have done which is to start sourcing higher margin products. When you first get started in this whole ecommerce game, or especially on Amazon, I think the allure of how easy this is and we’re going to make a ton of money and just start sourcing products and it’s going to be super easy. When it wears off you realize that is not the case, that this is a little more difficult than you might think.
And one way to fix all the difficulties is to have better margins. Like when you are on super thin margins, it makes things more difficult. It’s harder to advertise, it’s harder to take care of your customers, it’s harder to pay for storage fees, it’s harder to pay for mistakes. I mean I can go on and on and on, so having higher margin products like it has definitely helped with that. So for us it’s just been being more selective with what we order.
We used to have a bottom line of 3X of something like our cost of what we sell it for. So if we buy something for ten, we want to be selling at a retail for 30. We’ve now really changed at the 4X. We buy it for ten and we want to be selling it for 40. It’s kind of like our bottom line margin. You can look at that – look at those numbers around different ways and call them different things. But that’s kind of the way that we look at it now, and that’s like our — the lowest margins we’re willing to take on for any new products. And again this just helps increase our margin.
It’s the same amount of effort guys. I mean that’s the thing that’s important, it’s the same amount of effort to create a listing, to email your customers, to do customer support, to do advertising, set all the stuff up, to develop the product, etcetera. Wouldn’t it be better just to make more money for the same amount of work, and that’s the way we look at it.
Dave: Yeah and the other thing you could do too is that’s definitely the ideal thing you can do. But aside from that you could just look at a higher ticket item. So you sell the item, you buy it for a dollar, you sell it for three dollars, you’re getting a 300% return on your money. That’s great, but chances are after you take into account advertising costs which are kind of average out around 20 to 30 cents a click, it’s tough to make money on that.
But if you buy a product for one $100, you sell it for $200, you make $100, you can probably make that item profitable, because the relative percentage of advertising and all those other costs is going to be lower. So that’s the other thing you can do aside from looking at strictly a percentage standpoint, look at an actual volume price and cost.
Mike: Yup, cool. Well that is our list, right? About three minutes late, sorry guys. We try to keep these the 30 minutes; we’re just a few minutes late. A couple programming notes. First of all, I didn’t mention off the top that this podcast is sponsored by Stamped.io. So if you have no review system installed in your Shopify store, or you’re paying overly priced service for Yotpo, for instance, go check out Stamped.io.
We have them on all of our Shopify stores, and absolutely love them. And also AsiaInspection, if you go to EcomCrew.com/inspection, if you sign up through that link, again that is our affiliate link just so you guys know. If you sign up through that link, we have negotiated with AsianInspection to get you an account manager from your very first inspection.
That’s something that they only usually do for high volume customers. And we’ve already worked with them, given them a template of how we do things, and they’ll apply that to any customer that signs up under that account. So make sure that you’re getting your stuff inspected properly for ecommerce and Amazon specifically.
And finally, as I mentioned in a previous podcast, Dave and I have worked really hard on our importing course. If you’re kind of new, or I would say a beginner to maybe a little bit advanced or moderate or whatever, it’s definitely the course for you. So if you go to EcomCrew.com/course, you can check that out. That course is available now for $497. So I think that’s about it. Dave any other final comment before we hang up for this week?
Dave: Yeah, I guess we’ll hang up, and I will see you over in Asia in a few days.
Mike: Yep, looking forward to it as always and I will talk to everybody soon.
Dave: See you guys.
Outro: Thanks for listening to the EcomCrew Podcast. Follow us on Facebook at facebook.com/ecomcrew for weekly live recordings of the EcomCrew Podcast every Monday. And please, do us a favor, and leave an honest review on iTunes, it would really help us out. Again, thanks for listening, and until next week, happy selling!