How to scale an eCommerce brand to $1M/mo

TRANSCRIPT
00:00:00:05 – 00:00:22:05
Paul W
So what pays the bills is cash. And the most important metric in any business is your bank account. Forget what I’m saying. Your bank account will tell you whether your strategy is working or not. So what I would rather do is focus on high levels of profitability, because that’s what I believe improves the lives of the founders. And that’s my mission, is to improve, help improve the lives of the founders I work with.

00:00:22:07 – 00:00:40:05
Paul W
And I simply believe that they’re happier when they have more cash and they have more cash when they’re profitable. But I think it’s just, the the comment is, overall revenue for vanity, profit for sanity. And, it’s always been that way.

00:00:40:07 – 00:01:01:18
Alex C
This is Alex Cleanthous. And today we’re talking with Paul Waddy. He’s the author of the bestselling book Shopify for dummies. He was named the best ecommerce consultant in Epic by Yacht Po in 2024. He’s a chair of the advisory board, the National Online Retail Association. He’s an advisory board member for Forbes, and he’s the owner of learn eCommerce, an online platform for ecommerce brands looking to scale.

00:01:01:20 – 00:01:14:08
Alex C
In this episode, we discuss how to scale an ecommerce brand from startup to over $1 million a month. I hope you enjoyed this episode and make sure to subscribe to get the latest episodes as soon as they’re released. Hey, Paul, how’s it going?

00:01:14:10 – 00:01:17:15
Paul W
Yeah, great. Alex. Thanks for having me. How are you doing?

00:01:17:17 – 00:01:22:19
Alex C
I’m very well. I’m very well. So we’re about to. You based. You’re Australian is like me.

00:01:22:21 – 00:01:27:16
Paul W
Yeah, I’m in Australia. I mean, I mean semi sunny Sydney at the moment.

00:01:27:18 – 00:01:48:21
Alex C
Semi sun is in the I in Gold Coast. Yeah, I was in Sydney, but then I moved off the pandemic time, so I was just escaped. And now I’m kind of just hooked up here. But yeah, I still come down to Sydney quite a lot, but yeah. You write the book on Shopify for dummies. You’ve been consulting, you know, like, I don’t know kind of how many hundreds of thousands of e-commerce brands across the years.

00:01:48:21 – 00:02:03:22
Alex C
So this is going to be an it’s a fun conversation about advising kind of ecommerce brands at different stages of their growth. Right. And there’s so many places that we can take this. So I think this is just going to be a conversation and we’ll see what the conversation goes. I have a few questions and I’ve, you know, I’ve done my research on you.

00:02:03:22 – 00:02:22:00
Alex C
So I know that you’ve got a fair few kind of, really solid kind of nuggets in there. So I’ll try to extract them for the audience. But let’s, start with this, right. You’ve seen a lot of ecommerce brands over the years, you know. So what kind of brands succeed and what fail? Let’s start with that, you know, because I’m sure you’ve seen it.

00:02:22:04 – 00:02:23:19
Alex C
I’m sure you’ve seen it all.

00:02:23:21 – 00:02:46:15
Paul W
Yeah. Oh, yeah. That’s a great starting point. Look, for me, it’s pretty simple. Yeah, I, I’d probably like you get to get my fair share of a look at e-commerce brands and, at least one a day, you know? And I guess what I’m looking for is someone who’s thought a lot about the product and the brand.

00:02:46:17 – 00:03:11:09
Paul W
You know, I started business before there was such a thing as Facebook ads and things like that. So you actually had to have some skill in your marketing and some skill in what you were selling and so on. So I, I think, you know, the deciding factor is the brand and the product. If you’ve got a product that solves a problem or, you know, let’s say I work with a lot of fashion brands, let’s say you’ve got a cult following, you’ve managed to manifest that kind of cult following.

00:03:11:11 – 00:03:35:08
Paul W
Everything becomes easier. But when you’re a generic brand and you’re selling generic products and your strategy is just to pump money through for a, well, that’s not exciting for me. I don’t think it’s exciting for the customer. And you’re ramming it down people’s throats, so, I don’t know, I’m just looking for interesting, cool things, that are solving problems ideally before too many other people have.

00:03:35:10 – 00:03:37:22
Paul W
That’s really what I’m, what I’m looking for.

00:03:37:24 – 00:04:00:00
Alex C
I think it’s important that we separate out the conversation between ecommerce brands and economists and retailers. Right. And so kind of read and this is a topic which you talk about, and I don’t know if it’s too early to talk about it yet, but, you talk about the importance of the gross profit margin. Right. And it’s a difference if you’re kind of like a reseller of someone else’s product or if you have kind of manufactured it.

00:04:00:00 – 00:04:08:12
Alex C
So just for the audience, are you able just to explain that? Because I think that might be a point that would come back to quite a lot in this, conversation of scaling e-commerce revenue and so on.

00:04:08:14 – 00:04:31:17
Paul W
Yeah, yeah. So there’s yeah, there’s two key models that you usually come across in e-commerce and, you know, in my, in my world anyway. And what they are is you’ve made a brand and your, your, you know what I would say is vertical. So that might mean you well you might have invented, invented a product. You you might be white labeling a product out of China or you know, doing, you know, OEM creating a fashion brand or something.

00:04:31:19 – 00:04:54:02
Paul W
And that’s where you’re typically, you know, it’s your brand. It’s it’s a 70% margin. Typically you’re looking for, on the product or, like one of the other brands in my, in my group, you’re reselling other people’s. You’re at one of the retailers in my group is you’re reselling other people’s brands. So this particular gentleman has a business something something some income.

00:04:54:06 – 00:05:22:03
Paul W
But he has none of his own brands on there. He just sells, in this instance, beauty products and other people’s now other people’s brands. Now with most of my clients I say, look, you need a 70% margin, JP. Gross profit, really 50 minimum. You know, I say 50, 30, 20 rule which we can come back to later. But then he looks at me, he says, yeah, but man, my, my, the brands that I’m buying from and not even giving me a 50% margin, that’s before I even touch my freight.

00:05:22:05 – 00:05:47:21
Paul W
And so those, multi-brand sellers or as he describes himself, reseller, they’re likely to be operating on gross profit margins of, you know, he’s on 27%, you know, so vastly different. A lot of principles remain the same. But it’s not possible that as a reseller, you’re going to get that 50% gross profit usually. So you just have to adapt your business model.

00:05:47:22 – 00:05:54:05
Paul W
But yeah, creating your brand and then selling other people’s brands. I guess the two main strategies that we see.

00:05:54:11 – 00:06:14:05
Alex C
One of the things that we focus on a lot is essentially only to work with brands that actually are brands that actually have their own kind of products. Right? Because it seems like, like if you’re the reseller or a multi-brand seller, there’s no kind of loyalty to you. And specifically with kind of the brand and kind of like supplements is kind of the perfect industry for this, right?

00:06:14:05 – 00:06:27:15
Alex C
Because there’s so many supplement brands, but it’s not like their own brand. Right. And so this is not going to be like, like a, a large part of our conversation. But what would you advise to those types of companies who want to scale it up though?

00:06:27:17 – 00:06:46:04
Paul W
My preference is definitely to create a brand, because straight away you’ve got something that you know, other people can’t just beat against you. Oh, can’t just drop their prices on. Now, that’s not to say that being a reseller can’t work. We’ve seen phenomenal results from us hair and beauty over the last year who have opened stores so profitable they’re growing their revenue.

00:06:46:06 – 00:07:03:15
Paul W
But it is hard, right? And at the back of your mind is always, oh, should I do my own private label just to get a bit of that? Because at the end of the day, if you’re a reseller and you’re selling Nike and Reebok and out of us and then some store, you know, is in a bit of trouble, and they discount 30%, well, oh yeah, clicks are going to that store.

00:07:03:21 – 00:07:24:11
Paul W
So you are at the mercy of yeah you’re selling great brands. And typically you can get some good conversion rates. But you are at the mercy of well I can buy this anywhere else. And we know that price then becomes becomes a factor. And sometimes it can become a race to the bottom. But my advice would be to, I prefer building a brand.

00:07:24:13 – 00:07:50:02
Paul W
I think that’s great. I like building a brand. When you build a brand, it’s actually, in my opinion, easier then to get go and build an e-commerce business. So my advice particularly to, well, to, to everybody, if you’re selling other brands, have a think about private label, the margins about a building that moat around your business. If you’re on the smaller side and you’re thinking about getting into e-commerce again, take the time to try and create a brand that hasn’t been done before.

00:07:50:04 – 00:08:01:09
Alex C
And just one final point on the reseller approach in terms of the tactics of advertising, marketing and so on. Yeah, yes. What I one of the possibilities is for someone that has a, a very low margin.

00:08:01:11 – 00:08:28:14
Paul W
So this is what I would always say. So you’re going to be spending a lot less on marketing than your competitors. So if you have created a brand and you’re, you know, let’s say vertical private label, whatever white label, the you’re going to be spending around 20% on advertising. There are some brands that are spending 30%. And then you come to see a race seller and they’re typically operating under the 10%.

00:08:28:16 – 00:08:49:00
Paul W
Now that’s not again, not to say it can’t work, but paid media is getting pretty, pretty competitive. It’s getting more expensive to play. So straight away you’re coming up against people who are literally throwing money at advertising. And you have just got to be super, super lame, which which can be great, but it means you often can’t grow as quickly as you would like.

00:08:49:02 – 00:09:12:11
Paul W
You’re often just being outranked and outbid by the upstarts who have got the big 70 to 80% margins. And that can be tough. The other thing is that your margins are always low, so it is always going to be a volume game for you. So if you’re sitting there on a 5% net profit, for example, the brand that I mentioned earlier, you’ve got to be pumping out 20 million a year in sales minimum to start getting it to really pay off.

00:09:12:11 – 00:09:25:18
Paul W
Now, that’s stressful because $20 million a year worth of orders means you’ve probably got a fair amount of stuff, so you’ve got all of the stress of running the business, but you’ve got to do it leaner than most. And if there’s no volume there, then it’s also not worthwhile.

00:09:25:20 – 00:09:37:21
Alex C
That’s a fantastic point. And I just want to just, to just have that conversation so that it’s basically just checked off. But the big conversation is around kind of the e-commerce brands who want to scale. Right? So let’s start with like kind of basics. What.

00:09:37:21 – 00:09:38:17
Paul W
Do you.

00:09:38:19 – 00:09:45:04
Alex C
Say are the components of a good e-commerce brand? Someone’s like starting an e-commerce brand from scratch, let’s say. Right.

00:09:45:06 – 00:10:07:12
Paul W
Yeah. Look, you know, so I have a group that, starts and I have a group that scales. And every Friday I talk to the starters and we have a zoom, and it’s like, I’ll pull, I’ve got an idea to do such and such. And I’m like, they said, do you think it’s good? And I’m like, yeah, that’s not the right way to validate asking me if I think it’s a good idea is not the right way to validate a product.

00:10:07:14 – 00:10:24:19
Paul W
So I think there’s no shortage of ideas, but people fall short at the validation stage. And and we’ve got to remember that we are not our customer. You know, we might start out as the customer, but over time we kind of like, well, we got to go beyond what we like. And so I think it’s just going through those steps of saying, I think I’ve got an idea.

00:10:24:21 – 00:10:52:08
Paul W
I think it’s a pretty good idea, but now I’m going to go out and validate it through market research or through focus groups and so on. So I think it’s just going through that steps, those steps of not rushing your idea to market and just saying, well, here’s my website. The world doesn’t need another, you know, women’s fast fashion brand like, let’s not just, you know, every time I see someone say, yeah, I’ve got a range of and women’s fashion, I’m like, okay, how’s this going to be different?

00:10:52:10 – 00:11:11:19
Paul W
Usually it’s not. So I think it’s just going back and saying, look, I’ve got an idea. Next step, I’ve validated the idea. And then I said, okay, that checks out. Now let’s move on to talking about finding a supplier and finding, you know, negotiating mix and all that sort of fun stuff. But there’s a lot of tools available for people to validate.

00:11:11:19 – 00:11:33:03
Paul W
There ideas. I just find that a lot of beginners skip over it. And the other kind of thing that sticks with me a little bit is, you know, Elon Musk, who you know, is obviously not you’re every every man. But nonetheless, Elon Musk says, you know, I spend nothing on marketing because I’d rather spend it on R&D product research and development.

00:11:33:05 – 00:11:52:17
Paul W
And I think, you know, he doesn’t have to spend on marketing because there’s an argument that he is the marketing. But the point is well made that not enough time goes into product research and development. And we all generally start a business thinking, I’ve got an idea for a product, and we’re really excited about it. And then we start our businesses and we kind of like, yeah, the product’s over there.

00:11:52:17 – 00:12:06:07
Paul W
I’m just now focused on marketing and ops and all these other things, and we’re like, yeah, but what about the product? You know, and we kind of just forget to evolve it and iterate on it and do more of it and expand it. And product goes a bit stale.

00:12:06:09 – 00:12:13:08
Alex C
So you would say that that the product is the most important thing or the brand is the most important thing, or are they interchangeable?

00:12:13:11 – 00:12:33:07
Paul W
I reckon it’s pretty pretty interchangeable, I think equal equal importance. I think this idea that I remember, you know, 4 or 5 years ago working with a brand who, they had a great marketing agency that was the same marketing agency as Louis Vuitton, and there was an advisor from Louis Vuitton in there, and they weren’t generating results.

00:12:33:13 – 00:12:52:14
Paul W
And then the guy said to me, guys, all that terrible agency, I was like, oh, well, you know, that terrible agency? Well, they’re getting us a rose of 1.5. I said, well, look for LV for Louis Vuitton. They’re getting a Roas of 20. Same strategy, same account manager, exactly the same strategy. What’s the difference? The difference is you.

00:12:52:14 – 00:13:13:13
Paul W
The difference is what you’re putting into it. And I think, in this particular example, we were able to get that business going by rapidly accelerating the product testing. So to say, hey, we’ve got to be prepared that 80% of our products are not going to work. That’s the 8020 rule, 20% of product drives, 80% of revenue. So 80% is not going to be red hot.

00:13:13:15 – 00:13:32:15
Paul W
So I’m not suggesting we do thousands of SKUs, but there is an element that we have to keep testing our product and putting more out there to finally find the one, find the ones that stick. So I do think the products have to be solve a problem. I do think that they have to have unique selling points. I do think that that all of that helps.

00:13:32:17 – 00:13:55:12
Paul W
I think the brand positioning and the marketing and so on then has to take those US pieces and say to the audience, this is you’ve got a problem, we’ve identified it, we’ve solved it. And so that’s that’s the kind of connection between brand and product is. Yeah. We say your call features. We’re going to turn that into something desirable and sexy and put the message out there.

00:13:55:14 – 00:14:25:02
Paul W
The brand is super important. You look at the example of Jada, which is the t shirt I’m wearing now. Yeah, their product is nice, but there’s a lot of nice product out there. But the brand has developed a cult following, not the clothes. The brand has developed a cult following that people want to belong to, so that now when they drop a product under the brand once a month, it’ll sell out in minutes because people want to be part of the brand so much like a club, the brand is like a club in a way.

00:14:25:04 – 00:14:45:15
Alex C
So to create that community environment where people just love you, right? Because that’s exactly the thing. And it’s and it’s especially the case for fashion, right? Because fashion is kind of all the same. It’s all the same product, but it looks a bit different and so on and so on. But it’s the brand that sells it, right. And and so how do you develop that community.

00:14:45:15 – 00:15:06:03
Alex C
All I like like in your experience. Yeah. So what have you seen that’s been like some interesting approaches for how people can start to create the community and to develop that brand. Right. Because sometimes that happens even before they have a product, sometimes. Right. But they’ve starting out and they’re building something. And so what is the best thing to focus on and what have you seen.

00:15:06:05 – 00:15:23:10
Paul W
Yeah, that’s a good example you use of sometimes people have a following. So there’s, there’s a couple of brands that I work with who had podcasts first. And when I saw them come in they said, yeah, we’ve got a podcast, we’ve got this many listeners, and we dropped a little bit of merch and it sold out. And I’m like, gosh, you’ve you’ve largely done the hard work.

00:15:23:12 – 00:15:40:15
Paul W
You’ve put the people first, you found the people, and then introducing the product to the people is easier. The other way around is harder. Where you’ve like, I’ve got a product now where do I find the people? Because I need just paying, paying, paying for the traffic, paying for the traffic. So I always get excited when I see someone and, you know, influencers and so on.

00:15:40:15 – 00:16:02:04
Paul W
And I’ve already got a following. It’s like, oh, well, this is going to be a little bit easier. So if you are one of those people who’ve already developed a following or you’re thinking about developing a following, whatever, that’s a great strategy. First is develop the following. Introduce the product. I think if you’re if you don’t have a following and again, I think just a reasonably good example of this.

00:16:02:04 – 00:16:20:01
Paul W
He had a business that failed and stores and whatever, but it wasn’t really making money. He reconnected with community. This car I think his car broke down in Sydney somewhere and he had a 40 minute walk to, you know, somewhere to home. And so he just jumped on Instagram and he created these, the I’m talking about Jake, the founder of Jeep.

00:16:20:01 – 00:16:42:21
Paul W
He just created these walking talks where he’s just got the phone out and he said, all right, I’ve got 40 minutes here, let’s have a chat. And he would chat to his community in the same way that he would chat to his mates unrehearsed, straight on, and, organic or authentic. And there were a few brands doing this really well, I think Fight the Label does it really well on YouTube.

00:16:42:21 – 00:17:02:10
Paul W
I think she connects really well. I think Tara from proud Poppy does it really well on socials as well. And what I noticed is it’s generally unrehearsed and it’s generally like just, hey, we’re here. I think it’s hard. Like I’ve definitely seen people try and create a community and fail. And I’ve also seen lots of really smart entrepreneurs who aren’t great on social.

00:17:02:12 – 00:17:23:04
Paul W
And I’ve seen a lot of fear. I think we’ve got to start somewhere. We’ve got to understand the pillars of what we’re posting about, and that is social, really. Social media drives the community these days, but we’ve got to develop a following for something, and we can’t develop a following or develop a community around flogging product. I think that’s really not the answer.

00:17:23:06 – 00:17:45:19
Paul W
I think we’ve got to develop a community because we’re entertaining or funny, or people like the way we dress, or people like our tips on health or people like, I think these are the pillars is find your pillar that you’re that your community looks up to you for, whether that’s music or art or surfing or whatever it might be, and they’ll find their way to your product.

00:17:45:21 – 00:18:05:00
Paul W
But I think building community around flogging product is just impossible or very, very hard. I think that’s just a you’ve got to spend a lot of money doing that. And but like my community is, they follow me because I give e-commerce tips. Now you’ve got to find what you’re good at and find your home. And I’m that’s why it’s hard.

00:18:05:00 – 00:18:26:08
Paul W
Like, I think if I just started posting randomly about, you know, men’s fashion, probably I would develop no community because I’m not an authority in that space. This is why sometimes it’s interesting for brands to not always essential, but to start a brand in an area that you’re pretty comfortable. You know, I might be great at pickleball and I start a pickleball business.

00:18:26:08 – 00:18:51:18
Paul W
It’s not essential, but it helps because then when I’m on socials every day, I’m not flogging my latest pickleball racket. I’m giving tips on how to improve your backhand. And so people follow me because this guy gives pickleball tips. So again, like, that’s not to say you have to be a subject matter expert, but it certainly helps to build a community of people who follow you for some reason.

00:18:51:18 – 00:18:54:06
Paul W
Aside from here’s the deal of the day.

00:18:54:08 – 00:19:13:23
Alex C
Sounds like people need to become kind of content. A creator, right? The content creator and just and this is kind of almost scary, right? Because like if you’re starting from scratch, for example, you want to build a community. The risk is you need to be authentic and people are shy of being authentic until something happens and they don’t care anymore and they just start talking.

00:19:14:00 – 00:19:25:16
Alex C
And at that point, then people can connect with you and either, hey, you are like you, but at least you polarize. You’re not in the middle, right? So it feels like that’s kind of maybe like the scary part kind of thing for lots of brands.

00:19:25:22 – 00:19:43:15
Paul W
Yeah, 100%. And I get that all the time with brands that just say, I’m just not good at it. I’m not comfortable. I can’t for legal reasons, be on because my whatever. And I’m like, that’s fine. I don’t have an answer for you. Aside from saying you got to work that out, it’s 2024 and we’re not going to be prominent on socials.

00:19:43:17 – 00:20:02:16
Paul W
I just don’t think that flies anymore. Like if we’re in e-commerce in 2024, moving into 2025, you’ve got to be pretty good at socials in some capacity. If it’s not you, you’re going to be one of those people who has to outsource it, you know? But again, you’ve got to remember, like, I don’t know, maybe we become Daft Punk, we wear helmets while we’re deejaying.

00:20:02:16 – 00:20:20:08
Paul W
So I know I know Banksy, like we have a we have an anonymous identity, I don’t know. That’s not that’s up to the brands to work out. But what I will say is that you got a part that you got a part that reluctance and just do it. And I don’t know too many people who feel confident about posting on day one with no followers.

00:20:20:10 – 00:20:41:04
Paul W
There’s every chance you’re boosting your post to get more visibility in the early days, that’s like, hey, like that. Everybody does that. Everybody has the same fear that when you go live, you’re talking to no one. But guess what? That’s how it all started. And I think it’s just being brave and pushing past that and posting every day and committing to doing it again and again and again.

00:20:41:06 – 00:20:59:09
Paul W
And after 30 days of doing it, you’ll have some traction, you’ll have some data about what worked and what didn’t. And you just rinse and repeat. But it’s a numbers game like it is. It’s yeah, we all want the viral post. And we try controversy, try humor, try out different pillars that we think we might be good at.

00:20:59:14 – 00:21:17:07
Paul W
But at the end of the day, it most certainly is a numbers game. We’ve seen that time and time again. The more you put out there, the more likely you are that something will catch on and take fire, but catch fire. But one thing we do know is if you don’t try, we we know that the outcome is that you will not get any results.

00:21:17:07 – 00:21:43:14
Paul W
So we’re all the same, like we’re all starting somewhere. It’s the ones I find that are consistent, that builds over time and the ones who have some edge. Controversy. Polarizing really like great at some great at a particular talent, then really informative. People use socials to be entertained and informed, not to be sold to. So we got a thing right in my space and I know it’s hard if I’m selling women’s dresses, how do I do that?

00:21:43:14 – 00:21:58:21
Paul W
I get it, it’s hard. That’s why business is hard. But we got to find our angle and ask ourselves, yeah, why would people actually really follow me? What what I do and say, that’s kind of interesting. And that’s that’s the challenge.

00:21:58:23 – 00:22:21:18
Alex C
From the type of product and the business model. Right. There’s fashion, there’s consumables, there’s appliances, all kind of white goods. You know, the categories are very commerce a so kind of vast. Right. And some business models are better than others. Yeah. So what would you say. Like is there an ideal kind of business model or. I’m not really like because obviously like certain things will scale faster.

00:22:21:18 – 00:22:34:24
Alex C
Slower. Yes. What have you saying? I’m not asking you to give advice because maybe that’s a very hard thing to advise on. But kind of, you know, it’s what have you seen historically are the business models that seem to work better than others?

00:22:35:01 – 00:22:52:23
Paul W
Look, I definitely lean towards starting a brand, as I said early earlier, and I had a bit of a dig at women’s fashion there because everybody wants to start a women’s fashion brand. But I must say that the two largest brands I’ve ever worked with have still been in women’s fashion. So, you know, it’s it’s undeniable that there’s appeal there.

00:22:53:00 – 00:23:09:08
Paul W
I think it’s all about supply and demand at the end of the day. And I think if I was starting again or looking to scale something up, I think that I would be looking for something, you know, like, I don’t mind saying what I think is a good spot right now, like infrared sauna and ice baths and stuff.

00:23:09:10 – 00:23:29:20
Paul W
Probably bordering on too too late now, but nonetheless, why is that good? We saw an increase in Google searches, so yeah, try and stop google.com. So yeah, that’s interesting. That is rapidly on the up sort of hitting Alibaba and stuff to see whether there’s an overflow of supply, you know, because the demands there. But it is oversupplied.

00:23:29:22 – 00:23:47:09
Paul W
So I’m sort of saying, well I want to get in before the supply is over the top. So then what I’m kind of doing is going to Google and typing in infrared sauna. And I’m looking at the main players. Now, if I say target and Walmart and Costco, I’m out. You can call me there, I’m out and I’m moving on to the next idea.

00:23:47:11 – 00:24:09:08
Paul W
But if I say John Saunders and Jim on a pizza and then the three small players and I suss them out on similar, where we might have a bit of a poke around similar where. But I say that, yeah, you know, a bit of traffic like, you know, in other words, I think, can I take these guys and I don’t and importantly, I don’t see what move.

00:24:09:10 – 00:24:30:11
Paul W
So if I’m, if I’m saying like, yep, demand’s up. They’re not saturated, I’m in. And it’s just that concept of supply and demand. I think the problem is often when we launch brands or work with brands is twofold. One, people are selling products that have no demand. And you know what I mean by that is they’re just not hot.

00:24:30:11 – 00:24:55:18
Paul W
They’re kind of like there’s no Google volume. It’s like, now you might be just too early for your time. But that’s a hard slog because what ends up happening is low conversion rates having to drive a ton of traffic and force the sales down people’s throats, or you kind of say the other way, which is there’s a lot of demand for the product in general, but it’s oversaturated with supply.

00:24:55:20 – 00:25:16:24
Paul W
This concept of supply and demand is like, if we think about buying a house, if I’m in a street where it’s nice, straight and two houses in the last decade have come up, well, you can be sure that when the third one comes up that people will pay a premium for it. That drives the price up. But if there’s, you know, two houses every month on the market, then, you know, I’ll get the next one.

00:25:16:24 – 00:25:46:02
Paul W
And that’s the concept of supply and demand. And I think that in retail or particularly online retail is we worry a lot about influencing demand. And we can’t always like we have this idea that somehow increasing our ad frequency increases demand. And it doesn’t, you know, dialing up your ad, your ad spend, which is I call that out because it’s a common problem at the moment, is people just like, yeah, I’ll just spend my way to success.

00:25:46:02 – 00:26:18:15
Paul W
And the only winners there are Facebook and team who will outspend you there anyway. And you can’t influence supply in demand. What you can do is influence supply. So what I mean by that is you might think about instead of over supplying your product, I’m starting to see a lot of brands under their product and move to a more traditional US, apparel model of dropping product in hyper limited quantities once a month, selling it out and going again.

00:26:18:17 – 00:26:40:12
Paul W
I’m really interested in that model at the moment because it doesn’t work for everything, but you can see it in some categories, like clothing and pajamas and stuff like that. But I’m interested in that model because it it understand that supply, supply demand is what it is. Yeah, we can show more ads, but we can’t click our fingers and magically find a million more customers for our brand.

00:26:40:14 – 00:26:58:11
Paul W
So what you end up doing is increasing your advertising spending. Your frequency goes to one to 2 to 3 to 4 to 5. You’re just showing the same people the same ad over and over again. That’s not to say that doesn’t work like frequency is important, but if you flip it on its head and say, well, I can’t control demand, I can influence it, but I can’t control demand.

00:26:58:16 – 00:27:18:21
Paul W
Well, I can control its supply. I’m going to control the supply. I’m going to do the very best product that I can. I’m going to do it in such a way that it’s limited edition. Well, I’m going to partner with an influencer. I’m going to do partnerships with other brands, or I’m going to do hyper limited drops, or I’m going to do one of a kind, never to be repeated.

00:27:18:23 – 00:27:40:09
Paul W
I can influence supply, and I think not enough brands do that. I think so many brands are just over buying on stock, putting as much as they can out there, jamming ads down people’s throat, finding themselves overstocked, having to go on sale, clearing the end of season start and just falling into that rut of oversupply and average demand.

00:27:40:11 – 00:27:51:07
Paul W
Now, I think people just need to pivot a little bit and think about what they’re doing with their brand and product strategy, and maybe even taking a couple of steps back before you go forward again.

00:27:51:09 – 00:28:07:18
Alex C
But, yeah, that’s a great point. There’s so many things to discuss and to try and keep it concise, because there’s a lot I want to get through. This is a fantastic points. I was going to ask at what point has a startup now just moved to scale? Like all right. Cool. So now I’ve experimented whatever I’m getting this month.

00:28:07:20 – 00:28:18:17
Alex C
Sorry, I’m hitting kind of like, specific amount per month of revenue. Yes. What is the point that it’s like. All right, I’ve got something now. I’ve got something. Is there like a number that you’ve seen?

00:28:18:19 – 00:28:35:02
Paul W
Yeah, I can there is like you sort of see people typically get stock at launch obviously and they’re like, oh, I’m not getting any sales. Then guess, you know, the other way where people like, yeah, I’m getting some sales, I’m getting some traction here. This is pretty easy. You know, I’m I’m up to ten grand a month. I’ve hit 20 grand a month.

00:28:35:04 – 00:28:51:14
Paul W
And then typically, you know, you often see brands scale pretty quickly to 100 grand a month, even solo operators. There’s definitely some solo operators that I’ve seen that are still doing about 100 grand a month by themselves from home, and then they get stuck under 100, and it’s like I just kind of push through 100 like.

00:28:51:20 – 00:29:09:22
Paul W
And there’s a couple of reasons for that. You often find they’ve done a pretty good job running their Facebook ads themselves. Maybe, but they kind of like just tapping out a little bit. And that’s when I’ll always say, well, three months in a row, if you’re getting stock on 80 grand a month and your ma, your, your marketing spend is blowing out a little bit, you’ve kept it.

00:29:09:24 – 00:29:26:14
Paul W
Maybe the end time to look at an agency or someone else to do your, you know, because you can very clearly say, hey, your job is to take me past like a month. So you found where you found your selling, and then you can pivot on doing other things that will help grow the brand better creative, better copy, new product.

00:29:26:16 – 00:29:44:19
Paul W
I reckon once you’re past a hundred, you’re absolutely a way you will find like that. You can probably if you cruise past that hundred, you’ve unlocked something. You’ve got your marketing spend ticking away at a reasonable amount, like 20% or something. Your margins are good. I reckon you’re going to find yourself on the path to 500 grand a month.

00:29:44:19 – 00:30:09:14
Paul W
Not super quickly, but quickly enough I reckon. Then you get stuck again at a million a month, and I’ve seen heaps of brands stuck at that point, and it’s again just doing the same thing, that saying, well, we’re stuck here. We’ve kind of reached a new ceiling. What next? That might be hiring some key staff again, adding some marketing channels, maybe more aggressively rolling out new product over the year.

00:30:09:16 – 00:30:29:10
Paul W
But I reckon if you’ve gone past the 20, 30, 40 grand a month and you’re charging to that 100, I reckon you pretty well. You’re doing pretty well. You probably get you probably get stuck under 100 K a month. Once you move past 100 K and you’re doing it on about a 20% marketing spend, I’m rubbing my hands together.

00:30:29:10 – 00:30:50:01
Paul W
I think you’re way here. Basically, if you’ve got a net profit of around 20%, I’ll say you’ve built yourself $1 million entity. You’re absolutely a way, any way you look at it. Even if you gave up one day and said, I’m sick of it, yeah, probably flip your business for $1 million. So, yeah, hit that 100 K. You’re you’re as good as on the way to a million.

00:30:50:03 – 00:30:54:18
Alex C
And it’s much easier for an agency to take you from 100 K to 500 K than from 0 to 100 K.

00:30:54:18 – 00:30:55:11
Paul W
That I had.

00:30:55:13 – 00:31:05:03
Alex C
Planned from 0 to 100 is just the most amount of time. Pain, sweat, tears. You don’t even know what’s going on yet, right? Like, and this is what I was saying all the time that so hard from 0 to 1.

00:31:05:05 – 00:31:24:15
Paul W
Good tip. Good tip. And I and I think that’s, you know, warning for agencies probably to promise too much to those brands because it is pretty hard to scale them. And again, if you’re a brand, just tap take it to your ceiling first. Like, and I reckon you should be able to get it to over 50 K a month running your own ads.

00:31:24:15 – 00:31:44:19
Paul W
But there’ll be a point when you do tap out, and that’s where it’s time to bring in an expert, but absolutely push it as far as you can yourself and then flip it to an agency. But as an agency owner, I would be rubbing my hands together when someone’s got to 100 K amongst themselves, rather than someone doing I’m doing 13 grand a month and it hasn’t really been working.

00:31:44:19 – 00:32:11:17
Paul W
Can you take over? I’m like, oh hell no, because those those, those smaller accounts. Also I would typically hire touch and therefore less profitable. So ironically, the ones who have got their act together scale past 100 grand a month are often lower touch. You can scale them and therefore scale your own business as well. So I think it’s important for, yeah, agencies just to be a little bit selective with who they take on and what they promise them.

00:32:11:19 – 00:32:33:11
Alex C
100%, 100%. And so you said as soon as you hit 100, so you can outsource some components of it, and then you can get to 500 and then to a million in the past, a million. What are the key things that an ecommerce brand has to figure out to, to step from 100 to 500 or from USA, for example, 100 to 300, and then from 307 50, right.

00:32:33:11 – 00:32:51:17
Alex C
Because there’s some pretty big steps. Right? And and maybe this comes back to the 50, 30, 20 rule. Or maybe this is the breadth of US depth. Like I’m not quite sure what that is. Which path is the best way to go from here? But I kind of opening it up for you to say. Yeah. Where do you advise people to go?

00:32:51:19 – 00:33:17:16
Paul W
The breadth first depth is an interesting point, because that’s something that I say to brands to challenge them to move outside of their normal product range, because what you’ll find is, depending on your industry, like, you know, pretty hard to tap out in women’s fashion at, you know, a million a month. But you’ll find that your sales organically slow down at a certain point, whether that’s 100 grand a month or a million, a million bucks a month, and you sort of have to think, well, what do we do then?

00:33:17:16 – 00:33:42:13
Paul W
The answer is not to scale up our spend. We might look internationally. However, pretty unlikely that if unless you’re doing 20 million a year, it’s pretty unlikely that like targeting the US is your next logical step. Like there’s a lot of Aussie brands that can do 20 million out of Australia, and then worry about us. So the you and you burn a lot of cash in the US in the early days.

00:33:42:15 – 00:33:59:23
Paul W
So then logically, product breadth is something we have to look at. Now a lot of people will say, I’ve posted about this before and people say, no, no, no, not a single product all the way. And I’m like, sure, if you’ve invented, the Theragun or if you’re selling the old fun, that’s cool. That’s your that’s your guy.

00:34:00:00 – 00:34:21:12
Paul W
But the I’m playing the averages and the average is would tell me that the brands that I’ve seen work on mass not exclusively but on mass, tend to have reasonable product ranges in terms of that, they’re doing a fair bit of stuff with their product. And so what I would say is, you just see these brands sometimes get stuck on their product range.

00:34:21:12 – 00:34:44:11
Paul W
They might be doing an iPhone case and this kind of like they’ve rapidly accelerated and it’s kind of just stagnant a little bit. It’s like, well, people don’t need that many iPhone cases. They buy whatever you want next. And so you reach that ceiling and you’re like, oh, well, you know, maybe I’m going to start doing wallets. And so product breadth over depth is something that I said to say, you know, a lot of, brands buy too much stock.

00:34:44:13 – 00:35:02:12
Paul W
And it’s probably the number one reason that I see brands going insolvent is just over buying on stock. And so I say, look, that customer doesn’t care how much depth you’ve got in your product, whether you’ve got 100 units or 500 units, customer doesn’t care. As long as I can get the get the unit. So instead of, you know, work out how much stock you need.

00:35:02:14 – 00:35:30:16
Paul W
I typically would say three months cover for a brand that’s important. If that’s 100 units, don’t buy 300 units, buy 100 units and then replenish them in 30 days. Take that other money that you were going to spend on the 500 units and try something new, because it’s still the case that if I walk into like a physical store and I’m like, oh, I need some sneakers, some hiking boots, if I walk into a store and I say six hiking boots, I might be like, yeah, they don’t feel comfortable.

00:35:30:16 – 00:35:50:12
Paul W
I don’t like the color. If I go into the next one and I say 30, the averages will tell me that I’ll have a better chance of buying for the store that has 30, because choice often leads to a conversion rate increase. I’m not saying do 100 pairs of hiking boots. I’m saying find the balance where you’ve got enough choice, but you’re not cannibalizing.

00:35:50:14 – 00:36:14:16
Paul W
And so a lot of brands will just start cannibalizing, though, and doing more of the same category, more of the same category. And growth can come from category extension and expansion, which is to say, great, you’ve done the hiking boots. What next? Well, now we’re adding the hiking water bottle or the hiking, you know, the hiking backpack. And so what we’re trying to do, there’s two things.

00:36:14:18 – 00:36:33:17
Paul W
One, get more out of our existing customer who’s in the mood to buy the shoes. And we should always provide product based on the motivation. So the customer is in the in the mood to go hiking while you’re buying the hiking boots. Here’s the water bottle, not here’s the second third, fourth, fifth color of the variance can kill a business as well.

00:36:33:21 – 00:36:56:10
Paul W
Too many options. Then we also saying we’re now appealing to a new group of people, which addresses our which increases our total addressable market to say, hey, I don’t like hiking boots, but I really need a water bottle. So it’s undeniable that at a certain point, your product does start to reach a bit of a a point where it’s like, yeah, purchase frequency is going pretty well.

00:36:56:10 – 00:37:14:17
Paul W
I have is pretty good, but what next? What next is show them a new product that is linked closely to your product, but is non competing. And the breadth for a product breadth over depth is something I keep saying just to challenge brands to say, yeah, but what else are you doing. Yeah, but what else are you doing.

00:37:14:21 – 00:37:34:17
Paul W
What else you got. Because that’s what can see. Consumers are fickle. I’m just like yeah I’ve seen that. I got some I’m in the mood for something else. So what else you got? Show me a range here. And, again, I’m not saying this is for everybody. The, you know, the O.D. or the Theragun, but for the majority of us, the customer is like, oh, what else you got?

00:37:34:20 – 00:37:44:04
Paul W
What else you got? Well, and I’ve seen a correlation to frequent product drops in a lot of categories. Not all, but frequent product drops and revenue growth of 200.

00:37:44:04 – 00:37:44:13
Alex C
Percent.

00:37:44:17 – 00:37:45:14
Paul W
Ratio.

00:37:45:16 – 00:38:08:24
Alex C
100%. And that’s something it seems like everyone wants something that is fresh and new. So I think that’s part one. Yeah, I really like how you explained it on your YouTube channel. You talked about, if you and if you focus on the breadth, then you don’t kind of purchase as much stock for a particular kind of line and then you pay yourself back.

00:38:08:24 – 00:38:20:11
Alex C
But in the first month, in the second and third month are all kind of the profit and the opex. And then what happens then is then you don’t have to sell or what to call it. What’s it called? At a discount.

00:38:20:13 – 00:38:21:13
Paul W
Yeah.

00:38:21:15 – 00:38:27:10
Alex C
And so I really like that thinking. Yeah. A yeah. So could you just expand on that because because I don’t think I explained it properly.

00:38:27:11 – 00:38:44:22
Paul W
Does that say good. And that’s, that’s a good one that, you know, I work on a lot with, with brands and you see the brands that you know, often make a lot of cash. And firstly, there’s a difference between being profitable and being solvent and having lots of cash. And you see great brands who are profitable run out of money.

00:38:44:22 – 00:39:02:17
Paul W
I want to say that off the bat, some of these clients in Australia, they haven’t been unprofitable, they’ve been profitable but run out of money. And again, usually it’s inventory. So what you find is this thing called the cash conversion cycle, which is to say the moment that we pay for our stock, the clock starts ticking. Like any investment.

00:39:02:17 – 00:39:21:14
Paul W
Actually, if I buy shares, I’m watching them every day. Are they going up? Are they going up? When are they paying me back? But for whatever reason, we buy stock out of China particularly and we’re like, yeah, I have a 30% deposit. I have 70%. Before you show me, I have the money. And then the it’s on a boat or it’s coming here and we’re like, yeah, it’s fine.

00:39:21:14 – 00:39:44:14
Paul W
I’ll just borrow more money. And you’re like, whoa, what’s what’s happening here? So the formula is, is the golden ticket. And and I understand for people listening that this is not going to be easy from day one. But if you’re an established brand doing decent volume, this is where you need to get to it. So the golden ticket and I’m going to talk about, having your own brand here, particularly importers, 70% margin.

00:39:44:16 – 00:40:09:03
Paul W
Right? I almost think that these days it’s pushing 75, like the cost of doing business so hard. So I’m always going to say 75 is the new benchmark. But whatever. Let’s say 70. So 70% margin means you’ve got a 30% cog. You know, if I sell something for 100 bucks, I’m buying it for 30. Now, the goal is this when you import out of China, you’re typically taking about two months to manufacture and ship.

00:40:09:05 – 00:40:26:02
Paul W
So what that means is if I buy three months worth of stock right now, I’ll add three months worth of this t shirt. I know I can repeat it in eight weeks. Two months. So I’ve got 30 nights just to chill, to sell it and see what happens and either cull it from my range or reorder. It’s going really well.

00:40:26:04 – 00:40:52:03
Paul W
After three weeks I’m going to reorder it and I know that’ll take eight weeks. So my reorder will come just as I’m running out. So that’s where I get the three month cover from. That’s just land the stock just as you’re selling out now the the golden ticket here is if I, if I ask my manufacturer for payment terms and they are doing them out of China, like this is something we’re working on in our group a lot with brands.

00:40:52:05 – 00:41:10:18
Paul W
No deposit. I’m giving you no deposit. All right. It’s going to take you a while to transition to those terms. But that’s the goal. I’ll give you 30%. I’ll give you all of the money 30 days after receipt of goods. Now, you can do protections on that. Let lines of letter of credit and stuff. But, you know, let me just assure you that these deals are out there.

00:41:10:20 – 00:41:33:03
Paul W
So I’ll give you 30 days. I’ll pay you for this shipment of shirts. I’ve bought 100 grand worth of t shirts. I’ll pay my Chinese supplier 30 days after I land them. So what happens is I land them and I start selling them. Now I’ve got a 30% Kong 70% margin now. I’ve bought for three months. So I start selling these t shirts.

00:41:33:05 – 00:42:02:20
Paul W
And if I’ve bought for three months cover, that means at the end of one month I’ve sold a third of them because I’m on track to buy to sell out in three months. So after frame, 30 days, I’ve sold 33% of my t shirts. Right? So I’ve made 33% of my sales. My Cogs is 30%. So that means in that first four weeks, selling 33% of my range means, that’s like 100 grand.

00:42:03:00 – 00:42:26:14
Paul W
I’ve sold 33 grand worth of t shirts. Remember, my cost of goods sold on the t shirts was 30% and I bought a hundred grand, so my purchase order cost me 100. So I’ve made 33 grand in week four, and I give my supplier 30, and that’s the deal. And then month two and month three is just an accumulation of cash.

00:42:26:16 – 00:42:50:17
Paul W
That is the that’s what David Jones did to me when I was 23. That’s what traditional retailers do. Well that online retailers need to learn. We don’t just cut payment terms. We’ve got to negotiate businesses a two way street. And the businesses that make a lot of cash are the ones that are always cash positive. And I, I get I know it’s hard, but you can do it.

00:42:50:22 – 00:43:17:23
Paul W
I get the money first, then I’ll pay my bills, not the other way around. I’ll pay my bills often over ordering, buy too much stock, and then instead of three months cover, I’ve accidentally bought six months cover. I’m finished. I’m. Oh, that guy money. But my sales haven’t come in, so I borrow again. You’ve got to unpick all of that and work around getting your suppliers to, to, finance or fund your business and not the banks and not the short term lenders.

00:43:18:00 – 00:43:38:06
Paul W
So all my the most important thing you can do to build cash is order for three months, cover and work really hard on your suppliers to give you 30 day payment terms. And if your business that’s doing in the millions, you absolutely should be having that conversation because those deals are being done out of China at the moment.

00:43:38:08 – 00:43:43:24
Paul W
Not just out of China, but in general. But payment terms is so important for that cash conversion.

00:43:44:01 – 00:44:09:01
Alex C
And I just want to add like it’s very sophisticated thinking. Right. Like it is extremely cashflow positive. Like if you can make it happen and you can make it happen like it does happen out there, 100%. But if you can just get your head around the fact that if you over purchase on stock and it doesn’t sell out, it takes a while to get back your money, then you get stuck and you have to sell stuff at a discount, and then you hurt your brand because now it becomes like a discount brand, right?

00:44:09:01 – 00:44:24:12
Alex C
And that’s what a lot of companies get stuck. I’ve got too much stock. You. I’ll expire maybe or not. And I have to sell ideas for the next one to drop, and hopefully everyone actually wants it. And if I don’t want it, then that’s when you start to get into this kind of, the dangerous territory. We’ll call it.

00:44:24:14 – 00:44:54:03
Paul W
Yeah, 100%. And customers know, like they know you’re going to go on sale again in two months, and they’ll wait the same way that you can train them, that you never go on sale. They’re smart. They’ll know the brands that go on sale. We all do it. Like we all know there’s a sale coming up. So yeah, again, if you think about that scenario where instead of selling all your stock in three months, you accidentally over order or get your sales forecast wrong and you sell it out, you’re expected to sell it out in six months.

00:44:54:05 – 00:45:15:04
Paul W
And Shopify gives you all these reports. Then all of a sudden, after 30 days, you’re on that eight week lead time. After 30 days, you need to replenish this black t shirt, because I’ve sold out of mediums and lodges and it’s on fire and I want to double down on it. And then I’m like, yeah, but instead of three months cover, I bought six.

00:45:15:06 – 00:45:41:21
Paul W
Instead of breaking even after four weeks, I’m breaking even after nine weeks. But I need to order after four weeks, something I’m adding up there. But unfortunately a lot of brands will just borrow. Place the order or as you say, just go on sale, get that cash into place the next one. The problem with that is, again, I think people messaged me on Instagram like, oh no, discounting Zerodha.

00:45:41:21 – 00:46:01:01
Paul W
I’m like, yeah, if it’s part of your strategy, if you’re Coles, great discount. If you’re a price later discount. I’m not talking to you people. I’m talking to the brands out there who for 11 months of the year, or, you know, 90% of their marketing talks to quality and affordable locks and this and that and then were like 30% off, 20% off.

00:46:01:07 – 00:46:13:22
Paul W
That strategy is just a juxtaposition that doesn’t work if you’re price later, make price your thing. If you’re not a price later, don’t make price your thing. It damages the brand.

00:46:13:24 – 00:46:37:17
Alex C
So in scaling from 100 to 500 K up to like a million. So part one is to get across kind of the cash flow of the business. Right. Because that’s going to be the fastest thing that actually hurts you. Right. Because that’s the danger zone. Right. Because I was going to ask you about this. What are the biggest kind of reasons that an established ecommerce brand, fails and it seems like, it’s overstocking on the inventory or competitors and so on.

00:46:37:23 – 00:46:42:09
Alex C
Is that, like, kind of the main kind of areas, or are there other areas that you’ve seen as well?

00:46:42:15 – 00:47:05:17
Paul W
The two areas that I’ve seen businesses fail, and lately I’ve been into interviewing a bunch of businesses that are in a lot of trouble. One is over ordering on inventory that you should turn your inventory four times a year, which again means every three months selling the black t shirt. A lot of brand owners are buying tremendous amounts of inventory and not knowing how to calculate.

00:47:05:19 – 00:47:22:22
Paul W
You know, it’s like it’s like putting petrol in your car. There is a certain amount of petrol that your your car needs to get you from A to B, no more, no less. The same thing exists with product, but most people don’t know how to work it out, so they just buy what they think they buy to their factories mix or they buy whatever.

00:47:22:24 – 00:47:46:20
Paul W
Now there’s a formula to all of that sort of stuff. So definitely overspending on inventory and then being in a desperate position. And I would always rather sell out than be overstock y, because if I buy 100 of these and I sell 102 weeks instead of three months, and I upset or happy, I’m happy because I’ve made all the money that I thought I would in much less time than I thought I would.

00:47:46:20 – 00:48:08:10
Paul W
That’s a happy day for me. But if I order a thousand or they sell 100, I’m super stressed. I would always rather be on the stock than I have a stock. No, all for what it’s like in terms of yeah, fix it. But in terms of the two, there’s nothing wrong with just ordering a bit under because then again, if people miss out on buying that, they won’t miss out the next time.

00:48:08:14 – 00:48:27:23
Paul W
Whereas if you’re overstock when you go on sale, there’s no urgency. The other area that I think people get it wrong is in their marketing spend where they, again, they don’t know how to work it out. Their margins are a certain level, and it’s pretty easy to work out how much to spend on your business. Right? I always start like this I’m not a guru.

00:48:27:23 – 00:48:43:07
Paul W
I don’t tell you, oh, you gotta spend 30% on ads because that’s the norm. But I didn’t tell you that I would. The first question I ask if you work with me is tell me a net profit goals. Tell me. And what do you need to do with your life? You don’t buy a house. You have to tell me, great, how much money do I unpack that?

00:48:43:09 – 00:49:03:13
Paul W
And then we sell this. All right, so 20% is your goal, right? 20% net profit. We agree on that. Cool. That’s come from the brand. And then I say show me the margin on your product. It’s all margin blah blah blah. After freight gross profits, 50%. There’s your answer. Right. So I’ve got a GPA of 50 and I’ve got a profit target of 20.

00:49:03:13 – 00:49:24:17
Paul W
That means I can only spend 3050. Monastery’s my 50 3020 rule 50 monastery equals 20. I have nothing left to spend on running my whole business, of which we then divvy that up between wages and marketing and so on and so on. Where a lot of brands go wrong is they don’t work that stuff out and they just say, I’ve got a brand.

00:49:24:21 – 00:49:45:07
Paul W
I’ve watched a video on YouTube that told me, you got to spend 30% on ads. And it’s like, yeah, but I like your goals difference. And that person’s on the video. Like they might be making 100 know you might be on a 3% profit, you know, so I think people just rush into it. There’s so many little frameworks like 50, 30, 20 that can help you.

00:49:45:09 – 00:50:04:00
Paul W
If an ad just upskilling in them. But I think just listening to people who tell you that the answer is pumping money into ads and like very quickly you can sit down and be like, yeah, cool. So I just want to tell you why your business will never work. You’ve got a margin of 50 and you’re spending 40% on ads.

00:50:04:02 – 00:50:23:24
Paul W
We haven’t even touched on wages yet. And you’ve got 10% left just to break even. You know, that’s like putting a square, you know, a square peg in a circular hole. It just doesn’t fit. And people just kind of just rush into that sexy stuff of just, I’ll just spend my way to success. And unfortunately, they, they lose money.

00:50:23:24 – 00:50:29:05
Paul W
So I think ads and inventory is where we tend to to over invest.

00:50:29:07 – 00:50:43:20
Alex C
And do you also think that lack of innovation like as in like point. Yeah. So the had a product it was pumping and they just kind of got lazy on it and they didn’t focus on breadth and they just focus on depth because it was just working like Theragun for example. Like that’s not only going to go on for so long.

00:50:44:00 – 00:50:46:02
Alex C
And then I had something else, right.

00:50:46:08 – 00:51:12:24
Paul W
To have something else. And that’s the thing. Like when someone says like, I just haven’t been able to grow. And on my cool was in the last six months, what’s the most exciting thing you’ve done with your product? Like, no, that’s. And I’m like, well, you know, when, anyone who started a business used to get really excited thinking, I’ve got the product, I’ve got the I’m working on a toothbrush at the moment, I’ve got the sample, and I’m like, amazing.

00:51:12:24 – 00:51:33:04
Paul W
The scent. Oh, my God, this is good, guys. It feels good. We’re excited about it. And then we launch and we move from this phase of dreaming about the perfect product to dreaming about Roas like, I know, but you’re product people. You’re not ad people, you’re product people. That’s why you study your problem solvers. What happened to that innovation in that?

00:51:33:06 – 00:51:54:01
Paul W
That R&D? And I think you got to innovate or be left behind because you have to. And a team really would say and snapping at your heels now knock your product off. And then what. So I think you got to Nevis. You got to be like the shock. You just never stop moving, never stop testing and trying and trying to find that next product that takes you to that even bigger level.

00:51:54:03 – 00:52:03:05
Paul W
I think it’s laziness. I think people just get lazy and focus on the the sexy stuff. All that, the bias, the human bias. We focus on what we’re good at and what we like.

00:52:03:07 – 00:52:04:06
Alex C

00:52:04:08 – 00:52:06:13
Paul W
And it’s very easy, you know.

00:52:06:15 – 00:52:18:12
Alex C
And then I think after a while, especially like in business, you think, oh, well, I’ve done the hard yards and now I can kind of relax. And that’s when you start losing because there’s no relaxing. It’s very relaxing in a calm land. Everyone wants a piece of it, right?

00:52:18:15 – 00:52:36:14
Paul W
It’s like it’s a it’s a constant hustle. It’s never stopping. And it’s like and I feel it’s hard because you’ll drop a, you know, you’ll drop an amazing range and the brand like often I’m working with brands like, oh, that’s a great drop. So what do you got next? And they’re like, what do you got next? I’m like, yeah, like we got to move on because you said it earlier.

00:52:36:14 – 00:52:53:01
Paul W
I like it when you drop core product, you can create content around it. Fresh adds fresh. It just drives the interest. So it does drive traffic and interest and engagement and sales. And it’s just part of that flywheel that you need in your business. What do you say to.

00:52:53:01 – 00:53:13:19
Alex C
Because obviously there’s there’s the average okay. Let’s call it a. And then there’s the, the top brands who are just like scaling up through paid media. Right. And you know, it’s a strong kind of role ask like the demand is there. It’s pumping up. Right. And they’re going for kind of market share and they’re kind of forgoing profit for the short term.

00:53:13:19 – 00:53:31:23
Alex C
Now I know this kind of goes against your 50 3020 rule, but I know a second ago it’s not that kind of it’s not a fixed rule. But how do you because sometimes it is the land grab, right? You know, because there are some. And so how do you advise those types of companies who are going for scale, you know, say for example, like A5X.

00:53:31:23 – 00:53:49:03
Alex C
Yeah, right. And I’ll invest in the five x at what point or so what are the the metrics to be a cross to be careful of at those points. Right. Because it can be really good. But it can also not be right. So what would you advise to those types of brands as well. Because there’s a few of those out there.

00:53:49:03 – 00:53:54:14
Alex C
There’s there’s I mean I look at all of them and they’re doing some amazing things. Well, it looks like from the outside. Right.

00:53:54:16 – 00:54:09:22
Paul W
There are there’s a few there’s a few. Catch 22 is there. And that’s the good point, though. And even for people listening who are starting, it’s unlikely that starting a business, you’re going to be able to get away with spending 20%, you know, to gain market share. You probably have spent 100% for a few months. So, yeah.

00:54:09:24 – 00:54:30:17
Paul W
But, this is why the 50, 30, 20 rule, the beauty of it is the ratios and ratios move. And you’ll notice that, five minutes ago I said, what’s the first thing? I don’t come in and say, hey, you should be spending X. Actually, no coach guru advise I should ever tell you that. What they should say is called tell me about your goals.

00:54:30:19 – 00:54:57:01
Paul W
Now, if that person says, listen, we’re doing a land grab here and we just want to break even, right? That’s your strategy. Let’s. That’s your goal. Let’s craft the strategy that matches your goal and what we can do. Then that business could say, yeah, breakeven. So I’m 50% GP I’m 50% opex. So I’m going to pump 30 into ads because I’m happy to make no money.

00:54:57:03 – 00:55:18:12
Paul W
There’s no wrong answer here as long as you’re aware of what you’re doing. And then the my job is right. Do you have the cash runway to support that? Yeah, we do with fantastic. That’s a legitimate strategy. Where it goes wrong is when businesses say, yeah, so I want to do the big land grab, but I also want to make a 25% net profit.

00:55:18:12 – 00:55:40:23
Paul W
And I’m like, well, you’re spending 50 and you’re spending 40. That leaves ten. Those numbers will never add up. So I think it’s important for any brand or even advisor is to just flip that back and say, it doesn’t matter what I think you should spend, because, you know, we should all have different strategies and some people want to 37% net profit, some want a ten.

00:55:41:00 – 00:56:10:18
Paul W
We adapt the strategy accordingly. Where I see it go wrong again is they overspend in marketing, and somehow they think it’s going to spit out a 30% net profit. But really it spits out nothing the, the, the catch 22 to those brands because I’ve definitely seen some do it really well, but also some get caught is that a lot of them are eyeing off the A dollar beauty deal of 3 or 4 years ago, or the deals now those deals ain’t around anymore.

00:56:10:20 – 00:56:33:13
Paul W
So what I mean by that is if you’re going for the land grab expecting to sell for five times your revenue, there is a needle in a haystack. Deals that are typically done and dusted. And it’s people are gun shy you know. So again, my like my advice generally is that most deals are done on a multiple of profit still.

00:56:33:15 – 00:56:52:13
Paul W
So just balanced and you can still balance being quite profitable, you know. And growth 50% year on you can find a balance. However, if it’s your strategy to, you know, burn a few dollars or break even and just go to be as big as you can because there’s a private equity sign, no problem. As long as the eyes are wide open.

00:56:52:13 – 00:56:56:14
Paul W
No wrong answer here. As long as you know what your bank account will look like at the end of each month.

00:56:56:19 – 00:57:17:01
Alex C
Correct me if I’m wrong, but the focus which you have this with your accounts and basically the companies, who you advise is basically to focus on a 100% increase, like in kind of profit instead of in revenue. Right? So yeah, that’s where you like is that’s still something that you focus on. And okay, cool. So this is a really good one.

00:57:17:01 – 00:57:24:07
Alex C
Right. And so how do you focus on increasing profit instead of kind of everyone else is focus on increasing kind of revenue and sales.

00:57:24:09 – 00:57:49:09
Paul W
Yeah. So that’s one of my programs for seven figure business is called econ 100, and it’s called econ 100 because it’s target 100% profit growth. And I’ve seen that happen a lot. We’re pretty selective with who comes into that because we we know that not every business can do it. But why? I do that is I started my first business in retail and online retail when I was 23, and I borrowed a lot of money to start it.

00:57:49:11 – 00:58:14:03
Paul W
And I felt that crushing pressure of expectation. But now what I’ve learned is that if I go to the bank and I’m more of the belief that if you start a company spin off dividends, you can invest that to make more money. And so that’s so that’s largely speaking, my philosophy is that I believe you can make more money over your life time spinning off profits and dividends and reinvesting that into other things, as opposed to waiting for the big, the big payday where you copped capital gains tax.

00:58:14:03 – 00:58:45:24
Paul W
And now that’s my personal belief. Where that stems from is going to a bank to buy an investment property and then not giving a shit about your bank balance. But, but, but caring about your service ability. And so what I realized was and also working with brands over time who had rapidly scaled and then flopped really quickly, you know, and I just prefer the sustainable cash flow coming in rainy day.

00:58:45:24 – 00:59:07:14
Paul W
If you ever get stressed, you can sell the business. There’ll be a buyer. There’s always a buyer for a profitable business, not so for unprofitable businesses. So I like that I’ve been able to realize that you can invest the the dividends and the profits you can borrow to buy the beach house. You can borrow to buy the bigger house, you can borrow to, you know, you can put your kids through the better school.

00:59:07:19 – 00:59:27:00
Paul W
But when I go to school with my three girls and I try and enroll them in the best school, and I’m showing them a Shopify screenshot of exile that I think they’re. Yeah, that I could screenshot that. Yeah. And when I go to dinner at the best restaurant and I whip out my Shopify app and say, yeah, but look how much I made last Tuesday.

00:59:27:02 – 01:00:02:05
Paul W
That’s not what pays the bills. So what pays the bills is cash. And the most important metric in any business is your bank account. It’s just like your bank. Forget what I’m saying. Your bank account will tell you whether your strategy is working or not. And that’s what it comes down to, is like, I was not able to do anything with screenshots that as I Shopify screenshots, don’t buy beach houses, because what I could do is I could buy a ton of inventory, leverage it to, you know, to the to the wazoo, spend a fortune on ads, and show you the most impressive screenshot you’ve ever seen and be finished into in three months.

01:00:02:07 – 01:00:20:12
Paul W
And that’s what happens. So what I would rather do is focus on high levels of profitability, because that’s what I believe improves the lives of the founders. And that’s my mission, is to improve, help improve the lives of the founders. I work with. And I simply believe that they’re happier when they have more cash and they have more cash when they’re profitable.

01:00:20:14 – 01:00:38:22
Paul W
The other thing is, when you start spinning off that those dividends or spinning off more profits, you can actually start to type that an investor, the new product lines or invested in asset and machinery or invested in other nice and out of home advertising, some TV, some billboards. So and you can actually then accelerate your growth even further.

01:00:38:22 – 01:00:49:21
Paul W
You don’t have to pull all of the dividends out. But I think it’s just the the comment is, overall revenue for vanity, profit for sanity. And, it’s always been that way.

01:00:49:23 – 01:01:10:17
Alex C
And I think that’s everything that we’ve spoken about in this podcast so far. Right? It’s it’s essentially having good product that has some strong margin. So it’s not over investing in advertising. It’s kind of just knowing the numbers, having the drops. It’s being smart with kind of the cash flow and the times in negotiations and so on, and just getting like just super particular about every single step in the process.

01:01:10:17 – 01:01:27:18
Alex C
And if you can be that particular, which is hard, obviously it’s hard, then that’s maybe how you do it. Yeah. That’s why I, speaking with somebody like yourself that’s had like a lot of years of experience and who consults on this all the time, it’s probably going to be helpful for these kind of brands, right. Because I’m sure that you’ll tell them how it is.

01:01:27:20 – 01:01:32:18
Alex C
I’m sure they’d like you’ll tell them that maybe their baby is ugly a little bit right now. That’s you know what I mean?

01:01:32:22 – 01:01:49:02
Paul W
My wife says all the time, you know, you’re a bit harsh as you, but I take my job seriously. If your idea sucks, I’ll tell you your idea sucks. And it also is not, about me being perfect or made like I’ve. I’ve been there and done it. Like I’ve had the big debt, so I’ve. I did it when I was 23.

01:01:49:02 – 01:02:07:01
Paul W
You know, I know what it’s like. And I know what a terrible loss that can be if you get it wrong. And I know that there’s a lot of people out there who will glamorize it and just say, let’s crank this, spend up, baby, let’s you’re you got to get to the big leagues. And I’m like, well, since when did business be about how much you could spend?

01:02:07:01 – 01:02:23:02
Paul W
As far as I’m aware, I’ve always worked out that the way to get rich is sure. Bring a lot of money in and to spend as little as you can to do it. And the gap is yours. So it’s kind of like two jobs be efficient and get sales, not just get sales.

01:02:23:04 – 01:02:48:24
Alex C
And that gap is really, really hard. I mean, I’m sure that anyone who runs a business knows that gap between spending and and yeah, the spending and keeping is like constantly a challenge especially last three years inflation everything competition. So for people who want to be part of your coaching program, right. Because it sounds like a lot of ecommerce brands, but who I know and who I speak with all the time, they need this kind of consulting on top of the marketing agencies and other consultants.

01:02:48:24 – 01:02:53:17
Alex C
Right. So how do people get involved with you? Yeah. Who do you help, first of all? And then how do they get involved with it?

01:02:53:20 – 01:03:13:04
Paul W
So I essentially I do two things. I have a program so you can get in touch with it. Pull what E-Com or learn e-commerce, accommodate my website, or just follow me on Instagram and pull up the e-commerce. I do two things e-commerce start, which is you’ve got no experience, but you want to start an online business. What do you do that’s for you?

01:03:13:06 – 01:03:33:03
Paul W
I’ve got econ 100, which is for brands that are seven figures or, you know, they’re not seven figures, but they’re on the right track. And so I interview them and work out whether I think they can make it. So we either saying like, and I’ve got a team of experts across product and finance and so on, but it’s pretty intensive.

01:03:33:03 – 01:03:51:07
Paul W
So what I always say is we don’t want everyone. We want the right ones. I’m not looking for 2000 members in my group. I’m looking for the ones that can make it. And then I’m in the results and reputation business. I need people to go away and say, man, we did this, we quadrupled or we did, and then the rest takes care of itself.

01:03:51:09 – 01:04:08:05
Paul W
So yeah, if that sounds like someone listening, you just hit me up on one of those channels. And then we start with a bit of a bit of a ten minute audition where I ask a bunch of questions to say whether I think you can make it, because that’s that’s important to me. No point made talking about profit, this and that.

01:04:08:05 – 01:04:34:03
Paul W
And then I just start invoicing people who I know we’re going to churn in three months anyway. So it’s really important about picking the right ones. And the ones that, you know, you can work with, like the ones that get the frameworks, they have a desire or ability to, to learn because it’s it’s hard, it’s intense. And then we’ve yeah, we’ve, we’ve had some brands get some amazing results and always looking for people that want to kind of join and try and get to that next level.

01:04:34:05 – 01:04:58:14
Alex C
Fantastic. And I’ll put all those links in the show notes. So, so I would highly recommend anyone who doesn’t understand everything that we’ve spoken about in complete detail to to actually sign up, because you need the support, like is having a coach is how all the sports stars actually win, right? Like, like it is a good thing to have someone around you who can advise you on how to think about things smarter and better because it’s hard, it’s competitive, and it’s challenging out there.

01:04:58:16 – 01:05:15:23
Alex C
To one final point and, just a quick tip. Yeah. So what, any advice on kind of, any advice on the Black Friday, Cyber Monday approach that people should be thinking about in the current environment? Yeah. Any kind of words of wisdom from, you know.

01:05:16:00 – 01:05:39:17
Paul W
I reckon. Oh, like there’s a lot of generic stuff out there, you know, hot, hot phrases that I’ll give people one simple tip that’s a boring tip that they can apply straight away, but it will help them make money. And the tip is, if you normally spend 20% on a marketing, take 5% off to preserve your profit because you’re going to discount.

01:05:39:19 – 01:06:01:07
Paul W
Why I say that is I’ve seen heaps of brands have great November’s a cyber Month, and then they get to the end of the month. And October actually was more profitable than November because they discounted and either forgot to bring their marketing spend down or actually took it up. So if you were going to discount and you want to preserve your profit, that has to come from somewhere, you might pull a little bit off your wages.

01:06:01:07 – 01:06:23:12
Paul W
But, you know, wages are generally not that hard to move down and then up. So try and just pull back 5% off your marketing spend in cyber. And also people say that’s crazy. If your brand that’s discounting and you think you’re a great brand, would you really need to spend the same percentage that you always do when you’re on sale?

01:06:23:14 – 01:06:48:05
Paul W
So just think about that. Drop 5% off for me, to allow for a nice, profitable, cyber and focus on your own audience. So make sure that you’re driving that SMS list. Driving that email list. That’ll scoop in a lot of the, a lot of the revenue on the first day. And then your paid media can come in and scoop up the rest, but just preserve that profit by taking 5% off your marketing spend.

01:06:48:05 – 01:06:49:24
Paul W
If you intend to discount.

01:06:50:01 – 01:07:07:11
Alex C
These are some great points. I hope everyone has enjoyed this conversation. There’s a lot of nuggets in here. I would highly recommend just to contact and just get in touch with him. Just to make sure, like, if there’s something that, can help you, you know, just have a conversation. It’s super easy, and it can it can really, really help you.

01:07:07:11 – 01:07:21:05
Alex C
And I can say this already. It’s for our clients as well. You know, there’s a lot of people who seem to have just kind of have fallen into something that’s just working. And I don’t even know how it’s working, but it’s working. Right. And so it’s really hard to get from that point up to half a million bucks a month.

01:07:21:05 – 01:07:34:13
Alex C
Right? So speak to someone who’s done it and who’s helped. I don’t know how many companies. Because it’s going to help you a lot. Thank you so much for coming on the podcast. This has been such a great conversation. I’m sure my audience is going to love it. Thank you so much for.

01:07:34:17 – 01:07:37:05
Paul W
Thanks for having me, Alex. Loved it.

01:07:37:07 – 01:07:53:08
Alex C
Thanks for listening to the Growth Manifesto podcast. If you enjoyed the episode, please give us a five star rating on iTunes. For more episodes, please visit Growth manifesto.com/podcast. And if you need help driving growth for your company, please get in touch with us at Web profits.io.