In this episode, host Josh interviews Tyler Jefcoat, founder of The Seller Roundtable, about financial strategies for Amazon and e-commerce sellers. Tyler explains key metrics like COGS, Amazon fees, and advertising costs, and shares actionable tips on optimizing profit margins, managing inventory, and preparing for business exits. He emphasizes the importance of accurate accounting, SKU-level analysis, and disciplined habits for long-term success. The discussion also covers useful tools and resources, including Merchant Spring and the book “Atomic Habits.” Listeners gain practical advice to build more profitable and acquisition-ready e-commerce businesses.

Chapters:

Introduction to Tyler Jefcoat and Stellar Accountant (00:00:00)
Tyler’s background, experience, and introduction to his work with e-commerce sellers.

Key Financial Metrics for Amazon Sellers (00:00:38)
Breakdown of revenue, cost of goods sold (COGS), Amazon fees, and advertising expenses.

Profit Margins and Targets for Sellers (00:01:44)
Discussion of ideal net profit margins, advertising spend, and benchmarks for healthy Amazon businesses.

Net Profit Margin Benchmarks and Market Trends (00:03:59)
Analysis of average net profit margins, market headwinds, and acquisition readiness.

Preparing for Exit: Case Study and Best Practices (00:05:01)
Advice and case study on preparing for business exit, including accounting and inventory management.

Return on Capital and Product Portfolio Analysis (00:06:54)
Explanation of return on capital, product-level profitability, and portfolio optimization.

FBA Fees and SKU-Level Analysis (00:10:18)
Importance of monitoring Amazon FBA fees, SKU-level analysis, and correcting fulfillment fee errors.

Automating FBA Fee Audits (00:11:45)
Discussion on automating FBA fee audits and best practices for large catalogs.

Three Actionable Takeaways for Sellers (00:12:59)
Summary of three key actions: solid accounting, SKU-level profitability, and price testing.

Book Recommendation: Atomic Habits (00:15:40)
Tyler recommends “Atomic Habits” by James Clear and discusses its impact.

Favorite Software Tool: Merchant Spring (00:16:46)
Recommendation and overview of Merchant Spring for multi-channel sales integration.

Closing Remarks and Contact Info (00:17:28)
Final thoughts, recommendation to contact Tyler, and episode wrap-up.

Links and Mentions:

Tools and Websites 
“Merchant Spring“: “00:16:46”

Books 
“Atomic Habits by James Clear“: “00:15:49”

Transcript:

Josh 00:00:00  Today, I’m excited to introduce you to Tyler Jefcoat. Tyler is the founder and CEO of Stellar Accountant, where he exercises his passion for helping sellers maximize their businesses. Tyler provides financial coaching for sellers totaling more than 100 million per year in e-commerce sales. Tyler also leads the Sellers Roundtable, an exclusive mastermind group for seven and eight figure sellers. Before founding Seller Accountant, Tyler was the co-founder and managing partner for Care to Continue, a home health care company that grew from 0 to 100 employees in four years. So, Tyler, welcome to the show.

Tyler 00:00:36  All right, Josh, thanks for having me.

Josh 00:00:38  So you have your top line revenue. The next thing we have is you’re going to have your cost of goods sold, right? So with your cost of goods sold, you said the average is about 30 to 35% is what you’re seeing right now.

Tyler 00:00:52  And this kind of landed cost. So if you kind of think about what it costs you to satisfy your Chinese Po and then do the duties freight into the states, I think.

Tyler 00:01:01  Across the board, we’re seeing literally pretty close to a third 33, 34%.

Josh 00:01:05  So if you’re below 30% or so, that’s a good indication then. Right. Okay. Looking good. All right then next you have your Amazon fees that are going to come up. Right. And I think I’m going to split these up with the advertising separate. So what is your Amazon fees that your 15% commission plus the pick and pack. All that goes into the Amazon ecosystem. You’re saying 30 to 35% is what you’re seeing there. Is that right?

Tyler 00:01:34  To keep the numbers easy is probably another third. So you got about a third in your unit cost to Google. You got about a third and normal Amazon fees.

Josh 00:01:44  okay. Cool. And then so all right. So at this point we have 66% right of our revenue going to Cogs in Amazon. And so what you’re saying is that the last remaining portion for that POG number that you were talking about is your advertising expense specifically on Amazon. So with your advertising expense, you said ideally you want to be between that 20% to 25%, you know, net gross margin, including the advertising costs in there.

Josh 00:02:16  So that means you’re going to be needing to sit around somewhere between 15 to 20%. Correct.

Tyler 00:02:22  So if we if you think about it, we’ve got it split into thirds, a third in cogs, a third name is on fee. So we’ve got 33 points left. I can spend between, you know, roughly 10% on tacos in that model. Let’s assume that your cost of goods sold model. Then I’m really going to. So so right. Take another 10% away for ads. That leaves me with a 23% P&G or post advertising gross profit. And I would say that’s a really good target. Like, again, I would rather aim for 25 and hit 23 than really flirt with 20 constantly. But yes. So that would be that would be a fairly prototypical private label or kind of brand building seller on Amazon is third, Amazon fees. Third product cogs are about a dime, about ten points going to tacos. And then I’ve got 22, 23, 24% after ads that I can put towards my overhead.

Tyler 00:03:08  And mama wants a boat, you know, whatever it is, that’s the money I want.

Josh 00:03:12  Makes sense. Makes sense. So with that, and then the other thing you mentioned is, hey, if you have really good cost of goods sold, right, you know, you might be 10 to 20%, right? Well, then you could ramp up your advertising spend. Right. So you can kind of offset those things, but the more profitable you are, the better. Like you said, some people were 30 to 35% that were really getting some premiums, with all the acquisitions that were going on. So this is awesome. This gives us a lot to think about and great targets to shoot towards, especially like net profit margin. You said, you know, ten is kind of the average. You said, right. 15 means that you’re really good. You know looking good. You’re a good candidate to be acquired. Is that correct?

Tyler 00:03:59  Yes. And honestly, coming out of like 2022, I would actually say that, you know, 10% was actually probably pretty good because we did see a lot of headwinds.

Tyler 00:04:09  So give your give yourself some grace. Like if you’re looking at your piano right now, you know, here in the middle of 2020 and you’re like, well, boy, I got 5% last year, I must be dead. That actually might be more normal than you think it is. But don’t don’t think that that’s going to be normal forever. I think we are we’re, we’re we’re continuing to want to see the market get better and we want to we work too hard and we risk too much to take a 2% profit margin for too long. And so getting a 10% is really crucial. And then I think if you’re going to exit, getting it closer to that 15% net profit. Yeah.

Josh 00:04:38  Awesome, awesome super valuable content. Tyler thanks again. All right. So with that, let’s talk about maybe some of the levers that people can be pulling, you know, as they prepare to exit. Right. If people are wanting to exit and maybe they’re sitting at that 5 to 7% net profit margin right now, but they want to increase it.

Josh 00:05:01  What’s been kind of your advice or recommendations or ideally let’s talk about maybe some case studies of clients that you’ve worked with to really kind of help them prepare to exit well in advance of saying, hey, guess what? Tyler I’m exiting. I’ve got a Loi on the table. It’s like, well, it’s kind of a little too late, right? So maybe walk us through that process. What should people be doing now?

Tyler 00:05:25  And this is a great time to be investing in your business. And so one case study we’ll call. We’ll call him Dawn. They were already doing a million a month in sales, but they had no accounting system. So they were a spreadsheet napkin and a prayer, you know, that kind of thing. But the thing that they were doing really well, Don and his team were, first of all, they had a mission that mattered. Like their products really solve problems. They really were doing good things in their community. And and so they were actually literally a real brand with a real mission.

Tyler 00:05:57  They were really gifted leaders. So I want to give these guys they made a ton of money because they’re really good at what they do. and so some of the things that helped. Obviously, just getting accrual bookkeeping done for as many months as we could so that, you know, a year later when they went to market, they were ready. It was pristine. That’s kind of the first blocking and tackling. Let’s get bookkeeping from zero to to something. number two is inventory management. They really invested pretty heavily in being able to put a they had a pretty complex catalog. So being able to put a number on their inventory each month, keeping up with it. people think that’s an accounting problem. It’s partly accounting but it’s mostly operations. Do I have does my, lowest level warehouse worker know how to properly receive an inventory, you know, container when it comes in, right? That kind of thing. And so Don made those investments. and then the thing that kind of hits on what you’re talking about, let’s say that the profitability wasn’t where Don wanted it to be, which it wasn’t with some of his catalog.

Tyler 00:06:54  He started measuring what we call return on capital. So I don’t want to get too nerdy geeky, although we can dive into this as much as you want to. But think about this, Josh, if you and I bought a house, we bought a piece of real estate, and then somebody told us, you’re going to make $1 million when you sell this house. We actually don’t know whether we’re happy about that until we know what we invested to buy the house, right? In other words, a true return on investment calculation is requires both variables. What was the happiness divided by the inputs? Happiness divided by inputs. Right. And so when it comes to a product I want to know like on a 12 month basis. What was that number. What’s that true contribution margin. Gross profit for product A. But I want to do that divided by how much of my money or my borrowed cash or mama’s money. Did I have to have tied up in that product? And that’s a little trickier to get our hands around, but we can kind of estimate it right? How many, how many dollars.

Tyler 00:07:49  And so that profit divided by working capital for QA is the equalising KPI for every product in the world. It doesn’t matter if you’re direct consumer or on a marketplace, if you’re international, if you’re not. If I can calculate that return on working capital for every product in my portfolio, I’m going to immediately see, oh my gosh, I’m getting like $0.05 a year return on investment in this product that I thought I loved, but don’t love it because even though I have good profit margins, I never move it. It has really slow velocity. So I’m sitting on that cash forever, and you might be surprised to find, wow, I didn’t even like the green one. The green one is my favorite one now, and that baby is really generating high returns. And so something that I was really proud of Donald and his team for doing is looking at their pretty robust catalog and saying, oh boy, these ten products are below the line. We’re going to give them, we’re going to give them a, a nurture sequence to try to get them back.

Tyler 00:08:45  If they can’t get back, we’re gonna have to kill them. And we don’t feel great about it, but they’re not our children. We’re going to have to let them go. We’re gonna have to redeploy those capital resources into products that are generating a strong annual return. So I think, if you’re looking for that super great benchmark, if you, by the way, here’s the easiest way to do this. Forget about it on a skew level, if you pull up that PNL, that profit and loss statement for your last 12 months that are completed and give me a real number for that post advertising gross profit. What was the real profit after Amazon fees? After advertising for my entire company. And then divide that by whatever my average inventory balance was for that 12 month period. I mean, you just may have to eyeball what was the balance sheet. January, February, March, April, May, June are about 250 K in inventory. I don’t need this to be exact. Profit divided by that average inventory balance is going to give you that return on capital for your entire portfolio.

Tyler 00:09:37  The guys that got these seven and eight x multiples during the like fever of aggregator including John, by the way, they were getting about A4X return on capital for the year. So that means that over a 12 month period. If they made $1 million in profit, they only had to have $250,000 tied up in average inventory to make that million a profit. That’s obscenely productive. Capital allocation. The average across the board is about 1.8 to 2 for a year. And if you’re below one x, you may be feeling some pain. But yeah, it’s really difficult because it means you’re having to borrow a lot of money to stay afloat.

Josh 00:10:18  Fascinating. I think the other thing that you could, point out here, if you’re looking at things at a skew level, just as I’m thinking about it, is Amazon often will measure your product and put you in a higher FBA tier like fulfillment fee. Right. And so you if you’re not looking at that month over month, you could think that all is well, but Amazon jacked up your fulfillment fee and now you’re in the oversize, you know, fulfillment for no reason.

Josh 00:10:48  Right? Except that somebody somebody measured incorrectly. I mean, there’s a lot of softwares that go through that process and automate doing that for you, but I think that’s a big miss. We started correcting that in our business about 18 months ago. And oh my goodness, I can’t I couldn’t believe like we I think have now captured well more than six figures worth of just like crap that Amazon had measured incorrectly. It’s like no, give us our money back. Like this is a mistake. So that was something we were sleeping on for a long time. Do you see that often as well?

Tyler 00:11:23  Yeah. Same. Yeah, we see the same thing. And so again, we kind of think about that framework that we mentioned a minute ago, just looking for things that are losers. And now the question isn’t should I kill this loser? We don’t know that yet. Well, the question is let’s try to determine why and whether its refunds or FBA fees have doubled. All of a sudden that maybe a flag that says we need to dig in.

Tyler 00:11:45  And yes, we do see this. Actually a question for you, Josh, because you guys are managing a big portfolio. Like how often are you doing that kind of analysis for your portfolio? Is this like tooled up where it’s pretty automated now, or is this something that like every month you do it manually or what does that look like for your team?

Josh 00:11:58  Yeah. So right now with the FBA fee specifically, we have, you know, the Getty the tool is going through and creating those cases. We originally had, you know, Vas that were going through and manually doing that, but it just became so numerous, like we were always creating re measurement cases. And so we were just like, you know what? We could set this up now. It took us a lot of time. It took us about a month to be like with 1300 SKUs. Here are the exact dimensions for every single one of our products, right? And here’s how much they weigh. Like that took a lot of setup time.

Josh 00:12:30  But now we gave we gave it all to getting to. And now they kind of automate that for us.

Tyler 00:12:36  I think you just described probably the best practice there is. I think this is one of those tasks that unless your catalog is really straightforward, finding a software plus a competent service provider is one of those really good ones out there that just pick someone you trust and try not to burn too much of your internal Ram chasing Amazon cases because they’ll run out of time if you do that.

Josh 00:12:59  Yeah, I do love to leave the audience with three actionable takeaways from each episode. Number one is you’ve got to get the basics down. And you mentioned this earlier. You know, you’d be surprised the number of seven and maybe even eight figure sellers that don’t even have their basics down in terms of accounting. They’re doing things with spreadsheets. They don’t even have an accounting team or they’re not even looking at their numbers. So first and foremost, if you’re in that camp like, oh, I would highly recommend that you, you know, get on board with one of these outsourced accounting solutions, because my goodness is going to give you a lot more confidence and clarity, and especially in the environment that we’re in with inflation and Amazon fees going up, you need to get very clear in making those strategic decisions as a CEO.

Josh 00:13:48  Like Tyler mentioned that, hey, am I going to invest my 100 grand to keep this product on life support? Because I see it a huge return down the road? Or is it better to take this 100 grand and go invest it in new product opportunities? You only know that when you’re looking at the financial data. So that’s number one. Number two is starting to manage the profitability of your business at a SKU level approach. So look at things and start killing the products that literally are just eating money away from your business. and you have to emotionally detach yourself from some of those products. But that’s the beauty of the data, is that it’s it’s just going to be black and white, maybe even red. but black and white to show you this is this is who you should be, you know, focusing your time and attention on. So that’s takeaway number two. And then takeaway number three is kind of piggybacking off of our last conversation is I would encourage everybody to a B test your prices, especially in the environment that we’re in, overcome some of those mental barriers, but increase your prices.

Josh 00:15:02  And you know, my example and experience has been some of the competitors will start following you and raising their prices as well. But they’re waiting for people to kind of start start making those moves. and then you’re going to end up in a more profitable situation targeting, again, that net margin, you know, when all is said and done at around 15% means you’re very healthy and, you know, you could be looking at potential exits down the road. So, Tyler, what are your thoughts as we summarize those three takeaways for the audience? Anything else you would add?

Tyler 00:15:36  I think you nailed it there. Those are great. Do those things. You guys are going to be really happy.

Josh 00:15:40  Awesome. Well, Tyler, the final three questions I want to ask you here, what has been the most influential book that you’ve read and why?

Tyler 00:15:49  Okay, so the one I’ve been geeking out on the last couple of years, I do, I do read a lot. If you search my website and if I have a book report on about 55 of my favorite books there.

Tyler 00:15:58  So I’m a, I’m a, I’m a reader nerd, but I want to keep chewing on is James clears Atomic Habits. So, he’s a fellow bald guy like me. former, I think, college athlete that really pivoted into performance coaching and his his take on how to get 1% better each day, how to do how actually, I guess his mantra is you’re not going to rise to the level of your goals. You’re going to fall to the level of your habits. And I have found that to be so true in my life. So that’s the one that’s really impacted me the most here in the last year.

Josh 00:16:28  I 100% echo that book. Fantastic book. It’s one you could reread every single month and take a lot of insight from. Very good. what’s your favorite software tool that you’ve been using, or you’ve seen other sellers using that. You think people need to be paying attention to.

Tyler 00:16:46  The one that’s been. We’ve talked a lot about the most popular ones out there. The one that I want to shout out to today is a tool called Merchant Spring.

Tyler 00:16:54  These guys are I think they’re based on Australia. And if you have a multi-channel, approach and are looking to integrate to all of your Amazon International, I think plus eBay and Walmart and being able to pull those sales in in a way that you can kind of aggregate it. we use it because we are able to kind of get a bulk for all of our CFO clients. So we can kind of try to help create some of that skew level. It doesn’t solve the Roas problem for Shopify. So it’s still a little bit, you know, doesn’t solve the full problem unfortunately. But Merchant Spring I think it’s I o is one that you should check out.

Josh 00:17:28  Awesome. I definitely recommend everybody, you know, reach out to Tyler if you’re in need of some accounting services. He shared a lot of great insights. He has a lot of great experience here. So Tyler, thanks so much for joining us on the episode today.

Tyler 00:17:42  Thanks, Josh.