Josh Hadley 7:18

more Yeah, that makes a lot of sense. Do you have a preference? Whether it’d be using QuickBooks or Xero? Is there a better one over the other?

Jason Snider 7:27

For us as accountants, we walk into it, we’re going to ask some questions about operationally, that’s the first questions we’re going to ask before we advise her on that. As far as an accounting software, we prefer Xero, if it meets the business owner’s needs, and there’s a few functions that need to be taken care of. So it’s more important for the business and the business owner to have comfort and confidence in the systems that they’re deploy. So we’re not going to say, hey, we prefer Xero. So you should use Xero, it’s going to be operationally first satisfy that need. And then we’ll give feedback from our point of view. And so if we have a preference, all things being equal, we will have to claim Zero for most cases yes. Makes sense.

Josh Hadley 8:07

I think I what I love as I hear that is that obviously you guys are very client-centric, and doing what’s in the best interest for the client. You know, what are those use cases where QuickBooks might be better than

Jason Snider 8:20

QuickBooks where that have more API built out for your other platforms and things when those things are necessary, especially if it comes to like a large payroll, or an inventory platform that you need those connections there? Many times you don’t need those. But in some cases, it’s needed. Because the amount of data that’s consolidated and imported, and also the accuracy of it, you know, if you have manual processes that can introduce some issues if it’s not done correctly. So usually, it’s around API’s and being able to interact with other platforms is usually where QuickBooks has more of a superior deliverable to the clients.

Josh Hadley 8:59

Yeah, makes a lot of sense. Good. So now we kind of have a lay of the land of in terms of you know, what technology we should be using or the lack thereof, right? Keeping it simple, and not getting complex. Jase, I want you to dive into you have this holistic kind of more innovative approach that established bookkeepers necessarily don’t have, do you mind providing an overview of what is this new innovative approach that you have to better serve e-commerce clients?

Jason Snider 9:26

So we take it from the business owners perspective accounting there is to serve the business and the business owners to make decisions, provide clarity, know what’s going on to a large degree. It’s never 100% down to the penny accurate, but most of us don’t need that level of detail to manage and operate our businesses. So we take a like you mentioned before a holistic, client focused process and in build our systems around that. And a couple of ways we do that is we reimagine if you will the the P&L statement, most of us are familiar with your revenue, your cost of goods, and then your operating expenses. So we’ve taken the approach of call buckets, rising expenses and putting groups of expenses together into a group, you have a subtotal. So you can see where your spend is in these major parts of your business. And so we have a template of sales and promotion, or advertising promotion, operating expense or overhead, website and technology, if you have a larger team than most have, like employees, or human resources, and we put it into those buckets, because it doesn’t help a business owner to have to search around and find, okay, I spent so much on this agency, I have these two platforms where I got ad spend, and when they’re separated out, and you don’t see what we want to give as a single glance to the business owner, so they can roughly see, hey, I’ve spent, you know, 10,000 hours on attracting new clients, or new customers to to our store and things. So that’s one way. And the second way is with service. Our team is responsive. We try to answer questions within 24 hours in most cases, we don’t guarantee that the some of our clients choose to engage with us at a higher service level to get that those response times. But we’re internally we’re always striving for within 24 hours and things. So we’re reimagining trying to reimagine from the business owners perspective of the experience working with a bookkeeper.

Josh Hadley 11:27

Awesome. Yeah, I think that’s super important. And I like that approach. I’m curious, Jason, from your perspective, and you’ve got lots of experience. What do you feel like are some of the most common mistakes that you see when clients come to you whether they’ve been trying to do their bookkeeping by themselves? Or they’ve had another service that’s been providing their bookkeeping? Where are you seeing most e-commerce sellers, specifically, Amazon sellers making mistakes with their books

Jason Snider 11:58

in that area? It’s the connection with Amazon and whatever their their QuickBooks or Xero of getting those synced up with their accounts of failure, supposed direct connection? So the two most common mistakes we see is those connections not being set up correctly. Or, as I mentioned earlier, tidal wave of information, not so much Amazon specific, but the the understanding what the fees are, where they’re going on your general ledger, or in your chart of accounts, where what part of the report are they on? In understanding those those things? And especially if they’ve got a third party, like a secondary payment processor or something? Where’s that showing up on the balance sheet? And worst? And how is anybody reconciling it? So that’s the first one. And then the second one is the inventory. bugaboo, the big questions? How do we handle inventory? When am I recording Cost of Goods? It goes to Amazon? When do I show it as an expense on my cost of goods? You know, all kinds of those types of questions that we see are all kinds of different processes and methodologies that are deployed. And most commonly see there is there’s not a commonly agreed to process of how that’s happened. It’s a little bit here and a little bit there. And then their accountant gave them some feedback, because they have to reconcile at the end of the year for tax purposes. And then they go back to the other system that was kind of happenstance, if you will. So it’s not a clear, concise system, on the cost of goods inventory side.

Josh Hadley 13:33

Yeah. You know, as I’ve spoken with many entrepreneurs that have exited their businesses, or even aggregators that are looking at acquiring other Amazon brands, specifically, one of the biggest issues is that cost of goods, right, and not tracking things properly, not adding in, you know, kind of the freight and your actual landed cost. And, you know, one time I need to purchase 10,000 units, but next time, I only need to order 2000 units, well, there’s going to be a price difference in what you’re paying per unit at each of those different levels. So I’m curious, Jason, from your perspective, you know, Could you walk us through in your vision? The correct way to kind of reconcile cost of goods sold on a monthly basis? What, how should people be tracking at number one? And how should they be reconciling it at the end of each month? Right?

Jason Snider 14:27

So there’s a few methodologies that are out there and largely will depend on your revenue and a few other things that are going to guide what systems and also operationally, what’s the volume of business, where’s the physical location of the inventory? A few other things, but generally, there will be two systems, two different systems. One is where we’re going to apply all the purchases to an inventory account. And then we’re going to look at what was the gross sales for that month, and then the other direct costs if we’re going to incorporate that as Well, and then do an inventory count or have an inventory account, and then we extract the value from that inventory account and move it to cost of goods on a month basis. That’s a simple version. And that’s for businesses that have either a lower volume, or don’t have a bigger staff, or they’ve got other challenges on the operational side, or they don’t need that visit that level of visibility. I’ve got a separate system that’s tracking their inventory, and things. So that’s the first methodology. And the second one is using a software where it’s tracking all that down to the SKUs SKU level. Where is, especially if we got multilocation. And things and so the software’s can handle a big chunk of that what we do is we integrate the other costs that are not incorporated into those software’s that’s managing that customers like, Okay, we sold through 2000 units, it was $5, an item that gets posted to the general ledger. But then there’s other costs, like you mentioned, like, if you have a three PL, if you have storage, if you have freight, or import duties, you know, these are the things that we would argue are direct costs, part of the cost of goods calculation, those things need to be added to that on a monthly basis. Why? Because again, we talked about earlier consistency of the data, you need to be doing that our recommendation that minimum was doing it monthly is close to that on a monthly basis.

Josh Hadley 16:21

Yeah, makes makes a lot of sense. Is there any software that you would recommend for Amazon sellers to better track their inventory to help facilitate that?

Jason Snider 16:32

Yeah, it’s really tough to give, specifically because the landscape changes so quickly. It’s just it’s such a real challenge for us to be able to say yes, that’s a really good one for Amazon sellers. So there’s a couple of factors of how we would recommend to clients to evaluate those things. One, talk with your accountant, whoever you’re working with bookkeeper, get their feedback, because it may make sense for you operationally to have something, especially if it integrates with a shipping system or some other system that helps support your operations of your business. But include your accountant or bookkeeper in not so much that where they’re driving that decision, but they’re aware of it and can give you feedback on hey, this might actually complicate things for us and your data is going to be different on the reporting angle. And hopefully you’ve got a good enough relationship with him that you’re going to trust their advice on that angle. So I’ll be the first thing least give them they were thinking of going this direction, do you have any feedback, ask that question to like we talked about earlier, operationally, it’s very important, you know, were not going to come in and say this, you should do it this way. Because it’s better for us, and it calculates the cost of goods correctly, we can handle it. And then it doesn’t sync up with an ordering or your three PL or these different things that you have to do operationally, it needs to be part of the whole picture. And not just from us as accountants, yeah, works great for us. But you’re off on your own trying to figure out the rest of it and manage your operation size of your business and things. And then the third, I think the most important, do you have a good relationship with with that vendor, software vendor. And for me, it’s all around service. For my experience, the software vendors that have reachable customer service that respond within a reasonable amount of time, and when I say reasonable means it has to be effective for you. Like if you got a, you know, $5 million a month operation, you need a higher level of service, because one day is going to that go sideways can cause a big problem for you. But for the business that has a $500,000 month, they’re probably not going to second be as a bigger priority. So a reasonable amount of service. My experience has been when I see software vendors that are responsive and engaged with their clients, they’re usually a better product and experience and overall deliverable to the user. So no specific recommendation, but that’s how we walk through with our clients to evaluate decisions.

Josh Hadley 18:54

Makes a lot of sense. I think you gave some good guidelines and guideposts for people to follow as they consider those options. So I’m interested in kind of pointing our conversation more to, you know, the unique way that you kind of restructure people’s p&l, and the different ways that you bucket the different items on a p&l so that a business owner can actually make business decisions based on the financials. And so Jason, would you mind kind of diving into some of those buckets in the unique way that you guys view the p&l statement, cater towards the business owner?

Jason Snider 19:31

Sure, it’ll step up a little bit just of philosophy, what we’re approaching this, we know at least from my perspective, as entrepreneur, I’m looking at my p&l pretty consistently, but the other reports like this, a forecasting and some other things that are a little more into the details. I don’t look at as much we’re all almost all of us are from hopefully we’re all familiar with our our p&l statement so it’s something we’re looking at quite often and we look at our job is let’s level are the behaviors that we’re already doing as business owners. And so as we went to Okay, let’s reformat this so that when you’re running your 12 month comparison reports, you can see different trends. And if we’re putting those side by side in those buckets, as we’re going to talk about, it makes it easier to see, hey, where’s my spin going for these different areas, activities in my business. And so we’ll start with the advertising, promotion, sales, marketing, depending on how you want to categorize it, in our view, we want to, though we want to order are put in place by the intent of the expense. And what I mean by that is, you have an agency that’s managing your ad spend, that will be part of your advertising promotion, if you have a VA, or an employee who’s purely dedicated or half their time is dedicated to that, we want to include that in that bucket. So we’re not going to lump together, all agencies spend into a bucket, it’s going to be spread around these different areas, if you’ve got multiple agencies. So you’re mostly I know, most of our listeners are going to be in the an agency where they’re managing the ad spend, or developing email strategies, or things like that. But there might be you might have a VA that’s helping you on the operation side, we want to keep that separate from those who say, gross payroll, or gross, you know, contractors, we want to separate that into those different areas of use. So we had Operations Assistant, he or she would be under the overhead costs unless there was a customer service group as well. So that’s kind of a an example, how it works and, and anything else that we can’t categorize, we put into the overhead those grouping of expenses.

Josh Hadley 21:40

Interesting, very good. So you have overhead any other buckets that you create.

Jason Snider 21:45

So advertising promotion, overhead, or general administrative might be another term that we would use website technologies is another one. Because some, some of our bigger operators will have maybe a couple of different stories that they’re managing. And they have either a full or part time technical person, on staff, and things. And so those are, those are the most common ones. The other one we might have is if there’s like an are bigger storms that have multiple payroll, people, we probably have that good administrative side as well, just to break that apart from and then the final one that we will do is we call owners compensation. And that bucket is there for two reasons. One, it gives you better clarity as a business owner, how much you’re compensating yourself. But it also includes things that are not necessary for the operations of the business, but are likely advised by your tax advisor to make that split. And an example would be a home office, is that absolutely necessary to run and operate the business? Most cases not. But we want to recognize that and include that in the net income numbers for the tax advisor. But you we want to give our clients the visibility of pre owner compensation, what’s the revenue and net revenue, and a common metric for lower end, on the revenue side, businesses that are going to market is sellers discretionary earnings. And so we basically put that number above the owners compensation group of expenses, and then we have the income number underneath that. So it gives us again, quick, let’s, because we are getting lots of questions from our clients, like hey, what’s my valuation, but what will my business be worth? So rather than feel all those questions we just started putting into their their p&l, so they can make their own calculations.

Josh Hadley 23:32

I like that. So almost having that that owners compensation almost be kind of like, here’s all of my ad backs in a way, right?

Jason Snider 23:40

Correct, yeah. And we laid out about, especially if there’s tax considerations, and getting better visibility for the tax advisor to to put it in the right line item, and also lessens the questions we get at the end of the year tax season wise from from our clients and their tax advisors.

Josh Hadley 23:56

Yeah, makes sense. What about continuing education? Right. Many people purchase masterminds or they purchase, you know, courses to learn about, you know, advertising or whatever it is, where would you kind of bucket those items?

Jason Snider 24:11

If it’s specific to a team member? That’s like, let’s say on the advertising side, we would include that on the advertising promotion area. Okay. If it’s not specific, or it’s going to be general use, we put it under overhead. And if it’s owner specific, we will put it down in our owners compensation.

Josh Hadley 24:25

Okay, that makes sense. What about kind of just your general ecommerce tools like kind of like your tech stack, right? So for an Amazon seller, it might be your subscription to Helium 10 Or to Jungle Scout or too many of those type of software’s that we use. Is there a general rule of thumb that you follow there?

Jason Snider 24:45

You we separate it out based on use, so if there’s not a clear use in a particular bucket, then we’ll get we’ll put it under overhead. But if it’s, you know, most of the software subscription we see are in two areas. One is supporting the website in general The stability, the operations of it. So we’ll put that in the website technology bucket. And then we’ll the marketing related ones will put up above in the advertising promotion model. And the other good thing about that is the, you know, we all familiar with row as, and that’s a common knowledge metric, or KPI within the e-commerce community we’re getting we kind of want to reimagine that of ad spend, I know is a huge part of how we manage and operate our business finances. But we also want to include those others that are supportive of that, I think it’s important to have visibility on adspend, usually the biggest dollar amount, but there’s also agencies involved in other things in acquiring a customer takes multiple touch points. And so we want to include those others. That’s why we like to group those together in that single area. So you can see what’s my total spend, to acquire a customer or keep a customer?

Josh Hadley 25:51

Yeah, makes a lot of sense. Because if you have a advertising specific software, whether there’s many of them out there, right, whether it’s PAC view, or many of the others, what you could do is you add that expense to your overall marketing promotions bucket sounds like which I think is very valuable. So if I correct me if I’m wrong, but basically, there’s only four buckets that you create for your expenses, you have your advertising and promotion, you have your overhead or kind of general expenses, then you have your website technology, and then owners compensation, are there any other buckets that we’re not talking about,

Jason Snider 26:29

Those are the four we deploy in pretty much every one of our customers that starts out with this, the rest of them are generally going to be direct costs. And that might be a good segue into our approach to direct costs, which is anything that’s elastic with the increase of sales that directly attributable to the value of the product sold. And for us, that includes the shipping to arrive to your warehouse, important duties, logistics, anything it takes to get the product to the customer. So if you’re managing the shipping, everything, everything that goes into that direct costs, that’s our view. And the reason that’s important is we need to understand what those electronic costs are going to be for when we’re doing Cash Forecasting and things. Because if we don’t have visibility, historically, we’re gonna miss the mark on especially if there’s a big spike in sales, or, you know, some other thing where you weren’t expecting it needed to quickly adjust your orders or, or your supply. If you don’t have visibility, you’re going to shortchange yourself, in the long term that and this is where we see a lot of times where most of our work with clients ends up being in the gross margin area really getting clear on what those direct costs. It’s not the cost of goods itself, it’s all the other inputs, expense wise, that deliver that product to the customer needs to be included in direct costs, so that you’re accurately forecasting your cash needs for inventory and coverage purposes.

Josh Hadley 27:56

Interesting. So you’re kind of are you breaking them into individual line items, then, rather than creating a larger bucket? That’s just shipping? Right? Are you breaking those up? Or explain a little bit more in terms of like how you set that up for a business owner to, at a quick glance, look at the the information and interpret what’s going on?

Jason Snider 28:17

Yeah, so most of our like, on the proper side, when we’re going into a new business that hasn’t engaged with us before 80-90% of our clients are have gross margin issues. Whenever I hear, hey, I’m trying to tighten the belt on my operating expenses. Invariably, it’s almost 100% of gross margin issues. And what I mean by that is they’re not incorporating those other things that we were just talking about before in their cost of goods, and therefore they’re, it’s, their pricing is failing them. And yes, there’s market forces that are at play in pricing our products. But if you don’t have visibility and clarity of what your costs are, your inputs are to deliver that product or service, in our case products to the customer, then you’re going to shortchange yourself. And you’re thinking it’s on the opposite side when it’s almost always on the gross margin side. And so we get very granular. Usually, we start with the tops 10 skews dollar wise, and then we work our way down from there. And we don’t try to do it all at once we just looking for the biggest dollar movers in the beginning and then trying to come down as however granular that the client wants to get on each SKU. Get clear on all those inputs for each of those major studios or individual items depending on the number of SKUs that a store has. And get clear on that so that you understand what your pricing things are. Because it’s super important to know what you’re going to need cash wise to deliver that product. You can get that into the to the warehouse, but if you’re not gonna have enough cash, to have your overhead to run your ads to support your team, warehouse and logistics, you’re going to be scrambling and we see that in so common where store owners get caught with trying to liquidate a bunch of inventory at fire sale prices because As they caught short on cash, and usually, it’s because they weren’t clear on the all the inputs it takes to deliver the product and therefore the drug costs makes a lot of sense.

Josh Hadley 30:08

Jason, let’s kind of dive even deeper into like, what are these direct costs that you’re speaking of? Because I agree, I think this is something that’s overlooked so much. So let’s get into the weeds here, let’s lay out like each of the line items that incorporate into that roll up into a direct cost for just selling a widget.

Jason Snider 30:29

Yep. So first one would be packaging. Outside of the item itself. I know, many clients have where the product is over with the packaging. Sometimes it’s added on site. There’s different scenarios, but packaging is the first one warehouse costs. And how to amortize that to an individual item, we don’t get to that level, we usually put group it in its own account, and label it through PL or warehouse or logistics, on the direct cost. But we don’t we don’t try to amortize it down to the individual items. Okay. And so those are the two of the major ones, then, if you have a warehouse team members or other people that are dedicated specifically to delivering or preparing the product for sale, that payroll item needs to be included that labor needs to be some other ones that may not be as visible is for those who have evolving skews where it’s seasonal, or you’re updating it on a semiannual or timely basis, your creative costs that needs to be part of that as well. So if you’re engaging with internally or externally creative to update the packaging on a seasonal basis, whether it’s yearly or semi annually, that needs to be included as well. And there’s some debate of where do you insert advertising? Is that part of the direct costs? In our view, it’s not in the reason why we drive that. And this is not directly for Amazon sellers, but in a broader ecommerce sense. And we want clients to be thinking about alternative traffic sources. So we want people to think business owners to think about, yeah, there’s other ways that we can engage traffic’s not all paid ads, strategies and things. Yeah, that’s a huge driver for all of us. But let’s be thinking about other things that if we can keep our ads been the same, and we can get more sales, that’s a good strategy, in my view. And so we want to, that’s why we don’t include it. And the direct costs are the, you know, up above the gross margin area ourselves, is because we want clients to be thinking about the others other strategies that we can deploy to get more customers, whether it’s email, and things like that, again, that directly applicable to a lot of Amazon sellers. But I think it’s useful to be thinking in that regards as well.

Josh Hadley 32:48

Yeah, I I liked that approach, too. In terms of the advertising, because there is a debate do roll up advertising, it’s Amazon’s becoming much more of a pay to play type of platform. So do you roll it up above gross margin, or gross profit? Or do you leave it below I like the idea of if it sits below your gross profit margin does lead to, hey, if we want to reduce this, but still grow sales, what are other ways to market our products outside of just our Amazon sponsored ad costs and might be an influence or strategy? It might be Pinterest ads, or might be some other type of ad strategies just to start allowing business owners to get a little more creative, correct?

Jason Snider 33:29

Yeah, it’s we, we want to provide clarity, knowledge. And also we know technology changes a lot. That’s the like you’ve just mentioned about Amazon and lots of the other platforms are the pay to play. But as we’ve seen with AI and other things, the technology landscape changes rapidly. And having one mindset to approach business development or sales development, I think is a disservice we’re entrepreneurs, and we’re there to service a need and that technology and the other methods may change as long as we’re delivering value to our clients. That’s what we want to be focused on. And so that’s why I’d like to separate it out and get a more philosophical approach. I think there’s value there to having it separate. But that’s why we put it at the top of that, that p&l, the advertising promotions, the next line below gross margin, so you can see it’s right there

Josh Hadley 34:20

like that. I like that. You also mentioned earlier in our conversation, that the reason why you break things down into these bigger buckets is for a better year over year or month over month comparison. Can you explain why that would be important to have them in their buckets? As you compare? Is it best to compare year over year or month over month? What’s your kind of feedback and direction to clients there?

Jason Snider 34:43

We like doing monthly comparisons. So as many of us who are familiar with either buying or selling ecommerce businesses that people like to look at the those numbers on a monthly basis and we see the same thing and it helps us see trends. Were looking at at what’s the trends, what’s going on, and trying to tie it back to decisions or things have happened in the past? Like, oh, yeah, we launched this new product, or we have a different agency now, or, you know, we switched to this a different platform for our paid traffic strategy, all these different things that we’re making decisions about, we often don’t look back into, okay, how did that decision go? Why did I make it back then? And here’s the results. Many times it’s I made a decision. And then I think it worked. But I never really am clear about it. There’s varying degrees of ambiguity, if you will, around that. But in general, there’s not a systematized approach to that. And so if we bring it visible in a monthly way for our clients on the p&l, again, leveraging their same habits that they’re already doing, it becomes easier for them to see those things without us having to point it out to them or them to drive questions, which is very rare. Unfortunately, most of our clients are meaning clients don’t engage with us and ask those questions. And having that visible to them, puts it in front of them to make them think about it, and things and so too much data, too little data. I think that’s a good blend between the two, in my view, yeah.

Josh Hadley 36:13

Do you have any examples of you know, things that can grow or evolve month over month that seeing them in the different buckets and comparing them, you know, can show like warning signs? Or hey, yeah, things are crushing it.

Jason Snider 36:28

For us, it was about two years ago. We noticed within June, July 2021, it was yeah, that we started seeing for several of our clients, Google ads, effectiveness drop precipitously for some of our clients. And we were able to see that within like a month of looking back and go, that bit there has been so thin, but the sales have dropped. And so we were able to confirm that with several clients. It didn’t hit everybody the same, but we saw the trend. And so in talking with some of our clients, we’d have monthly calls with some of them. One client, I wish she would have told me that like two or three months ago, because I was beating myself up that I was screwing something up somewhere. And it helped to validate that, hey, I don’t need to change a lot of things. Because it’s not me it’s a broader impact now, piece, at least they had awareness of that, whether he whether that was the right decision or not. That’s for him to decide later on down the road. But at least we’re able to bring that visibility of seeing the broader trend, comparing it to all of our other clients and seeing that that happened. And so the having those numbers on a regular basis, again, ecommerce monthly is important because things move so fast, in our view.

Josh Hadley 37:39

Yeah, yeah, totally agree. And I think one other important aspect that I would point out is that if you’re comparing your Amazon fees, right, your FBA fees month, over month, you’ll be able to identify when Amazon increases their fees and the impact it is having on your gross profit margin, right? Because I think too many times people, they let this you know, fee increase go by, and I go, Well, I haven’t really seen the direct impact. Whereas if they actually started comparing, they would see like, oh, well, I went from a 20% FBA fee to now I’m at 22%, like, I just lost two percentage points in net profit margin at the end of the day, because I haven’t adjusted my prices or anything like that. And so again, it provides the business owner with at least the insight of like, hey, things are creeping up here, you may want to consider adjusting your prices to maybe combat this and bring it back down, right.

Jason Snider 38:39

And that’s something that we see it’s again, dollar volume wise, it’s not huge, unless it’s a high volume, high sales store. But that’s an example of Amazon’s constantly changing the fees and where they’re posting it. And it’ll we catch up, because we use software to match with QuickBooks or Xero. Each fee. So whenever there’s a new fee, that’s not in our ecosystem, we’re gonna know about right away because it’ll post it to like an other expense. So if it doesn’t already map, this is going to try to create a new account. And so our team will see it, and we’ll be aware of it. And so we generally put those into a bucket, but like you said, having that visibility and knowing about those things, especially if it’s related to us consistent sale or it’s going to be ongoing, something like that. They Amazon notorious for adding things in that telling or making people aware of that.

Josh Hadley 39:32

Yes, yes, indeed. Are you using a 2x? Is that your connection? Yes, that

Jason Snider 39:38

yeah, that was our, and we require that for all of our clients that we work with, it saves anywhere from, you know, 30 to 50% on our clients monthly billings. Wow, right implementing that. It gives us a lot of visibility for like you said on the fees, things that way. We don’t have to manually check those. We’d see it right away because they’re service and then So for us, if there ever is an issue, a 2x is usually able to handle the technology side. There are other ways to manage that. Usually through a macro in Excel or something, but then we prefer to focus on the finance side and not on the technology side. So we we use a 2x as our as our service provider there.

Josh Hadley 40:18

makes sense. I want to before we dive into the profit first strategy that you guys implement with your clients. That’s, I think, the crux of this conversation. But before we get there, I’m wondering, do you have any maybe some guideposts that you could provide to us maybe specific to Amazon sellers that are, you know, hey, here’s, on average, what your average cost of goods sold as a percentage of revenue should be, and here’s on average, what your you know, FBA fees should be? And then even your advertising, right? Like, what, what percentage of your total revenue? Should your total ad cost be? Do you have any kind of mile markers for us to use as a rule of thumb to say, hey, it sounds like I’m ahead of this, or I’m behind, like, maybe I need to do better?

Jason Snider 41:06

Yeah, we focus on the gross margin aspect of it. So those are all very useful metrics that feed into that, that number. What we found is having gross margin as as the focal KPI or measurement, they, we use that for clients that are, Hey, should I get into this product client? Or should I be adding this SKU? I definitely like those questions that as as often as we’d like to get those questions. But yeah, so we’re generally teach our clients, let’s target 30% gross margin. And that’s where that exercise that I mentioned to you before, of the direct costs, and things like including your creative packaging, these all these other inputs into creating the product and delivering it to the customer needs to be incorporated into that. That’s where we reach that 30% gross margin. And so it’s been tough for us, we’ve tried to get a little more granular on that. And we’ve had to kind of come back to the gross margin thing. Just because there’s the fee landscape changed a lot, though advertising row as market changes a lot. And in the products, like, for example, the supply chain challenges we all experienced in the last year, two years, how that shifted a lot of things. And so we’ve kind of always circled back to the gross margin, unless there’s a specific instance that a client has a lot more data for us to utilize. So I would say to anybody, target 30%, gross margin, you’re generally going to have, I’ll say somewhere close to self liquidate liquidating growth, as we call it.

Josh Hadley 42:36

Perfect. That makes a lot of sense. Are there any other big KPIs that you would have people track other than gross margin?

Jason Snider 42:43

The other one would be your net margin. What are you in business for? And we’ll get into the first it sounds like in a little bit, but the I’ve had successful entrepreneurs, they’re looking at that net margin number consistently. And they’ve been successful in other places outside of the e-commerce industry as well. You know, we entrepreneurs have multiple opportunities, lots of opportunities, in fact, many, far too many of them, I’d say that we can sometimes we get distracted. So, you know, what are we in business for? And we want to make some money, we got to, for our Labor’s hard work, our risk that we need to have some net margin. And so I was see the successful entrepreneurs are targeting some they have some number in mind, why am I even in this business? I’m not able to reach that 1015 20% net margin. Well, why am I here? They asked that question. And so that would be one, I think that’s this, especially in the last previous few years, where their valuation metrics were getting maybe a little bit out of hand, or depending on your opinion of it, it’s definitely different than was in the prior years. Yeah. And I think the easier money that was available for those are, is probably going to be less available. And so we’re gonna have to get back to the basics of is this store profitable? Is the business profitable? And so for me, it would be the net margin, but consistent applier? To that, for entrepreneurs, those who have been the successful ones that I’ve seen,

Josh Hadley 44:14

makes sense with the net margin. I’m curious, do you when you calculate your net margin at the end? Are you adding back any of your owners compensation expenses to that? Or do you almost kind of have to net profit? I guess metrics at the end of each month, like here’s what it is, including your owner’s compensation stuff. Here’s what it is. If you’re not including

Jason Snider 44:38

what we would use if the owners active in the business, we would incorporate their their salary as part of the business expenses and include that cost and the net margin, if they’re not actively involved in the business or very little, like the situation. You mentioned earlier, we would add that back to come up with

Josh Hadley 44:56

Yeah, makes a lot of sense. Awesome. Well, Jason, let’s pivot now and start focusing on this profit first mentality because I think this is one of the most important things that you do and you help your clients with. So why don’t you give us a breakdown in and ideally, how an entrepreneur in e-commerce could execute this strategy themselves?

Jason Snider 45:17

Yeah. Profit First is the number one system I see that makes a difference. And this is not just ecommerce, but we’re going to we’re going to be talking primarily about the e-commerce angle of it. The confidence after implementing a system in any business owner with profit first go sky high. And the way I like to frame it in this way, you’re taking 80% of the finance worry, and putting it into a system that you can implement anywhere from one to two hours a week, where you’re going through your numbers, you’re allocating your money between the accounts, paying your bills, looking at your numbers, and you’ve consolidated that worry that concern into a trusted system that you can implement that doesn’t require a lot of extra education and knowledge. And with the technology, especially the banks that have been popping up FinTech banks have been popping up in the last couple of years, there’s no excuse for online or e-commerce entrepreneurs to format a system

Josh Hadley 46:17

makes a lot of sense, would you kind of break down the details of how you would execute that in e-commerce business then.

Jason Snider 46:24

So to start with, we we do what we call a profit assessment. So we take the financial data, this is where we need good bookkeeping in place to do this, looking at the last 12 months of numbers, p&l balance sheet, and then we recast it into a profit first format. And what I mean by that is we take those numbers and put it into Hey, this is what your OP X says, This is what you’re in, like we talked about buckets, it’s kind of a similar process, but on the cash management side. And so we’re seeing where’s the money going to? We want to give visibility to the business owner? Where does your funds go to, you know, for every dollar of revenue, and what’s the person just where that dollar was divvied up among these areas. So we create and we’ll hit this A, and we call it current allocation percentages or cash. So we get that picture. Okay, this is where you’re at. And then we have the targets of where we want to go. And Mike talks about in the book, Lincoln College, the origin editor, or author of the system Profit First, he has some metrics that he’s built out based on his research across the board, with businesses, which are pretty accurate. Anybody could use those ecommerce store owners, anybody can use those to self implement Profit First, where our expertise comes into play is nuancing it to e-commerce store owners and the different things that are nuancing it and like I talked about earlier of looking at the broader picture of multiple clients and implementing it and what’s their challenges, what happens when they run into the situation, our expertise is dos coming in and being able to provide advice. And so starting with the current allocation, building a roadmap for six months going forward of our target allocation, and then we’re slowly implementing and trying to get to those metrics so that we retrieve that profitability and stability, financial stability of business.

Josh Hadley 48:12

Yeah, makes a lot of sense. You, you mentioned that, you know, the challenge. Is somebody trying to adopt this into the e-commerce space? What challenges have you seen, you know, that you’re able to help clients navigate through implementing this profit first strategy for e-commerce?

Jason Snider 48:27

So the two biggest impacts we see for our e-commerce clients. One is, like we talked about earlier, the gross margin questions, like I mentioned, that’s where we get that visibility on the gross margin. Are you even close to what you’re trying to achieve gross margin wise? Is it in the right in the right buckets. And so as part of that process, we get really clear on the gross margin, we’ll also do a quick win in the beginning of doing an operating expense review. In my experience, compared to brick and mortar businesses, e-comm operators are generally more efficient on the operating expense side. But they’re less efficient on the traffic expense side, where they make these larger assumptions about what’s going to happen when they bring that traffic in. And generally, there’s not a look back of are those even successful? Are they meeting the metrics in mind? So we get really visible op X Review, gross margin review? And then we work with the business owner, hey, what’s your long term goals? Is this something you’re looking to, to accept from in three to five year window? Is this a whole play? You know, are you aggregator what’s what’s your store? What are you looking to achieve in the long term? And then we use our expertise to give some advice on what those that roadmap is to get to that six month of changing from your current to your target of where you want profitability wise for the business to get to

Josh Hadley 49:48

make sense. So do you kind of almost calculate, if I want 10% net income, right? You start kind of setting up the systems then so that at the end of the year you would get to that point then is that the correct assumption?

Jason Snider 50:01

Yeah, that’s that’s a basic nutshell. But yeah, it’s getting those. So you’re really clear on like, what are what do I need to achieve sales wise, and are these other inputs of making that number happen, you know, product, pricing my product, or maybe I need to drop some skews because they’re eating cash, or that’s cash sitting on the shelves that I could apply to this other SKU that we’re keep running short of. And that’s actually driving profitability. And so sometimes it’s just a review of the skews. Again, we start with the top 10. And then we work our way through there as the client thinks that they need to get that level. In the other one, yes, about impact. And I forgot to mention this was the inventory side. So two of the most common things we work with that make the biggest impact is the gross margin question. And then having enough funds to buy or acquire more inventory on a timely basis. And one of the two accounts that will set up a lot of our clients outside of the normal system that Mike talks about, one is an inventory account, or a lead time account. Okay, and so having every year, let’s say we, the broad mix of your cost of goods is, let’s say 50%, just for ease of argument’s sake, yep. And so 50 cents of every dollar of revenue is going to be allocated to that inventory account, so that you’re replenishing, able to make your orders in a timely basis and not have to be scrambling at the last minute, getting your your supply chain organized, and being able to deliver on time and things. So allocating a percentage of your gross revenue to an inventory or replenishment account, so that it takes away a huge chunk of your way, it’s not going to be exact to the penny. But that’s one of the goals is to have a reserve or inventory reserve. There’s different names our clients have used for those accounts, but it’s effectively an inventory account, its specific purpose is to have enough funds to acquire inventory, a big chunk.

Josh Hadley 51:56

I love that. That’s a great little gold nugget there that you dropped with us all. So I love that. Well, Jason, this has been such a fun conversation. And I know I’ve certainly learned a lot. I love to leave the guests with three actionable takeaways from each episode. Here are the three actionable takeaways that I noted. But Jason, let me know if you think I’m missing something. So first and foremost, you’ve got to if you’re not paying attention to your books, right now, you should be looking at your books. And I would recommend you need to do this, at least on a monthly basis. If you are not looking at Hey, what happened last month, and then reevaluating and comparing, how does this compare to what happened the previous month, and being able to see those shifts and changes whether your advertising is becoming less efficient, or your Amazon fees or just general processing fees, wherever you’re selling are creeping up. If you’re not aware of those things, you’re going to look back at the end of the year and say what the heck happened. And so as a business owner, first and foremost, make sure you’ve implemented a monthly financial review, to review these metrics, then secondly, it my next action item is that you need to make sure that what you’re putting into this accounting system is actually accurate. Because if it’s crap in then it’s crap out, right. And so it’s important to make sure that the data you are feeding it is correct data, right. So again, evaluating the right software partners is important. And we talked about a couple of them a 2x If you’re an Amazon seller, and how that can integrate and help break things down for you and make sure that it goes into the right buckets, but make sure that you’re tracking and probably the biggest portion here of accurate financials is going to be your cost of goods sold, right. So making sure you have a really good way of of tracking those cost of goods sold, and the software that might help you facilitate that. My third and final action item is to implement a profit first system in your business. And I love the idea that Jason had of creating an extra bucket instead of the standard, hey, here’s my profit. And here’s my tax accounts. But creating this inventory account is very, very important so that when it comes time to make those purchases, you actually have money set aside to do that. Extremely valuable. So and I think Jason has even more wisdom he could share and I would encourage you to reach out to him if you have questions about setting this up in your own business. Jason, are there any other actionable takeaways that you think I missed here?

Jason Snider 54:37

I think you captured it very well there and each of those ones consistently looking at your finances, understanding your direct costs, and Profit First, definitely will make a big difference for each of your listeners.

Josh Hadley 54:51

Awesome. Well, Jason, this event super valuable. I like to ask each guest three questions. So we’re going to start at the top here, Jason. What has been the most influential book that you’ve read and why?

Jason Snider 55:03

Profit First by Mike Michalowicz. I wish I would have had that system 10, 15 years ago when I was doing bookkeeping and consulting, my previous business, my third bookkeeping accounting business. And if I would have had that I was sort of been doing it would have been like my second decade. So it’s the impact it’s had with our clients is just almost astounding. So that would be the most influential book. Yeah,

Josh Hadley 55:28

I’m curious, without the Profit First methodologies and strategies. What ends up happening with the money, does it do business owners just tend to just kind of spend it on frivolous things? Or why does it just disappear without profit? First implement

Jason Snider 55:43

it, I think it’s the like Mike talks about is the small plates theory, if you will, breaking things into and being intentional. I look at it, if it’s at the physical philosophical level, it’d be intentional being intentional with your cash and where it’s going. And so that system, breaking it into smaller groups allows you to have that visibility to stay consistent with intentional

Josh Hadley 56:04

makes a lot of sense. All right, here’s my next question here for you what is a new productivity or software tool that you’ve recently discovered that you think is going to be a game changer?

Jason Snider 56:14

For me, it’s one of two things. One is called Rescue Time. I’ve been using it for a few years. I don’t know how new it’s been. But there’s different things where it’s tracking my different uses and time, different things that I’m a part of. And it’s allowed me to get oh, yeah, it’s been a little bit to too much time going through YouTube for training videos, of looking for searching for things that, oh, I should probably delegate that to my assistant and things. And so it’s not worth beating myself up about it. But it’s using something where I get a little bit of visibility of how Okay, I need to step back and delegate this or something to like, measuring my behaviors or whatever. Because most of our online we work in, most of our illustration would be similar where they’re on their laptop, or their desktop, a lot of the time during the day. So for me, it’s one of the some type of attracting and the other one was Pomodoro. Using one of the different Pomodoro app sort of putting things into buckets of timewise, 20 minutes, I’m gonna focus on this. And then when it’s lunchtime or break time, or meditation time.

Josh Hadley 57:20

Yeah, I love that. Those are some great recommendations and Rescue Time. Again, that is so so important. Doing time studies is something every entrepreneur should be doing at least quarterly. So that is great. All right. My final question is, who is somebody that you admire or respect the most in the e-commerce space? And why

Jason Snider 57:38

in e-commerce, I would say, another of our preference communities, as we Cindy Thomason. So when I joined, she had been, she works with a lot of Amazon sellers in her business, very similar services. But I learned a lot from her when I joined profit, first of seeing how she was engaging with clients and the impact and that she was having with her Amazon clients and things and so from for myself, maybe a little self centric, I guess you’d say, but it’s been very helpful for me, and then also helping our clients that are in e-commerce as well.

Josh Hadley 58:08

Awesome. Well, that’s a great name to point people towards. Well, Jason, if people want to learn more about the services that you offer, the bookkeeping, the strategies and how to implement this all in their own business. Where can people reach out to you?

Jason Snider 58:22

Yeah, so you can find us our web presence is summitecommerce.co. That’s our website there. You can also email me at Jason@summitecommerce.co. And then I’m also on LinkedIn, as well, Jason Snider. And my title there is Profit First Zealot.

Josh Hadley 58:40

I love it. I love it. Well, Jason, you have shared a lot of wisdom with us all. I definitely encourage our listeners to reach out to you and to learn more there. But I appreciate your time. Jason, thanks again for joining the show.

Jason Snider 58:53

Yeah, thanks again for having me, Josh.

Outro 58:55

Thanks. Thank you for listening. Visit eCommBreakthrough.com for more information. If you’ve enjoyed today’s episode, the best way you can show your appreciation is by clicking the subscribe button and quickly leaving a review — see you again next time.