The Quiet Light Podcast

On this episode of the Quiet Light podcast, we speak with Dillon Carter about his path to launching a wholesale CRM, why he pivoted to a slighted different business model, and how his company helps their clients succeed. Dillon Carter is one of the founders of Aura, a wholesale CRM that helps you with repricing, managing wholesale suppliers, and growing your Amazon business. Tune in to hear our interesting discussion!   Topics:  How he floundered before finding his true passion. Launching a wholesale-based CRM software, before pivoting into repricing software. Explaining wholesale. Working with an antiquated business model. What happens when everyone is using Aura at the same time. How Aura works.   Resources:  Aura Dillon Carter’s Website Quiet Light   Transcription: Joe: Hey folks, Joe Valley here from Quiet Light Brokerage and the Quiet Light Podcast sponsored by Quiet Light Brokerage, oddly enough. Everybody here is an entrepreneur. We've all built, bought, and sold our own online businesses. I sold my last e-commerce business in 2010. Things have changed a little bit since then. We've got to Dillon Carter on the podcast today. Dillon is one of those changes. He was; well, let's see, 2010, you were still in high school back then, weren't you? Dillon: I graduated in 2010, yeah. Joe: That makes me an old guy or you very good at what you do at such a young age. Probably just that, I'm going to call at Syed Balkhi right now. Syed I think might have just turned 30 years old and referred a client over to me so I was just chatting with him earlier today. Incredibly impressive at a young age and I'm looking at your LinkedIn profile, I'm looking at Vendrive, I'm looking at Aura Repricing and, man, you've got a lot going on in your life. Can you help people that are listening, who you are and what you do and summarize or give more detail to that summary that I just gave? Dillon: Sure. So I started out graduating high school not knowing what in the world I wanted to do, like most entrepreneurs. So, I kind of floundered for about four to five years, just testing a bunch of different things. I found myself being a personal trainer, working ridiculous hours and realizing I did not like a service based business because that's kind of difficult to scale. I realized okay, physical products is something that could theoretically scale in my mind at that time so I started playing around with the Amazon FBA model. Like most people, you get started with retail or online arbitrage, right? Low capital requirement, you could kind of test the waters. I did that and eventually me and the GM of the gym I was training at did not see eye to eye so I decided, you know what, let's go ahead and put myself in a corner and make it work. And so, eventually I decided retail arbitrage, although was better than being able to scale my time so I could not scale in the way that I wanted the business to. So like most FBA sellers, I decided to either go the wholesale or the private label route. I chose wholesale. It made a little bit more sense to me; low capital requirement, I could start paying the bills immediately because it was certainly an issue that I was faced with. I went that route and really spent a handful of years just crafting what wholesale meant to me, how I approached it. At the same time, I decided to go back to school full time for college. So it was one of those lingering aspects of my life where I was like do I really want to be that statistic where you took a few semesters, you kind of dropped out, and never went back. I'm like, no, I'm tripling down on my life at this point, no holds barred, and so that's what I did. And then eventually I met my co-founder, James. We eventually launched www.Vendrive.com, which is wholesale-based CRM software and then pivoted actually funny enough into repricing software. And that's our primary focus at the moment. So I've kind of traversed this world in a few different ways. I launched a podcast or two here and there. I shared all the knowledge that I've gained along the way and the podcast and blog posts and our Facebook group I mean, really just somewhat built an audience just teaching everything for free and I learned a lot from that. It's been a long journey, so to speak, but I feel like I'm just getting started. Joe: That's the way to do it. You help, help, and help some more. Give it all for free and make some friends along the way. It's amazing what you do when you help others, how it comes back to help your own business. In fact, we had Steven Pope on our podcast. I think he's www.MyAmazonGuy.com and so did you and he connected the two of us together. Strangely enough, I told you at the beginning of this call or before we hit record, that I sent a message out to the team that we just don't have enough wholesale guys; men, women, people, individuals, entrepreneurs on the podcast, because we have not historically sold a ton of wholesale businesses. But it's a funny thing, I come from the private label world. I didn't sell on Amazon. When I sold my e-commerce business it really wasn't much focused on Amazon. I did after that, but it was always my own products, always private label and some people look down on wholesale. At this point in my career; not that I'm going to change what I do, but if I were, I might look at wholesale before I look at private label. I might look at an agency before I make a private label. I might do a lot of different things. I might even look at content. But why don't you, for the sake of those that are listening, that are not as versed in it as you are define what wholesale is versus private label and how it works? Dillon: Sure. Wholesale is a very antiquated business model and I don't say that in a negative tone. What I mean by that is you are buying low and you are selling higher. You're literally finding listings on Amazon that are already doing well and you are doing what we call reverse sourcing. So you're finding listings already doing well, finding those brands, those products, and then you are going to the brand to open a wholesale account to purchase in bulk like pallets and stuff like that. It's actually very straightforward. There's nothing crazy to it. The difference here because you made a good point that a lot of people don't view the wholesale business model as a sexy business model. That's not your quote but that's kind of what I hear and you hear it a lot. And I think the reason why you have not sold a whole lot of wholesale Amazon business models is because the multiples are not that great. So, when I went back to school, I actually went to be finance major and so my focus was actually M&A. So doing a lot of valuations, some discounted cash flows, kind of nerdy stuff. But when you look at it, those businesses are easy to replicate. There's not a lot that you're really protecting, right? There's not a lot that I can really build up and get a decent multiple on. And so, I think they're very great in the sense of I can get cash flow positive within 30 days if you kind of know what you're doing and you're being serious about it. Right. Whereas private label is going to take a little bit more time. That's an investment for the future. I view a wholesale business model as a cash flow business where private label is more something you're looking to expand the value of your equity over a long period of time and potentially exit and so, it depends on what you're optimizing for. Joe: There's definitely a difference between the two, because the private label businesses that are growing like crazy, those folks are not taking a whole lot of money out of the business. They’re constantly putting it back into inventory to try to keep up. But you said you said sourcing by looking out in the marketplace; Amazon, if that's what we're talking about, to see what other people are selling and then sourcing the product from the brand owner. So, we're talking about brands that have multiple sellers on Amazon in this particular case and you are then going to compete against the other sellers on Amazon as well, correct? Dillon: That's correct. Absolutely. Joe: All right, that doesn't sound very attractive. How do you compete against the others? How do you do a better job on your listings and your ratings and reviews and your pricing and things of this nature? Dillon: This is where it becomes an antiquated business model, in my opinion. And again, not in a negative tone where it comes down to relationships. So, a lot of people are jumping into the Amazon space want that lifestyle business, right. What a lot of people kind of project as this is what it's like to sell on Amazon. The reality of it is it's a lot of phone calls. It's a lot of old school relationship building. It's understanding that… Joe: We all have to do that. Dillon: I know right. Joe: It’s now like rocket science. Yeah, it sounds much simpler than trying to figure out the thickness of a corrugated box that you're going to import from China. Dillon: 100%. I've said for the past three or four years that wholesale is simple, not easy. It's simple enough. I mean, we can sketch the entire business model on a napkin, and I've done that. It's not easy because it's a lot more work. Now, that's not a bad thing, right? This is not sending a bunch of emails to manufacturers in China and playing that kind of game. This is actually jumping on the phone and having a real conversation with somebody. What's different about wholesale and why it's uncomfortable for a lot of people is that you are essentially doing a sales job; you are calling a brand to sell them on allowing you to give them your money. It's a bit backwards, right? But that's kind of what it is. And so a lot of people get stuck where they jump into these relationships and they’re trying to get these accounts and they're like I keep getting denied. Why won't they take my money? I'm trying to give them money. And what a lot of people have to learn, first and foremost, is the value add that you are bringing to the table is not your money, it's the relationship. What else can you do for that brand? Because what you're not doing is necessarily just jumping on the listing and taking another slice of the pie. You're strategically looking to increase the sales volume here, right? You're looking at running PPC campaigns, you're looking at listing optimization, and you’re looking at how can I help my supplier negate other sellers. I keep going below minimum advertised price so, mat price. You're looking at this as a very strategic business model if you're doing it correctly and I think a lot of people view it too simplistically. And again, it is simple, but when you approach it from an operation standpoint as too simple, I think you negate the requirements that enable you to be successful. Does that make sense? Joe: Yeah, they're looking at the wrong things. Dillon: 100%. Joe: They're not looking at the most important thing, which is the relationship. With wholesale accounts, with wholesale clients, you've had friends; I mean, you're in the circles, people that you work with. How many wholesale brand relationships do they have or have to have; sorry, I know this is an unanswerable question with accuracy, in order to really make a good living out of it? Dillon: Sure. If you want to replace a job, the way I source, and the criteria I look for purchasing inventory, which is not super complex by any stretch of the imagination, 10 to 12 SKUs is pretty solid. I think you can get to a point where you're actually replacing job income and at least paying the bills. The cool thing about; so you have the spectrum, right, where private label is going to have like a handful; like a small amount of SKUs, in my opinion. One to two, obviously, you're trying to grow that over time, but if you look at the average it’s probably a little bit less. Then on the other end of that spectrum, you have like retail and online arbitrage where it's like thousands upon thousands of SKUs. Wholesale is kind of somewhere in the middle, but leaning more towards the private label route. So a handful of great relationships is enough. You don't need to have 30 plus relationships. I think that's where you get really, really big but you don't really need that. You could do a quarter million in revenue with six to seven SKUs if they're the right kind of SKUs because it is repeatable and scalable. Joe: And what are your margins on that? What's left over for you at the end of the day, if you're doing a quarter million in revenue? Because if it's a private label, that’s kind of doing a quarter million in revenue, there's not a lot left over. I guess maybe upwards of 50,000 maybe. But they're taking that money and they're putting it right back in inventory so there's not a lot of cash flow in that situation. Dillon: Yeah, it can vary. I've seen people have some pretty high margins. I've seen people take really, really slim margins. I look for at least 30% in gross margin. Obviously, the business expenses that's kind of going to be situational. But if I could do 30% outside of the business expenses, that's pretty good in my opinion. I think it's scalable. Joe: This is after Amazon fees. Dillon: That's correct. Joe: Okay, that's pretty good. That's pretty solid, actually. What about exclusivity? At what point do you get to be exclusive? Because in my view, that's going to make the business more sellable and have value. So, you're not only building cash flow but you're also building equity. Obviously you got to do better than everybody else and be really important to that relationship. Is that it? Dillon: For the most part, yeah. What's funny is it is that relationship and it's understanding that it just takes time; like any great relationship, it just takes time. So a lot of sellers jump in and say, hey, I just got this account, how do I get exclusive? You wait. You do a great job, you become their biggest buyer, you work with them, you add more value than just your money, and then you start to have that conversation over time. I had a friend, she started her Amazon business, it was doing well, and she followed up every two weeks for a year just to get an account. And not just like, hey, how's everything going? These are in-depth emails of, hey, I noticed this on your listing here's what I would recommend you do and gave them all of that knowledge. And eventually they let you know that that's a lot of work, what would it take for you to do that for us? Give me the account and I want exclusive rights. They go, you know what, let's test it for two weeks and if it if it pans out, we’ll absolutely give you the exclusive rights. And she's got it now. Joe: Excellent. Yeah, I know that's the trick. Just again, help them. It is a ton of work so give it all the way and then they realize I really do understand the value of having you do it for me. Let's talk about competing on Amazon for the buy box and what Aura Repricing does because it's so very different than what most people have heard on this podcast because most people are content owners, SaaS owners, private label brand owners. They're not wholesale. Dillon: Yeah, so roughly 82% of organic sales come via the buy box. So that buy box is just that where you go as a consumer and hit one click purchase. That's what we call the buy box. When you're competing with other sellers on the same listing, you're not trying to optimize your listing to beat the other listings. That goes out the door. Now, it's about value. In terms of your price it obviously comes down to your competitive advantage in terms of getting cost lower from your supplier hence relationships matter. It comes down to seller feedback a lot of the times. So what we're having to do is stay competitively priced 24/7. And by the way, these things are changing every few seconds. Private label, you're used to set the price and maybe every now and then we'll change it. Joe: Yeah. Dillon: No, 24/7 here and so some of our larger users that have a few hundred thousand SKUs that are actively repricing, we're doing tens of thousands of price changes per second just for them. So, what we're having to do is say you can't do it yourself, it doesn't scale so let's hand that over to a computer with an algorithm with a set of rules that can say, you know what, the price just changed let's react to that as quickly as possible. And if doing so, we increased the amount of time you're in the buy box, which increases the amount of sales you get. Joe: What happens if you've got three products in the buy box, they're all the same brand, and two out of the three are using Aura Repricing? Dillon: Yes, we get this question a lot; what if everybody's using Aura at the same time? At that point, it comes down to two major things. One, your strategy because you have some control over that. Some people are willing to be more aggressive than others. And then number two, what's really more important, in my opinion, is your cost. A lot of sellers make the assumption that we got the same costs. I know what I paid for so therefore, I theoretically know what you paid for it. That's not true. I could have lower cost because I have a better relationship or I have more capital to play with. So, I'm purchasing in larger quantities, in which case I'm getting quantity breaks on my cost, in which case I can be more aggressive in my price. So, it comes down to those major two things. Joe: Okay, what else can people that are a wholesaler do to improve their rankings, listings, and so on and so forth on Amazon? Dillon: Yeah, one of the things we've seen; forecasting with wholesale is very important, just like it is with private label. However, it's a little bit different. So, if I'm not mistaken, a lot of private label people are purchasing like three months’ worth of inventory because you have a lead-time for manufacturing. For us, it's like every two to four weeks we’re placing restock orders. So, we're trying to get dense from when the capital goes out of the business to when it comes back with profits as small as possible. Joe: So, it’s two to four weeks if you just average to three I mean that’s a quarter of the working capital that you need for a private label business. Dillon: 100%. So, we're looking at stuff like that. What's important there was a lot of forecasting won't factor in regional distribution. And what I mean by that is a lot of times you can take a SKU that you're selling on and you have repeat sales and let's say you're moving a hundred units per month like clockwork. You testing increasing that to 200 can actually have a larger distribution in terms of where your SKUs are in the country and now you're starting to get access to what's called a regional buy box and you actually start to see a little bit more sales from that. I didn't believe it at first and then I tested it with a few selling friends, and sure enough, they increased sales by just doing that. So you don't have just the one global buy box, although that's what we're able to focus on as developers. You also have a regional buy box. Joe: And Aura Repricing can have an impact on that? Dillon: That's correct. That comes basically down to where is your inventory today, like right now. Joe: And how do you control that again with Amazon? Dillon: Increased inventory. Joe: Just spend more money and have more inventory and then you're going to… Dillon: Yeah, it's a test for sure. Joe: And you can do that over time, obviously, if you have personal overhead. Dillon: Absolutely. Joe: Okay, tell me about Aura Repricing and when did you launch it? To me, honestly, the development of this must have been crazy. I mean, you did finance and M&A; is your business partner a coder or a developer? Dillon: Yeah, so me and my co-founder, James, met actually via Instagram. So, we were both wholesale sellers, separate of each other and we just started to meet up once a week via Skype back in the day and just, hey, what's going on? What's new? He was kind of helping me scale my business because his was already at seven. Mine was at six figures so he was helping me understand some cash flow stuff that I needed to learn. And eventually he was like, hey, by the way, I'm at UMass and I am an engineering student. I'm already starting to work on some side projects. Do you want to partner up? And that's when we started to launch Vendrive. So, Aura, the beta took roughly eight to nine months of him by himself, because I'm not an engineer. I'm not a coder. I can script some stuff and that's about it. Joe: Yeah. Dillon: So that was him pretty much working 80, 90 hour weeks for eight to nine months, just grinding it out and we got the beta up. We tested with 20 to 30 users just from day one just to get that feedback loop going. Launched my winter break between semesters in December of 2018 and then we launched that and I had 50 users paying and we just started a feedback loop and scaling from there. Joe: And you both finished college? Dillon: We did. Yeah, we both finished college at the same time and now we're actually; we were fully remote. I was in Florida, now we're in Boston and we have our first like large office which you can see back here. We have the walls painted and the whiteboard is up, and we're actually hiring three engineers in the next month or two. Joe: Very cool. That's a great success story, man. Dillon: Yeah, thanks. Joe: I know that you said he was in college and you were in college at same time but developing it in college; doing seven figures in revenue while in college is pretty impressive. So let's say he's doing a million, he’s doing maybe 300,000 in cash flow, in profit, even if you divide by two while a student in college, that's pretty damn impressive. Dillon: It's not bad. Yeah, it's definitely not bad. That's the thing about wholesale is I tell people, it can be at whatever scale you want. I think it's difficult to really take a private label brand and just be like, oh, I just kind of want to make a little extra cash. When I started mine again, I went back to school, and I was like if this thing just pay my bills and allows me to focus on school full time and get through that and not take six years to get through, it’s kind of a solid win. And to be honest, that's kind of where I got it and I was happy with that. And then once I graduated, it's like cool now, we can go full force. And really I did like two semesters before because Aura started to really scale and outpace itself, which was awesome. But yeah, I think it's cool thing. Joe: Let's get back to the repricing part, because if I'm the wholesale owner, how am I going to work with Aura and Aura Repricing to determine how low it goes? Is this simply a matter of math and numbers and what my relationship is; how does it work? Dillon: So you have two major ways of setting a min max. We always require a minimum and a maximum price. This is the range of which Aura is allowed to play within because we don't want to go too low and not too high and all that good stuff. You can manually set that. Some people have their own formulas, some people just take current buy box price and reduce that by 30%. What I typically recommend is the second option, which is an automated option. So, you can set that based on an ROI. We'll actually import your cost that you give us or you're using a tool like Inventory Lab to store that. So, we'll import those and you'll say a minimum I want 20% ROI. What we'll do is we'll factor in your cost and then the Amazon fees, obviously factoring in that 20% ROI and say, okay, here's your calculated min price. We’ll automatically set that for all your SKUs. So we create different strategies and those strategies can be assigned to a group of SKUs, one SKU, your entire account; it's really up to you. And then however you want to set those min max prices, you can definitely do that. Joe: That's pretty impressive. Dillon: Yeah. Joe: When it comes to wholesale, again, I'm a little ignorant on it, because it's probably a well-known brand; I would assume or a well enough known brand are people searching for the brand name and therefore there's not as much sponsored ads or are people doing sponsored advertising as well? Dillon: This is what's interesting, I know ads are very prominent and expensive for private label. What's interesting is when I started testing paid ads on wholesale, they were actually very cheap. And for whatever reason, the brands themselves do not seem to be doing that on Amazon. They don't. They just let the sales happen and they don't progress with it, period. The opportunity is that it's less competitive because from my personal experience, what I've done is I've created ads targeting the brand name and the product name and not the type of product. So the proverbial garlic fresh, right. Joe:  [Inaudible 00:22:36.5]. Dillon: Yeah, but we're going to do as an example, Nike, blah, blah, blah. When you're doing that they're super cheap and very scalable. I had a product that retailed for $329.95, it was costing me an additional $5 per sale via paid ads, and they're already doing 30 to 40 units per month organically. But that netted me $55 net profit so minus the $5 we’re still doing 50 bucks. So I'm able to increase my volume. I'm trading five bucks for 50 bucks at this point. Joe: Sure. Dillon:  [inaudible 00:23:11.3] oh, that's expensive, five bucks. I'm like, not really when you do the math on it. Joe: Absolutely, you're paying five bucks and you're getting 50 bucks back. That's a good return. Dillon: Yeah, I'm not even very good at it. That's the important part. Joe: Are you doing any video ads; do you have the options to do whatever you want or can you not do video ads for wholesale? Dillon: I've yet to see any restrictions on that. I haven't done the video ads. There's this weird dichotomy where there's some things you should be willing to do for your brands and then there are some things that are just going to cost too much. It's very ROI driven. So, some brands are going to do that themselves and that's going to help you organically. Some sellers, if you have the right exclusive agreement, it can make sense. It just comes down to the math where it really will... Joe: We just had Judson Morgan on from www.Butter.la and he talked everybody through how to do videos from your iPhone or a Pixel, and it's not a lot of dough. An unboxing, if you will. You’re making it natural and normal and he talked about the lighting and all that stuff. That's what I'm talking about. He talked about the bump in conversion rate with videos, either video ads or videos in your listings. I know that with private label, they get six or seven; maybe six to eight images that they're allowed to have and one of them can be video. Normally it's pushed to the very end. Do you do that with wholesale as well, the video, the unboxing, and things of that nature? Dillon: You do to a certain degree. So, part of the value add to the brand, again, is not just your capital. It's looking at where the listing itself can be optimized. A lot of sellers are hesitant to do that stuff because all that work is not just coming back to you. It's coming back to all the other sellers. And so that's where it gets kind of interesting, where there's some growth hacks, so to speak, that are only going to come back to you as the seller. So you're not really increasing competition's volume as well. I'm of the opinion if it raises all boats, I'm still probably willing to do it because I'm still getting a positive ROI on that it just depends on the person. So, I'm a huge fan of a growth strategy that I kind of created actually from Amazon affiliate sites. So, I was looking at different brokers. I’m just looking at what's for sale in the Amazon space. I'd like to keep a look at multiples and what's being sold. I was like, you know what, these Amazon affiliate sites are genius. They’re there to make money and move inventory because that's when they get paid. So then I said, well, what happens when I start to reach out to these site owners and say, you know what, I sell a grill thermometer, you have a bestbarbecue.com Amazon affiliate site, what happens when I get you to replace your $200 grill thermometer with my $329 one, does that actually increase sales? And if we can structure the URL correctly, all of the sales are coming straight to me, not just anybody who happens to be in the buy box at the moment. It turns out you can. So, there's some more strategy there in terms of growth but that's where you have to really think through the relationship you have. If it's a very short term seasonal relationship, I may not be willing to go to that extent because it is a lot of work. However, if it's a brand that I want to work with for a long period of time, that's different. And I've always told people to approach it that way. If I don't in my mind think that I can work with a brand for the next 12 plus months, I really don't see the point in it. I'm not opportunistic in the way I approach wholesale. Joe: You're blowing my mind that you're 28 years old, I got to tell you that. Dillon: I appreciate it. Thank you. Joe: All right. So, Aura Repricing, anybody that does any wholesale got to go to Aura Repricing. Check it out and see what Aura repricing could do for them. Let's talk also about the two podcasts; I think you've got two podcasts or is it one? Anything else you want people to know about you and things of that nature before we wrap it up here? Dillon: Sure. So, I kind of got sick of the $3,000 courses. I'm not anti-course by any stretch of the imagination. Joe: We just launched one for $3,000. Dillon: So, I decided I was going to share everything that I knew, which is I'm not an expert in my opinion, but I know some stuff and so I'm willing to share everything that I do know. So if you go to www.Vendrive.com/blog, I've pretty much written some crazy in-depth articles on wholesale in terms of overcoming objections with suppliers, the cash flow management of it; all the fun nitty-gritty stuff. And of course, Wholesale Made Easy, which is the podcast. I'm not running that active anymore. That was structured to be like an evergreen podcast where it's not short-term tactics. It's foundational stuff like we're talking about here that if you listen to it a year from now, it's still going to apply. We do have the new podcast called Welcome to Growth, which is me and my co-host, Jonathan. It's way more casual and it's more just me and him going back and forth every Thursday on different topics. Joe: That's where I heard your first. I’m like I like these guys, they don't have any scripts at all. It's perfect for me. Dillon: We literally show up that morning. We might text the night before and say, hey, here's three topics that I would like to talk about. We'll pick one and just riff on it for about an hour. Joe: Yeah, it's awesome and you're a wealth of knowledge. We need to talk more about wholesale again someday. Thanks for coming on the podcast. I appreciate it. Dillon: Yeah, thanks for having me.

On today’s episode, we speak with Justin Christianson, the Co-Founder and President of Conversion Fanatics. Conversion Fanatics helps businesses find additional revenue through conversion optimization strategies. Tune in to hear us discuss exactly what conversion optimization is and Justin’s specific approach to helping companies increase their revenue.   Topics: Justin’s work history. Explaining “conversion optimization”. Justin’s favorite tools. Why directing traffic back to your homepage can make a huge difference. At what point the strategy goes beyond the customer’s website. The importance of incremental adjustments. Keeping it simple. What is helping him through 2020.   Resources: Conversion Fanatics Justin’s Social Media Quiet Light Podcast@quietlightbrokerage.com Transcription: Joe: Hey folks, Joe Valley here from Quiet Light Brokerage and the Quiet Light Podcast. As you know, we are online business brokers, a crew that has been there, done that. We help people sell their SaaS, content, FBA, e-commerce businesses and everybody's got a crazy amount of experience. Everybody's built, bought, and sold their own online business. Brad bootstrapped a company from 10 employees to 129 with three men ownership. He also acquired 26 companies or content sites in a six-year period and sold them to a private equity firm. Jason raised 10 million dollars in venture capital money and built a company. Amanda launched an affiliate business as a hobby, and it became the top four in affiliate in four months. Brian founded the world's first internet-based due diligence firm. There's a whole other crew; the rest of the team they've all got a ton of experience like that and now they're all advisors, brokers here in the Quiet Light team. I'm probably the least impressive of the crew. However, in the last eight years, I’ve sold close to 100 million in e-commerce transactions, probably at an average of about 1.1, 1.2 million dollars at a time. And we help first, that's the most important thing. We take that experience that we have and we help people around us, whether you are buyers that are listening or sellers. And we bring people on to the podcast like Justin Christianson so that he can help as well. Justin, from Conversion Fanatics and I'm stumbling on that a little bit. Justin, welcome to the Quiet Light Podcast. Justin: Hey, thanks for having me. Joe: One of the things that we don't do is read scripts as you can tell by stuttering through that but we also don't give fancy backgrounds on people. We love to hear it from them; what their story is and what their background is so could you introduce yourself to the audience here? Justin: Yeah, absolutely. So I have been in the digital marketing online world; I think this is year 19 for me. I started in my early 20s. I kind of moved up the ranks through affiliate marketing and lead generation and then became partners on a company and we exploded that company. I was actually the number one affiliate for it. We exploded it and grew it like… Joe: Just for the record, three ahead of Amanda. There's no question. She was four you were number one. Okay, I'm busting on Amanda right now, even though she doesn't listen to our own podcast. Continue. Justin: Yeah, we grew it like 500% in one year. We grew it almost 150 the next year. I sold it back to my business partners about; I guess it's been about 10 years, which is my time to leave. I started a private consultancy. I’m kind of teaching the implementation and optimization side of things. And then basically out of demand, I partnered up with my longtime friend Manish, who is my now business partner, and we founded what became Conversion Fanatics about six and a half years ago. Since then I've helped several hundred businesses. I think we calculated somewhere close to an additional hundred million in additional revenue for them through our conversion optimization strategies. Joe: Incredible. Justin: We just keep working every single day to be a little bit better and I’m fortunate enough to help some of the top companies in the world. Joe: And I know a few of them. I know a few of the folks that you worked with through Blue Ribbon Mastermind, our friend Ezra Firestone, and they speak very highly of you. And you actually helped Mark here at Quiet Light with his business Catholic Singles. Why don't you tell us though; I know the definition of it and I'm going to give a short story here afterwards but what is conversion optimization? Justin: Conversion optimization is really the understanding; well, I'm going to back up because conversion optimization, when you first say that, people often say, well, it's split testing. Well, split testing is just the vehicle that we use to prove or disprove whether we're right or not. But conversion optimization in and of itself is understanding the behaviors of the visitor; understanding their wants, needs, likes, dislikes, and where the key friction points are in an online journey and then doing what we can to answer the question why certain things are happening in that journey and then we split test to make sure we're right or not. So really, it just comes down to reading data and then executing on the ideas of why we think that data is telling us what it's telling us. Joe: And it's not just split testing, written content, or split testing images or videos or emails. It's a combination of all of the above, I would think. Justin: Yeah, we focus primarily on-site or on the ad side, but we're primarily; I would say 95% of our business is on-site, user experience, user interface kind of optimization. So, what happens on the website after they come from that ad and what can we do to make that experience better for those visitors and help those brands excel which will also lift up many other metrics in the business as well. Joe: So it’s really perfect for the content, e-commerce owner, SaaS owner, and maybe the FBA owners that are trying to expand beyond Amazon and get some traction in their Shopify store or whatever store they might be using. Justin: Yeah. Joe: One of the things I have to say, I didn't understand what split testing was back in the day. I sold my e-commerce site through Quiet Light back in 2010. Mark, actually, Jason here was my broker at the time. I knew everything. I understood exactly what my customer wanted more than they did and kept doing these campaigns and putting them out there and putting out there, putting it out there. Finally, my web developer said, Joe, don't be an ass. Try split testing. I'm like, but this is right. And he's like, let's test it. Without a doubt every new campaign that I tested that I knew which one was going to win, I was dead wrong. And it would result in like 3% to 5% conversion rate differences and at a $200 or $300 transaction, that's a tremendous difference, isn't it? Justin: Yeah, I mean, we'll see; I'm looking at a test right now, it's like a 15% swing. Joe: Holy cow. Justin: I've got one running right now that's almost a triple-digit swing in terms of percentage gain. Joe: When you look at a client that let's say they're selling a physical product, are you looking first at their website to try to help speed up the website and improve it? What approach do you take with new clients? And I know they're all different, but give me an example of one. Justin: Well, really, I take the same approach with all of them, because my philosophy on that is at the end of the day, we're dealing with people. It doesn't matter what we're selling, they've all got wants, needs, buying habits, and decisions and pains and pleasure points and all of those things that go into that. So, I just try to understand and put myself in the shoes of that visitor. I look at the data and say okay, I'll look at their analytics and say, well, they're female aged 35 to 44, primarily they’re shopping on mobile, they're falling off on this part of the website. And then I just put myself in the journey like what's stopping; what are the 10 things on this page that could potentially stop a visitor from going through the next step? What isn't clear? What can I add or remove to alleviate those friction points? And really what I'm trying to understand is what on that page holds the most weight in the eyes of the visitors? Because at the end of the day, you said you were proven wrong on a bunch of times. You were assuming something was going to happen. I’ve ran thousands of marketing split tests. I’ve strived for just pulling myself out of the equation in terms of my bias; my understanding, and I try to just really put myself in the head of the visitors. And once I do that, then it becomes much more apparent of what I need to test and where. And then as soon as I figure out what holds the most weight, I can then exploit that throughout the rest of the website. If they respond to social proof or they respond more to the benefits of the product or they need more trust aspect in the brand or they need to read more about the product or whatever, I try to figure that out. It could be copy-based. It could be image-based. It could be something as simple as moving a button off on a page. But I incrementally test those things to figure out what holds the most weight and once I figure that out then we just move throughout the site areas on the website and just keep going to try to continually evolve and scale and grow that business. Joe: Going back to the beginning, you said, you see when they drop off in their journey at a certain point. If they're looking at a product and reading an article and at some point, they drop off instead of actually placing an order, what tools or software do you utilize to see that path that the customer takes or potential customer takes to then drop off? It seems to me like that would be hard to access, that information. Justin: No, actually is not. It's one simple report in Google Analytics. Joe: I've been using Google Analytics for; how long have I been self-employed? More than a decade or more like 15 years, I don't know; something like that. Too long to the point where I still don't know how to do stuff like that. Is that training that Google provides you inside of Analytics and workshops or things of that nature or you've just learned it over the years? Justin: Well, it's literally a default report that I go to. It's under Conversions and you have to have e-commerce enabled. So it's under Conversions and then E-commerce and then Shopping Behavior. Literally, it's just a bar graph and it shows you the drop off points in that process and I just know how to read that and then you can dig in deeper and deeper and deeper from there. But generally, I'll get the understanding of it. So, I'll look at the landing page view and it's basically two reports. I’ll look at the landing page behavioral report, so I'll see which landing page; their first visit interaction, what that conversion rate is. The Home Page is almost in the top three, almost always, even if you're driving traffic to a separate page or a landing page and the Home Page is generally underutilized by 90% of the businesses out there. Joe: What does it mean underutilized? Justin: They're not focusing on it. They don't care about it. They're focused on landing pages and product pages and checkout flow but yet I've seen campaigns double their return on ad spend by just turning some traffic to their Home Page versus a specific product page. But I look at the top-performing landing pages and then I look at that shopping behavior report and then I'll see okay, we've got this many people that are going on the Home Page, this many people have product views, this many people viewed the cart, this many people went to check out, this many people completed transactions. And usually, there's an outlier in that report. So, if it's on the product page like the product view one, I'll see okay they’re in the product view and that means they're viewing a product page, but they're not adding to cart. And then I just go ask a few more questions of where you're driving the majority of your traffic, are you driving traffic directly to that product page or are you driving it to your home page or collections or whatever and then that'll give me a better understanding what those visitors are telling me. Joe: Okay, I got it. And at what point do you go beyond the website itself? Well, actually, let me back up, first and foremost. I talked to thousands of entrepreneurs over the years. Everybody listening to this podcast has a website. Please install Google Analytics because you're not going to be able to do any of this stuff that Justin's talking about. And just to dispel a myth that's out there, Justin, is Google stealing information from the people that are installing software on the website, or are they really just giving you the tools to help improve your business and make more money? Justin: I guess that's up for debate with who you ask but every single website… Joe: I don't want to debate that, by the way. Justin: No, I definitely don't want to go down that rabbit hole. Every website out there has it, I mean, has some form of Analytics involved. Joe: Yeah, I just sold a number of them where people have said they straight up don't use Google Analytics and they use some other unknown software or stat tracking data that doesn't do what Google does. So, please everybody install that. When it comes to AB split testing. So, you're figuring these things out. You get to the point where you decide you want to move a button-up or the order button up on a page. Do you just go ahead and do that based off of your experience or do you split test that always? Justin: Always split test it. I am literally proven wrong almost daily. Joe: Okay, it’s not just me then. Justin: And we launch 50 plus new split tests a week for our clients. Joe: 50 split tests a week. Okay, always split test regardless. Here's a question for you. This might be tough to answer. When it comes to deciding the winner in a split test, my developer years ago gave me stats and he said, well, you've got to get to this number of total views and then statistically it's got to get here in order to make it a valid split test when you determine a winner. Is that still the case or just kind of do you wing it? Justin: Well, a little bit of both. I look at several different factors. I'll look at statistical confidence, which is one. You have to be statistically valid. You have to have a big enough sample size. You have to have a big enough separation. But I also look at the trend in the data. I look at is it flip-flopping back and forth or is it staying pretty steady as an improvement or a loss? How big of a loss is it out of the gate? And then I look kind of anything north of 25 conversions per variation then I'll start looking at the data. I always run it for at least a calendar week if it's showing promise or sometimes longer. Sometimes a test will run for a month. But there are also the times where you can run a test for six months and run millions of visitors through it and it'll never reach statistical confidence one way or another so you have to know when to cut it. Because if it's null or if it's flat or if it's bouncing back and forth, it's never going to reach confidence because there's not an algorithm on the planet that can factor that fluctuation. Joe: Confidence being the winner, one that's going to produce the end result that you want. Justin: Yes. Joe: What do you do at that point? Do you just flip a coin and decide whoever; if I’m the owner of the website and I like the images on one better than the other and if it's… Justin: So, if I don't know if it's a winner not, I'll generally call it a null result and I'll stick with the original. Unless it's not hurting anything and it's actually making it a better experience for the visitors. Meaning it's cleaning up a page or it's adding a function that might be beneficial that I can use to build upon. Or maybe if it's stripping down a page, then I can go in and then test adding some different types of elements back to the page and it just gives me some more online real estate to work with. So, it's kind of just sort of a guess at that point but I usually have an end goal in mind and I never want to push something that I'm not validating that it's an improvement. And I also don't focus just solely on conversion rate either. I focus on the bigger picture on engagement revenue per visitor, average order value, views on check out; all of those other secondary metrics just to make sure we're not; because you can improve conversion rate but make a lot less money or really dramatically decrease your revenue per visitor. So we just take a very holistic approach to the whole thing and I’m in it to win so I'm not going to push stuff just for the sake of pushing stuff. Joe: Yeah, so number one people have to have Google Analytics installed, figure out how to run the reports, and then always do split testing regardless. What are some of the; I mean you've been doing this for a long time, what are some of the other than I think you said which was people are not paying enough attention to their homepage? What other low hanging fruit is there that folks can do when they look at their own website where you see most common issues, where they can take a look on their own and try to fix things up? Justin: Well, there's a bunch of them, but generally visitors, we kind of live in this speed and this trap, I call it, of growth hacking and a lot of people just go in and say, oh, I think this looks better, let's go ahead and do it or let's change this or I saw so-and-so had it on their website can we do it on my website? And I've never seen that really go well. And also, I think that people think bigger is better so they feel like they need to completely redesign a page or add these big changes to make a big impact and the opposite is actually true. You need to incrementally adjust things to better understand those behaviors. The majority of people that I see are trying to cram too much stuff into a very small area. They're trying to over app their way to better conversions. I've seen stores with 70 plus applications and plugins and all of the stuff installed and they don't necessarily do the right things; adding more urgency and more timers and more pop-ups and things to your website isn't going to help you for a long term sustainable growth. But the glaring one that I see is people do not lead from a place of benefit to the visitors. They're screaming how awesome they are as a company instead of listening to the visitors and what their product is actually going to do for them. And I've said this in my entire career, it's kind of copywriting 101, it’s you lead with benefits. So, benefit bullet statements. I go back to that all the time and then I use the features of the product to support those benefits. I've said this many, many times is I've got 16 gigabytes of RAM in my computer, which is great. It's a feature, but it's not a benefit. What does that do for me by having 16 gigabytes of RAM; a faster processing speed, faster video rendering, all of those things because nobody wants the feature. They just want what it's going to actually do for them. And a lot of companies just simply don't do it. They don't pay attention to it and I see it every single week on many, many occasions. Joe: I used to write ad copy for radio direct response stuff and it was 60 seconds and 18 of those 60 seconds were the call to action, which was the phone number; the 800 number at four or five times. We used to be able to get the features and benefits in 42 seconds; simple, clean, quick, clear. It's funny now we've got so much information and so many endless pages of websites that we feel like we do need to just jam more in and do more. Mike Jackness has been a regular guest on the show. He runs Ecom Crew and Ecom Crew Premium and he had a brand called Color It that we sold for him. And one of the things that Mike did very, very well is exactly what you're talking about when he reached out to customers regarding Color It. He had one of the biggest Klaviyo campaigns. He talked about it a lot on the show and that was giving them some benefit with every email that went out; helping them, teaching them, giving them some benefit, not hitting them up with a sales promotion every time. It's a help first mentality and that generally comes back to you. I think that's great. It’s sometimes simple to do on a website, and I would think that sometimes it's a little more complex. Are you finding getting a little more complex with video for instance? We had Judson Morgan from Butter.la on talking about the increase in conversions from a static image to a video. Are you finding similar findings or do you split test those types of things as well? Justin: Yeah, we always split test it. I've seen the video go 50% improvement to a 50% decrease and everywhere in between. It just depends on the brand. I've got an auto detailing client that has all the gear for auto detailing and they’re very video-focused so moving a video into the main spot on a product page in the carousel would prove really effective for them whereas other companies showcasing a shirt, for example, isn't necessarily as effective as a product that needs to be demonstrated so it's really a case by case basis. And if there's a video available, we'll try to leverage it as much as possible but I have literally seen swings go both ways. Joe: Have you been in a situation where you have been testing video and you're testing that less is more where it's maybe user-generated content versus high-end production and one outperforms the other consistently; probably not consistently, yeah? Justin: Not consistently. But I would say I do this with imagery too, is I kind of lean towards more of the user-generated real type side of things; the shaky camera, the ums and ahs because I think more people are relatable to that or they can relate to that a little bit easier. I've got a client right now that's got a product and all of their imagery looks like straight out of an Instagram model's website. Even their user-generated content is Instagram filtered and perfect and looks like they used a super high-end camera and I'm like, do you have anything real? Like some real, hey, this is awesome look at this. He's like, yeah, I've got all sorts of that. I'm like, well, let's test that because your visitors are literally saying we don't know if these are actually as good; the pictures are great, but we don't know if they're actually as good so we've got to build that trust that the product is great. And this is a site that sells 2,000 plus orders a day so they're doing volume, but their visitors are still screaming we don't know if we can trust this even though they've got 500,000 plus customers. So we're just trying to leverage that as much as we possibly can to showcase in different ways like, hey, this is real and it's not… Joe: Have you had the chance to split test that yet? Justin: We're in the process of gathering all the images. I'm literally going through this this week. Joe: And is that your role within the company or do you have other folks that help you? Justin: Well, I've got a team. Joe: Well getting down to the point where you're picking out those images, or do you let the company owner or your client pick out the images that you'd be choosing? Justin: A little of both, we're very collaborative. But I've got a big team of smart people; designers and developers and strategists and analysts and all of that stuff. But I'm very much involved and my business partner and I are in the overarching strategy. Some clients I'm more in the weeds with than others. This one I just happened to be going back and forth with because he was trying to push for one thing and I'm like, well, your visitors aren't saying they want that so I kind of had to interject and say, here's what we're seeing from that standpoint. Joe: And they're literally saying and you’re; and I'm saying you and I know it’s your team, but I'm saying it's so that the audience can go and do this themselves as well. You are literally going on to the reviews, to the Instagram comments and things of that nature, and seeing what the visitors are actually saying, or are these e-mails into the company that tips you? Justin: No, survey. This one is actually like just a type form survey saying here's the; we took the top three questions, like what questions do you have that we didn't answer? I do this with exit polling a lot too so almost all of our clients we’ve set up an exit poll. So catch the people that are leaving and just ask them what problem did we solve for you today or what question weren't we able to answer and give them that open-ended kind of outlet to tell us where we're falling short. And you'll see a trend very quickly of what that data is telling you. In this case… Joe: So somebody when somebody leaves the site without placing an order, if that's the objective, you've got the ability to have them fill out an exit poll form? Justin: Essentially, yes, just a one question kind of survey. Joe: Okay, that's fascinating. Imagine that, asking them why they didn't order and having them tell you and having you be able to fix that problem. What you're doing is not actually that complicated it's just hard work. Justin: Right. Joe: I guess you got to take the time in the detail to get to it, and it's funny, I find a lot of things in this e-commerce or online world that we live in not very complicated. It's common sense. Sometimes we just have to be told what we already know. Justin: Yeah, common sense is kind of lacking in a lot of cases these days it seems like. I mean, even in my career of almost 20 years, nothing's changed. Just the mediums have changed. So that's really it. Joe: True. Justin: People come to me and they're like, oh, hey, what's your framework and what fancy tools are you using and I'm like, I'm simple. I want to go down to the bare bones minimum possible to get the job done. I don't want to over-automate and over-analyze. I just want the visitors to tell me what it is and optimization in that. I mean, there's a science to it, obviously, but an understanding and an experience definitely helps but it isn't rocket science. I mean it's ask the right questions and my question just happens to be why. Why are they clicking on the button or why are they leaving that page or why are they watching the video or aren't they watching the video, why are they dropping off at that point in the video? It's just questioning everything and then looking for all the ways we can possibly test to improve that. Joe: It's a lot of whys in there and none of that becauses come from the founder of the company or the CMO or something like that. They come from the customer, which is smart. It's the mistake I made years ago when I thought I knew everything. I was dead wrong. It sounds like you are too most of the time when you're doing your split testing all week. So, listen to the customer, obviously, but you've got to get that information to the customer and ask them. Justin: Yeah, and I think as business owners, and it's why I hire coaches. It's why I hire people to get an outside, unbiased perspective because I see so many business owners often look at their business or even marketing executives for large, large corporations, they're in there every single day looking at the data, looking at the website, looking at the marketing message that they just get numb to it and blind to it. And sometimes the smallest little change and the smallest interaction or they're overlooking just some small lever they need to pull that's going to dramatically improve their marketing performance. And I fortunately and unfortunately see it all the time. Joe: I'm going to go on a short tangent here. You said you hire coaches. You've been self-employed for two decades in the online space. What kind of coach would somebody with your experience be utilized? What kind of coaches do you hire for yourself? Justin: So I started out; I'm a direct response marketer. I'm a B2C guy that for some reason started an agency. I have no idea how to run an agency. I never did when we started it so I've hired several; I’ve hired sales coaches, I've hired other business development coaches, I've hired lead generation coaches, I'm in a Mastermind right now for agency owners; all very top level just because there's a lot of stuff that I don't know from the inner workings of the process. I'm a forever student and I think I can learn how to do something and I live kind of by the motto that every day I need to be a little bit better than I was yesterday even if it's just one small incremental improvement. I’m a split test guy so I have to strive for that improvement all the time. And sometimes I have the wrong questions or I have the questions or I'm not asking the right questions on my own business and it's even helped me even through all of the stuff that's going on this year. There was a time where we had a lot of unknowns, even back in March and if we don't change this stuff we're going to be in freak out mode if we don't fix some stuff. So, I needed to lean on my coach and my crew and my circle of influence on the agency side to kind of help us navigate. Joe: Yeah, I think that's fantastic. And I ask the question because you obviously have done some things right over the last couple of decades and some of the audience members might just be leaving the corporate world and coming into this online world that we live in and one on one coaching is the equivalent of one on one therapy for people that need help but it's for you and your business. In many ways, it improves you as an individual as well as a business person and as an individual. We have David Wood on the podcast; he's a business coach, just talking about the benefits of asking certain types of questions and trying to make incremental growth as you've talked about here. And then the Mastermind groups like Blue Ribbon Mastermind, like Ecom Crew premium, like eCommerceFuel, like Rhodium Weekend, those are all group therapy, but it's group enhancement. Everybody shares their secrets with the other members of the team so everybody can grow and learn together. So I think it's brilliant, very, very smart things to do. Justin: There is a lot of; if you get in a room with people that are on that level or even above you and I don't always join into our monthly or biweekly phone calls on our Mastermind and all of the stuff and I don't always need help. I don't always have something to share but when I do, they're there. And I think there's a lot to be said about that, too. It's just having kind of that fallback and kind of a sounding board when you do have an idea or you're falling short in certain areas. Joe: I couldn't agree more. Justin, I appreciate it. Where do people go to learn about your business Conversion Fanatics; is it just simply www.ConversionFanatics.com? Justin: Yeah, www.ConversionFanatics.com. You can find all information about us. I've got a best-selling book that's also available on Amazon. If you go over there, find it. It has the same name, Conversion Fanatic. Joe: Awesome. Justin: And I'm all over social media so you can find me at www.onespotsocial.com/JustinChristianson and you can find links there; basically everything. Joe: Fantastic. Justin, I appreciate your time. Thanks for being on the podcast. Justin: Thanks for having me.

On this episode of Quiet Light, we speak with Jon Elder, who had a seven-figure exit and now guides others on their startup journeys. We discuss the start of his Amazon career; his new business, Black Label Advisor; and how he guides his clients to success.   Topics:  Why he got into an Amazon business. How his conservative spending affected his start. What he negotiated in the sale of his business. Who his current business helps. How his methods have changed since he started. Why you should consistently innovate. Creating experiences for customers. Who his typical client is.   Resources: Black Label Advisor Jon@blacklabeladvisor.com Quiet Light Podcast@quietlightbrokerage.com   Transcription: Mark: Starting an online business and an Amazon business, that can be tough, right? There are a lot of mental challenges in that and especially those first couple of years; there are a lot of decisions you have to make in order to be successful. You have to think about how much inventory should I be buying in that first year, how much should I be investing, how many new products should I be launching, all while not seeing a lot of cash in your pocket, because any money that you bring in, you're typically reinvesting in that business to be able to help it grow. And so, there are a lot of challenges through those first few years and I think a lot of people get drowned down mentally during that time because there are just so many decisions to try and make as you're growing a business. Joe, you had Jon on the podcast to talk about that. He went through this. He went through a successful exit, and now he's training people on that startup process. How to start up an Amazon business, how to build brands and make those decisions a bit more clearly, have the right mindset as well going through this to make sure that you have some resiliency through that process. Joe: Yeah, Jon reminds me of us and what our website says which is a bunch of entrepreneurs with a bunch of crazy, been there, done that experience. That was a terrible quote from our own website. I should have had it up and read it. Mark: It’s something like that. Joe: It’s something like that; a bunch of people that have done something. Mark: We're just a bunch of guys and Amanda. Joe: And Amanda, she runs the show. Jon, he had a mid-seven figure exit and it was a substantial and life-changing one that will probably change a generation or two of his family. And he did it through building an Amazon business the right way with multiple brands in one Seller Account. Not that that's the only right way. There are many ways to do it. But he's sharing his direct experience. He's not the typical guru if you will. And I shouldn't say that because we have many friends who would be considered gurus that are actually really good at what they do. But he's been there, he's done it, and now he's going, okay, look, I can help people. I truly, truly can help people. And he set up a system and a process to help people understand how to identify the right product, not just from maximizing value and return on dollars but upon doing that, you're going to be happy and satisfied with working with you and your cash flow; how long the launch process really takes, how often you should launch. He never used any launch services or anything like that. There are a lot of steps that he's set up and he goes through and he's working with people one on one. And I thought it would be beneficial to have him on the podcast because he does have a crazy amount of done there and done that experience. Joe: Hey, folks, Joe Valley here from the Quiet Light Podcast. Thanks for joining us. Today we've got somebody that had an incredible exit, one in the mid-seven figure range. Jon Elder ran an Amazon business with multiple brands. Jon, welcome to the Quiet Light Podcast. Jon: Yeah, thanks for having me, Joe. Joe: That was a short but powerful introduction if I do say so myself. We don't read fancy intros here. Jon, can you give the audience listening a little bit of background on yourself so they understand who you are and why you're here? Jon: Yeah, of course. My story is kind of similar to a lot of people in the sense of I wanted to get more out of life and there is always an entrepreneurial spirit in me. And so, 2014 is when I started on Amazon and I was also working on a corker construction job and I honestly thought I was going to be in that type of career the rest of my life. I went to college for Construction Management and so it's a pretty high profile, very successful career. But the scaling of salaries is driving me a little crazy and so I wasn't okay with just getting the 5%, switching companies maybe down the line. So, I got into the Amazon world because I thought it was a really great opportunity. At the same time, I’m really conservative so I didn't go in with a large amount of capital. I started with roughly $5,000 and I got my feet wet in the golfing category. Some of that is due to just my general interest in sports and it was a product that there weren't a lot of competitors in that category. It was something I was interested in and something that I thought I could innovate a little bit in that category and become the leader. And within a year I actually did become the leader. I became the number one seller for that specific product. Joe: And you have a job the whole time, Jon, or did you quit? Jon: Yeah, actually I worked full time until 2016. Joe: Excellent. Okay, that’s good to hear. Jon: Yeah. Joe: That's what I like to hear. It's a less risky path for people. Jon: Yeah, I'm married, I have a son and so their needs actually come first. I had to make sure that I wasn't putting my family in a bad financial position. So, yeah, I definitely worked with factories in eight. I spent a lot of hours. My wife was very sacrificial, allowing me to spend all that extra time. We used to have conversations about this that we’re building a business in the future and there’s some sacrifice that has to be made for that. And that’s just part of life. Anyone who says that it’s easy and it doesn’t take that much time is a complete lie. It’s a lot of work and very, very stressful but it definitely paid off. Joe: Yeah, you’ve got five brands over that time period as well, not that just one? Jon: Right and part of that story is just pursuing products that I had an interest in. And not all the brands were successful. Some of the brands were definitely not successful but thankfully the vast majority of my brands took off and became leaders in their respective categories. Joe: Okay, so just to review and just to understand fully who you are, what you've done, because we're going to talk about some of the nitty-gritty here. But in the last year that you sold the business, you did about six and a half million in revenue. You ran the business side by side with being a new dad and a full-time job for a couple of years before you exited. You had five brands and ultimately you sold for mid-seven figures. We're not going to give away the detail here, but an amount that is a life-changing figure that would have taken you 20 years in your construction business to earn probably maybe even more, right? Jon: Oh, yeah. Joe: Over the over the five years or so that you were running the Amazon business, I always love asking this question and it's a tough one because you haven't done the math yet but did you take and make more money as you were running the business; take more cash out of the business for you and your family during that five-year period, or did you get more when you sold the business? Jon: Oh, I definitely got more when I saw the business. One of the driving factors behind the success of my business was the vast majority of the money; any profits that we got were reinvested. That helped us launch products faster. It helped us launch new variations faster and so that allowed us to grow the business very, very quickly. Joe: You must have taken something out for yourself, though, I would assume. Jon: Oh, yeah, definitely. Joe: Just enough to live off of, was your wife working? Jon: No, my wife is a stay-at-home mom. In 2016 when I went full time with Amazon, the goal was to pay myself a salary that mimics my salary at my job and then as the business grew to continue to scale that up from there. And of course, at Christmas time because of the sales and the profits there, doing things like small bonuses and things like that. Yeah, the money that I paid myself definitely increased over time. In the first two years, I paid myself very little just because I was obsessed with growing the business. And honestly, from the very beginning of starting the business, I had a number in mind for my exit someday. A lot of people will say they have vision boards mine was a very specific number. It was in the multiple seven figures and everything I did in the business was geared towards that end goal. And so that's everything from having all my brands under one seller account, all my bookkeeping, just keeping everything clean, strong tax records. Joe: Preaching to the choir, I love that. I love all of it. That's great. It's a clean and easy deal. Did that enable you; was your buyer and SBA buyer or were they a cash buyer? Jon: He was an SBA buyer and the package deal for that was kind of interesting. Roughly 75% was upfront cash and then the rest was split between the seller note over five years and then an earn-out in perpetuity. And so that actually wasn't originally in the contract and with my lawyer at my side, we negotiated that to be perpetuity so I'll get the money eventually. Joe: Wow, that's fantastic. That part of it was probably outside the SBA guidelines though, yes? Jon: That's completely outside the contract. Joe: Good, good, good. Understood. Okay, so you learned an awful lot, you had five brands, some were successes, some were failures along the way, and you’re now helping other people as well. What are some of the basic tips that you would give somebody if they're just starting out? So this podcast, even though you had a multiple seven-figure exit, even though you've operated five brands, you're really focused on helping people that are just starting out more than anything else. What are some of the basic things that somebody should look for if they're, let's say, either starting out or if they're buying a small Amazon business, that might be a couple of hundred thousand dollars in total value? Jon: So it sounds cliché but follow your passion. That's something that I tell my clients and friends and family who are interested in starting an Amazon business. Do something that you're generally interested in. And it doesn't have to be your ultimate passion. For example, golfing was never the ultimate sport. It was just a general interest in it. But go into something that you have some sort of interest in because at some point you will have hurdles and you will have issues with your business. So, for example, you might have to spend a couple of hours on a Friday night talking with one of your factories about resolving quality issues on a previous purchase order. You got to be invested in that product and if it's not a product that you're interested in, for example, I would never go into women's makeup because I have zero interest in it. I just don't know if I would be totally in it once I hit those bumps in the road. Joe: Yeah, and I've heard people say just the opposite, except for that part of the bumps in the road. So you could be product agnostic, but it helps, it's not an absolute requirement, it helps, as you're saying, to have some passion about the product. If you're going to end up on a call at 11 o'clock on a Friday night with a manufacturer on the other side of the world to work out some kinks in the detail, if you're not passionate about it, if you're not interested, if you hate it, you’d probably think about doing something else. Jon: Yeah, and I think along this subject too it's even deeper than that. I mean, so often, you’re going to have other competitors for your product. There is so much innovation and improvement in your product that takes place over time. Personally, I wouldn't want to be looking at makeup and spending hours and hours and hours trying to get a better formula because I just don't care about it. One of my other product lines was an outdoor kid's product. The mission behind that brand was actually to encourage kids to rediscover the great outdoors. So many kids are on tech now and they spend hours and hours inside on the Switch and on iPads that; and this is how I parent as a dad, too is I encourage my son to go spend hours outside. Joe: How old is your son? Jon: He's five. Joe: Okay, wait until they're teenagers. It gets even worse, man. It gets even worse. They’re playing with friends all the time it’s just online I tell you. So, yeah, have some passion about what you do. There's no question about it. You started with 5,000 bucks. Are you helping people that haven't even picked a product yet or those that have a product idea and has sourced it and are really just trying to figure out how to how to get some traffic on? Jon: Yeah, obviously it depends. Some of my clients definitely have product ideas and they're already innovating and they want to go into a category where it's going to be truly unique and different. And then others are still in the brainstorming stage. My job is to just advise and help them along the journey all the way through sourcing and getting on to Amazon and launching. But there is so much that goes into the product research phase, and that's what I tell people, is just expect to spend hours and hours researching and researching because this is your money you're talking about. And some people take out loans. This is real stuff. You need to be 100% sure that you're in it for the long haul with your product. So, it comes down to researching the estimated revenues for that product. The thing that made me the most successful was innovating products that had some negative reviews. So I would harness all those reviews and fix all the problems. Joe: How do you do that with the manufacturer on the other side of the world? Jon: It's pretty incredible. I actually never visited any of my factories. I had four factories and it was all through phone calls, Skype, and emails. Joe: And it worked, not a problem. So are you working with a product innovation firm that's doing industrial design work for you or are you just sketching it out yourself and asking for innovations from the manufacturer? Jon: No, actually, the innovations were things that; again, because I was in product categories that I had a deep interest in, I was able to innovate myself. Joe: And do you then just put a drawing in front of that manufacturer and say can you do this? Jon: Exactly. Yeah, sketches are really useful, and then something that blew me away was how intellectual or sophisticated the Chinese factories were. They actually had 3D modeling engineering guys in-house. And I worked with some big boys. The factory for the golfing product that I sold, they actually supplied some products for the PGA Tour. One of the keys to my success was working with factories that were not starting out their journey as a factory. These were very established factories that sold products to Walmart and brick and mortar companies. Joe: Yeah. For those listening one of the additional options is Gembah, www.Gembah.com. We had Zach on the podcast here. It's a product innovation company, its industrial designers that can do that. If you're not good at drawing and innovating, they can do that work for you so that you present a more professional look to the manufacturer. Okay, so advise number one, spend a lot of time on deciding what product and product categories you’re going to go into because this is where you're going to be spending all of your money in the future years, yes? Jon: 100%, and all your time. Joe: All right, let's just say we picked a great product. What's next? I mean, is it simple photography, put the listing up, look at basic stuff in terms of recommendations from Amazon? Are you using a launch service like Viral Launch or are you using some other launch service or a combination of different things? Jon: Yeah, for launching, I can get into that in a second. So, the next step that worked really well for me was doing a ton of screening with the factories. And then what I would do is I would do three final samples and we're dealing with weeks and weeks of communications here. Like this is a long process to make sure that my factory is the best of the best. So I would test the factories over email and I would ask oddball questions. I would also come across as the VP of Logistics or the VP of Product Innovation. So I would definitely present myself as an image of a large corporation. They never thought that I was a mom and pop shop in the States. But getting three samples from three strong factories was really successful for me. Joe: Three samples from each or one sample from each? Jon: Sorry, one sample from each factory. And then I would stress-test those products, use them, inspect them, see how they feel in my hand. I would do all those types of things. I ask friends and family what they thought of the products. That was a very common process. And then I ended up after taking in all that data, deciding on my final factory. Joe: This may be a basic question, but I assume you're paying for the sample and paying to have it shipped, right? They’re not sending free samples and free shipping. Jon: Correct. Joe: So you're going to spend several hundred to a thousand dollars in just reviewing product samples I would assume, depending upon product cost of course? Jon: I would say a couple of hundred. Joe: Expected, and that's an incredible investment that you have to make, right? You can't just look at some stuff and get one sample and off you go. Jon: Yeah, so it's common to see that everywhere right now. It's like you can skip all those steps and you don't need to worry about that. There is some time and money upfront that is going to save your butt long term. 100%. Joe: So then if you've got the product samples; let's say you want to innovate on all three, let’s say they’re pretty close but you want a thicker grip on a handle or something like that, are you asking the manufacturers all three just to see how they respond and react and work with you in terms of innovation? Jon: 100% and part of that is also testing how flexible they are as a factory and how easy they are to work with. Joe: Okay. Jon: If they put up a big fight and complain about things, that's going to be a red flag for me. In the factories that I ended up working with, the answer was always yes. Their response was yes, we can do that. Yes, we want your business. Yes, yes, yes. Those are the guys that I ended up working with. The ones who caused issues for me and said, no, we can't do that, that's going to cost $5,000, I just got rid of those guys off the bat. Joe: All right, so what's next? You've tested three manufacturers. You chose a product, you innovated the product, and you’re at the point where you've got the final decision on what you're going to invest your money in. What's next after that? Jon: So at that point, you have your final sample, and hopefully you have that in hand, typically production, depending on how many units. My test unit order was always 250 units, sometimes 500 units. So what I would do is while production is happening, whether that's two weeks or four weeks, I would have my final sample sent to a professional photography firm. In the very beginning, I actually took pictures myself and had a designer kind of edit my pictures and pump up the colors a little bit. But later down the road, when I was launching product after product, I'd send the products to a professional photography firm and have them do the enhanced brand content just to tie in the branding for my product. Because in the beginning, I sold a lot of random products, and then as time went on and I got more educated on it, I realized I need to be establishing my brand. I need people to come to Amazon for that specific golfing product. I want them to see my name and think quality and fantastic customer service. That's what I wanted them to remember about me. And so part of that is beautiful packaging, part of that is beautiful enhanced brand content. I had videos as my seventh picture on the listing. Joe: I was just going to ask that. How many of your listings had videos on them, all of them? Jon: The two largest brands had videos and that was kind of like a cost decision because the videos that I went with were extremely high production videos. And not everyone has to do fancy videos. The reason why we justified that was those brands were very, very large. We're talking big revenue numbers so it was something that I felt was needed. Joe: You didn't do that out of the gate on that first golfing product I assume, right? Plus, it was 2014. It probably wasn't an option for you. Jon: No. I don't remember the year that they allowed videos on the listing. I think it was maybe starting to happen in 2017-ish but yeah, in the very beginning you were locked out of everything. You had a paragraph for your description; you had bullet points, and then seven pictures. That was it. Joe: Yeah. Okay, so now you've ordered products, you ordered 250 units, spent a couple of hundred bucks on samples, you got another final sample you sent off to a photographer. It doesn't sound like you've got a whole lot of money left if you're starting out with five grand. I guess it depends on how much product cost is. Jon: That initial investment can range drastically. My first product in the golfing category, I sourced it for a dollar a unit. Joe: Well, that makes a difference, that it explains it right there. Jon: Yeah, exactly, it makes a huge difference. And I did that on purpose just because I'm so financially conservative that I wanted to learn the logistics process of Amazon and if I did screw something up along the way, whether that was customs or something at Amazon, I wanted that capital invested a tad small. Joe: And if you were in a competitive space that would have meant the barriers to entry in terms of cost are pretty low. A year later you said you wound up with the top listing, but did you start to see competitors come in pretty rapidly after that? Jon: Oh, yeah, 100%. And I think what drives that is people see a new seller take over that category and then they see all the revenue go to me and then they think, oh shoot, I'm going to mimic him and I'm going to come in and take some of the revenue. And that's part of life is you have to; and when I mentioned innovation, you have to be constantly innovating your products. So I ended up adding a special device to my golfing product that actually had a patent for it. No one else could do that but that was kind of like an additional tweak I did for the products that made my listing unique and different from all the other listings. That's just the harsh reality of Amazon is once you become a category leader, you will have a lot of other people come in and mimic you. Joe: And the way to fight that is to innovate. Jon: Innovate, be the best, and when you think your pictures are good just get even better pictures. Joe: Yeah, I hear you. All right, so now we've got the product. You've ordered it. You are starting to have your photos done. What's next? I had mentioned launches and systems and things of that nature, where are you helping your clients and advising them to go from there? Jon: I'm different in the world of Amazon because most of my products; actually all the products were done organically and so my strategy is a little slower than other sellers. Joe: Let's define what you mean there organically. Jon: So for example, never using services like Viral Launch or other services where you're paying discounted rates or using websites to launch your products. Joe: You simply put the listings up on Amazon use Amazon Sponsored Ads and off you went? Jon: It's a little more than that. Joe: It always is. I'd like to simplify things and dumb it down but I know it's a lot more complicated than that, yeah. But no launch services, nothing like that? Jon: Right and so what was really beneficial was really actually humorous autoresponder emails. So we use a service called Feedback that was really, really successful. Alongside that doing a little bit of a giveaway through the early reviewer program and then just pumping PPC, to be honest with you. And so typically we do like slightly reduced cost for the products to be priced a little lower; nothing too drastic because that can mess up your Lightning Deals down the road. So we would reduce it a little bit and just funnel a ton of money into PPC. And then we had an autoresponder series on average two to three emails. Joe: So explain the autoresponder part because you don't have control of the customer. This is after they buy the product? I’m confused on the autoresponder part. Jon: This is right after someone buys the product. So one email goes out three days after they receive the product and then another one goes out seven days and another one goes out 14 days. And those are all tweets specifically to be kind of funny. So many people open up emails and to be honest with you, most people don't open their emails very often. So having a really funny title for the email and then the actual body of the email being short and sweet and using a joke or something about the product was really, really helpful. Joe: I got you. So, you're not breaking even upfront, I assume, because you're spending a lot of money on Pay-Per-Click. Jon: No, I’m definitely in the red when I first started. Pretty much all my product launches started in the red. Joe: How long are they in the red for? Jon: Probably a minimum of six months because I'm doing it organically. Joe: So, how many products are you launching in the first year; two or are you going after more? Jon: The first year was two products actually. Joe: So, if somebody is coming to you with a little bit bigger of a budget and let's say they've got 20 grand and they're really needing your guidance to get launched and they've got an idea of the product. Are we still looking at losing money or breaking even for the first six months, eventually breaking and making a little bit? Jon: That is so dependent on the category that you're in. If you go into a category where you're competing with guys that have 500 reviews or a thousand reviews; let's say the top 10 sellers have a thousand reviews, it's going to take some time and you're going to have to burn through some cash. And the reason why is PPC gets more expensive every single day. That's just the reality of it. And everyone is competing for those keywords. And so, for example, with my products, I always outbid my competitors for the top search volume keywords, and the reason why is that that drove incredible sales to my listing. And PPC was actually the highest cost in terms of expenses for my business. Joe: Do you know what it was overall as a percentage of your revenue? Jon: Oh, man. Joe: I'm typically seeing anywhere between 10 and 20%. Jon: Yeah, I want to say was more like 25%. Joe: Okay. Jon: If we're dealing with the PPC costs alone my CPA would just look at me and be like, man, you guys are spending a lot of money on PPC. But that's just the reality of the business. Joe: But your CPA still has a day job? You get to do whatever the hell you want at this point in your life, right? Jon: Yes sir. Joe: Then who is right, you or the CPA? I think you were. Jon: Those expenses look kind of scary, but when you're looking at the percentage of revenue, it becomes a little less scary. Joe: Yeah. Now do all; I know the answer to this, but not all product launches are going to take six months to start to get traction and breakeven, did you have any in your five-year stretch where you would see some just home runs out of the gate or get some profitability within the first one to two months? Jon: The kid’s product took off very fast and that was a very organic launch. And the reason why was there were maybe two or three sellers for that product and they had an inferior quality problem. So if you go look at the reviews, the actual liner of the material for the toy would just deteriorate like within a month under the sun. And so we innovated and we got the best liner possible, got UV-resistant liner and improved the product drastically and that took off with beautiful pictures. We actually hired some models; some family members actually took pictures with the product and just focused on quality for that product. People bought it and I realized, wow, this is like; it showed up in the reviews, your product is as lasting a long, long time. And that became very successful, very quick. Joe: And it was all from looking at other listings and the negative reviews that those had and innovating and improving the product? Jon: Correct. Joe: Yeah, pretty cool. How hard is it, though, to find a category where there are only two or three sellers? It seems like an impossible task these days, is it not? Jon: So Amazon is definitely; there's a lot more competition now. I think the secret's out about FBA. Joe: It might be, yeah. Jon: It's definitely harder now. I think that most categories are going to have far more than two to three sellers and so what I always recommend is even if there's seven sellers, you can break into those market segments as long as you're not dealing with sellers that have like a thousand reviews. If seven of them have 75 reviews or maybe 200 reviews, that's something that you can definitely go into and compete with. But there is always going to be a hole in the market. There's always going to be a chance to innovate and do something and spend the time to make the best product possible that lots of other people aren’t going to do. And one example was actually the leather goods category that I was in. It was specifically for men. We drilled down all the way into the product packaging. A lot of people don't do that. They would get their leather goods products and they'd open it up from the box and it's in a polybag, right? That's not an experience. Joe: Right. Jon: So our idea was let's make it an experience for this person to open it up and sell everything down to the custom packaging for the box down to a branded tissue with branded tape. So whenever the person opened this product up, they knew that they were receiving a high end, high-quality product that was different from everyone else. So that's just like; it sounds kind of silly, but no one spends time with packaging and what does it feel like when you open up that product at home? Joe: It’s because it's not sexy. They spend time on marketing and topline revenues and talk about it with their friends because it's sexy. But packaging and good bookkeeping and good branding and good photos and videos and the profit is actually what puts you in the best position possible, which is doing whatever you want at this point in your life. Jon: Yeah, definitely. What's interesting about that is the customers would actually talk about all the nitty-gritty details that I spent time on. That would come up as content and some of those reviews would be the top-rated reviews. Someone left a review on one of the leather goods products and it was this detailed long review with pictures and they went out of their way to be like, I've never opened a product from Amazon and the packaging was just stunning. So I was like, yes, it worked. And so other customers who are on Amazon obviously see the top-rated reviews and see that type of content and it definitely helps and it soon became a leader in that category. Joe: Cool. Jon, we're a little short on time, but I wanted to ask you, what are some of the biggest challenges you think folks are going to face? Jon: I think the biggest challenge is definitely just not getting swept up in sexy products. I've seen this online so much, just this huge push for going into supplements, for example. I tell my clients, do not do supplements. Don't go into that category. Don't do it. Don't do products that go on people's skin. Don't go into products where you're ingesting things. I'm always recommending kind of simpler products that are very, very low risk. And don't go into knives; things where people can get injured. So, just focusing on a product that you're interested in and it's low risk. And that's always tough because you see the revenues that other sexy products are bringing in and people get swept up in that. Joe: This is one of the first times I wish I just hadn’t asked that question because I sold; my own company was a digestive wellness supplement company. I've got a good friend that's selling his makeup business for like 40 million dollars. We have, as a company supplement companies that are under contract for anywhere from two to 20 million dollars. And I think when they're when they're done right, they're done right. Jon: Exactly, and I would never want to give the impression that it's not possible. It's just my conservative nature kind of stays away from those types of product lines. And you have to be you definitely have to be a more sophisticated seller to… Joe: These guys are. These guys are all very, very smart, very good at what they do, have SOPs that’ll pass on to the owners of the business, as did mine. And it's competitive, right? It's that they are low barriers to entry cost-wise. Jon: Extremely, you have to have big capital and that's one of the barriers for sure. Joe: Yeah. Well, I think it is a nice; it's a low barrier to entry to buy into the product category, but then you've got to rank and that's where the additional capital and expertise goes. It’s very, very challenging. All right, so how do people reach out to you? I see its www.BlackLabelAdvisor.com, but ideally, let's talk about who your typical client would be and how they reach out to you. Jon: Yeah. So the easiest way to reach out is to go to my website, www.BlackLabelAdvisor.com or you can email me Jon@BlackLabelAdvisor.com. My passion is to help other people replicate my story. So many people I talk to you are they'll see my story and they'll say, oh my gosh, that's a dream, you know? And I used to think it was a dream too. And when I closed on the sale of the business, it was a dream come true to see the money come through. It was an unbelievable feeling that you just never think it's ever going to happen. I have recommendations and systems and third party companies I highly recommend. Along the way, I made mistakes myself and my passion is to help people avoid those mistakes and grow their business faster just because of all the experience I have and just help them along the journey with the end goal of selling someday. Joe: Yeah, I like it, folks. Jon is not somebody who can't so he teaches. He actually did it. He built an Amazon business with five brands, sold for a multiple seven figures, and now he's helping them. And that's what we do at Quiet Light, we help first. We want to help you succeed. Strangely enough, it actually helps us in the long run too, right? Somebody listening in the audience hire somebody like John who has real-life experience to give real-life advice to help them succeed in their online business. That person will come around at Quiet Light someday as well. So with that look around, who can you help? Help out your neighbor, help your friend that's in the online space and keep helping, it’ll come back around too in time. Jon: Definitely. Joe: Jon, I appreciate your time. BlackLabelAdvisor.com folks, reach out and connect with Jon if you need some help to help get your Amazon business off the ground. Jon: Awesome. Thanks, Joe.

On this episode, we speak with Judson Morgan, a Hollywood film producer turned Ecommerce entrepreneur. He is now the Chief Creative Officer of Butter, a video advertising agency based in LA. Tune in to hear about the importance of storytelling in branding.   Topics: The most interesting thing about Judson. The importance of storytelling in branding. Why demos are great for conversions. A personal touch is important to branding. How to shoot a successful unboxing video. Crafting a business’ image. Working with new and established businesses.   Resources: Butter Quiet Light Podcast@quietlightbrokerage.com

On this episode of our podcast, we speak with Kellianne Fedio, an Amazon consultant. She discusses selling her previous business for seven figures and the creation of her new podcast. Her journey is long and interesting, with a lot of twists and turns. Here, she shares her entire story and offers great advice to those who want to follow in her footsteps. Tune in to hear Kellianne’s great insights. Topics: When she stumbled on Ecommerce, she realized it was a good fit. How Amazon has changed since she started. Why outside funding sources are necessary. The importance of Mastermind groups. Living through rocky periods. Explaining rebates. Kellianne’s consulting methods.   Resources: Kellianne on LinkedIn Kellianne on Facebook Digital Shelf Strategy Quiet Light Podcast@quietlightbrokerage.com   Transcription: Mark: Joe, we know that first-hand experiences of people that have gone through the process of building a business, preparing it for sale, going through that exit, that tends to be some of the greatest stories and stories where we can get a lot of lessons back to us that we can apply and learn how to optimize our own businesses for a better exit. I know you had Kellianne on recently and she shared her story of building her business and going through that exit and now her current pivot where she's starting up a podcast on this very topic. Joe: Yeah, Kellianne is good friends with another good friend of ours, Paul Miller, who owns Cozy Phones and Kellianne had a seven-figure exit. Technically, I guess it would be early this year that she closed on the transaction; early 2020. And she's learned a lot through that process and now she's sharing that experience and the knowledge and the networking and the story of building a business on Amazon; all the resources and connections that you need to make in order to build it well and build it right with an eventual exit in mind. So she shares her entire story and gives real tips and advice from her own direct experience during the interview. Joe: Hey, folks, Joe Valley here from Quiet Light Brokerage and the Quiet Light Podcast, Today I’ve got Kellianne Fedio and I had to say that out loud several times to make sure I pronounced it right. Kelly is a former attorney, Amazon seller, seven-figure exit that she's had recently. And she's going to be moving into helping people build their Amazon businesses for a stronger exit down the road. Kelly, welcome to the Quiet Light Podcast. Kelly: Thank you so much for having me, Joe. I'm such a big fan of everything you guys are doing over at Quiet Light and have done for the past several years so it's a real honor to be here. Joe: I appreciate that. I did more of an intro just now than I normally do, but I didn't read from the script. But why don't you go ahead and tell us who you are and your story and where you came from and what you've done here? Kelly: Sure. So I started out as an attorney in a former life, and after having kids, getting married, I became very unhappy in that profession. That was just a lot of long hours, not enough pay at least for what I was doing, and I really wanted to be there for my kids. So I became a stay at home mom for a while and loved every minute of it. And then when my kids started elementary school, I was like, okay, what's my next chapter here? And I never would have guessed it would have been entrepreneurship. I was very traditional type-A personality in high school. I'm going to get all A's. I'm going to go to college. I'm going to go to law school. I'm going to be an attorney. And that was like my plan for the rest of my life. And so fast forward to several years later, after having practiced law for 10 years and now having kids and a husband and a wonderful family life, I was like what am I passionate about? What can I put out there into the world that not only is going to hopefully bring in income to our family but also that I could be excited about doing? And so I just knew it had to have something to do with online; being online and creating value online. And so, like a lot of other entrepreneurs getting involved in the online space, I tried a lot of different things, made tons of mistakes, had tons of failures, learned a lot, loved every minute of that experience, but sooner or later stumbled upon e-commerce and pretty quickly realized this is something that I really could see myself doing for the foreseeable future. And so around that time, Amazing Selling Machine had become pretty prominent in terms of the Amazon education space. So I was in ASM3 and of course… Joe: I got to ask, what number were you? The early ones were the good years. They're coming back around. They're doing good stuff again. I talked to them last week. Kelly: They are. They're always innovating, always doing new stuff so, I mean I always bring that out when I'm on podcasts or other interviews, because if it wasn't for that course my life would be a lot different. So I met an amazing group of entrepreneurs with the affiliate group that I joined. It was Ryan Moran and his tribe. I met a lot of amazing people. I’m still friends with them to this day, and really just dug in and had some pretty early success early on. So it was really, really exciting and I knew that this was what I was going to be focusing on, probably forever. Joe: How did you choose your first product? Kelly: I chose something that I thought I could build a brand around. So I'm very passionate about talking to other Amazon sellers about when they're thinking about how to start their business. You know, people always ask, well, how do you pick a product? First and foremost, you have to build a brand these days. When I started, you could throw up kind of anything and just with a little luck and… Joe: How many years ago was it that you started? Kelly: 2014. Joe: Okay. Kelly: Yeah, so it was a while ago. Things have drastically changed, right, in the Amazon space? Joe: A little bit, yeah. Kelly: Yeah, a little bit. And so even back then; and I had no branding experience or consumer product experience, but I knew that this first product, I could build a brand around it and actually wasn't a product that had a huge demand at the time, but it was a product that I knew that I would love and that I knew that other active women would love. So that's really what I built the brand around and just continued to develop products; not all winners, lots of failures… Joe: Additional products all within that brand, yes? Kelly: Exactly, that would serve a core audience and solve a problem or need. Joe: How many products did you launch initially, was it just one? Kelly: It was just one. Joe: And it was a success out of the gate? Kelly: Not right out of the gate. So I launched it in August but by that Q4, I had reached seven figures on top-line revenue so it was really, really exciting. Joe: Cool, very exciting. Kelly: Just with one product, one variation. Joe: And probably not working as many hours as you did as an attorney. Kelly: No, I mean, I definitely was working a lot because I was still in learning mode. I mean, the thing about Amazon and e-commerce is you're not only learning the platform itself, but you're learning how to source overseas, perhaps, and manufacturing and product design and advertising and marketing. So there's a lot of different skill sets you have to learn. So I definitely was really, really passionate about learning as much as I could. Joe: When you learn all of those things, do you think it's things you need to learn and then do yourself or do you think that there are certain experts that you can outsource certain things to like photography or listing creation or whatever it might be; importing from China, dealing with different things? Are there certain aspects to an Amazon business you feel that should be outsourced and things that you should do in-house as the entrepreneur that started the business? Kelly: Oh, absolutely. In the beginning, I think you should do everything with the exception of maybe photography. Super specific skill sets, like graphic design or photography certainly, you can outsource that early on. But everything else I would say you have to learn first and foremost yourself before you can effectively outsource it. And there are I mean, so many great service providers now that have obviously spawned in this Amazon industry not only software services but also other types of services, whether it's Amazon brand management or writing listings, things like that. So now it's all out there, but you should really learn the components and the strategy behind it first before outsourcing. Joe: How much money did you start with Kellianne? Kelly: I started with about $5,000. Joe: Okay, and did you have to borrow more to keep up with inventory? Because that's the story that I consistently hear. I started out with X and then when you dig deeper the business didn't fund the growth. Did yours fund the growth or did you have to go and borrow more? Kelly: In the beginning, it did. But yes, even if you reinvest all of your profits, there's no way you can grow initially without getting capital from outside sources. So about a year into it, I was able to get Amazon Lending so that was great. But before that, it was a lot of credit cards. And then early on, I actually was able to get a line of credit after the first year. But until then, it was really credit cards. And I wouldn't recommend people doing that but sometimes it's just a necessary evil to get where you need to go. Joe: Yeah, I was playing golf with a mentor years ago before I grab my head and one of the things he said to me was get a line of credit set up now; before you need it, get that line of credit set up because you never know when you're going to need it. And I see so many people that are struggling to keep up with purchasing more and more inventory for growth or developers if it's a SaaS business because they don't have the ability to stroke a check when it’s necessary. They go hunting for that line of credit when they need it as opposed to getting it set up beforehand so I think it's great to get it set up beforehand. So you hit six figures you said by the end of Q4 your first year… Kelly: Seven figures, I was very lucky. Yeah. Joe: And did a million in revenue in 2004. Kelly: Mm-hmm. Joe: Don't you like how I could do the seven-figure translation to a million? That was really; okay, all right. Anyway was it all with one SKU or did you add additional SKUs as well? Kelly: By that next quarter of 2015 then I started adding more SKUs, but it was really just on one product. And so that talk about funding the inventory for that, I got to say it was just a lot of luck. I was able to forge a really strong relationship with my supplier very early on in China without ever having met him. And he gave me terms once he saw that this thing; and that normally doesn't happen that early on in the relationship. Joe: No. Yeah, I know. Kelly: He was able to give me terms. So that's another way that I was able to fund that growth so quickly that that first year. Joe: Yeah, if you can get to China, folks, we did a podcast with Athena Severi from China Magic and before that with Dan from Titan Network all about negotiating terms with your Chinese manufacturers, and it does exactly what Kellianne did, which was it gives you more cash flow for buying more inventory. And if you can get terms, it's a lot better than an Amazon Loan because the interest rate is very different. It's nonexistent in most cases. During that initial journey Kellianne if we summarize things so far, you took ASM3, you invested $5,000, you did a million dollars in revenue. Sounds easy, but I'm sure it wasn't, right? Kelly: It was and I know it sounds easy and like I said, there was a lot of luck in there too. I'm not going to like take credit that it was just all my superpower genius. But I did have tremendous tenacity because between the time that I launched the product in August, it was like pushing a boulder uphill; August, September, October, November. It wasn't really till November that it really took off. And I had the foresight and maybe just stupidity to order a bunch of inventory in anticipation of Q4 and early on recognize that I could market this product as a gift in addition to just the primary keywords that were related to the product. So that was something that I did very early on and that allowed me to scale too because I was able to secure top positioning for keywords such as gifts for women, top Christmas gifts for women, things like that, very early on. So all of that came from me putting in the hard work of learning and masterminding, I can't underestimate the power of masterminding as well. I found a small group of; there were all guys, actually, I was the only girl. They are all amazed… Joe: So you were in charge essentially, right? Kelly: Yeah, sort of but we just were kindred spirits and we became very close and we would meet once a week and we were all building Amazon businesses, others went on to build SaaS businesses and all other types of businesses. They're all super successful entrepreneurs and that really made a huge difference in making me feel like I could really do this because I had other people in my corner so that was all. Joe: There's nothing more valuable than that and it didn't cost you anything. It sounds like there are groups that can get together just to help share information or you can join more formal groups like eCommerceFuel or EcomCrew Premium things of that nature. Kelly: Exactly. Joe: I think it's incredible. So let's talk money; ASM3, launched million dollars in revenue within the first year, you must be rolling in cash flow, yes? Kelly: No, absolutely not. Joe: I knew the answer to that. Kelly: I wish. Joe: How much did you; other than distributions just to make you feel good to pay taxes that were going to be due, did you put yourself on payroll or take any money out of the business for you and your family? Kelly: No, not the first couple of years I did not. And I was again, lucky that I had a husband who had a full-time career and that's the money that we relied on to support our family. So starting this business, that wasn't the mindset that we were going to do this to support our family. This was hopefully something that we could build into something bigger and perhaps fuel some bigger investing goals and things like that. Joe: So you would not recommend someone listening quit their job and they've got $10,000 and they're going to do $5,000 to start the Amazon business and live off the rest until revenues start rolling; bad idea, right, because they're going to run out of money very fast? Kelly: Absolutely, I would never recommend somebody quit their day job. You really need to start any business, in my opinion, as a side hustle. I mean, even my husband and I to this day, like right now, I'm really getting into real estate investing and he's getting into day trading and we're going to wait until we become masters of that and really start making significant sums of money before he would ever consider quitting his job. Joe: Yeah, good advice. All right, so 2016 rolls around how do things go? Did you have any rocky periods where you thought this isn't for me or did revenue just continue to climb? Kelly: Oh, no. There was a lot of rocky periods. So back then there was no brand registry, there was no; just counterfeiters galore and the initial product that I had launched all of a sudden came on everybody's radar. I can't remember if by then there were tools such as Jungle Scout or things like that to look at what sales revenue these products were doing. But it definitely; people caught on and started copying my exact listings, the exact product. I mean, certainly, I didn't have any proprietary rights. The product was a private label product, but definitely, competition grew and revenue; I was able to maintain revenue because I diversified my keyword traffic and wasn't going with what everybody else is going for. Slowly but surely the market grew. But my market share also grew with it and then declined at some point because so many competitors came in. Joe: Did your margins tighten; did you have to drop the price too? Kelly: Yes, I did. I remember actually, so Q4 of my first year of selling, I think I sold that particular product at a price point of I think as high as $35. And now if you were to look at this product on Amazon it ranges between $10 and maybe $17 tops. Joe: Wow. Kelly: Yeah, and that happens. I mean you don't get to; that product was still a winning product by the time I sold my business but I knew that this couldn't sustain me forever. I needed to obviously continue rolling out products, right? Joe: And that's how you combatted it; you continued to roll out new SKUs? Kelly: Yes, absolutely. Joe: How did you determine what to do next in terms of SKU expansion? Kelly: I did make a lot of mistakes there. I launched a lot of products that failed. Joe: How many? Just out of curiosity. Kelly: How many failures? Joe: Yeah, after the initial launch out of the next 10, how many were successes, and how many were failures? Kelly: I would say I was probably at a 50:50 rate. Joe: That’s good. Kelly: I would have liked it to be higher. And I think nowadays, with all of the tools that are available and with the mindset that you have to cut losers quickly; that was my biggest downfall, is it was so hard for me to give up on a product that I spent not only time but a lot of money on developing and then to just let it go. That was really hard for me. I was emotionally tied and that's one area that if I had cut those losers quicker, I would have freed up my cash flow and been able to expand and scale a lot quicker and more efficiently. Joe: Let's go into that a little bit further. Let's define a loser in terms of products. Is it one that is negative profit-wise or is it at 5% profit where the others are at 43% profit? How do you determine what a loser is and then what action do you take with it? Kelly: Well, it also depends on the time period. So when you're launching a product; everybody has their own time frame, but I kind of give it a three-month cycle of pushing it out, launching, ranking it, advertising, heavy on advertising so you're usually in the red. At least I was okay with being in the red at that point, but then it should start to pick up after that if it's going to be a winning product. If you've done everything right with your launch, and ranking strategy, it should just start to kind of take off on its own, really. Joe: A three month period is that what you're okay? Kelly: Yeah, about three months. Joe: Okay. Kelly: At least for me back then. I would say now it’s probably a longer time window. I would say probably about six months. But there becomes this like intuitive sense of you're still continuously pushing a boulder uphill with your nose rather than it's starting to gain some traction and go downhill. And so you've got to know when is that point to cut it off and it definitely took me a lot of failed products and a lot of wasted money and time to finally realize. Even up until when I sold my business; I mean, the buyer who bought my business, there were quite a few SKUs that he was just like I don't want to continue with these because these are just not making enough profit. They were profitable but not making enough profit. So everybody has their own standards. Joe: So yeah, there's SKU balance that offsets risk. If you've got one SKU doing 60% or 70% of your revenue, some buyers will perceive it as more risk other buyers will perceive it as less work, and they like that. Kelly: Yeah. Joe: How do you; I mean, if you're at a six month period now in your assessment of really it takes that long to push that boulder uphill until it's profitable and then you determine whether or not you get to keep that SKU that you've worked so hard on or if it's not profitable enough and you move on. How often are you launching SKUs? It sounds like you're probably needing to launch them every couple of months just to keep up and stay ahead of the game. Is that the case or is that something you recommend? Kelly: Yeah, it definitely depends on your product mix and what your revenue goals are and what capital you have to work with and your cash flow; all those things. But ideally, if you could be launching a new product I would say at least every quarter but there are sellers out there that are launching products every week or every two weeks. It just depends. I did not have nor did I want to have some big, huge behemoth of a business where I had a million employees and I was doing all the product design in the beginning; myself, along with my manufacturers, maybe hiring some outside design people to create changes to existing products to make them better. That was always kind of my MO. And really, you have to have a certain amount of capital that is allocated to new product development and know where that line is because then you don't want to let your other product suffer either and that's what's bringing cash in and keeping the lights on, right? So there's a fine balance there and I really do think that comes down to cash flow management; knowing your cash flow. Joe: And that's something so many people fail at. I probably looked at 8,000 profit and loss statements over the last eight, almost nine years now, and I'll be honest with you, probably 70% of them are inaccurate; wrong cash accounting, not using Quick Books or Xero, but the audience knows that. I know that's my thorn in my side. Let's talk about favorite tools. I mean, you obviously have figured out the Amazon game. You must have used some tools along the way. Have there been any that have stood out that you kind of you think must have? I mean, you mentioned Jungle Scout a few minutes ago. What tools do you use in your Amazon business or recommend as you work with new Amazon owners now to help them fine-tune their business and get it ready to sell? Kelly: Well, I wouldn't say I would at this point in time recommend a specific tool because there's a lot of competitors in the Amazon SaaS space, right? But you want a good tool for first and foremost, keyword research and keyword tracking. So, for example, Helium10 is a great one for that. But there are many others out there that are very good. So I'm not going to say that Helium10 is the best. They are one of the best and I like that tool a lot. And then you're going to want to have a tool for launching and ranking. These days that's all about rebates and so I recommend Six Leaf. My good friend Joe Junfola created Six Leaf and he's got a very new and exciting rebate option in there now and I'm helping my friend Paul Miller with his business in using that. Joe: Really? He's my friend, too. Kelly: What's that? Yes, your friend too; our good friend. Joe: Our friend. Kelly: Yeah, and so if you don't have outside traffic that you can send to your listings and have like a system for that, you definitely are going to need to do some I would say giveaways but these days that means rebates. And so there are other platforms that can do that but that's the one I recommend for that. And then Helium10 basically has all the other components that I would recommend, such as product research and keyword tracking. There are so many different tools out there and they've all kind of evolved over time and they all kind of overlap and what was most frustrating to me by the time that I sold my company is I had so many different tools. And even though they did a lot of the same functions, one did one better than the other and so I felt like I just had a lot of bloat in there and a lot of things that I could cut out. And so I wish somebody would just like focus on one thing and just do it right. Joe: Yeah, because if you wasted a thousand dollars a month, that's going to cost you an awful lot in the sale of your business. Kelly: Yeah. Joe: Can we talk about rebates for just a second? I want you to educate me and educate the audience because a rebate to me; from a novice standpoint and I don't sell on Amazon, I did once upon a time but it’d be a conflict for me now as I see it. Plus, I don't ever want to import from China. Kelly: I don't blame you. Joe: Yeah, I don't want to; I was at Helium10 back when it was a man he had Illuminati Mastermind and I was at the event. It was in Cancún and somebody was up on stage and she was literally talking about importing from China, talking literally about the thickness of the corrugated box that your products have to be in. And I swear to God I felt sick three times and I thought never will I import from China. Rebates, you're giving something away. They're getting a discount back or they're doing a review and they're getting a discount. Explain how it worked because it sounds like it's definitely against terms of services depending upon how it's used. Kelly: Now, I don't think it's against terms of services. I mean there's a lot of rebate services out there now. Joe: What is a rebate? Kelly: A rebate is the purchaser gets to purchase the products and then they get reimbursed the full amount usually to be most effective or it could be some percentage of that amount. So traditional retailers have been doing rebates for years. I mean, it's a very common thing in marketing. Joe: So there's no hey, we'll give you 100% refund for review it's just buy it and we're giving you your money back and that improves the algorithm rankings; organic rankings. Kelly: It’s a keyword ranking strategy. I would not use it as a review strategy; absolutely not. Joe: Yeah, okay the review strategy definitely gets against terms of services. Okay, thank you. I needed to hear that. Kelly: I mean, I wouldn't say it's necessarily against terms of service if you're asking for a review after the fact. But it just can be on that blurred line that you could potentially; and I haven't heard of anybody getting taken down for this but if you were to rebate a customer and then after the fact ask for a review then Amazon could potentially look at that as gaming the system. So you just want to be really careful and I would just recommend that sellers don't ask reviews for customers that they've given rebates to. Joe: What about is it cheaper or should it be a dual strategy of sending traffic from outside; buying traffic on Facebook that would drive directly using a keyword directly to the Amazon page, is that going to have a similar effect as rebates, cost less, cost more, or would you recommend a dual strategy of both of those or have you not sent traffic from outside sources like Facebook? Kelly: Well, that's a great question, Joe, but the rebate is just kind of like the end result of what the customer is getting but the traffic and the quality of the traffic is the most important thing. So a lot of these rebate services that are out there, they're just for using the same audience that they've built on Facebook over and over again. And Amazon now is so sophisticated they can tell that all that traffic is coming from the same source that's just this incestuous pool. So you really want to be careful of the services that you use. And ultimately, the best way is always to build your own list, to have your own audience whether that's a mini chat list or an email list or if you're a master of Facebook Marketing and you know how to target and you know what kind of audiences are really going to go and actually buy your product and if you have enough profit margin built into your product to do Facebook advertising. That's a whole another thing in and of itself. But for ranking purposes, you need to send high-quality traffic and a lot of these ranking or rebate services you just have to be careful of where they're getting their traffic from. Joe: Okay, so far we've established you as an Amazon expert; one that's been there, done that. I had to ask a couple of questions; dumb questions, if you will, to get us to where we are right now. Let's talk about digital shelf strategy, your business, where you're going to actually help Amazon sellers. If somebody out there in the audience is thinking that they want to exit their business someday in the future, or if they're just struggling and they're barely able to keep up with inventory demands, not taking any money out of the business and they're pulling their hair out, how are you going to be able to help them? Kelly: Great question. I started digital self-strategy when I was still a seller because I've over the years, I love Amazon. I live, breathe, eat, sleep, Amazon. I still do. And I would get questions from people anywhere from one-off questions to people wanting me to help them with their businesses. And so I have been very, very generous I feel like with my time wanting to help people. But sometimes if it needs to be a little bit more work or more time spent with somebody then I set up this agency just so I could have a way to work with sellers ongoing. And so between that and then another new business that I started with, Paul Miller, Amazing Exits, the consulting piece of that is really helping sellers with being able to look at their businesses holistically and help them figure out what are the strengths and weaknesses of that business. So kind of like a SWAT analysis and being able to help them with the things that are going to really move the needle and increasing the value of their business, whether or not they ever want to sell it because if you increase the value of your business, you're going to be spending out more cash flow. It's going to make you healthier in the long run. And then it'll certainly make it a lot more attractive to a potential buyer someday if you've got all your financials in order and you've got a really healthy profit margin and ROI and all the other things that go into having a valuable and sellable business. So it's a one-stop-shop, really, in terms of being able to look at a business, identify what are its strengths and weaknesses. For the weaknesses, we want to connect them with the resources that are going to help them fix those weaknesses and then ultimately be kind of their white-glove concierge along the way to a successful exit. Joe: And the Amazing Exits Podcast, that's where you're going to talk to people that have actually sold their businesses and have those resources, those experts on as well. Kelly: Yes, that's going to be both. I mean, we are looking for as many sellers as we can who have exited so we definitely want to have those as guests on. But we're also featuring top experts such as yourself to talk about exit planning. We're really trying to make exit planning sexy. This is what I say all the time and to really… Joe: Good luck. Kelly: Well, we're very passionate about it. And I think that if we couch it in terms of making your business more valuable now, like do you want more money now in your bank account and your pocket to feel your life, to feel your investments? Well, that's what it takes to build a successful business. And you might not ever want to sell it, but you should be building a sellable asset and realize why you're doing this. Joe: You're preaching to the choir. Making exit sexy again or sexy to begin with is; I had David Wood on the podcast and one of his visions was for people that are planning to eventually sell their business to imagine themselves on the beach doing whatever they want because they've got enough money in the bank to live off of and that's the sexy part of it. Or if you're building a better business, it's kicking off more cash flow. You are struggling less. You're able to do the things that you want because you've got the money and that part is sexy as well. Accounting makes most people's eyes bleed. It's the foundation of understanding cash flow and running your business successfully to get a strong exit. As you know, Kelly, anyone listening that owns any kind of online business at this time odds are that their business is their most valuable asset. Also, if it's an e-commerce business that's growing odds are that more than 50% of the money they'll ever make from that business will come the day that they sell it. All of that combined should kick start them into wanting to do more exit planning or coaching or training or things; whatever you want to call it, just getting in shape. As you want to work out and get your body in shape you should exercise your exit strategy muscles so that you're in better shape for your eventual exit because you will have a better path to it, a better exit as well, and be better off afterwards so that you can all go on to your next adventures, whether it be start another online business or do what Kelly is doing which is consulting and helping other people or where she was just a few years ago. Kelly: I couldn't agree more. That’s so well said. And I would just add to that then, I truly believe, Joe, that one of the fastest ways to build wealth is to build a business and in this case an Amazon business and sell it. And that's the word that I want to get out to people, is that this is, like you said, your most valuable asset, most likely. And I didn't retire after I sold my business. I made a nice chunk of change and now I'm able to invest that into cash-producing assets but I will never stop being an entrepreneur. But I have so much freedom; clarity now that I didn't have when I was on that hamster wheel of running the business. So I want to just be able to express that to other sellers that there is another option to get off the hamster wheel and you can sell and do this again if you want so you’ll have a lot more freedom and peace of mind. Joe: And cash in the bank throughout though. Kelly: Yes. Joe: Great. Kelly, thanks so much for joining the Quiet Light Podcast. I appreciate it. We’ll put URLs up in the show notes for people who want to reach out. Kelly is there any other way that they can or should find you? Kelly: Yes, absolutely. They can connect with me on LinkedIn. I’m pretty active over there. @KellianneFedio on Facebook and then they can also go toAmazingExits.com and sign up for our email list for when we get ready to launch the podcast later in August most likely. Joe: All right, she rolled her eyes a little bit here folks for those not watching. She’s got a hopeful goal of August. I think it’s going to be great whenever you launch it. If it takes an extra few weeks is not a big deal. Kelly, thanks for being in the Quiet Light Podcast. I appreciate it. Kelly: Thank you so much, Joe.

On this episode of the Quiet Light podcast, we have the opportunity to speak with Jesse Kaufman, the CEO and founder of Shipping Tree. Though Amazon sellers often use that company’s fulfillment services, some people engage a third party. 3PL’s can do everything from start to finish or they can merely be used as a prep center. Regardless of how you use a 3PL, there are ways to optimize your expenses. Tune in to hear our discussion about how to negotiate with a 3PL.   Topics: The typical Shipping Tree client. Deciphering quotes from 3PLs. The best integration models for 3PLs. How using a 3PL can save money. Commerce zones. Different types of Amazon seller accounts.   Resources: Shipping Tree Jesse@shippingtree.co Quiet Light Podcast@quietlightbrokerage.com   Transcription: Mark: So within the world of Amazon FBA, a lot of sellers rely on Amazon's fulfillment services and simply ship all the product over there but there are other sellers who utilize a 3PL either to fulfill the product and do everything from beginning to end and there are also those that use it just as a prep center before sending it off to Amazon in a way to try and save on some of the fees. And I think we can all agree Amazon's fees for fulfillment are pretty high compared with a lot of other solutions out there. Joe, I know you had somebody on who owns a 3PL and you guys talked a lot about how to negotiate the rates with that 3PL and how you can optimize some of your expenses by using a 3PL as opposed to just sending everything carte blanche over to Amazon. Joe: Yeah, these are my favorite kind of podcast guests when they go on and they talk about everything that they do and give it all away for free on podcasts like this. He's not pitching their services. He's just like, if you're negotiating with a 3PL look for this, don't do this, throw that contract away, if you have recurring revenue shipments, this is how you save on your shipping cost. If you have a 3PL located in Southern California, here's the benefit; monetary benefit by way of example of shipping from Ohio and things of that nature. It was fascinating. We've had a lot of people over the years say hey can you recommend any 3PLs and that was the point of having this person on knowing that he would give it all away for free. I think it's going to be very helpful for those that currently have 3PL, very helpful for those that ship exclusively through FBA because it's convenient, and some of the benefits of having a 3PL for kitting, for doing so fulfill Prime to avoid what happened during the pandemic where there were delays from Amazon shipping because of shipping medical supplies first; all sorts of different things that I think will really help the current e-commerce business owners and those that want to buy improve their bottom line and improve their customer experience as well. Mark: Yeah, I think this is all about control, right? I think the pandemic is a great example. Those that were 100% reliant on Amazon often saw; many of those guys saw delays and disruptions in their supply chains and also their ability to fulfill orders. Those that were using 3PLs didn't because they had that outlet for everything. So this is an interesting topic and this is where a lot of ROI is made in acquisitions, is learning how to optimize the expense profile and especially on that Amazon side so I'm excited for this one. Joe: Me too and just as a teaser it gives away one example where I, based upon the numbers you gave me, probably added a million dollars in value to the company. Obviously a very large company but if it adds $10,000 or $100,000 in value just by doing little things that make a difference, it really adds up to the overall value so let’s go listen. Joe: Hey folks Joe Valley here from Quiet Light Brokerage and Quiet Light Podcast. Thanks for joining us again. Today we're going to talk about 3PLs, how to save money on shipping, all sorts of different things in that regard. And today, we've got Jesse Kaufman from Shipping Tree. Jesse, welcome to the Quiet Light Podcast. Jesse: Thanks for having me. Joe: Good to have you here. As I said earlier, we don't do fancy introductions, so I don't have a big bio on you. No one knows you better than you so why don't you tell everybody listening who you are and what you do? Jesse: Yes, my name is Jesse and I'm the CEO and founder of Shipping Tree. A 3PL based in Los Angeles with facilities across the country. I'm Canadian and got my start in the fashion distribution business and quickly realized that the 3PL world wasn't where it should be, at least in North America, and that's why started Shipping Tree. Joe: And is your typical client an e-commerce client with lots of different SKUs like from your fashion background? Jesse: Yes, our typical client now are e-commerce direct to consumer-focused companies in the CPG supplement cosmetics space, actually. Joe: Wow. Okay, so lots of people picking, packing, and shipping. That's great. Jesse: Yeah. Joe: Okay, so let's jump into it. A lot of people; I've worked with 3PLs myself, I had a nutritional supplement company that I sold a decade ago if you can believe that; almost a decade ago, before I joined the Quiet Light team and I don't know if I negotiated the greatest deal with my 3PL because he was a friend of mine. Jesse: Impossible, yeah. Joe: We did recurring revenue shipments and the owner was a friend of mine and because of that probably either I got an amazing deal or I got a terrible deal; probably nothing in between. Jesse: You'll never know. Joe: I'll never know. No. And I was just going to go on the craziest side there but people do not need to hear that history. Let's talk about, first and foremost, what's the best approach to reaching out to a 3PL and not just simply accepting the boilerplate prices that you give or should they or is there a way that you can professionally negotiate so it's a really healthy deal for both parties? Jesse: Yeah, totally. So, I think most important in your 3PL search is kind of put as many feelers out there as you can, get your internal data together, and organize before you put out those feelers so you could give those prospective 3PLs the data they need to give you pricing quickly. Joe: What kind of data are we talking about? Jesse: It's really like shipment data. So like a pretty basic Shopify export of your orders that includes the dimensions and the units in the order. That should give any 3PL the ability to quote you really accurately. Then once you start getting those quotes back right away, it'll be pretty evident. Some 3PLs their quotes will have 30 line items. Others like mine and some of our closer competitors will have more in the neighborhood of three to five line items. So right away, all those 3PLs with 30 line items of potential charges throw those proposals in the garbage. There's no use even negotiating with those guys. The other ones with simple line items, three to five, maybe up to 10, those are the ones you want to focus on because, in my opinion, those are the ones that have the most merchant focused approach to the way they do business. And then areas where you can negotiate with 3PLs, in my experience, would be the initial processing fee on an order. So typically speaking, the most labor-intensive and expensive part of the work that we do are the individual picks. So 3PLs are rarely going to have margins to negotiate on the pick fees for your orders. Joe: And the pick is literally someone walking around and picking your product off the shelf and putting it on the proper conveyor belt to have the label put on. Jesse: Exactly. Joe: Okay. Jesse: Yeah, so you want to negotiate on the larger items on that list. So things like storage, processing fees, get rid of any minimums and stuff and kind of like frame your business as one that's even if you're just starting, it's ready to scale you’re a smart team, you're going to scale it quickly, get rid of those minimums, focus on things like storage, processing, packaging, and you could kind of dwindle those down a little bit. Joe: Are there startup fees in most cases with 3PLs that I have to pay you $5,000 for the pleasure of doing business with you and that's just the setup fee and then it's going to be a monthly pack and ship fee? Jesse: If that comes across your desk, throw it in the garbage. Joe: Just throw it in the trash, okay. Jesse: Yeah, throw it in the trash. If you have really complex integration needs like an ERP system like NetSuite and a ton of different marketplaces, then there might be; you could expect some sort of integration fee and tech fees for that. But if you're just running like run of the mill, Amazon, Shopify, Walmart.com, maybe an accounting system; like all of that should be out of the box with the 3PL that you work with. Joe: Can you just dumb down what an integration fee is? Jesse: Yeah, so you're going to want your 3PL to plugin with whatever systems are running your business on the shopping cart side or the marketplace side of things and so you that you don’t leak your sales channel. You want the 3PL to plug into there so data flows back automatically, your team has very little to do, that really is going to take the weight of shipping and fulfillment off your plate. And some companies charge for these integrations really like a setup fee, which isn't right because for Shopify, for example, we've built the integration already. We enter a couple of lines of code and the integration is done in five to 10 minutes so why would we charge you $500 for that? It's just not right. Joe: Good markup, $500 for five minutes of work. I like that. Jesse: I do like that markup, but we don't do it. Joe: Not if you want to keep the customer long term, I suppose, right? Jesse: Yeah. So, we've built out; and you want to find a 3PL that owns their tech stack. So what I mean is they kind of own their platform and they own the integrations. So we've built out these integrations so we've done the work upfront already and it's ready so we could just deploy it for the merchant. Joe: That makes a lot of sense because that's probably where the $500 charge comes from, is because they're using somebody else's software that somebody else is charging them and they're passing it on to the product owner. Jesse: Exactly, yeah. Joe: Is there a particular; I know that within Shopify, within the different websites platforms, there are different integrations for processing shipping. Is there a favorite integration that most 3PLs are comfortable with? And I cannot think for the life of me of a single one of them right now and I've used them before in the past but is there any particular integration that people like in terms of that processing of the order and having it ready to be shipped just to be shared with a 3PL or am I a little off track here? Jesse: A little off track. A little, so that's like if you just had a regular Shopify store, you would actually install the Shipping Tree app in your Shopify store. Joe: Okay, so you've got your app that you would install. Jesse: Yeah. Joe: Okay. Jesse: But you're talking about a product like Ship Station. Joe: Yes, that's the one I was trying to think of. Thank you. All right. Jesse: So Ship Station is great. We integrate with them also. Ship Station is great if you're selling on a ton of marketplaces like Etsy, Groupon; like if you're really marketplace heavy grand Ship Station is great because it brings all that in one place and then that's just one integration for us to run and manage. Joe: Okay, for people that are selling on Amazon is the largest marketplace and some of their own Shopify sales as well is there a benefit to using a 3PL to store inventory before shipping it off to Amazon, and do you provide those types of services? Jesse: Yeah, totally. So we do that a lot for our customers. We kind of run in parallel to Amazon like the verticals and the brands we serve and everyone needs to work with Amazon these days especially in CPG and cosmetics and supplements and stuff. So, yeah, our storage rates are generally cheaper than Amazon and more flexible. Joe: You can probably do kitting that  Amazon's not doing, right? Jesse: Yeah, so we could help prep your stuff to go to Amazon. So if your factory isn't putting the Amazon FNSKU barcodes on the boxes we could do all that work for you. Joe: And you happen to be in Southern California so if it's coming off a boat it just have to go very far, which is kind of a strategic location, I would imagine. Jesse: Exactly, yeah. Joe: I had a guy named Rocky Cliburn on the podcast in the last, I don't know, maybe it was a year ago and Rocky was just this great buyer in his 60s. He was a general manager of car dealerships, if you can imagine, for his entire life and then he bought a jewelry business; an e-commerce jewelry business from Amanda here on the team. And Rocky and his daughter ran the business and within months improved the margins by like $8,000 to $10,000 a month by working with their fulfillment center in terms of shipping rates and packaging and things of that nature. You and I chatted prerecording here about saving on postage in terms of improving the value of a business and so you understand we always talk about the value of a business and it's really based upon profit, which is actually called seller's discretionary earnings. It's not about topline revenue. It's about what you get to keep. And a lot of folks don't focus on the 3PL potential savings as they prepare an eventual exit of their business. So how do you end up saving thousands of dollars on your shipping and postage like Rocky did if you're working with a 3PL, what kind of recommendations have you implemented for clients of yours? Jesse: That's a great point; a great question. So there's two things there. One is choosing the right shipping methods and another is the packaging that you're choosing. So I'll start with the packaging and for example, a jewelry company they might have one standard box size for all their orders just to they think it's a good solution that’s like a catch-all. Every order ships in the same box so it either might be too big or it might be too small. If you optimize that, especially for smaller weight items, every ounce is almost 20 cents with the Postal Service. So if you could figure out a way to ship in a smaller box, maybe a more efficiently sized box, even though you think it might be it's a bigger inconvenience to have to source two different sized boxes or whatever it may be, you're going to knock 5%, 10% off your postage just right there optimizing for box size especially for orders under a pound. Joe: How much do boxes really weigh I mean if we're talking about the size of a shoebox? Jesse: So a shoebox is quite like half; almost half a pound, I would say. Joe: Okay, so if you can save a couple of ounces, you might be saving $400 or $500 a month if you're shipping a thousand orders a month or something like that. Jesse: Easy, yeah. Joe: Back in the day, when I was doing what most folks do that are listening, we had a fulfillment center up in Maine, which is just crazy because I was shipping all over the country but that's where I was from at the time. But they had a subcarrier. It wasn't the US Postal Service. They had somebody else that was sort of a cheaper version of that that would take it to the US Postal Service and then the US Postal Service would deliver it for that last mile or so. I forget what that's called but is that something that a lot of 3PLs can utilize and how do you find out about it if you're working with a 3PL now? Jesse: Yeah, so those are called shipping aggregators or an aggregator service. A lot of the major carriers offer that these days. The FedEx one is called Smart Post, and then there's a DHL product called DHL E-commerce. So those guys would pick up from your 3PL, bring it as close as they can kind of to the customer, then USPS finishes it. So those are good and bad. They're great for saving money. They're bad for making first impressions. Joe: So they take a little longer to ship, right? Jesse: Yeah, exactly because there’s more touchpoints. But I think what we spoke about was; like we have a lot of subscription-based companies. Joe: I think we did that. I think that's what we did, is did it on the recurring revenue aspect of it where it didn't need to be there in two days, you could get it in five. Jesse: Exactly. Yeah, so we could set it up. And always look for this in a 3PL to have flexibility with mapping your shipping methods. It's really important that they don't just like put all your orders like this is it, this is what you have to use because we work with all the carriers. We probably have over 100 available methods and we work with our customers to make sure they're using the best ones. So for a subscription-based company, that first-order should go out with like a fairly premium single carrier option like USPS Priority Mail or FedEx Ground or whatever it may be so that is quick and the tracking is seamless. And then once they get into that subscription funnel; the customer, you could set it up programmatically so that instead of the order shipping on the anniversary date, you ship the order like three days in advance and you use one of these slower and cheaper methods. So that way the order is going to arrive within one or two days of the correct window for the subscription renewal, you're going to save easily 30%, 40% on your postage that way, and yeah, everyone is happy. Joe: That could certainly add up, that's for sure. That subcarrier method, is there tracking with it as well or not? Jesse: There is tracking, but it's known to go dark the tracking sometimes. Joe: Okay. Jesse: It's not as reliable as a single carrier because yeah. Joe: Okay, do you have; actually location, does it really matter? As I just said a few minutes ago, my fulfillment center was up in Maine. I was shipping all over the country. Jesse: That might be the worst place, Sanford Fulfillment Center. Joe: Oh really? Okay [INAUDIBLE 00:19:30.4]. Why would that be the worst? Is it just zone wise is the best place inside of the country or is the best place in Southern California where you are? Jesse: Okay, so if you could only choose one fulfillment center or one location, middle of the country is best unless obviously, all your customers are west. Like, if you’re a surf brand and all your customers are on the West Coast choose a West Coast 3PL. But if you're just a normal run of the mill brand and you could only have one facility choose something in the middle, that way shipments are never really going to go to the outer edges of the zone map. So if you just Google search a zone map, the country will be split up into kind of columns like a heat map with the further you go, the further the zone and it goes up to nine zones. If you're in the middle of the country, the furthest zone is like six or seven possibly. And so with Maine, the reason why Maine is not so great is New York, historically one of the biggest population centers in terms of e-commerce orders going to that area, that's a zone two or three for Maine. So you're not even getting the benefit of being that close to New York geographically and then everything in L.A. is a zone nine. Joe: Let's talk dollars, though. Jesse: Yeah. Joe: And you've seen this with clients that you've brought in. How much are we talking about? If somebody is; and I know it's hard to quantify, so maybe we're only talking percentages but… Jesse: I could give you an example. Joe: Please. Yeah. Thank you. Jesse: Yeah. So we opened our facility in Ohio last year and we had a customer; one of our better customers, the supplements company, they were shipping everything out of our L.A. warehouse, obviously. Right away they probably spent close to $100,000 a month on postage. Joe: Okay. Jesse: Or they did when we were; they still do it [INAUDIBLE 00:21:34.4]. Right away when we started shipping out of Columbus and Los Angeles; so now you cut it down to furthest the package is going is zone four. Right away they started saving $15,000, $20,000 a month. Joe: Holy cow. Jesse: Not changing anything and the shipping speed… Joe: I hope everybody is listening to this far just because in that situation, $100,000 a month, even if all you spend is $10,000 a month on shipping, you're saving 15% to 20%. Jesse: Yeah. Joe: Go ahead. Jesse: And your customers are getting their orders quicker. Joe: So they're happier too; you’re getting no return rates, higher customer satisfaction. Jesse: Yeah. Joe: The value that adds to the company in terms of customer satisfaction is huge but the value in terms of the sellability of the list price of the company for that one spending $100,000 and it drops to $80,000 a month, that's $240,000 of real cash saved on an annual basis. Jesse: Yeah. Joe: The size of that business, I'm going to guess maybe it's at a four-time multiple. They just added nearly a million dollars to the value of their company by saving $240,000 a year. That's that net worth. It's pretty incredible. So as whatever, it's just shipping, I'm going to focus on revenue, just stop focusing on revenue alone and look at some of these other things, because it's just math and logic saves a tremendous amount of money. That's awesome. What other tips and tricks do you have here Jesse? Come on, keep throwing them at us. Jesse: Yeah, so splitting up inventory; that's a big one. So using multiple facilities and find a company that has a few facilities and if you could afford it, there's a lot of fulfillment consultants out there who aren't terribly expensive at all. But it could be a really daunting process for brands going through their whatever they use Excel or the ERP or their inventory systems and be like, how am I going to split up the inventory between two warehouses? I don't know where demand is, all that stuff. There's people out there and software tools out there that could help figure that out for you. Joe: It's not something that a 3PL will do when they've got multiple centers or you'd refer them on to these consultants? Jesse: Yeah, we could do it. For inventory planning, we're building tools for that. It's really complicated to do and to do properly. It's not our core competency. And it's a big responsibility to do that properly. We could totally look at your shipping data and tell you how much you would be saving by using Facility A, Facility B, or them in conjunction. Joe: Okay, so splitting up inventory to the right fulfillment centers you're saving like your client did 15% to 20%. Jesse: Yeah. Joe: Any other sort of immediate thoughts come to mind in terms of somebody that either let's assume that they don't even have a 3PL now what should they; I know obviously you want them to go to ShippingTree.co and work with you but if they're already in a relationship with somebody, how do they improve that relationship and any other tips that you can think of? Jesse: So always think of your 3PL partner not just as another vendor, but really as a partner and part of your business and kind of put yourself in their shoes when it comes to the way you send them inventory, the way you keep them in the loop on sales or promotions you're running. Like really consider them like an outsource or your shipping department that's just outsourced. So if you were doing your fulfillment, you wouldn't run like a flash sale and then call down to the warehouse 20 minutes after the flash sale launch and be like, hey, buddy you have 15,000 orders coming down the pipe. You would tell your people in your own company a few days in advance. So do that with your 3PL, help make their jobs a little easier, send them stuff that's barcoded, clearly divided. We deal with a couple of hundred customers and you could imagine how many different items we have in the warehouse. All our merchants are really passionate, but like, I can't tell the difference between print like bandana print 1 and bandana print 2 you know? Joe: Yeah, we always hear stories of Amazon messing products up. I'm sure it happens in 3PLs as well. It's not you. Jesse: It happens but there's things you could do to mitigate that. Like work with them as a true partner and if you sense any pushback in trying to improve the relationship, I would look elsewhere. Joe: Yeah. Can 3PLs do fulfill by merchant with Amazon Prime? Jesse: Yeah. Joe: And are you in that situation or is it not a 3PL, in general, it's more of the product at the 3PL, how does that work? Jesse: Okay, so fulfilled by merchants we could do no problem. And then there’s Seller Fulfilled Prime, which is that is actually on the merchants. They have to get their accounts authorized for Seller Fulfilled Prime. Joe: Even if they're using a 3PL? Jesse: Yeah, so their specific Amazon seller account has to be authorized for Seller Fulfilled Prime. Joe: Is that a daunting task or something? Jesse: Yeah, it's at least 90 days, and yeah. Joe: And what's the benefit to that in your opinion? Jesse: So the benefit there is you get the prime badge on your Amazon listings, you kind of get all the benefits of winning the buy box that you'd get with using FBA but the package could be sent out in your own custom packaging. You control the whole process and generally, it's a little cheaper than Amazon; storage wise and stuff like that. Joe: You still have to abide by the terms of services I would imagine. You still don't own the customer, even though you've got all the customer data minus the phone number, I suppose. Is there any advantage to doing Seller Fulfilled Prime using a 3PL in terms of customer data that you get to keep versus just using FBA? Jesse: I don't think so. It's more like a flexibility piece. Joe: Okay. Jesse: So those sellers that were set up with Seller Fulfilled Prime when COVID hit and FBA stopped allowing shipments in, they didn't skip a beat, they kept their Prime badge, all that stuff. Joe: Yeah, okay. Jesse: It's a little bit more secure. Joe: Having control as opposed to letting Amazon have full control of it, yeah. Okay. This has been great. We're up against the clock here, but this is fantastic stuff. I think that anybody out there listening needs to dig deeper into their expenses on the 3PL side. If all you're doing is fulfilled by Amazon, you might want to look at at least a 3PL like Shipping Tree to do kitting and prepping and getting it shipped off to Amazon so you're not paying exorbitant storage fees at Amazon and then as your offline Amazon sales grow running a Shopify side so on and so forth, I think is great to do. So any last-minute thoughts in terms of other things that people could do to benefit themselves with 3PL negotiations and working with them before we wrap this up? Jesse: No. Just be aware of this. Like I said I think the biggest red flag are those proposals you get back that are like two or three pages long with a ton of line items. That's going to be a headache of a relationship for you to manage. Find someone that keeps it simple for you. It's a complicated process. It's my job to simplify that for our merchant customers and find someone that will do that for you. Joe: I got you. Okay, how do folks reach you and your firm, Jesse? Jesse: If you’re going to reach out you could email me directly Jesse@ShippingTree.co or go to our website and fill out the form there. Joe: Awesome. I appreciate your time. We'll look forward to a lot of folks reaching out to you as well. Jesse: Cool. Thanks, man. Take it easy.

On this episode of the Quiet Light podcast, we talk to Phillip Rivers (not the quarterback). We get into why email is the unsung hero of E-commerce businesses. In his experience, thirty percent of your revenue should come from email connections. Tune in to her more on Phillip’s thoughts about the power of email in E-commerce.   Topics: Phillip’s background in E-commerce. Why email is still powerful despite expanded advertising options. The misstep of shooting from the hip. How to start out on the right foot. Offers Trust-builders. Content The efficacy of social media advertising. Getting past personal biases. Sharing a name with a famous quarterback.   Resources:  Phil@gotetra.co Phillip on Facebook Quiet Light Podcast@quietlightbrokerage.com   Transcription: Joe: Our buddy Mike Jackass did a presentation not too long ago on his product campaign product with Color It and what he does with e-mail in Klaviyo and did a presentation to I think it was the eCommerceFuel folks showing how much of his revenue came from his e-mail campaigns. And a lot of people were blown away because they felt like it's something that is dated and not an area that's strong in e-commerce anymore. Maybe those folks are doing mostly on Amazon and actually can't e-mail the customers. But in this case, when it's an off Amazon business, Mike presented a case, that e-mail is an important component of any campaign in growing up SaaS business or content business whatever you’ve got if you've got a list of customers to reach out to them. I understand you had Phillip Rivers on the podcast talking about this very same thing. How did that call go? Mark: Well, you can imagine my delight when I got an e-mail from Phillip Rivers. I thought he's finally returning my fan mail. All the e-mails that I sent to the quarterback of now the Indiana Colts as opposed to the San Diego Chargers; I'm sorry, Los Angeles Chargers. I was like I finally met; no, it's not that Phillip Rivers. I did have to ask him about that at the end. He has a funny story about people not believing it was his real ID when he was going into a bar thinking it was a fake ID. But that's at the end of the podcast. The bulk of what we talked about instead of football is e-mail marketing and the fact that it's the unsung hero of e-commerce marketing. And for all you buyers out there, this is one of these opportunities for where you can find opportunities for immediate gains after you acquire a business. Phillip Rivers at this podcast argues and argues very well that in his experience, an e-commerce business should have at least 30% of its revenue mix coming from e-mail. So if you're looking at where customers are being acquired from currently with an e-commerce business and it does not have a sizable portion coming from e-mail, this is an opportunity. And there are ways to do this with Amazon as well. I've known plenty of Amazon sellers who have healthy e-mail lists and use it to launch products. And that's a great avenue for getting those products to rank well on Amazon very, very quickly. So we talked a lot about his experience with this; with e-mail marketing, some of the best practices he follows and then some of the metrics you should be following in here. I joked at the end when you have a name like Phillip Rivers your open rate probably naturally gets higher than if it's just Joe Valley. Well, probably not Joe Valley, Joe Valley is recognized, right? Joe: In a very small circle of people, yes. Mark: Yeah, right. Anyways, good point. I think it's a bit larger than that. I open the e-mail when I see it, but no, good episode for just learning about identifying these opportunities for quick wins and opportunities that you're evaluating for businesses for sale. Joe: Excellent. Let's go to it. Mark: Phillip, thanks so much for joining me on the podcast here today. I'm really excited to have you on because you reached out to me. You talked about e-mail as the unsung hero of e-commerce and I have a special place in my heart for e-mail as I built my first business on the back of e-mail marketing. So welcome to the podcast. I’m really glad to have you here. Phillip: Thanks for having me, Mark. Mark: Hey, why don't you give a little bit of a background on yourself and why you reached out to me about e-mail as the unsung hero as you put it of e-commerce and why this is something that you want to talk about? Phillip: Yeah, man. So I've been in e-commerce for quite a while, about 15 years now, highs and lows. But in the early days, there was none of these wonderful tools that we kind of now take for granted. And so I sort of skid my teeth on e-mail; building audiences and nurturing them and figuring out ways to monetize creatively. And this dates back to; this is pre-Shopify, Facebook Ads, and all that stuff. And over the years, as the industry matured, I just got really leaned into and sharpening my sword on building audiences and communicating with people. And in doing so, I've had some successful stores and some unsuccessful ones. It's kind of how it goes in this game. Mark: I've only got successful stories. I've never had a failure in my life. Phillip: That's not true. I heard on another podcast a business you bought that didn't work out. Mark: All right, I have more than one of those. Okay, let's move on from my failures on to your successes. Phillip: And so, in any event, I think that to my time in e-com I notice that e-mail is this very unique special channel that the brand or the individual business has complete control over in terms of how they build that audience, how they connect with them over time, and what messaging they put in front of them to get whatever action they aim to get out of it, whether it be engagement or revenue or whatever it may be and so much so that in talking with friends or now clients that are in the e-commerce space, it's just e-mail is one of those things that kind of gets kicked to the curb or neglected in lieu of kind of faster or sexier channels. And so really, I'm here just kind of standing on a soapbox and tell people like this is an important channel for longevity and to have a clean, healthy business long term and an asset that you can own and control. E-mail is very important and vital to long term success of any business. Mark: And I would agree but let's go ahead and play some of the devil's advocate here with the different channels. Obviously, social media is where a lot of people are putting their attention. You’re on Facebook for a long time some people are kind of weighing in on Facebook and saying Instagram advertising works really, really well for them. Influencer marketing, it’s a matter of time before we get to the next big social media. I was just talking to somebody yesterday who was like I'm trying to figure out TikTok. It's the latest thing out there to try and figure out. With all these things happening, why does e-mail continue to hold a seat at the table in our marketing mix? And then later on, just for those listening, I want to get into the how later on. I think that's the mediary topic but before we get to the how let's talk about the why. Why is e-mail; why does it deserve a seat at this table? Phillip: Well, it's the one channel that you own outright. I think that gets kind of discounted or forgotten a lot. Any other social channels you're borrowing that audience and technically Zuckerberg or one of the other power players is who owns that audience and you can be sort of de-platformed or the cost can go up or the algo can change and all of a sudden you can't reach the same amount of people. So it's just they're not bad and they're amazing tools, you just don't have full control like you do e-mail. So I think for me that's the biggest thing. And the other way that I look at it is all these social channels are great at engaging folks and driving traffic but if you look at the analytics, at any store or any e-com store, the conversion rate; let's just say it's 5% which would be on the higher end of the spectrum. But that still means that 95% didn't buy on any given day and if you're not thinking about how you capture leads from as many of those people as possible and how do you communicate with them to communicate your value proposition and products etcetera, then you're really relying on luck and kind of paying for impressions to get people back again which is it leaves too much up to chance, in my opinion, or for my liking. And two, it just is a very expensive long term proposition and it's hard to build something sustainable that way. Mark: Yeah. With that, though, and again I’m still playing the devil's advocate here, should we own the channel? We own somebody's e-mail, we can hit them up but Google's gotten better at filtering that out. Our updates here at Quiet Light got thrown into the updates folder. Another company I have, things are getting thrown over in the promotions folder which is like spam with an asterisk; it's spam, but you should probably be looking at it. At least that's what I look at that promotions folder. Do we really have full control over e-mail do you think, or are we losing control, and what about the future of that? Is that something to watch out for in the future? Phillip: I think that strategy is the most important part. And so I think that this goes kind of back into the how, but based on how you set forth in terms of once someone pops in and you start to communicate with them, how do you do it and what actions do you ask them for. Doing some of those things kind of at the outset can dictate where your e-mail goes in terms of the Gmail inbox, for example, long term. If people aren't engaging with it, it'll be routed to promo. But if people engage with the early e-mails, that's kind of a way to work around it to land in the inbox. But to go one layer deeper, I think from an e-mail perspective, I don't worry too much about the mailbox tab or the promo tab. The only one I really want to stay out of the most is Spam and that's the one I can control. Whether it ends up in promo or one of the other tabs, there's nothing that I can do about it. As a marketer, all that I can do is think critically about how do I create the most incredible experience for the person that's going to be consuming this message? And if I think about them and value them, then the things downstream that I don't really have control over will tend to work out. Mark: Sure and I think this is a point that might get lost sometimes with e-mail, right? And maybe we can talk a little bit about the how, because I think we're just going to naturally end up there anyways. Phillip: Can I add one more point before we get there, Mark? Mark: No. No, I'm just kidding. Please. Phillip: I was going to say that the other thing is like you mentioned the dynamic changing or Google changes things meaning how that affects us in deliverability in the inbox. Facebook or the players and social are changing algorithms every single day and so increasingly of all of your audience there, fewer and fewer of them see your message unless you pay to play. So e-mail, if you look at them side by side on engagement metrics, e-mail would win far and above every single time from organic social versus e-mail. But the state of play on all platforms is always changing. But I don't look at that as to say like we shouldn't play the game. It's just like what are the rules and kind of where do I have to get creative and that to get the best result possible? Mark: Sure, yeah. And I think talk about a multiplatform approach makes sense as well. It's not an either-or sort of proposition. We can definitely enhance our e-mail marketing with other platform marketing. But for anyone curious as to what's the winner when you are looking at these different channels just do a Google search. I mean, the open rates and the attention that gets paid to e-mail versus social media is significantly higher with e-mail. I'm going to stop playing devil's advocate because it hurts me to do so. Because I do have a soft spot in my heart for e-mail but people do it wrong all the time. People really don't understand how to do e-mail right. And I mean, I go through every day and I unsubscribe from; I have no idea how many people I'm unsubscribing from every day. It just feels like I'm constantly unsubscribing because they're not offering me value. But there are some people in my inbox that I don't remember signing up for but they're adding value so I keep them in there. So let's talk about that. Let's talk about doing it wrong. Let's talk about doing it right, especially from an e-commerce standpoint where you're selling products. I'd love to hear where you start that conversation with people. Phillip: Well, I think that through the lens of e-com, what most people miss, Mark is the strategy first and foremost. So I talk to a lot of business owners on the phone and most of them when it comes down to e-mail, they have no clear roadmap or kind of treasure map, as I like to call it, in terms of what they're going to be doing week to week from a messaging perspective, whether that's value, whether that's offers or; not offers at percentage basis but talking about a product and offering something for sale and also segmentation. So pretty much what most brands do is just shoot from the hip, which is really hard to build a successful channel when you're just guessing and playing with borrowed time all the time. And so that's kind of the biggest misstep that I see a lot of people making. And then it's important with this channel just as any other just like with your Facebook ads where you're putting a lot of budget behind the ads that you're running is like, okay, how do I kind of think about what do I want to communicate to the audience and based on kind of where they are in the lifecycle so that one, I create a good experience for them, but two, I get to little by little move them along the lifecycle to ultimately converting or re-converting or whatever it may be. But that's the biggest thing that I see missing is starting off on the right foot. Mark: What is the right foot and what’s the wrong foot? Phillip: Well, I think the wrong foot is sale, sale, sale all the time or just running with offers to people and just mass discounting to get sales which is the strategy or tactic a lot of people use. So I think the right foot is looking at what does your audience care about? The way I like to break it down is into kind of three different high-level kind of categories; offers where we talk about the product, trust builders, where we can pull things from social media or reviews, testimonials, maybe how our brand, our origin story or how a product is created, where we can tell a story. To me, that builds trust or connection. And then also content. That content, again, could be Instagram content, or a blog content, or just things that are important to the brand and they know it's important; the avatar that they can talk about. It doesn't have to be a blog post necessarily, but content. So ultimately, if we take a step back, that's a mixture of offers and value add stuff in one way, shape, or form. And they all sort of cross over it’s like a then diagram you can make a content message and offer message and so it's kind of a hybrid, but you're still in that context leading with value and you're offering something for sale but the main point of that isn't an offer or a product. It's you're telling a story around some angle or narrative. So I think the right way to start is to; what we often do is group what things can we talk about from an offer perspective that apply to our brand, our avatar, same thing for trust builder, same thing for content ideas and put all those on paper as wild or crazy or simple or sophisticated as you think those answers or your ideas are. Get them all there and then it's a lot easier to cut things or group them together once everything's sort of out of your brain and onto the piece of paper. That's oftentimes the first step that I take and I recommend people take because that way it's a lot easier to see it. Kind of like akin to Minority Report. Mark: Throwback there to an old Tom Cruise movie for anyone that hasn't seen it. Don't watch it. Actually, it's an okay movie. Well, let's try to actually break this down into an example here because a lot of theory here as far as this. And what I've often found when we talk about marketing, whether it be e-mail marketing or any other type when we start talking about segmenting; it sounds great in theory, right? The idea that, hey, you want to segment your audience, you want to understand and kind of meet them where they're at and like, yeah, that's great and then you sit down and you do it. So how do I know where my audience is at? How do I know what they want to hear from content? And how do I move from that content to the offer? So let's make-believe a brand, we got a pet business here. It sells dog collars; custom dog collars, let's say with nice little chains around the neck or something like that, I don't know. We'll just say a pet brand we don't have to get that specific. You talked about breaking up into these three different levels. I mean, how would we do this with a B2C sort of brand for a hobby niche or a passion just like pets? What are some things to look at there? Phillip: So I'm talking through the lens of campaigns, not flows, just to be clear. And so through this sort of pet leash or pet brand that you mentioned, it's like, okay, what are some offers that we could talk about around the product? So there's obviously discounting, there's maybe product releases, back in stocks. There's a few ideas. There's design inspiration, why they built this product this way. That could also be kind of like a trust builder sort of thing. And again, reviews, even just pictures of dogs wearing your collar. Pet owners love that type of stuff and so that goes a long way. Again, this could also be content or slash trust builder. But I know it's hard to stay organized talking about this and through the lens of the people that are listening now, this is all over the place. But like pictures of other dogs wearing the collars, that could be used in all three of these categories; offer, trust builder, or even a content idea. So the way that I look at it, Mark, is you have these three overarching categories. In a month there is four weeks that you're going to be communicating campaigns to folks. And not to get too into the weeds on segmentation, but let's say you're going to send five campaigns throughout the course of the month. So one a week plus some sort of like wildcard campaign based on whatever's happening in the calendar or in the world that you could sort of ride the coattails of in any given month. So I would say two of those should be offer related e-mails. Two of those or three should be content or value-added. To make it simple it’s something that people can sort of sink their teeth into. Like, okay, now I have a clear go forward in terms of what I should be doing each week. Mark: Yeah, you don't want to get into the weeds with segmentation. We're going to do that in a bit. But first, I want to know, does this change when you are going B2B or B2C? Phillip: The only thing that changes when I go B2B is it depends; like what's the underlying product that's being sold and what's the sales cycle and how is that product consumed? So if you're selling cloud hosting solutions for law firms, which I've done before… Mark: That’s exciting. I fell asleep while you were saying that by the way but I’m awake. Phillip: So the sales cycle for that is long and they don't really repurchase it. They’re repurchasing services from whoever installed the cloud hosting stuff for them. And so for them, one a week might be a little bit too aggressive. It might be a bi-weekly or monthly thing, but I think to answer your question, it's all circumstantial based on the underlying business and what they sell and how it's consumed. And so there's not a hard and fast rule that you have to send once a week even for e-com necessarily. It's what applies for one business won't necessarily apply to the other and I think a lot of people get sort of tripped up on that where they seek advice online and they think they have to do it that way. But it's not necessarily best suited for them or their or their leads or customers. Mark: Yeah, you do consulting for this, right? This is part of what you do. Phillip: Yeah. Mark: Okay, so let's say a new client is coming to you. And I want to just talk about the average client avatar that you have here, like the average client coming in. What do you often see with people's e-mail setups when they first come to you? Assuming that they have something set up what is kind of the most common approach they take? And then the follow up to that's going to be what do you do next once you see that and what are the steps to try and get it in shape? Phillip: Yeah, so what I often see most is there's no strategy like it's just sort of thrown together piecemeal and they send when they send. And therefore they don't know what they're doing with campaigns. There's no plan and there's no measurement because you can't track what you don't measure. So that's big mistake number one. The other thing that I see is people that do use flows; again, this is through the lens of e-com especially, more often than not they kind of just use like the templates that are given to them by whatever ESP they're using so it's like they put forth the least amount of effort just to have something there to cross it off the list. And oftentimes they do this because people don't realize the potential to e-mail has for their business and so because of their; what's the word I want, lack of experience sort of in this channel, they think that if they get 2%, 3%, or 4% a month from e-mail they think that's; their outlook is, oh, we're doing okay. I'm happy with it. Not knowing they should be doing at a minimum 30. Mark: 30% what? Phillip: Of revenue per month attributed to e-mail. Mark: That's a high percent. Okay. Phillip: So without a solid strategy, I would say it's like building a house on quicksand and if you do that, it's not going to be around very long. And so what they do is oftentimes there's no strategy. They do a little bit here and there, and they're quite happy with the results because they don't know any better. But they're also inclined to say e-mail doesn't work for my business. But it's not because the channel is inherently bad, it's because there's no strategy in place to make it successful. Mark: Right, that makes sense. So what's next for you then after you see this? They don't have a strategy in place. Is the strategy that you start putting together just what you were talking about; this kind of planning out the next month and these three different types of e-mails that you would send out or how do you go about dissecting that that strategy and building something for them? I mean talking flows, let's just make a quick point of clarification. Flows would be like automations, there's e-mail sequences, there's a lot of different names for these, but it's e-mails that are sending based off various triggers in sequence. Is that right? Phillip: Correct. So when I'm sort of looking at an account and I'm diagnosing what's currently happening, what are the holes in their funnel, if you will, or what are the pitfalls within an e-mail and how can they improve as fast as possible to start making; squeezing more juice out of this lemon? I look first at how are leads being captured on-site? Traffic is coming from paid social, organic social, TikTok, or SEO, whatever the traffic sources are. But they're coming in. Most people don't buy. So how effectively are leads being captured so that you can communicate with them? Most people don't track these at all. And just for those listening on the low end, anything that you're doing on-site with, like a pop-up, for example, should be converting at minimum 5%. We always sort of measure; our goal is to get to 10% conversion rate. So impression to conversion is 10% and if it converts to 10% percent I'm not touching it. It's like I found the unicorn. I just let it ride until it starts to diminish; the performance starts to diminish. But most people don't even know how the pop-up is performing from a lead gen perspective. So that's the first thing we look for. Second thing is in parallel, what's happening with campaigns is they're sort of a strategy or a framework in place for communicating with the audience, period. More often than not it's no. If they do have a strategy in place, it's like, well, how is it performing? How are they using segmentation to at least be sort of more precise with their messaging, making sure that it has audience message fit to move the metrics that they want to move. And parallel to that on the flow side, again, as you mentioned, Mark, these flows their purpose is to nurture people throughout the customer lifecycle based on their behaviors, attributes, or lack thereof. So if someone comes in and gives their e-mail; they come from paid social, they give their e-mail, they don't buy, you put them through a series of messaging that starts to evangelize them. They learn what's important to you, form some sort of a connection, a deeper one, than you had when they got there in the first place. And so these flows, by and large, there's four, I would say, critical or key flows that any business needs first before they start adding a bunch of sexy stuff afterwards; that being the welcome flow, like when you start to sort of indoctrinate or evangelize folks, browse abandoned flow, so someone's been opted in, they’re shopping around, but they don't take an action to add to Cart, abandoned cart flow, which there's a lot of people that add to cart and never buy. So there's just low hanging fruit there. And then the other one that I think is the most important to have at the outset is first time customer. And so at this point, the reason I think that's so important, Mark, is getting someone to buy the first time is one of the hardest things in the world. But once they've converted they're five times more likely to buy a second time than a new person is to buy a first time. So this is really our first opportunity to start to make an even deeper connection with someone that's converted once and to communicate our values and what lies ahead for them when they receive their product in the mail, so on and so forth, so that we can start to then be in a place to position something else for them to buy at some point down the road based on what makes sense for the underlying business and what they sell, obviously. And so usually when I'm a buyer, those are all the things that I look at like is the core infrastructure of flows in place yes or no? If it is okay, is it performing well or are there holes in it that should be improved before moving on to something and moving on to kind of more sophisticated flows? Mark: I got it. Phillip: I know that's a mouthful but is that helpful? Mark: No, that was great. I mean I purposely was just not talking because I was soaking up a lot of what you were saying here. With flows a couple of just practical application issues here that I want to go over, one is do you recommend interspersing campaigns with flows and if not, how do you work in holiday specials and stuff like that? And my follow up to that is going to be how do you do this without interrupting things? For example, I've seen this flow set up before where you get the introductory e-mail, and then the next week you get another e-mail that's kind of more trust building, and then week three you have something that's sent out that's more of a promotion e-mail. And this is going to be everybody's experience when they become a new customer, right? They're going to have this sort of experience. Their clock starts the day they buy or the day that you capture them as lead depending where their starting point is. Do you recommend using campaigns as well and how do you not have competing offers or campaigns disrupting that flow? Phillip: So I think, quite honestly, I don't worry too much about cannibalizing flows with campaigns or campaigns with flows. Most businesses aren't to the point where they're that sophisticated from a marketing perspective, where there's that much going on, where it's going to hurt them to have a campaign sent and someone also receive a flow. So I think a lot of times they start; it's an outlier and people worry about it and it takes up time, energy, and ultimately it becomes a barrier for them ultimately taking action. So then what happens is they get into the weeds thinking about it and like oh, they end up not doing it because they're worried about somehow buyer implications that might happen if they were to do this. And they don't do anything, which is worse than just doing both. So I think it's a lot easier to keep it simple. But again, this is one of those things where it all depends on the underlying business and what they sell and how they communicate and all of these things. But to answer your question, I don't worry too much about if someone's enrolled in a flow sending a campaign. But what I will do depends on the ESP that's being used. But I'll talk through the lens of Klaviyo because that's where I spend most of my time. If someone is in abandoned cart flow, which is very high leverage flow and they're close to converting. And I also have campaigns going out that generally disperse; these people that are in the abandoned cart would also get this campaign. If I'm hypersensitive to it, or I want to make sure that people enrolled in flows don't want to see this particular; let's just say it's a deep discount, I'll just suppress that segment or anyone that received an abandoned cart e-mail in the last 16 hours from getting this campaign. So it's like an easy sort of fix but if you don't have to go write it all out on a whiteboard and see where all the dependencies arcs is it just becomes too confusing. It's just easier not to do it if you're going to go about it that way. Mark: Sure, and you don't think people are paying enough attention anyways to; not paying enough attention but you're not to worried about cannibalizing and having one interrupt the other not as problems. Phillip: Not really. A lot of what happens to is we have like our own world view, our own biases when we're thinking about stuff as the business owner market or whatever like I don't like this or I'm worried about that. But at the end of the day, to answer your question to this specific example, I'd rather look at the metrics of the e-mail to tell me what's working or what's not working or what I'm doing wrong or right. So, for example, if I just let it ride, people get flows, people get campaigns, and I start to see there's an uptick in spam complaints then that tells me, okay, I need to pull back a little on the aggressiveness of the campaigns. That's the first place I would look. But I'd rather know in black and white than me, just come up with something, not know what the upside or downside, but then I don't do it. But I also don't know how it affects my business in a positive or negative way. Mark: I got it. What's a good opening, in your opinion? Phillip: That's a loaded question because there's so many factors but what I would shoot for, at a minimum, I would say 25%. Mark: That’ll be great. I mean, again, it’s a loaded question and it's difficult. Every business is going to be a little bit different. If you're not at that, let’s say that somebody is listening and they are 15% right now or 12½% or something like that, which I think is kind of common, depending on how long and how old your listing is. Lists in my experience tend to get old and sometimes get a little bit tired, especially with the older people on there. What are ways that you can increase that open rate and is it something that they should really be worrying about as well, in your opinion? Phillip: I think it comes down to a lot of the underlying business, but also like what do they care about most? From my perspective, revenue is the most important thing. The audience is important. I don't want to blow up a list and degrade the engagement metrics in favor of revenue because ultimately revenue is just a lag indicator of the engagement metrics anyways. So that's going to start to diminish over time if that's the approach that you take. And so to answer your question, if the open rate is 15%, I would look at how old is the audience to your point, how long have they been around for, what other behaviors or actions have they taken since they've been on the list that would tell me that they are interested in receiving more messaging from me. Sometimes I do this, too and you probably do also but I subscribe to lists. I open their e-mails. I don't necessarily consume them, but I don't want to unsubscribe because; this is e-commerce but I don't want to unsubscribe because there might be something I want to see in the future so I stay on but I also am not really engaged. So I think that on the one hand it's looking at kind of the age of the audience and are people engaged with your site overall? Like when was the last time this cohort of people has even been on your website? At some point, this is one thing that a lot of people don't think about is like, how do I start to clean my list or my audience or where do I draw the line in the sand to determine these folks who want to be here, these folks don't, and come up with a strategy to either ask them finally, do you want to stay or just suppress them or remove them altogether? But to get the open rate up, that's one place I would look. Also, if it's a new, relatively new audience, and your open rate is only 15% what that tells me is there's misalignment between the message and the audience. So there might be a bad resource or another example that a lot of people do these days in e-commerce is they run giveaways, but give away enrollees aren't necessarily the best subscribers because they're not there because they want to hear from you. They're there because they wanted something for free. And that has its own sort of implications and how do you deal with that but from my experience, the list that I see that are at 12%, 15%, there's a combination of not the best audience, not the best message for that audience, and also an audience that’s probably decaying because the strategy for e-mail isn't buttoned up and so the audience doesn't know what to expect. Therefore, they're relatively unengaged. Mark: Yeah, let's close out with this question here, because we're getting up against the clock here on our time. What are some key metrics that you do look at with your list? Obviously revenue, and obviously open rate to an extent as well, depending on some other circumstances. What should people be looking at? If there's going to be one thing that somebody is going to look at as soon as they stop listening to this podcast and leave in a rating on iTunes because I know everybody does that; a cheap plug there. What is one thing they should go over into their ESP and take a look at to say, am I doing well here? Phillip: Okay, so I can rattle off a bunch if that’s helpful. Mark: Please, yeah. Phillip: But I think starting with revenue at the top just to be able to assess overall performance of e-mail as it applies to revenue for your business is just look at what is the revenue contribution like from Klaviyo, for example, the last 30 days, 90 days and then breaking it up. What did flows contribute to that? What campaigns contribute? That'll give you a really good idea in terms of the heartbeat of the performance of e-mail overall. Like I said, I would strive for 30% so if that's at 6% there's a lot of room for improvement. If they’re at 25% they're still upside but again, I don't like to quote higher than 30 because there's things about businesses. But let's just say you still have room to improve, but obviously not as much as the folks at six. So that's what I would look at first. On the campaign side, I look at open and click. I look at click to open ratio, which really tells me of the people that open how engaging was this message for them? Did it resonate with the audience? I'll look at revenue on a dollar perspective; dollar amount, and then also the percentage of the people that received the message that bought just so I can see kind of a take rate and placed order from this particular campaign. Mark: I got it. That's great. Anything else that you'd like to add and if people had questions or wanted to bounce some stuff off of you regarding e-mail marketing, where can they find you? Phillip: I don't have anything to add other than just think about adding e-mail to your marketing mix if it's not something that's a focus right now, that's all. Mark: Can I double down on that? I mean, if you're going to buy a business, we talk often about doing an acquisition, finding places where business is weak, and bringing a strength to that. That's an easy way to get a fast return on your investment. If somebody is not doing e-mail marketing with their e-commerce, then that is an easy opportunity to add more revenue to a company, especially if the target is 30% revenue mix. I mean, that provides a nice metric to take a look at to see what is somebody doing right now and maybe where can we grow this company. I agree with you 100%, e-mail is the overlooked channel. One of the few areas where I keep harping on this is and frankly if I see a business; if I'm selling a business that has a good, solid e-mail list for somebody to optimize that, I typically give it a higher valuation because I don't worry about the algorithms changing like I do on Facebook or any other social media network or getting overly crowded. E-mail is going to continue to be a champion for a long time and I know that other marketers agree with this, especially some seasoned marketers. Where can people contact you if they have questions about this? Phillip: You can find me on Facebook, just Phillip Rivers with two L's or on my site on the contact us form or something like that. But my e-mail address is at phil@gotetra.co. Mark: Awesome. Phillip Rivers with two L’s not one. Phillip: That's right. Not the quarterback either. Mark: Not the quarterback. You probably get asked all the time. Are you a Chargers fan or now Colts fan is it? Phillip: By coincidence when he got drafted I was going to school in San Diego and I also turned 21 at this time so I would always get double takes by the bouncers. Like who is this guy with his fake ID. Mark: You don’t look like Philip Rivers. Phillip: And I'm only six feet. He's like 6’7. But I was a Chargers fan for a long time. I kind of like just don't have as much time to watch sports. But yeah, I'm a Chargers fan, but I always appreciate him just because he's my namesake. Mark: And there you go. And I'll tell you what, it gives you a higher open rate because when I saw that I have an e-mail from Philip Rivers, I'm like, sweet Philip Rivers is contacting me. Hey Phil, thank you so much for coming on the podcast. I really appreciate it. Phillip: Thanks for having me, Mark.

Welcome back to the Quiet Light podcast. Chris Wozniak is the newest member of our team and we thought it would be a great idea to sit down and chat with him. He has built, bought, and sold online businesses, in addition to brick and mortar brokerage firms. Chris has more experience than anyone on our team and we are excited to have him on board. Tune in to hear us talk with Chris about what buyers and sellers should do to come out on top.   Topics: An abbreviated version of Chris’ work history. Earning a CBI after becoming a board certified broker. Chris’ buy-side brokering experience. Potentially creating short films about clients. Tips for sellers. How he leads buyers through the process. Why Chris spends time with and coaches buyers.  Transcription: Mark: I'm really excited to announce that we have a new member to our team, Chris Wozniak. Now you hear Wozniak and we think Steve Wozniak from Apple, is there any relation? Did you ask him that? I know you talked to him this week and that would have been my first question, how is he related to Steve Wozniak? Joe: I did and I'm not going to tell you the answer. Mark: So we don't know. Joe:    I know. I asked the question. Mark: Then I'm going to listen. Joe:    All right. Mark: You have to listen to the pod. You got to listen. Joe: How many shares of Apple he actually owns and whether he inherited them or bought them? Mark: Oh, there's a bit of a tease right there. Joe: All sorts of tease. Mark: Chris Wozniak, the guy, he's new on our team but he's; Chris is new on our team but he's not a greenhorn by any means. Joe: Not at all. He's got more experience than anybody that's ever joined our team before. I think he comes to the table with more experience. He's built, he's bought, he’s sold his own online businesses, and he's run two brick and mortar business brokerage firms and sold one of them as well. His top year is probably selling 15 million dollars worth of businesses. The guy's just ridiculously qualified. He’s got all sorts of certifications behind his name in his LinkedIn profile. We talked about that; jokes about that quite a bit, actually. But it's not just talking about him and his experience. I asked him a lot of questions about what sellers should do, what buyers should do throughout the entire process of building a business to eventually exit or looking to buy a business, and then build it so he gives lots of advice throughout. Mark: Well, let's go. I'm excited to introduce him to our listeners, and I'm really excited to get him as a part of the Quiet Light team. Joe: Oh, and there's one thing that we do tease something that's coming in the future at Quiet Light and Chris is helping us bring that to the table. It's something people have been asking for for years. We talked about it briefly, so be sure to listen in to that as well. Joe: Hey, folks Joe Valley here with Quiet Light Brokerage, and today I have the Woz with us. How are you doing today? Chris: I'm doing good Joe. How are you doing? Joe: Good. How many Apple shares do you own? Chris: None. Joe: None? Grandfathered in by uncle… Chris: None and we've never really investigated it either so maybe we do. I don't know. Joe: So you're not… Chris: I knew that I wouldn't work as hard as I do. Joe: You're not a descendant then of the great Wozniak? Chris: I have to be a descendant. I just don't know how far down the line that stretches. Joe: You know, I actually have a client now who is the; we were having just a casual conversation and he said, hey, you want an interesting fact? I'm actually the great, great, great, great-nephew of Teddy Roosevelt. And when he told me, I was like, that's an odd Segway into telling me this, but I've repeated that story and now it is interesting. I find it fascinating that we… Chris: Oh yeah, everybody does. Yeah. Joe: Even with what's going on in the world and some folks wanting to take down the Teddy Roosevelt statue outside of the museum, but yeah, fascinating. So, no relation the Steve Wozniak of the world? Chris: I honestly don't know. Joe: Okay, enough with the jibber-jabber, folks. This is the real Chris Wozniak, the newest member of the Quiet Light Brokerage team, a ton of experience, but I'm going to let him talk about it. I've got your LinkedIn profile open here but why don't you talk to us, tell the folks listening, Chris, about your background and how you ended up coming to Quiet Light. Chris: Sure. Well, first, I want to say that I'm not used to podcasts and I got an email from Joe yesterday saying, hey, just be ready at eight in the morning tomorrow and give your entire professional life history. So I said, okay that sounds like fun. So this is going to be off the cuff and obviously coming from the heart. But yeah do you want the long kind of version of my… Joe: I think people want the shorter version. Chris: Okay, that's going to be hard to do but the short version of the long story is I graduated college. I was in commercial real estate for several years, even in college as an intern. Then I joined my dad as a business broker. We had a company called Lesdon & Associates that was in 2002, 2003. Joe: Brick and mortar business broker or online business broker? Chris: Mainly Main Street brick and mortar which we graduated to smaller deals and we had initially started and graduated to larger and larger deals, we eventually sold Lesdon & Associates, I think in 2008, 2009. And then we started The George Ryan Group, which was a company focused on lower middle-market businesses. And so what we define that as is anything over a million dollars and then we never had an engagement over 12 or 13 million. So we own that company and going backwards in 2002, I started my first e-commerce business. Joe: That's a long time ago. Chris: Yeah. Joe: 18 years ago. How much did the website cost you? I love the answers to this question. Chris: I had to hire somebody to create and code it for me. I had the idea of what I wanted to sell; the product line, which was actually non-precious gemstones in 14-carat gold settings. Joe: Wow. Chris: So kind of a very niche-y product. But anyway, we built that for I think $5,500, $6,500. Joe: Wow. That's a lot of dough. I ask the question just because I like to say mine was $50. Chris: Oh yeah. I guess then there is no Shopify, there is no platform that you could just point click. Joe: No. No Amazon fulfiller accounts, very different. Chris: Yeah. Joe: Okay. Chris: So I sold that. I sold the e-commerce site about a year and a half later and did pretty good with. It was 22, 23 years old so it was a big chunk of money for me and my wife. And so fast forward, I've been selling businesses for 17 years. Some of those are online businesses, but through the years I've created and run and sold online businesses of my own. And so I guess five years ago or about six years ago, my wife and I decided we wanted to get out of the United States and kind of change our pace of life. And the only way I was going to be able to do that was to be able to have some type of income where I could do business brokerage because of the situation. So we ended up moving to St. Croix in the US Virgin Islands. We were there for two years. And so winging it for about a year and a half to two years leading up to that move, I created an Amazon FBA business. And when we got to St. Croix, I purchased with a partner an affiliate business in the finance niche. Joe: So just to be specific here folks, Chris, has built, bought, and sold his own online businesses. Okay, go on. Chris: Yeah, and then I've also created and still own several content sites and still own my Amazon FBA business as well. Joe: Okay, as I look at your LinkedIn profile, you've got a lot of acronyms here M&AMI, CBI, all sorts of different things, BCB. You come to us with things that I think most of the team does not have. Chuck is now certified in some way and these certifications folks are normally designated for a local brick and mortar business brokers. There's no specific certification for online business brokers. Walker's got some as well. Specifically, I think he got it prior to writing the book that you all hear us talk about, which is Buy Then Build. But what are some of these credentials that you have, Chris? Chris: Board Certified Broker is a designation that's awarded by the state of Texas. I earned that I don't remember when; maybe 2006, 2007. I've also got a CBI, which is the Certified Business Intermediary. That's awarded by the International Business Brokers Association. I got that shortly after my board-certified broker designation. And then I also carry the Merger & Acquisition Master Intermediary designation. That's the M&AMI given by the Merger and Acquisition source, which is kind of a sister program to the International Business Brokers Association. And to maintain that designation it's pretty difficult. I don't know now how many there are throughout the United States, but at the time there was maybe between 100 and 150, I believe. I don't know if that's still true or not, but it's difficult to achieve that designation because you have to have done a deal over a million dollars and then you had to maintain that. You have to do a deal over a million dollars at least once a year and believe it or not, in our world, Quiet Light’s world, and my world that doesn't seem like a lot. But in general; in brokerage in general, that's tough to do. Joe: Yeah. So, folks, if you haven't visited the Quiet Light website lately, you'll see that it is new next time you go visit it. And it says right there on the homepage, sell your online business with a team that has a crazy amount of been there, done that experience. And obviously, the Woz here, QLB’s Woz. We have three Chris’s now so his email is actually Woz@QuietLightBrokerage.com because he has that experience. Chris: By the way, I had to clarify to the team because Joe introduced me as, hey, check this guy's email out. He's our new member, Woz@QuietLightBrokerage so I immediately; my first reach out to the entire team, all the other brokers was guys I'm not trying to be cool with Woz. There's already two Chris’s. I didn't want to get anybody confused with the other two Chris's. My name is too difficult to spell in its entirety so I went with Woz for simplicity purposes only, not to be cool. Joe: You're cool by default just because the email address is accepted. But you do have a crazy amount of been there, done that experience, but let's segue way to one of the reasons why you are on the team amongst all of the others. And buyers and sellers this is important for you to understand in terms of one of the things that we're going to do at Quiet Light in the coming months. We're launching this podcast sometime in the month of July 2020. And you've got, Chris, some buy-side brokering experience. For the last decade or more we've had requests for buy-side services and we've always said, no, we don't do that. Because of your experience with it and experience with a close friend of mine that you worked with we're going to move in a direction where we're going to offer this. Don't start sending us e-mails here folks. We will announce it. We'll give you the details. We're going to start with a small pilot program and make sure that we serve you properly. And we will not be helping you buy businesses that are listed by other business brokers. These will be unlisted businesses that we will search and find for you, given the criteria that you're looking for. But what made you go into or get pulled into the buy-side part of the brokering Chris? Chris: Yeah, that's the right way to say it. I kind of got pulled in to it wasn't necessarily a proactive decision on my part to get into it. There was demand there for it and so I just tried to get that demand and service those people that needed that service. So we had buyers that we're looking at online businesses, we had buyers that were looking for any type of service business, we had buyers that were specifically looking for manufacturing, all these things over the years and so we just developed the process on trying to uncover businesses that were not on the market, which is that's the kind of grassroots kind of guerrilla effort that we use to uncover these types of businesses. Joe: Yeah, and it's an exciting one for us because it's one that everybody's constantly been asking for and sort of pulling us in that direction. But with Chris's experience, the vast amount of experience that he has here we formulated a plan, we're starting to put it into action and we will test it out in the coming months. And we will make an announcement both via the website, email address, this podcast again, and an official, probably podcast specific to the buy-side brokering and what services we’ll be offering. So keep that in mind for the future, and we're excited about it for sure. So, Chris, with your experience, I'm going to ask you random questions because you've been doing this for so long. As everybody knows, Mark and I don't script these. We're just flying by the seat of our pants here and hopefully, it gets across good information to you folks. Let's talk to the sellers out there in the audience, in your experience; the vast amount of experience that you have, what are the top one or two things that a seller should understand about a business that they own, and a path toward exiting that business? And when I say understand, I mean understand and do. Chris: Understand and do, yeah. Well, I think something that kind of gets overlooked when we're speaking with sellers and trying to coach them and advise them is they should know that it's going to be an emotional experience because of the nature of what it is we're about to do, which is the biggest transaction in their life. It's bigger than purchasing your home. It's bigger than the most expensive car or boat you're going to buy or sell. And so this transaction is going to be a monumental change and it's going to be an emotional ride because they typically have some blood, sweat, and tears poured into this business and a lot of times it's their baby. So to not address that when you're speaking with them, because they may not realize they're going to go through these different waves of emotions, that's why a lot of times I know you've talked about it, too, and I've said it a million times, we're just as much psychologist or therapist as we are advisors because it's 100% going to happen that there's going to be these waves of emotion and anxiety and things of that nature that happen. And so I think if the sellers just know that and we can kind of tell them what to expect a little bit and why they're probably going to be feeling this way and why it's natural and why everybody else goes through it too, that I think helps ease that burden a little bit. Joe: Yeah, I think that's a huge one. I was reading some content that's being created now that describes what we do and it said something like entrepreneur, advisor, broker, mentor, friend to online business owners and become all of those things and the friend part at the end because we spent a lot of time with clients. And I'm sure you've experienced that, especially if you've been working with somebody that lived in the same hometown as you or a neighboring area where you actually get to see them more. In our situation with the online world, we get to see them now with Zoom and we see them at conferences and things of that nature, but not as much. So the business folks know the name Joe Cocker, and if they've been listening to the podcast and I've been talking to Joe for two and a half years, I've never met him face to face. I sold his business in Q1, we had him on the podcast. He told a story. This is somebody, folks, that his first child, two days after his 17th birthday, he was in high school working full time and still graduated high school; hustled, worked hard, sold his car. This is the title of the podcast, he sold his car to buy inventory and then sold his business for seven figures. That was the process, a hell of a story. But, you know, I consider Joe a friend, even though I've never met him face to face. I can't wait till COVID goes away so I can get down to Florida, go visit with him and go fishing because he's got a new boat and he goes fishing all the time. And he's very, very good at it apparently. But that's a big part of it. And one of the things that you're going to see, folks, is a new series that Chris Moore actually has been working are called Quiet Giant and we are sharing some experiences with our clients and doing a quarterly short film, if you will, about them. And the second one is already produced and one of the things that the person featured in that series said was just reiterating what you said, Chris, which is at times the advisor mentor, broker, friend is a therapist because whether it's 250,000, a million, quarter of a million, or ten million that you are two weeks away from and you're negotiating the asset purchase agreement and it goes off the rails because it will. And the difference between a good and great advisor is that the great must get it back on track towards closing. But you are going to be in a very emotional state and if you all can see Chris on YouTube, he's very calm and collected. And obviously, I'm not hyper myself, the tone of my voice is this is about as excited as I get some time. So we're here to support, advise, and help and sometimes that comes across in therapeutic sessions if you will. And we've all been there and done that so we know. When we were selling, we're in the same situation, right? You've done it dozens and dozens of times with clients as well. Chris: Yeah. I sold a non-durable medical equipment company that was one of my largest sales of my career in 2014 for right around ten million dollars. And I shouldn't say the name of the business, but I'll say the first name of the seller's name is Ralph. And he actually reached out to me on LinkedIn a month and a half ago just to see. He saw my name and it kind of; I don't know why it popped up or how it came into his point of view, but he reached out and said hey, how are you doing? And I mean, we spent a lot of months getting his business marketing and getting it sold and we developed just a great relationship. And he's just one of honestly a ton of sellers that I've had that we still maintain relationships and we get along great. And that's one of the things I love about the business. It's transactional, but it's very intimate and there's so much at stake that you bond. Joe: Yeah. Chris: Or it's almost you just bond. Joe: Yeah, one of the things I like least about the business is the stigma of being a quote-unquote broker. But once I got over that and realized and became that entrepreneur, advisor, broker, mentor, therapist, friend, it is what we are. And those that want to put a label on us as just a broker, they can just go somewhere else. Chris: You know all those letters we were talking about earlier. Joe: Yeah. Chris: I probably got those because of insecurity. Joe: Right. I'm incredibly secure because I don't have any of those letters. Chris: Right, exactly. Joe: No, you’re just lazy. Chris: I'm the most insecure, yeah. Joe: All right, let's talk. We're going to keep this episode relatively short, folks, just simply because you don't want to learn too much about Chris until you get to know him personally. But let's talk about some things though that buyers can do. One of the things that sellers can do is prepare themselves emotionally. Well, actually, I’ll follow up on that first, how do you prepare yourself emotionally? I've got some thoughts on that, but I want to hear from you. Chris: How do I or how does a seller? Joe: How does that seller prepare themselves emotionally? You said that is one of the biggest things they need to be prepared for, that it is emotional. How do they get prepared for that? Chris: I think broadly speaking and yeah just talk to them about the process. What is this going to look like for you from day one and then all the way to the exit day? And as long as you're very upfront about that and you're detailed about your explanation of what that process looks like, it reduces the amount of question in the seller's mind. And then if you're also honest with them and you're not selling a bill of goods that you can deliver, which is we're going to get you a buyer in the first week and that buyer is going to be the one that buys your business, they're going to close, it's that easy. If you create those kind of expectations, you're not going be able to deliver. Joe: Are you saying from a seller standpoint, it's actually hard to sell a million, two million dollar business? Chris: Yeah, it's a little bit difficult. And believe me, as that day gets closer and closer you're not going to get more calm. As you get closer to that million or two million dollars, you're going to start to tighten up a little bit. I won't say what I want to say, but you're going to tighten up a little bit and it's going to get more real and it's going to get daunting there for a little bit. But you just got to hold on and listen. That's the other thing, you asked what are two things you would do as a broker or what two things to consider with a seller. My second thing instead of going with the normal answer would be if I'm talking to a seller right now, listen to our coaching. And it's not because we're rocket scientists, it's not because we're smarter than you. You're an entrepreneur. You probably have certain personality traits that have gotten to where you are and why you're successful and we get that. We're entrepreneurs also, but we're not trying to say we're smarter than you or no more than you. But we actually have the knowledge of selling a business, not running your business, but selling a business. So if you're going to hire us, just trust us because we're there to coach you. We know the pitfalls. We know the traps. We know that things are not going to go perfectly all the time. That never happens. You're always going to get sidetracked. So if you just listen to our coaching, if you listen to our coaching when you're dealing with buyers, that's a huge part of it. So my second point of advice would be just trust us and allow us to coach you. Joe: And the sooner we can begin that process, the better. You don't want to talk to somebody, sign an engagement letter the next day, and then list the business for sale a week later. It's better really for everyone involved to start that process of building that trust and that relationship as early on in your business as possible. I love it when somebody calls and sets up a meeting with somebody on the team that says I’m tracking toward selling in Q1 of 2021 or 2022. Let's get started. I want to do a review. And we do that, we will look at the profit and loss statement, we'll look at the financial key metrics, we'll see what the strengths and weaknesses of the business are. We’ll go over the process and educate you, help you set an exit goal. You're going to pick that number, not us. But we're going to help you understand what you're leftover with after the sale. It's not necessarily important what you sell it for it's what you could keep. And then ideally reverse engineer a path to that goal. And the longer you are from reverse engineering that path to the goal, the more likely you are going to achieve it or overachieve it or beyond that. Chris: Yeah, I agree. Joe: All right. Let's talk about bias. You've worked with a lot of them, both as the sell-side broker but you're working with buyers and then as the buy-side broker as well. Any advice for buyers when they come to you or anybody on the team or any broker period or actually to a seller directly for that matter, what should they be bringing to the table? Is it a Wall Street type negotiation, is it just come in and pay all cash, what are the secrets to being a great buyer? Chris: I think part of being a great buyer is also listening to the advisor because obviously there's two sides to the coin. So part of our job if we're representing a seller, is to get their business sold. And one of the ways we can do that and ensure that that happens is we lead the buyer through the process. And so that's no different. I interview buyers when we have a business for sale, we have a buyer that approaches us we basically interview the buyer as well. And one of the things that we coach them on is transparency, I think is a big one, because, in a lot of transactional environments, you're quote-unquote negotiating so you want to keep your cards close to the vest. In this sort of situation, we were talking about bigger dollars. Sellers need to know that you're financially capable of getting this transaction done. And so eventually you are going to have to be transparent, not only with your financial situation but also your experience. That's a big one because quite frankly, a lot of the time they're seller’s notes, there's earn-outs in some situations and so your ability to pay that owner back is huge. And so when you're going through the process, that transparency is a big deal and a lot of buyers don't understand that. It's counterintuitive. Joe: It is. Instilling confidence and use the advisor first and foremost and then the guy that's going to be selling you the business is critical. Mr. Buyer. I had a call yesterday where I had to go through this process of; the first call I had with this particular buyer, first, he talked about the multiple and how high it was, and he only thought the business was worth X. It’s all right. Well, they're not willing to sell it for even close to X, so maybe this one isn't for you. He did move on. In the same conversation, he talked about raising funds. He didn't have the capital for it. So two strikes did instill confidence in me that he thought the business was even close to what it was worth, close to what it was listed for. And two, he didn't have the capital. And so he's going to be raising the funds during a worldwide pandemic with a looming recession where banks are tightening things up. And from that, we had a good call. We had a call yesterday. I would say it was a good call, it wasn't a great call. The first call was a great call because it ended with maybe this doesn't make the most sense for you, but then he followed up with he really did a very thorough job reviewing the package and asked a lot of great questions. Yet there's not confidence in me or I have to reveal who this person is in detail to the seller of the business and neither one of us have a great deal of confidence. So I had a good call with him yesterday where I had to be honest and I think I'm slightly offended him saying, look, man, it happens. You spend a lot of time on this, yet you don't think the value is there and you're trying to raise money. My question was what are the odds? Give me a percentage, in your opinion that you will be successful in raising the capital to make this purchase? He goes, I think the odds are better good than not. I’m like, really? Come on, instill some confidence in me. I’m sorry if you're listening buyer, but I said some very nice things about you as well and I do have a lot of respect for you. I think it's just; and we talked about that, the instilling in confidence. Chris, you're human, right? I'm human. We're spending time trying to help both buyers and sellers get to a successful transaction and we're going to give both parties some advice that they're not necessarily going to like. But it comes from a place of experience; crazy, been there done that experience, and sometimes it's hard to get that across in a way that makes you feel warm and fuzzy when we're telling you. Chris: Oh definitely. Joe: Yeah, it’s hard. Chris: One of the things I tell sellers every time we get an engagement is you're not going to hear from me unless I have somebody for you and I'm going to be spending 90% of my time with buyers. And a lot of the time they don't like the sound of that right off the bat. But I let that sink in for a minute and say, look I've got to establish a relationship with these buyers. I've got to establish trust with them and that's why I'm spending all my time with. And it's for you, Mr. Seller or Mrs. Seller. That's why I'm spending all this time with these buyers is establishing that trust and coaching them and letting them know what the process is and how we don't deviate from that process. It's the same thing every time. Every business is different and certain things will happen but we do not deviate from our process and the process is because of experience. That's all it is. Joe: Can you see, folks, why Chris is joining the team here? Bringing a great deal of experience and wisdom, credibility and a lot of credentials, as you can see, because of his insecurity to the team and helping us move in a direction on that buy-side that I think will help serve some of you in the audience to find things that are not listed. We as a company have never practiced spamming emails and reaching out to buyers to say, hey business owner, we've got a buyer for you when we really don't. Chris: Right. Joe: This will allow us to go ahead and reach out to buyers in an honest, sincere, and ethical; I’m sorry sellers. Chris: Sellers, yeah. Joe: Honest, sincere, and ethical way with 100% of the truth. So I’m looking forward to that, Chris. I’m looking forward to having you on the team for many years to come. I appreciate your time today. Chris: I’m so excited. I’m so glad to be with you guys and I appreciate the opportunity. Joe: Woz@QuietLightBrokerage.com, we've got the Woz on the team, guys. Thanks, everybody. We'll talk to you soon. Chris: Thank you. Resources: Woz@quietlightbrokerage.com Quiet Light Podcast@quietlightbrokerage.com

On‌ ‌today’s‌ ‌episode,‌ ‌we‌ bring back ‌Scott‌ ‌Scharf‌ to talk about‌ ‌how‌ ‌to‌ ‌build‌ ‌out‌ ‌an‌ ‌accounting‌ ‌system‌ ‌using‌ ‌automation.‌ ‌ Scott is the Co-Founder of Catching Clouds, an outsourced cloud accounting service for e-commerce businesses. Topics: Why accounting is a daily, weekly, and monthly endeavor. The best accounting software. Setting clients up for accrual. Understanding the technological ecosystem. Switching from cash-basis accounting. Refining the process of cash flow projections. Why cash is king. One thing to increase optimization.  Transcription: Joe: Mark, I said many times that I actually fell asleep in accounting class in college. And unfortunately, it was Northeastern University and there were probably 200 people in the room. I was sitting near the door. So 199 people marched out with me there, my head on my desk, drooling, and then the next class came in yet somehow I’m in the position over the last eight years of really revealing a bare minimum of 5,000 profit and loss statements. And I get on my soapbox and preach about this; how important good clean financials are, not only for an entrepreneur's ability to analyze his own business and make sure they're driving towards their goals properly, but to be able to even just get in the room with highly qualified buyers. Once you get in the room, there's a ton of other things, but the P&Ls will get you in the room. And I understand you just had another conversation with our good friend Scott Scharff from Catching Clouds about building automation into accounting so you don't have to actually do this yourself day in and day out, week in and week out by building some automation into the process, either through QuickBooks or Xero. I understand Scott has preferences for both and good things and bad things to say about both. Mark: Yeah, so you're not the only one that fell asleep in accounting class. I did as well. If you looked at my grades, you'd wonder why I'd talk about accounting so much. But you know this Joe I've been working my way through some biographies of various titans of American business. I went through John D. Rockefeller. I'm now in the middle of a biography on Andrew Carnegie. And you know what one thing they both have in common? They were religious about their books. In fact, that was one of the big advantages that Carnegie brought into his business, was detailed books that they could optimize. I just find it fascinating that we can see that this is the case all the way through history what the people have been super successful. Their books are up to date. They're clean. They use them to optimize their businesses. And Scott and I talked a lot about how to do that with an Amazon business. I'm not going to lie, it was overwhelming, partly because Scott is crazy intelligent when it comes to this stuff and he has his systems all set up and he starts throwing around this system, that system, you just hook this up and you do that and then the other thing happens. And in my head, I'm thinking, how can anyone even start this? And at the end of this episode, you'll hear me kind of say that to him. I’m like Scott, this is overwhelming. How do you even get started? But the idea is simple and it is you just get started. He said something in this episode, which I didn't call out in the middle of the episode, but I think is really, really key. He said that of all the financial records that he sees people put together, he will see sometimes accountants that don't know the Amazon world trying to do books, and then he'll see some owners doing their own books. He said both are typically a mess but the ones done by the owners are less a mess than those being done by the bookkeepers because the bookkeepers don't know anything about Amazon. Joe: That is CPAs you mean, right? Not the bookkeepers. Mark: Yes. Joe: Yeah, I'll agree with them a million percent because CPAs do taxes, bookkeepers manage books, and owners try to manage books as well but never quite as good. So I think he's spot on. Guys, listen, and by guys, that's a unisex term. Pay attention to this. I know I preach on it sometimes and I'm so sorry, but it's because I'm here to help you. I'm here to protect you. We are entrepreneurs, we're advisers, we're brokers, we're mentors, and we're your friends, and we're sharing this information for you to help you build a better business and have a better exit someday. Even if that someday is 20 years from now, if you've got automation in your books like Scott is talking about here with Mark, it's going to make your life easier and help you make more money. So with that, let's move to it. But before we do, I want you all to send an email to Mark to discuss whether Carnegie is pronounced Carnegie or Carnegie. Mark: That's a really good question. I go both ways by the way. The author of this; it's an audiobook, he's saying Carnegie so I'm saying Carnegie now. Joe: Okay, Carnegie Hall is where I’ve been before, but I don't know either. I actually said we have a client that is a one, two, three, fourth remove descendant of Teddy Roosevelt and I pronounced it Roosevelt because I Googled that. Mark: That's wrong. Joe: I know. It was dead wrong. Mark: Carnegie, Carnegie Accounting, let's do accounting. Joe: There we go. All right. Here we go. Mark: Scott, thank you so much for coming back on the podcast. I know you are on the podcast a while ago. I think we talked about the ultimate seller's checklist about the things that you have to do, both leading up to a sale and then after the sale, closing on the business but I'm excited about today's conversation. We're going to talk a little bit about bookkeeping and the reason I'm excited about this and I know people in the cars or wherever you’re listening at would be like I need to stay awake, I want to talk bookkeeping. I hop on this all the time. Bookkeeping is so important and there's so much data in your books if you keep them right. I had a conversation with somebody just the other day who is ready to sell. He's got a great business that's growing like crazy and he's going to have to put things on hold to flip over to accrual because that's what we require now. And so I want to talk to you about this because it’s what you guys do over at Catching Clouds. Why don't you just kind of give a quick introduction for those that are listening to you for the first time? Scott: Okay, cool. Thank you. That was a while ago and that was a good conversation. So Catching Clouds, we provide outsourced cloud accounting services to e-commerce businesses. So our whole focus is only working with businesses that are selling a physical widget on Amazon, eBay, Shopify, Bigcommerce, TrueCommerce, House, Wayfair, Wish, Amazon Canada, CO, UK. Really most of our clients are those more complex multi-channel sellers and we're working with the larger established businesses and the one to fifty million dollar range. But the main value we offer is we provide the bookkeeping, accounting, and controller level review of their financials and we do all the work. The clients get read-only access to the financials. They threw everything over the wall to us and we leverage technology to pull everything together and then we turn that into accurate financials. And we just consider ourselves part of our client’s businesses. Were just part of their team. Mark: Why? I mean, let me just start off with kind of an obvious question and one that I think if somebody is not at the million-dollar revenue or fifty million dollar revenue level, why are companies at that level hiring and spending money on a company like yours? Why is it that their financials are important enough to have that controller level service like yours? Scott: Yeah, so the main thing is that they feel out of control. And we have talked all about management accounting, not just year-end for taxes; we're like a clock, strike twice a day. And otherwise, you only know; and if anything it is extended, you only know if you're profitable in September for the whole prior year. And our whole focus is accountings at daily, weekly, monthly piece and that the owners at a minimum have to stop, take a step back and look at their financials and adjust their gut feeling so they can make great decisions on a daily, weekly, monthly basis, which are all those decisions you have to make so that your business runs better. It's more efficient, it's more profitable, and better to sell because it's managed well. But if you don't get that feedback where we have people; sellers that will go, wow, that was my best month ever and we're like, yeah, you lost a bunch of money. And they're like, wait, what? Well, you spend all the money on this and you didn't pay attention to your marketing spend and you spent through all your profit on the marketing spend. And if you don't see that, it doesn't do any good to notice that six months from now. So it's those kind of things. Or when they're looking at any of the many real-time tools, there's a big difference between real-time tools to do re-pricing and high-level reporting and you can use to make real-time decisions on re-pricing product or what to buy and all that stuff, and then double-entry accounting that accounts for everything. And then we help them adjust they're gut. Hey, this tool always shows you your sales numbers 10% too high, and then they can adjust to it and make those real-time tweaks. But the real value is they're serious about being entrepreneurs. They understand and they hate doing accounting. Most of these businesses didn't go into business to pay sales tax or do accounting and they want somebody else to do it, but they want somebody else who can talk the talk, who understands where the FBA is and FBA reimbursements and inventory and accrual and landed costs. And they don't want to have to train the accountants on just the terminology, let alone what are all the crazy things Amazon does, what's the settlement statement, and all that crazy. So that somebody that they can trust is taking care of those financials and then it's our goal to educate them on how to read the financials themselves and provide insight. Mark: Yeah, I think you talked a lot about kind of those boots on the ground sort of decisions, those granular decisions. I think financials and getting comfortable with reading your financial statements there's two levels. I'm a big picture type of guy and I actually just recently did this with Quiet Light and with another company I own where I took a look at my financials over the course of the last year and I just simply broke down the expenses as a ratio of revenue in the big categories and where are we? And with Quiet Light one thing I want to do is up our data game. We've got a lot of data that we built on over the years, but it's not organized as well as it could be. It's not point and click we could pull this data up. It requires some work. And you know what? It shows in my P&L because we historically had a large tech department that's changing. With my other company, we should be more marketing focused and it was this kind of bigger directional sort of CEO sort of thing and saying, hey, you know what, we really need to double down on the marketing. So I think the financials have that kind of dual-level play of you get the big picture, but the granular boots on the ground sort of decisions too is important if you know how to read them and understand them. You guys help with that. You help laicized some of it. Scott: We do. And one of the key values we do is each of our controllers who are CPAs we don't do federal and state income taxes, but they understand accrual accounting, gap accounting, and everything else. But each one is supporting at least 10 sellers and we never share confidential information, SKUs, or whatever but we can look across all of our clients and say, hey, wow, you're spending three times as much on your Google ad spend as we've seen with our other clients and we're not seeing that show up in your income. And they're like, oh, I just launched a new product, in four weeks I'm going to cut that back. And then our controller as from an accountability puts it on the calendar, calls the seller and say cut it back so you can start making profit. It's okay to ramp up your marketing spend and burn through your profit for whatever number of weeks to launch a product but sometime you've got to back it down. And if you forget all your profit is flowing out. And so it's that comparison and we can do that common comparison, kind of small data, big data across our client base because they're all consistent because we have no restaurants or which would be bad or nonprofits or other things. So it's that insight of being able to see multiples and your business too, you have the same benefits of the fact that I've looked at over a thousand seller’s books. You guys have looked probably at least that many if you get that when you're in this niche and you focus on these areas, you really understand the nuances and you see the different scenarios and then you can provide that feedback. Mark: Absolutely, specialization especially for what you guys do. It makes a huge difference. Let's start with talking about different types of software, because Joe Valley, the co-owner of Quiet Light he often, says Excel is not accounting software. Unfortunately, we see a lot fewer Excel books these days than we used to, although they still come up every once in a while. The two dominant ones seem to be QuickBooks and Xero. I have seen other systems thrown in there from time to time. I know you've dealt with NetSuite to an extent. What's your favorite, why, or are they equally good? Scott: So Pepsi, Coke, they're great. It's so great that they… Mark: I’m a pop guy. Scott: Okay, yeah. Mark: Oh no, I'm joking. I'm not, I don't drink pop or soda. Scott: Yeah, I know. So in general it's great that they're both out there, they're both heavy competitors, Xero does much better internationally. Intuit has a much bigger footprint here; a much, much bigger footprint here in the US. But because Xero came along and has been in the cloud and about six years ago, got 200 million in VC funds Intuit went uh-oh we better fix our cloud solution. So that helped anybody that was on QuickBooks. So today they're both feature consistent. Okay, so if you pick either platform one or the other, you're going to be okay. We prefer Xero. We think Xero is a better cloud platform. It's better with multi-currency. If you're doing multi-currency, it is by far significantly better. And then our view is that Xero is a better company. Intuit is a shareholder driven marketing company and that's all they care about. They don't care about accountants. They don't care about small business. I mean their marketing says they do. They are a big, big business. And Xero even though it's much bigger, is still only a few thousand people. It started in New Zealand and is very much about supporting businesses and being engaged in everything else. And they're just really upping the feedback always. Mark: Yeah, I've got a soft spot in my heart for Xero. I put my other company on it for a while. I actually had to take it off because I didn't like their PayPal integration at the time and that other company had a good amount of PayPal sales, but I just like how they set up the system philosophically. It just felt tighter. It felt like QuickBooks you could have all these loose ends kind of floating out there and Xero, like their name kind of alludes to, wants everything zeroed out and they wanted all the balance out. And philosophically, it felt better. What about NetSuite or other third-party systems? Are there other systems that you think are good to work with? Scott: Not really. Really it's in that small; even if you're a startup, you should start on Xero and QuickBooks and you should be doing accounting from day one even if you have no idea what you're doing. And every business owner, entrepreneur, you have to wear every hat in the business so you understand it enough so when you delegate it, you can oversee it. So you can start at that level and the only reason we would expect anybody that would outgrow Xero or QuickBooks online or us at that 50 million or whatever stage is when their supply chain gets more complicated. So we can talk about cloud inventory tools but the idea is need and I'm a big believer in best of breed; so Xero for cloud accounting, Gusto for payroll, A2X for Amazon and Shopify income, Hubdoc for document management, Bill.com and others and Veem for international wire. So we've got these set of tools but then the cloud inventory tool really has to be specific to the client. Almost all of them suck in different ways but there are some that are getting to be pretty good that you can use. But if you outgrow those or you can't find a tool that you need that will meet your supply chain and the number of 3PLs you have and your manufacturing process, then you might have to grow up to NetSuite. And if you're a larger business and you want to be able to; you're buying a lot of international stuff and you have customs invoices that show up six months after you've done a sale and you want to back-calculate all of your COGS into the past, the only way to do that is on NetSuite. Because we do monthly snapshot accounting so if there's an adjustment six months later we posted in that month, we don't go unravel everything and put it all back. So if you need that sophistication or you need a more advanced one but you're going to pay for it price wise and you're actually going to pay a penalty that in my opinion, not great integrations to pull data from these sites and it makes it difficult to impossible to at least reconcile Amazon working with the different NetSuite integrations. Mark: Well, let's talk a little bit about that because I want to talk about some of the automation of this because I think the biggest challenge with a lot of the software is figuring out how to pull in the data in an efficient manner and we especially run into this problem with accrual accounting. This is why so many bookkeepers mistakenly or misguidedly tell their clients you should just do cash basis, because for them it's a lot easier, right? You see the purchase order, you enter it in, and going through to an accrual, you need to check your beginning inventory levels at the beginning of the month and ending inventory levels to figure that out. And it's just more work than they want to do, frankly. How do you set your clients up? I want to talk two questions, one would be how do you set your clients up for forward-looking moving forward we're going to be on accrual and keeping that automation in place. And then secondly, what are easy ways if there is an easy way to go back and get those historical COGS on a monthly basis for an Amazon business? Scott: Yeah, the two sides income. I mean, the first piece would be the automation we look at is first making sure you're posting your income properly. If you sell a hundred widgets that you get paid for 100 widgets and so we use a tool called A2X accounting to post the Amazon income. We've been using it for six-plus years. If posted a penny, it breaks up a hundred plus Amazon fees and follows the accrual method by posting a summary invoice. Because the main thing we recommend for everybody, unless you're doing B2B or direct manual sales on turns, every other sale can be summarized on a daily or weekly or monthly invoice and A2X will post Amazon and Shopify income. For Shopify, it will post Shopify payments every day that matches the payout every day. So the first thing you want to do is be able to get all the income into the system properly and then A2X breaks out based on our design. We’re their close partners. We’re using it for a year and a half but we were in Alpha for about six months, but they'll post and our standard is to post all the income by payment processor. So on Shopify, if you’re using Shopify Payments and Amazon Pay and PayPal and Globally and Sasol and Afterpay or whoever else. It'll break out each of those posted invoice for each of those merchant providers and then you can reconcile it. So that's how you get your income and it's going to post it in the right period as to when the sale happened, not when you got paid. The difference between accrual, you track everything. And in our opinion and accrual, not only do you need it for valuation, not only do you need accrual to make sure you have a balance sheet so you can see your inventory and your assets versus liabilities but it's also easier to look at that if you have these huge expenses that you pay for or you're buying a ton of inventory and you pay $100,000 this month in shipping charges you want to spread that out and as you sell the product, pull that out not pull it together. Now for COGS and inventory, if you're looking for your values, the best tool is just you can't do it on spreadsheets. Just like you can’t run accounting on spreadsheets, you really need a cloud inventory tool. You need the automation so you have a structured process to purchase products through a purchase order so you know what you're paying for. I mean you're constantly updating your costs, you’re receiving that inventory. So whether it's fraud or they forgot to put a case; you bought 20 cases and they only put 19 in and they were just going super fast, which is usually the problem not so much someone's trying to rip you off. And if you can't catch that in controller control, you just have money that's just leaking because inventory is just cash in a different form that you're trying to turn into more cash. And so you really need those tools that are pulling in every order because all of that detailed data doesn't have to live in the accounting and it shouldn't. Xero and Quickbooks online are not set up to pull in every Shopify transaction, every Amazon transaction. They're not. The idea is you want that summary information and then you want to make sure that your cost of goods sold aligns with the income. So you have to have a consistent process. For Amazon, we upload costs into A2X and it'll post cost of goods sold so the same orders that were in your income even if the settlement statement splits over the end of the month all get posted in the appropriate month, and then you can do the same thing for Shopify. And then for our clients that are on cloud inventory, you can run as long as the tools provide in our focus, which would be cost of goods sold per channel so you can see your profitability per channel on the financials is really the piece you want to make sure that you can get that number, be able to validate it, and everyone's like, oh, that's this big accounting thing. I’m like no your whole world is operations; its purchasing product and shipping product out. Everybody will know we did 422 orders last month and they'll go, okay, and there's all the data for it and that needs to get applied to the accounting and then you need somebody who can do that properly. Mark: You said something just a little bit ago here which I find; it tends to be a mindset shift among a lot of sellers and that is your inventory is just cash in a different form that you hope to turn into more cash. And this is where the switch from cash to accrual changes and people that are on cash basis tend not to see this, right? They see their business bleeding cash and they see a cash in, cash out and when they spend all the money on inventory, they see that as losing value but it's not. You're just transitioning one asset cash into another asset inventory. And I think this is, again, why this topic of discussing books excites me because it causes you to think of your business in a different way; in completely different ways, as a blend of assets. Most of what you said, I already know our listeners are going to listen to this and be like that is way too complex for me to go through and do. Can I connect these things directly? Can I just plug and go or do I need to hire somebody to do this? Can I train somebody to do this? I mean, how do you actually go about implementing this? Scott: So there isn't one tool that will connect all the different pieces. Now Xero and QuickBooks online and A2X for an Amazon-only business gets you a long way along the method because if you're all FBA A2X will get you most of the way there. But for anything else, there's no secret process. So someone's like, oh, I'll just use what Logility and use their reports, they connect everything. I just did a deep dive review of them again and we couldn't figure out how they were posting the data and then we couldn't rec because we were evaluating we were trying to implement it. So you have to have a consistent set of processes to know you're doing your accounting on a daily, weekly, monthly basis. We do cost of goods sold monthly. So it's an hour or two per client per month because we have a standardized process that we follow through that shakes out vendor deposits and the other details. So the first process is what are you doing, what are you trying to accomplish, and just break that down, whether you're doing it yourself. Look at resources. We have some online courses. We have a bunch of YouTube videos to make sure we educate people. But then we still have a manual process for Walmart and eBay and Etsy and House and Wayfair and all these other channels where we download the data monthly, pivot it to post the income, and reconcile it. But we use the exact same data to apply a cost to post COGS. So it's a matter of that. Now, there are consultants out there that will help you set up the cloud inventory tool which we don't do, or you can work with the vendors to implement it and then you either have to manage it yourself or hire someone like Catching Clouds or another e-commerce accountant that understands the technology, the e-commerce space, and accounting. Mark: I think this is why it's so tough for so many people. Because as an entrepreneur, I have an idea, I've invented a product or I’ve identified a niche I want to go after and I'm good at that but now you're asking me to understand my financial reports. And then on top of that, you're asking me not to just understand my financial reports, but to understand the technological ecosystem around these financial reports to make them all work without hiring somebody who's going to cost me $10,000, $20,000, $30,000 a month just to be able to do this and suck up any profits that I do if I do have. That’s why it is so difficult for people. The whole ecosystem is complex and difficult to understand. But I do know once you do get it set up, it is just a few hours a month. So you put in the effort of what am I selling, what are my processes, and then how can I get this into the system the right way? Once you get that setup, then maintaining it isn't as difficult as the initial setup. Is that fair? Scott: That is correct. Once you get those processes in place and you've got a defined process, you're just not assuming you can set automation and set and forget it, you're there. And then I would put the same due diligence that everybody puts into outsourcing; I mean, e-commerce sellers, the big things they outsource, except for the few that decide to buy a warehouse and want to invest in property and that's important to them being an entrepreneur and that's part of the journey. But that's, in my opinion, a very small percentage of the sellers, everybody else is working with 3PL warehouses or FDA or Walmart fulfillment service, Shopify fulfillment network. The same due diligence that anybody puts into that and understanding their supply chain or their vendors or who they're purchasing from, you just need to decide the financials are a priority for that order and then go through the same due diligence where you know nothing as an entrepreneur about whatever and then you start. But it is absolutely possible to put these systems in place or outsource the work like most sellers outsource and one thing I recommend every seller do is outsource sales tax. Don't try to use a tool like TaxJar or Taxify or Avalara. Just hire assault consultant or have someone like Catching Clouds, which we do it only with our accounting services because it's so complex. We're filing over 5,000 returns a year and even if you do everything right, the states generate notices and you have to deal with all of that. And the same thing applies to outsourcing your 3PL and your fulfillment. And then I would recommend outsourcing your accounting and finance because unless you're 30, 40, 50 million, it's really expensive to hire a bunch of accountants and manage them and train them and make sure they stay on top of the technology and all that other stuff. Mark: You know this is the sort of field that if you fall behind, is that much more work to get caught up. And I know we've referred some business over to you in the past that need some cleanup. We refer them to other partners as well that need clean up. What does that process look like? I'm saying, okay, I’ve fallen behind, I've been doing cash basis accounting for the past forever and now I want to go back three years to do this right and get moving forward. What sort of workload are you typically looking at to be able to get that caught up? Scott: Yeah. So in general, unless they were using A2X and it's very, very rare or they were doing things right or in a lot of cases it's interesting if the owners are involved, they don't know all the things in accounting and what they do they're very particular about so they do less wrong. Invariably when we see other accountants that don't work with any other e-commerce businesses, they're just making it up as they go and they make it worse and worse. 80%, 90% of the time we have to start over with a brand new Xero file even if somebody is on Xero because there's just tens of thousands of bad records in there and you can't get to it. So we set up a new Xero file. You import all the bank and credit card transactions for that time period. You categorize them and you reconcile all those accounts. Then you post all the income and then you go through accounts payable through all that time. And of course, once you just identify the data and even if they have another system, we can rip all that out, put it back in, but then make sure that no, no, this invoice was paid this month, but it was from the prior month to make sure that the bills are in the right period to get all that going. And you just do those accrual things and then we can post the income per month historically and then do the cost of goods sold per month. And so if it's 12 months or; and so we have to go back to either 1120 or 1119 to the prior tax return or back to the beginning of the business and run that and that's what it's going to take. We have looked at; we are Xero expert experts. My co-founder, partner, and wife Patti teach Xero experts how to do cool expert things in Xero and we have all these tricks to clean up the accounting. And I've got a whole list of things that I want Xero to do to allow us to make it so we can just take what's already in Xero and clean it up because the bank feeds and the fundamentals for Xero are great it's just when you connect all these apps and push in data, you end up with whatever. So it's really a process for us. It's about four to six weeks for one to maybe a little bit longer but it takes time. It takes time to set up the systems. It takes time to pull in the data. It takes time to get through it all and redo it and then validate things with the client go away. Hey, I bought a forklift. That was in inventory. I don't sell forklifts. You go, oh okay that doesn't go in inventory. We'll move it over to a fixed asset and off you go to the races. But it just takes a fair amount of work to understand to pull in all the data and do it. But for the most part, you just start with a new accounting file, get all your data; bank, credit card, bills, income, and COGS, and repost it following the accrual method. Mark: Yeah, I get that. I've been there. I've had to do that before. And you're right, going back when you have thousands of transactions can be a nightmare. I want to know where's the balance between good enough and probably not good enough and too much. And here's what I want to bring up to you, there's a well-known accounting company, which I will not name names, that has a cloud-based service that I know does cash basis and then at the end of the year does an inventory adjustment so basically giving you a full yearly accrual basis. And I've seen these financials before where all of a sudden December looks like the worst month ever because they're doing this massive adjustment at the end of the year. So that's one extreme and for a lot of owners, they’ll say, well, it's good enough, I'm getting some high-level understanding of my sales and maybe my some cost, but not COGS. That's one and I would say that's not good enough but that is the attitude. On the other end, you and I have talked before about entering sales down to the individual sale, and being that's ridiculous you don't need to go to that level of detail. What is the balancing point from a controller standpoint being able to look at financials and be able to understand these books and be able to get both those kind of big picture decisions made, but also those granular decisions of look you’re over overspending here. This is not a profitable product line or you need to stop ramping up your expenses in this area. What’s that balancing point for you guys? Scott: So, yeah, there are a lot of people that really look at their financials and that other method is good enough for a tax return. It's not good enough to make those decisions to understand what's in your business. And it's just making sure that you're doing all of the accounting, not everything, right which means every bank. And the most common things we see when we review books is that they're not reconciling every bank account and credit card every month. Because if you think your system; you downloaded whatever data and you think you have $50,000 in the bank and the bank thinks you have 10, they win unless you've caught the error and fixed it. And it's typically just a data error so if you're not looking at the end of the month settlement for every bank account, credit card, and merchant account to say, hey, this is where we have clients were like, you had $30,000 disappear. Oh, it's a reserve. PayPal's got a reserve or Strike has a reserve which has been happening a lot recently. So we want to have those triggers but you want to make sure you're doing those reconciliations so that you know about all of those expenses and all the things flowing through your credit cards. The other thing is make sure every account's on there. If you're using a personal credit card from the owner because you don't have an Amex, Plum, or whatever in your business, and as long as it's dedicated to that business, it should be on the books. You should be tracking those expenses and then it's just do; and then you pay it off and it's just payments to the owner and it all works out from an accounting perspective. And then, like we said, you just want to make sure you're posting the income in a summary fashion and you could just decide to do it all monthly and know that I'm going to take four hours a month, I'm going to post the income and figure out COGS and get that done and it's good enough and if there's any adjustments. And then the last thing is you have to make sure that the balance sheet balances, which means all the numbers and the liabilities and assets. If the balance sheet doesn't balance you can't trust the P&L. You can't trust your statement of cash flows. And so it's kind of a do those core things and then go make sure you have somebody; an external party that's reviewing what you're doing at least monthly or quarterly to say, yeah, this is right or no, you have this write off or hey, you have this big hundred thousand dollar adjustment leach let's go see if we can figure out what's going on in there. Mark: It sounds like there's two steps here, right? There's the validation of your financials, but there's also an understanding or review of those financials. And maybe they're kind of linked together in the same thing where when things don't add up right that's a sign that you need to be digging deeper into something. Maybe you have an inventory leakage or you're leaking money because not all the inventory has been shipped or accounted for. And you would recommend that on a monthly basis then? Scott: Yeah, at a minimum, it's hard to do. We try to do as much of the accounting daily as possible. We believe that to stay on top of a dynamic e-commerce business, you have to be pulling in the bank feeds from yesterday today. You need to be looking at accounts payable and bills you know oh, I did a $30,000 prepayment on a $100,000 purchase order and I owe $70,000 in six weeks when it ships. Like if you're not paying attention to those things on a daily basis, then the owners are constantly pulling money out when they have to pay bills out of the business; their personal bills, and then the next week loaning the same amount of money or more back into the business and you just go do this swing if you're not staying on top of it. But if you're smaller and you're ramping up and everything else, at least do it monthly and then start doing a little bit more weekly. There is more automation that's coming over time around bank feeds and AI and other stuff, but it's going to take a while to get here. Mark: You know, one of the things that I think can really help once they start getting the stuff together is the ability to forecast. And I'm not talking about even on the sales side, that's kind of the second level of forecasting. But on the expense side, because you just brought it up right now, right? You have a bill of $70,000 that's going to come due. Have you planned for that or is that something that's gotten lost with all the craziness of the rest of your business? Or you want to launch a new product line what do your expenses look like over the next three, four, or five months? You can't do that if you aren't living to some extent in your financials on a fairly regular basis where you understand what's coming up. Do you guys get into much of forecasting even on the expense side? Scott: Not long term forecasting, but cash is king and cash flow projections. So we're just refining our process. So we have some clients that we’ll do it for a daily for a short time when they've got lots going on at a specific time frame. And then we'll just provide kind of a weekly cash flow that's always that four to six-week view; here's where payroll comes out, here's your expected income, here's what the Amazon payments come in if you're not using Payability or something that lets you cash out every day so you can manage cash flow but it's really all about that. And we just haven't chosen to extend it for a longer period of time because our focus is daily, weekly, monthly but the idea is that the owner should take a step back and look and say, oh, because what we're trying to always get to is to say, here's how much free cash flow you have to buy inventory, pay for marketing, invest in the business, new products, new design, new people, whatever and then hopefully there's something left over for the owner as well. Unless you're in that I'm continually investing that's great but you need to know how much that is so you're not constantly doing. And that cash flow and that availability can include you have a $100,000 Amex plan card. That's just capital to you because most e-commerce sellers love racking up points and that's not debt. That's not a long term loan. They're going to pay that Amex bill probably every two or three times a week to keep the balance down so they can keep buying product to keep up with demand. But you need to know where those numbers are, where are those thresholds? When you're starting to push out against them if you're growing and your sales are growing, which is what's been happening for a ton of sellers in this big new world that we're in where everyone's home and everyone's buying online and that's all ramped up you need to know when you're hitting those limits and that you either need to invest more money as the owner because you're going to turn that cash into more profit; into more cash. Or you're looking at different lines of credit whether it's with a bank, which is usually the most painful way. But there are other alternative ways that aren't quite online loan shark and you find the balance between those to post that in. But it's really cash is king. If you're not looking at it; there's so many businesses that are profitable on paper, profitable on their P&L that go out of business because they didn't manage their cash. Mark: They didn’t manage their cash or the cost. And you said costs are king what do you mean by that? Scott: Cash is king. Mark: Cash is king. Scott: Well, actually, costs are pretty important. If you don't have a good handle on your costs, you're going to run into the situation where you don't know what the value of your inventory is. And the most important thing is you don't know how to price your product. So if you have a product that you buy in the US and you buy in huge volumes and that your suppliers don't charge you shipping, you can use your buy cost. It's pretty straightforward. But if you're buying a product, either whether it's being manufactured or shipped internationally and it costs you a dollar per unit, but it costs you nine dollars to get it live in Amazon FDA or your warehouse, you need to know your cost is $10 is your landed cost after shipping and customs and insurance and even inbound into Amazon. So you know your all up cost to know what that is. And if you don't have a good handle on one of the first things we do with just about every client is revalidate their costs, identify the ones that are wrong, and then look at what they're selling it for. And they think they're averaging some margin and it's usually a lot less because they're not aware of their full cost for their product. And that's understanding that landed cost and landed cost is a key accrual process where you pay for everything and then you take that shipping and it gets added to inventory and then as you sell, it comes out and it's value. And that can make a huge difference on client’s business. We have clients that are close and they're using landed cost, but they're not doing that last accounting bit monthly to do a journal entry to take hey, I spent as much on cost, customs, tariffs, whatever, and moving that all into the inventory account. And then you go, oh, I really have spent two million dollars on inventory and shipping and everything else, and I'm pulling out 200,000 a month in cost of goods sold. I have not just the number of quantity of units, but you can see the money flowing in and out of your business. Mark: Why don't we have you on monthly to the podcast? I don't know I feel like we just scratched like the first quarter of what you put together as far as the list of things we can talk about. But we are up against the half an hour, so I am going to cut it here and ask the best way to reach you; obviously CatchingClouds.net. You guys have courses available. Is that on Catching Clouds? Scott: Yeah. So if you go to our site, we have a contact form if you want to talk to me, especially if you're a larger business, I'm happy to talk or email and interact with anybody. I just enjoy interacting with sellers. Then we have our YouTube channel, which we have over a hundred YouTube videos, and we'll start adding more next month on basic topics. Now it's all my wife mostly who can explain things better and doesn't talk as fast as I do, but we're really there. And we have so much more that we want to push out onto those YouTube videos because we're happy to share the basics; how to read financials, and all these different things. We just want to help those sellers that are smaller than a million and or do it yourself. And then we also have a Facebook group that supports that for sellers and accountants for providing answers and questions for people that take our courses and just have general questions and then we have our outsourced service. So if you go to our contact form, reach out and I'm happy to interact and have a conversation. And most of my focus is really where your biggest challenge is and if I can help them figure out the top two or three cloud inventory tools that would be there or a developer that would do automation and build zappy integration to improve their efficiency or point them in the right direction, I'm happy to do that. And then our big services, we'll just take it all over, clean it all up, and then run it. Mark: Yeah, I think for those that are listening here, especially those that may not be in that one to fifty million dollar revenue range, the one thing I can say just from my experience is the companies that get there have books in order for the most part, much more so than smaller companies. And part of the reason that they've gotten there is because they have taken the time to put together good books. And it does give you insights into the business that you can't get otherwise. That doesn't mean that we haven't seen companies in the one to 50 million dollar range that don't have their books together. But all the more reason for those companies to make sure you're are doing this because if you aren't, I can almost guarantee you're bleeding cash somewhere and you're lacking optimization somewhere. I think the biggest thing; let’s end with this cut, people are overwhelmed by this, they may be not sure how to start. What's one thing that they can do today? If they think that they're under optimized with their books right now, what's one thing that you would suggest that they do today? Scott: I mean, it really usually just comes down to education. So whether it's our YouTube videos or books like Financial Intelligence for Entrepreneurs is a good book. It's looking at that and then our big thing is process. So if you're not documenting your process for receiving inventory and dealing with returns, just take a whiteboard and put it on your wall and start building those things. So it's called the combination of education and then it's just organization so you can keep track of your to-do list and you know, oh, I've got to block out this much time every day or week or month for accounting. It's more about that discipline and then just get an accountability coach. There are other things you can do, like profit first for a different way to look at profit. Or you can hire someone for EOS entrepreneurial operating system and the traction books. So there are actual structured processes that you can join in where it's not just you have to determine it ahead of time, but it's kind of education. Have coach as partners, whether that's Quiet Light who gives out I know great advice. Even when they're talking to people two or three years from when they're selling and they may never sell to say, no, these are the smart things to do because everything they're telling you to do smart to sell your business is the same guidance to run your business profitably. And then get those external resources, find your peers out there and talk to them and share best practices, and just continue to evolve as an entrepreneur. Mark: Scott, it's really good to see you again. Thanks so much for coming on. Scott: You're welcome. Thank you. Resources:  Catching Clouds Catching Clouds Contact Form Catching Clouds YouTube Channel Catching Clouds Facebook Page Quiet Light Podcast@quietlightbrokerage.com

On this episode of Quiet Light, David Newell talks about when a SaaS business earns a revenue-based multiplier. David is one of our colleagues who just wrote a guide outlining everything he knows about SaaS valuations. Tune in to hear his thoughts on how SaaS businesses have unique needs, the ideal scenario for revenue growth, and which valuation metrics to use when scaling.   Topics: Revenue-based multipliers. What happens when SaaS businesses scale. The ideal scenario for revenue growth. SaaS valuation metrics. Why there is a bias towards monthly plan revenue. Comparing scaling a business to dating. Takeaways from David’s guide. Transcription: Joe: I understand you spoke with our colleague David Newell about when a SaaS business becomes a listed at a multiple of revenue instead of multiple of discretion earnings, how'd that go? Mark: Well, there's an interesting dynamic when it comes to SaaS businesses, right? E-commerce is pretty straightforward. We have some pretty good metrics that just show that vast majority of e-commerce businesses will be measured as a multiple of their SDE but SaaS businesses, especially on larger levels, we see transactions happen as a multiple of revenue even in some cases when you have a business that is not turning a profit or is currently EBIDTA zero or close to it. And so there's a big question out there, what are the criteria that allow you to apply a revenue multiplier versus an SDE multiplier to a SaaS business? Obviously, this makes a huge difference, right? I mean, if you're multiplying your revenue by five, that's going to be a much bigger number than multiply SDE by five, or four, or three, or whatever. So SaaS valuations can accelerate incredibly rapidly. I mean, it's breakneck sort of whiplash valuations that happen. So I talked to David; I sat down with David. He had just finished writing a 15,000-word guide that really picks apart everything he knows in SaaS valuations and that's a lot that he knows. And he goes into how do we first make this determination between a revenue-based multiplier versus an SDE multiplier? And then the second question, which is again equally sort of murky if you haven't been doing this as long as David has, is where do you then find the multiplier because the ranges are a bit broader than we see in other sectors. And so he goes over the approach he takes for it and then we started talking about some of the individual metrics as well, which are going to apply to all SaaS companies whether it be revenue based multiplier or SDE multiplier. If you are a geek when it comes to valuation talking this is the podcast for you. It's definitely meaty. We get into it pretty in-depth on this. But if you really enjoy this, take a look check out the guide that he wrote. It's now published. It's going to be available on our website. It’s also available for PDF download. Share it. Discuss it. Reach out to David. Chris Guthrie would be another great person on our team to discuss these items with. He knows SaaS extremely well. And frankly, anybody on the team, we've all worked in this space ourselves but really, when it comes to our resident expert, we look to David first and foremost and part of it is because of the guide that he put together here. Joe: Let's go to it. Mark: Hey, David, thanks for coming on the podcast. I know you've done a couple of these before, right? David: I have, yeah. Mark: Well, cool. I’m glad to have you back on and I'm excited to have you on this week because you finally finished, and I shouldn't say finally because it wasn't even expected of you but you put together a very comprehensive guide on valuing a SaaS company. How long is it? David: It's a jargon. I think it's about 15,000 words. We shouldn't say that just in case that thwarts people from reading it. I think we're going to do a distilled down version of it. Mark: It's kind of like a mystery novel, how to value a SaaS guide. You know I wrote the ultimate guide to website value years ago when that was what we were really talking about is valuing websites and I think that was a 25,000-word guide. I started out thinking this should be something I can hammer out in a week and it turned out to not be a week. It was much longer than that. It took a while to put that together. And I know this took me a while to put together but the stuff in here is really an authoritative guide on the valuation principles behind a SaaS company. David: Yeah, it's a strange terrain this SaaS valuation conversation because unlike other business models that everybody's familiar with is not purely an earnings-driven model. It's not all about seller’s discretionary earnings. And you see that so much in kind of public markets, they speak about SaaS businesses based on revenue multiples and then obviously in our kind of business brokerage landscape, you see it more around SDE multiples and so there’s this kind of big confusion in this cross terrain between both buyers and sellers about what is my SaaS business worth and on the other side of the table is how much should I pay for it. And so there's a surprising amount of similarities in the valuation logic between both but what I wanted to point out was the crucial distinctions between them and why they’re there to really help people understand that both buying and selling. Mark: Yeah, and I think this is an interesting conversation because we talk so much about valuations at Quiet Light Brokerage. And I've said in the course I put together on how to sell an online business for six, seven, or eight-figures I spent a lot of time on the valuation side and trying to dispel the myth that the valuation formula creates the value of the company as opposed to the valuation approaches and formulas and methodologies are really a predictive exercise more than anything else. And that really, when you boil it down into kind of a philosophical standpoint, it's really a measurement of expected return on investment for the buyer discounted by risk or mitigated by risk. And so you can have other valuation approaches that are completely valid. I know in the web hosting space, which is where I cut my teeth in the brokerage world, that was a revenue-based multiplier as well, because you had a lot of strategic sort of sales going on. It was typically 10 to 16 months of revenue was the average range that we were seeing so I’m interested to get into this. Because I know when I talked generally to people about valuations, I always have this asterisk of but SaaS companies are different and it's kind of a mystery box. So let's talk a little bit about that right there. We'll start with the revenue-based multipliers. Why are we using revenue with SaaS companies and are all SaaS companies going to be valued on their revenues as opposed to SDE? David: Yeah, that's a great question. You hit the nail on the head with what you said there which is that it comes all down to expected return on the asset. And I think the way to think about it is actually kind of in the life cycle of starting a SaaS business. If you imagine starting as many you do people SaaS businesses out of their bedroom; a lot of entrepreneurs see a problem, decide they didn’t like it, wants to code a solution to it, put in their own money into it, then they might bring in a developer to start helping them out and they start putting their own money into start scaling it. They get friends as customers and sooner or later they are 10,000 in MRR or so forth and then they start to scale a little bit beyond that. And so initially you're in this period of scaling often with your own capital. And this is kind of a lot of the businesses that we see in the very early stages; kind of like homemades, bootstraps, sub million dollars in ARR businesses. They can remain focused for a large part on earnings and that's why they get they tend to craft some seller’s discretionary earnings-based valuations. A lot of these SaaS businesses, for example, one doing 300,000 ARR might have about a hundred thousand in seller discretionary, slightly more multiple of that. Now, what happens? Typically a SaaS businesses look to scale particularly as they kind of arrive more towards a million in ARR and above is that typically what's the case is quite a lot more infrastructure is needed to be brought in to solve the biggest challenges of SaaS businesses which is churn. And that infrastructure is a lot of sort of customer success, it's a lot of additional development in terms of creating better onboarding, and it's putting a lot more sort of infrastructure around the business to really mature and allow it to scale from a small business into a much, much, much larger one, which can happen very quickly, arguably faster than any other business model. And so what happens it seems to me has been the case is that it has become acceptable and standard within the SaaS establishment to at this kind of sub million and arriving at a million in ARR level be able to say we're going to sacrifice our earnings in the near-term, in the short term in order to now chase absolute scalability in the business. And this is acceptable, more so in SaaS than any other kind of business, largely because we have a recurring revenue model with unit economics that are stable once you have churn in place that allow you to do that race up and scale and then cut back on that expense and immediately just be accruing very, very, very significant profitability in the business. And so the quid pro quo for you, reducing profitability of what was a relatively profitable small SaaS business to a now significantly unprofitable or flat profit business is that you'd have to start chasing revenue growth significantly. And so to your point, Mark, about having this kind of expected rate of return, buyers basically say we'll let you run to EBITDA or EBIDTA 5% margins in order that you're going to start sharing consistently 40% to 50% to 60% year over year growth or higher while still going between a million in ARR to five million in ARR, to 10 million in ARR, and 20 million in ARR and beyond. And so that is really the thinking behind why you get to a revenue-based multiple with businesses because the expectation is that eventually a SaaS business will mature and become extremely profitable. A great example of that is something like Salesforce which is now striking off enormous amounts of cash but for a long period of time before it wasn’t. And so a lot of the businesses that you see come to market eventually even IPO still have this same kind of fundamentals and eventually, their hope is that they do become very profitable businesses. So it all kind of descends really back from that and I think that some of the question marks around valuation methodology is where is in this kind of hundred thousand in ARR to three million in ARR level which is, of course, where we do a lot of business and where a lot of other market participants are; people listening to this looking to buy and to sell often are is figuring out where are you in a lifecycle, the life journey of the SaaS business, like what is your aim and what are you trying to achieve? And that really informs what the valuation method is for the business. Mark: So as you said there, and there's a lot in there to unpack but the tradeoff or the requirement if you're going to be running at a low EBIDTA or a low profitability or even zero profitability, and I have seen this, by the way, we get these messages from private equity all the time saying we are actively seeking out X, Y, and Z with these characteristics. And I've talked to private equity that is looking for SaaS companies where they said we are not concerned about the EBITDA, we're not concerned about the profitability, but the expectation there is revenue growth at that. I would imagine, though, that there's got to be some other elements in there as well that; let me back up a little bit, we have the revenue growth, but I'd mentioned the expense structure needs to also look at this as being a growth-driven company where the expenses are being driven mainly towards growth. I can't imagine a scenario where you wouldn't necessarily see that but what happens if the growth is minor? So you have a company who is maybe a 500k ARR and they're growing and they're trying. So they're investing heavily in advertising, but their cost of acquisition has skyrocketed. Or they've invested in a large sales team to do onboarding, but they just have not figured that out yet. At what point can we start to say it's not working or is that a solution or somebody just needs to wait in order to sell the company, how do we start to make that discernment in that kind of squishy middle territory where we don't have the clear revenue growth, but we still have the low EBITA? David: 100%. That's what we call the struggle and there's a lot of SaaS businesses in that exact pocket. And the decision for the management team really is what do we do to grow or do we park this and move on to something else? And the former can involve all kinds of different decisions. Obviously making pivots within the business, like changing terms of software products, customer base, also looking to kind of raised capital, the venture capital or angel just to try and get into different channels or find capital to source it from there. And you more or less, Mark, have to push towards that fabled grace, because that's the only available kind of exit option to you from there. Or you go the other way, which is; and you see there is a lot of businesses we’re promising and then they haven’t reached the cap in the market or a competitor outcompetes them or management loses interest or whatever, and they start to trail off, go flat, and you end up with what's called zombie SaaS which is a not particularly affectionate side while it’s probably still a lovely business. And then the option there is more or less you have to cut back all of that operating expenditure in the business in order to restore some earnings and try and exit at typically a much lower multiple of revenue still, but considerably lower that looks more like a normal of an EBITDA type sale and just cut your strings basically and move on to the next thing. And so many businesses, of course, we all know how hard it is to grow and scale any kind of business are in that struggle and trying to figure out that option. Mark: Yeah, I love going through with people the basic framework that we created of the four pillars of value. You want to mitigate your risk, you want to have good growth, make it easily transferable, and have great documentation. Well, that's second pillar of growth is so easy for us to say, right? You want to have great growth and everyone's thinking, well, yeah, of course, I do. It's a lot harder to do. Let's talk about the ideal scenario here. You have a company that is growing strongly and let's say that you're in that one to three million ARR range and we're seeing that ARR grow rapidly so we can apply a multiple to the revenue here. I know what people are thinking, what sort of multiples can we apply to them? David: Yeah, so this is when we flip into a slightly different structure but with very similar dynamics to how we think about business value at Quiet Light and the way we model multiples but the difference, the departure is the starting point. So whereas we in the private buyer side particularly the earnings businesses, we draw upon the several hundred previous transactions we have. We know where the average multiples are for businesses with certain characteristics in nature and we can call on that data set. To start with the revenue multiples side of things you have to again go find the data set and the data set to pull on is generally the public market. And so the best thing to do to start with is actually go look at like an index of cloud companies; SaaS companies that are publicly traded on Nasdaq and so forth, and use that as the benchmark for that kind of revenue multiple that normal publicly traded SaaS businesses are trading at. And that could be something like 10 times, 11 times forward multiple around probably what it is right now. And then, of course, naturally, that's a multiple that's appropriate for a large publicly listed company so already you're saying like, well, that's not really relevant to my smaller private business. So the first thing you have to do is make a public to private discount on that and so there are varying schools of thoughts around what that kind of discount is. It can be somewhat arbitrary. There's a lot of private equity companies out there that speak about what they do, and they have portfolios of private companies that they pour. The received wisdom is it's anywhere between 25% to 30% immediate haircut for being a private company. So you can come down off that 11 to something like eight, for example, and you have what feels like a large private company SaaS business should be trading at. And then we get more into the territory of what we do Quiet Light and what you're just talking about, Mark, in terms of the different four pillars of the business and you start to adjust based upon where this business is aware of the SaaS business we're talking about is relatively strong or weak compared to businesses of its size and businesses of its nature. So three million in ARR is a great example, you'd actually expect on average businesses at that level and this kind of valuation exercise to be growing probably at something like 50% to 60% year over year because it gets harder and harder to grow faster and faster, obviously, with scale. And so if it was much larger, say like a hundred million, you'd actually reduce it and say the average business at a hundred million ARR would be growing at about 30% year over year. And so already you need to compare what's the revenue growth rate of this business versus the paired average for other similar-sized businesses. And it's again a case of going through all of these different classic criteria that we normally do; revenue growth, churn, lifetime value, diversification, all of this classic operational metrics that go back in kind of normal business logic land and just comparing where does it look like versus businesses of its size and businesses in its same kind of customer segment of category and that begins the adjustment process down until you get to a multiple and that starts to make sense. Mark: Yeah, so I want to touch real quick on just the size of a business in general because I know we experience this across the board with all different types of businesses. And yeah, my alarm bells went off, and let’s just start with the publicly traded companies. Because I can hear all of my e-commerce clients saying, well, fantastic; I don't know what Amazon is trading at right now as a multiple of revenue, but I'm sure it's a ridiculous number. David: Yes. Mark: But Amazon is also the largest company in America at this point. Actually, I don't know that for sure. I'm sure they're up there, though. They're top five. So sort of with the publicly traded markets is a starting point but there's a lot of discussions that are going to happen in place. So if we're looking at a publicly-traded company like a Salesforce, as we scale down in terms of revenue down into the seven-figure territory from the nine-figure, eight-figure, seven-figure, the discounts do come in pretty rapidly. Why is it that larger companies earn a higher multiple of either revenue or earnings, in your opinion? David: Well, there's a perception of greater stability with greater size. Additionally, just generally speaking if you were to say a business growing 30% year over year at a hundred million in ARR versus one at 10 million in ARR it’s more oppressive to be doing a more valuable; you're creating more value at a hundred million than you are at 10 million and therefore, it's commensurate with so the business is worth a greater multiple. It's much, much, much harder to do so. And you see that very, very clearly if you just go and look at a size-adjusted scale in public markets, at businesses at scale that are growing very quickly, they're the ones that are trading at the highest value and that's why Amazon's ballistic valuation. But it's because it's delivering unbelievable revenue growth for business scale. It's already absolutely huge in size so it is very, very, very impressive. But you're right, you need to start discounting down quite significantly. But it's tempting to be like we're starting so kind of pie in the sky with these public numbers and public multiples like wipe off of there. They are the heartbeat of overall like macro SaaS macro sentiment and like it or not, that is where a lot of sentiment; investment sentiment, think about it like kind of customer confidence. It's kind of like investor confidence really does benchmark from public market tech valuations. Mark: I mean, it makes sense, right? Everything that we're talking about here, any sort of valuation is really a market-based valuation. Anytime we're valuing any asset, whether it be a business or apples, it's based off of market dynamics here. So that part makes sense. I want to dig into the business metrics though that we start to get into in more. The regular as we are characterizing it, the regular valuation metrics that we look at. Within the SaaS world, these are going to be somewhat different anyway from, say, an e-commerce business, right? On an e-commerce business, we're going to be looking at gross profit margins, we're looking at growth, we're taking a look at some qualitative aspects of the products that they're selling such as the intellectual property protections and everything else. What sort of business metrics are we going to look at for a SaaS company, regardless of whether we're looking at it from an SDE valuation viewpoint or a revenue multiplier viewpoint; what are some of the other metrics we want to look at? David: Yeah, it's a great question because it’s both actually identical and this is where the commonalities between the two methods are huge which is that it's all very well talking about in a revenue growth way of SaaS businesses but you have to look at what's the quality of that growth. And the key barometer of quality of revenue growth in any SaaS business is churn, average revenue per user, lifetime value, a monthly versus annual plan split, and the gross margins on there. So clearly if you just take the first one, because churn is such a focal point for everybody, if you have a business with an outsized level of churn versus its size and category, then that's a major red flag in terms of the business. You see that quite a lot in terms of Shopify or Amazon plugin type add-ons, where largely because of the type of end-user which on Amazon can turn over quite quickly buyers and sellers come and go there. Those tools can kind of have quite high churn rates. And so it's an interesting one because they often have very fast growth rates in general, like a very sharp revenue growth rate because Amazon is an absolutely enormous space to be in. There's tons of new sellers turning up, signing up for new tools that they’re churning away after three to four months. So you have to immediately look at can I appraise this tool that's going 100% year over year growth versus the 15% monthly churn? Because if it stops growing even just a little bit within 12 months, it's going to churn out almost the entire customer base and cut off all the growth. And so you have to look at those two. They're absolutely symbiotic. And it's the same with seller’s discretionary earnings type businesses because ultimately that impacts the bottom line as it is with revenue multiple. And then the interesting one is looking at monthly versus annual plan split. Naturally, most SaaS businesses are an amalgamation of both and it's definitely favored and preferred that there's a much stronger bias towards monthly planned revenue if that makes up sort of 85% plus of your overall business. That's perceived as a very good thing. If annual is a bigger proportion of that, that's something of a concern. And that's really just because what you want in SaaS is predictability. That's what everybody loves with recurring revenue. Monthly plan revenue is more predictable than annual planned revenue, which seems psychologically counterintuitive, but it's not when you consider that every single month customers have the opportunity to churn away, whereas with annual planned revenue that only happens once every 12 months. So you have no idea what's going to happen in 12 months’ time to a large cohort of any bias. Their whole lives could have changed quite a lot so the data set there is less rich and so it makes it more opaque for bias. And so they actually value that pop business generally lower than monthly occurring revenue. So they are just a few of a couple of the kind of revenue quality metrics that should be really important for both buyers and sellers. Mark: I want to talk about ARP but before that, I'm going to talk about churn and a concept of it. I don't know if you would take this into account an evaluation of an Amazon SaaS business, for example, that is supporting sellers. As you know, David, I have an interest in a dating website online and there's a concept in dating world called the good churn. It's somebody canceling their account because they met somebody. And within the dating world, you want to have good churn even though it does impede growth. I know with the site that I have interest in, the business I'm interested in, we have monthly turnover on 23%, which is massively huge and it does impede growth, but we want to have 23% be made up as much of good churn as possible because when people meet somebody they then talk to each other. So within the Amazon space, do we take that into account or with any sort of support service where you're getting somebody off the ground and they outgrow your product because it served its need, right? That's really the dynamic here. If your SaaS business serves a need that your users no longer need it that would be good churn. Would that be taken into account with that churn number very much or are we really looking more just the throttling on growth and the fact that you're chasing ever-increasing growth numbers with high churn? David: Yeah, it's hardly the latter, because if you think about it, I mean, SaaS valuations, in general, are higher than any other business model. And the reason for that is because for every single unit of revenue you're bringing in you can predict how long it's going to stay with you for and you can't with any other business. And so helping people out for a shorter period of time, even if they're then canceling for good reasons while still brilliant from a customer success standpoint, isn't something that a buyer would attach a higher multiple to. So you kind of want to help people for the longest amount of time to create the most amount of value and that's why I like businesses with very high lifetime values and their churn are generally speaking, the most valuable type of SaaS businesses. So, yeah, you've got yourself a beautiful paradox there Mark with your site. I think in that situation, you just have to turn into a massive marketing spend then. You need to post those numbers all over your website and say people are gleefully canceling because of what we do. Mark: Well, you know it bleeds out into the other metrics, I think. And I wish I could say our 23% was good churn. It's not but it bleeds into be other numbers, right? Because if you have good churn where it trickles into is your cost of acquisition becomes effectively lower. So the more good churn you have, the lower your effective cost of acquisition compared to people that don't have as good of churn because you have more social proof. Now, it may not be a very clear or strong relation, it's more murky but let's talk about ARPU and also a lifetime value of a user. When we're looking at these metrics, how much does taking look at cohorts in terms of time play into that? Because I know Chuck sold a business a while ago, it wasn't directly SaaS. It was sort of SaaS-y in its makeup, which it was pretty much awash for the first 24 months in terms of lifetime value and cost of acquisition. But after that 24 month period, everything was profit on top of that. And I look at that and say that's fantastic. That's great. I get it. But from a buyer's standpoint, the cash requirements for a business like that, especially if you're growing rapidly, becomes a constraint to growth. You have to be able to fund a business with a 24 month period lead time. How much does a cohort analysis play into a valuation? And I would assume kind of the logical conclusion here is the shorter period of time to be able to get from your cost of acquisition to your revenue is more desirable. But is that something that you look at closely? David: Yeah, I mean, from the challenges with LTV in many monthly recurring revenue businesses, is it's moving around so much. I just sold a business just recently where the LTV posted up and profit well is going everywhere from 2,800 to $7,000 month to month. So try marketing a business with that level of variance. So to your point, Mark, you do have to look at cohort analysis, I think to go back and be like, what's the kind of longer-term trend in the business here? Like what's actually evolving because that business is a great example, the same phenomena you're talking about which for two years, more or less, didn't really make any money and then started to hockey stick. Not so much because the revenue growth was absolutely phenomenal it’s just because the cost base no longer needed to go up anymore to substantiate it. They kind of refined the products enough, spent enough on development, finally figured out the marketing channels, stopped spending really a lot of both and then it just started to fly. And that is the case in point for so many SaaS businesses, which is that it's kind of like swimming into the dock a bit for an indefinite period of time until you do hear those unique economics that makes sense. And it just flies from that point in many cases, anyway. Mark: I think that the whole world of trying to value SaaS companies, especially in this murky range, is a fascinating exercise. When we do an e-commerce valuation, so much of it is cut and dry and I think part of that is just due to the volume that's out there. It's also the nature of these e-commerce businesses as you buy an asset and you turn it around and you’re selling it so your profit becomes kind of immediate as opposed to the longer periods of baking and growth with the SaaS company for the long term, which makes it more of a complex exercise. So let's talk a little bit about the guide. 15,000 words, you talked a lot about this idea of moving over to the revenue-based multiplier. I would imagine that there are some examples. And we joked about this before we started recording, I haven't seen the guide yet and reviewed it so I'm going to be speaking a little bit and guessing. I'm assuming that you have some examples in here and other information. Tell us a little bit about what's in the guide and what people could take away from it. David: Yeah, so the guide really breaks down how to do the traditional SDE approach valuation and the revenue approach valuation, and most importantly, how to discern the difference between case studies where you should do one or the other. And I kind of put a four-part test in there which is really the size test. Is it or around or above the million dollars in ARR level? The next thing we look at is where's the revenue growth trending towards, is it showing these kind of fundamentals we're talking about 40% plus year over year growth? The next thing is looking at is this still a business that's kind of a single owner-operator in a relatively thin personnel business, or is it starting to staff up with customer success, starting to wrap around some significant infrastructure to enable it to start going from one to 10 million dollars? That's a really important kind of qualitative factor. And then the last one, of course, is churn, because in reality smaller apps, generally speaking, have higher churn rates. So you'd expect to be seeing kind of an over tuned 4% to 9% in monthly churn in immature let's say, and to the immature SaaS apps. And as you start to get up to this million in ARR level you'd like to see that really dropped below 4% monthly churn. That's the big thing, because churn, as every SaaS business more or less in the world will tell you is the hardest problem to solve for because it is the ultimate barometer of whether people think you're creating enough value to not want to churn out and cancel. And so the more value you’re creating, the more helpful you are to people, the less they're going to churn. And that's ultimately what anybody wants to pay for in any business. And so it being the most difficult problem to solve for makes it the most valuable one for a buyer to want to buy. So the lower the churn, generally speaking, the higher the value of the business all else being the same. So those are some of the key distinction points. And then, of course, I'm aware that there's both sellers and buyers looking at it. It's really useful information for both sides to see. Buyers are looking to buy to grow up and scale, sellers are looking to increase the multiples, everybody wants to increase value so I put in a bunch of additional kind of growth value; what I call value-centric growth levers. And what I meant by that is like what essentially the top three things that you can do that will most dramatically impact the most part of the business right away beyond just getting more growth which, of course, always helps. But like specifically one of the things that we've seen over the years in Quiet Light selling businesses, one of the things that we know dramatically increase the multiples of businesses. So I shared some of those in the guide as well for both buyers and sellers to look at. Mark: So if we want to just be trite, we can say if you want to get a great valuation, grow your business or reduce the churn, right? David: Yeah. Mark: All right, the guide is going to be available on the website. We will include links, obviously, in the podcast. You're going to be seeing some emails from us about the guide. We'll also have a PDF downloadable version of the guide. And of course, if anybody has questions about the valuation of your SaaS company and where you fall or questions, I'm sure David would be more than happy to answer any questions about this as well. David: Absolutely. Mark: David@quietlightbrokerage.com. David, thanks for coming on and enlightening me a little bit on this. And it's a complex topic, its super interesting, though. You know, I've been doing this for 14 years now, and it's sort of refreshing to look at different types of companies, different approaches to the same problem, and seeing where we can get some variation. So this is absolutely fascinating to talk about it and I'm looking forward to reading it, which I should have access to it. I'll be reading it here soon. David: My pleasure. Mark: Thanks David.   Resources: David’s Article About SaaS Valuation Quiet Light Podcast@quietlightbrokerage.com