June 26, 2025 • 53 mins
In this episode, Brett sits down with Andrew Faris, CEO of AJF Growth and host of the Andrew Faris Podcast, to break down the critical elements of P&L design that separate ecomm brands that are dead on arrival vs. those who thrive. Andrew shares his hard-won insights from holding nearly every seat in the e-commerce ecosystem, including his experience running an aggregator "into the ground" and the valuable lessons learned along the way.
—
Sponsored by OMG Commerce - go to (https://www.omgcommerce.com/contact) and request your FREE strategy session today!
—
Chapters:
(00:00) Join Us in NYC at Our Exclusive YouTube Event!
(01:08) Introducing Andrew Faris & His eCommerce Journey
(07:06) The Current State of eCommerce
(13:16) The Influence of Moneyball by Michael Lewis in Marketing
(19:29) Understanding P&L in eCommerce Success
(23:34) Understanding Your Profit Goals & OMG Commerce’s Case
(29:35) How to Structure Your P&L as an eCommerce Brand
(34:48) Optimizing Operational Expenses
(34:56) CAC and Cost of Delivery
(39:33) Channel Strategy and Product Margin Fit
(42:51) Forecasting and Adjusting Business Strategy
(49:50) Resources & Closing Thoughts
—
Connect With Brett:
- LinkedIn: https://www.linkedin.com/in/thebrettcurry/
- YouTube: https://www.youtube.com/@omgcommerce
- Website: https://www.omgcommerce.com/
Relevant Links:
- Andrew’s LinkedIn: https://www.linkedin.com/in/andrew-faris-980b84108
- AJF Growth: https://ajfgrowth.com/
- Andrew’s Podcast: https://open.spotify.com/show/7ssrhISeeGHgCLpzZgrxuJ
- Moneyball by Michael Lewis: https://www.amazon.com/Moneyball-Art-Winning-Unfair-Game/dp/0393324818
Mark as Played
Transcript
Episode Transcript
Available transcripts are automatically generated. Complete accuracy is not guaranteed.
(00:00):
If you're a DTC or Omnichannel brandand you're based in New York City,
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(01:08):
ads.
Well, hello and welcome to another editionof the E-Commerce Evolution podcast.
I'm your host, Brett Curry, CEOof OMG Commerce. And today, man,
(01:29):
am I pumped about myguest. I have the one,
the only Andrew j Farishost of the Andrew Faris
podcast, CEO, founder of AJF Growth,
and just had the privilege of being onhis podcast a couple of weeks ago talking
about YouTube. We hit it off.
I wanted to have him on the podcastto talk about p and l design and
(01:51):
forecasting,
and also why e-commerce brand ownersshould back off from the ledge if you find
yourself there because ofall the craziness going on with tariffs and whatnot,
and so pumped to getinto your story, Andrew,
but then also deliver some value forour guests. So welcome to the show, man,
and thanks for taking the time.
Yeah, thanks, Brett. You askedme how I like to be introduced,
(02:12):
and I think the one theonly is good. That's all I.
Need. Just the one, theonly, that's all we need.
Yeah, yeah, that's right.So that was good. Thanks.
It's so funny, one time I was travelingwith my team, three team members,
and I was not in first class, but itwas just sitting in front of the plane.
They were in the back of the plane andthey all separately walked by and they
touched me on the shoulder andthey're like, are you the Brett Curry?
(02:35):
And the people sitting aroundwere like, who is this guy?
Should we know this guy? The namedoesn't ring a bell, but who is this guy?
And I'm like, it's my team. It's justbeing nuts. So anyway, huge deal.
Fun times. Yeah, yeah, yeah, right,exactly. So dude pumped about this,
but for those that don't knowyou give us a little background.
I believe you told me you'veheld every seat in e-comm,
just about. And so talk us throughthat and then what are you doing now?
(03:00):
Yeah, well, what I just try to tell peopleis that in the e-commerce ecosystem,
at least on the marketing side,
I have been in just about every kindof organization in most of the seats.
So I started off working at klo,
selling silicone wedding rings on theinternet as a media buyer. I was trained,
working directly, closely.
I was Taylor Holiday who had beena friend for a while at that point.
(03:20):
And so Taylor and I becamegood friends and crossed,
crossed paths over that time.Well, we were already friends,
but crossed paths or continued to worktogether in a bunch of different ways.
So I was working with Common Threadcollective from there as a growth
strategist,
and then eventually the head of growththere led strategy at CTC for a while.
At some point, CTC spun off its own brandsinto an aggregator called Four Rifle,
400,
and I led growth there and thenbecame the CEO promptly ran that
(03:44):
into the ground. I alwaystry to clarify this.
It sounds like when you tell astory like this, it's like, wow,
look at my great career advancement whereI'm only ever successful and it's just
not true.
I learned a lot. Never happens that way.
Never happens that way. Wedid some good things, 4, 400,
1 of those brands still is goingBamboo Earth and Bamboo Earth. Yeah,
it's profitable, but sold off all of'em, but won. And I ended up leaving.
(04:06):
And I would just add, I learned,
especially the longer I'vereflected on the experience,
I've learned a lot from mymistakes there. From there, now,
I've been running AJF Growth,
which is a boutique agencywhere we service right
now four brands,
and I've got a team of a few of us inthe US and seven or eight more in the
Philippines and work together todo a great job as good of a job as
(04:30):
we can do servicing brands,really meta adss focused,
but we end up functioning sort of
almost like an outsourcedmix of CMO CFO kind of
deal. CFO is too strong of a word. We'renot forecasting somebody's cashflow,
but we do actually take on the forecastingof the full business in terms of DTC
(04:52):
cohort forecasting, that kind of stuff.
And then we ladder our media plan tothat and then end up being in a lot of
conversations around marketingefforts and stuff like that.
Which is super, superinteresting. Yeah, I love that.
And I've always been abeliever, I've always,
always been a fan of infomercialsand marketing that drives results,
and I've always believed that marketingshould build your bottom line in
addition to your top line.
(05:13):
But now the trend is you'reputting real legs behind
that where as a marketer,
you're helping run the forecast andyou're helping manage the p and l,
not from a gap accounting perspective,but from a practical, helpful,
let's hit these profit targets lensand you're doing it and doing it well.
(05:33):
And so it's super, superexciting. And also, man,
I really appreciate you sharing, hey,not everything in business goes well,
right?
And there's one of these things I heardAlex Hormoz say recently where it's
like, Hey, you expect for entrepreneurshiprunning a business to be hard,
but then you're discouraged because it'seven way harder than you think, right?
You go in thinking this is hardis, but it's really, really hard.
(05:54):
And so you have to be ready forthat. Yeah, yeah, that's right.
Yeah, I think some people,sometimes when I hear people,
you talk about peoplebeing talked off the ledge.
I actually think one of the things thathappens in conversations about the ledge
in e-commerce is that sometimes people'sexpectation is just that it's going to
be easy the whole time or that.
Or.
That you should always growprospect lifestyle each.
(06:16):
Stage up to the right.
Yeah.
I think if you thought that somebody wasgoing to hand you millions of dollars
on the bottom line, that'snot an e-commerce problem.
Just so anyway,
I think there is a real thing therewhere people need to expect that there's
going to be challenges along the way,and not every outcome is what you expect.
(06:40):
Dude, totally. I know you'rea family man, I'm as well.
But it's almost one ofthose things where pre-kids,
you see a family from a distance and yousee a kid acting out and you're like,
my kid will never do that. Myfamily's never going to be like that.
And then you're like, you have noidea what you're talking about,
everything you want toavoid or not have happen.
It'll humble you for sure, butbusiness is the same way. It's really,
(07:02):
really hard, but it's also rewardingand fun and exciting at the same time.
So let's talk about that a little bit.
You hosted a podcast or delivered apodcast recently where you said, Hey,
I'm still bullish on e-comm, and so wedon't want to fully unpack that, right?
People just need to go listen thatepisode. But why did you say that?
And I agree with you by the way,
(07:22):
I've got a couple of thingsI want to add to this,
but why are you still bullish on?
Well, there's a lot of reasons,but at the end of the day,
I think there's more intelligence abouthow to operate an e-commerce business
now for a larger market of customersthan there have ever been for e-commerce.
And I think most of theheadwinds are more short term.
(07:42):
Most of the tailwinds are more long term.So tariffs being the biggest headwind.
And I just should clarify really quickly,
if your brand is existentially threatenedby Chinese tariffs, I understand.
I'm not trying to make light, thatsucks. I'm not trying to say it's.
A big, big.
Deal and no, obviously.
Even taring are currently they weresuper high and now they're low,
and who knows what they'll be with whenthis is recorded, but still volatile.
(08:05):
Exactly. Yeah, and I just thinkso anyway, so having said that,
there's a carve out there, but yeah,
I just think that the toolsare also getting amazing.
This is something people willsit here and talk about how AI is
producing all of this value to make itso that the ad platforms are performing
(08:26):
better and deliveringbusiness results better.
And they're doing thatin all kinds of ways,
and also creative is getting cheap tomake at endless scale and all this stuff.
And then they won't takethe next step and say, oh,
who does that accrue value to?It accrues values to meta it,
accrues values to Google itaccrues values to chat GPT,
who's going to charge youto do it and all that stuff.
(08:47):
But it also cruises values to brands,
values to brands who reducetheir opex meaningfully.
So if that's the future you believein to where the distribution of your
ad creative is getting much, much cheaper,
the labor involved with things likecustomer service and all these things is
getting much, much cheaper.And then at the same time,
(09:09):
the production of your ad creativeand of other creative assets in your
business, including copy on your websiteand social media and all those things,
that's all getting cheaper aswell, drastically, phenomenally,
ridiculously cheaper.If that's all happening,
then that means you can run your businessmore efficiently at every level, And
that means it accruesvalue to you. So you can't,
(09:30):
it's just really hard to say both thosethings at the same time that now the
counter argument to that isthat the barrier to entry is getting so low that all
of these people will do it, andthere will be very few winners,
and I don't know quitewhat to make of that.
I think if there's stillmore winners ultimately,
and if it's very cheap totest the idea, then yeah,
there are going to be somelosers, but, but anyway,
(09:50):
so the combination of all those thingsmakes me still bullish and I just try
to tell people as far as puttingmy money where my mouth is here,
I'm starting a brand right now. I justgot another sample, the sample yesterday.
Love it. So just like.
When will this brand bereleased? Will it be launched.
T by October? Hopefully.
That.
Would be,
but that means for sure later than thatbecause that's how this kind of thing
(10:13):
goes. So.
Yeah, I fully agree with you.
I've invested in some retail andDTC brands even over the last
year. Yes, there headwinds.
We have an Amazon practice atOMG. Amazon is challenging.
There are always challenges there.
The game is always shiftinga little bit there,
but people are going to buy in thefuture more online, not less online.
(10:37):
I'm very, very confident in that.
I do believe we're in a world wheregreat products and great marketers will
win. And so it's difficult.It's challenging, yes,
if you're getting hammeredby tariffs, sympathy to you,
empathy, all of those things.
But there are still bigopportunities in this space.
(10:57):
And I was listening to the operatorspodcast recently, Mike Beckham,
co-founder of Simple Modern, andhe imports everything from China,
or maybe he's actively workingto not do that, but Currently's.
The case. Yeah, they stood up amanufacturing facility in Oklahoma City.
I've been there and it'sreally, really cool and awesome,
but when you hear them talkabout it, it's a tremendous pain.
(11:18):
So it's really.
Difficult. Exactly. But he talked abouton a recent episode, he is like, Hey,
this is chaotic,
but there's more surface area rightnow for me to make changes and pivots
and shake things up.
And I'm confident this is goingto be going to create windfalls
for our business.
And so I think if we remind ourselvesthat during every time of uncertainty,
(11:42):
every economic downturn,
fortunes are made and peopletransform their business in a powerful
way, it's just a good mental reset.
That's right. Because.
Sometimes being an entrepreneur is lonelyand we get down and discouraged and I
got to give myself a pep talk onoccasion. And so I'm glad you did that.
Thanks for posting that episode.Everybody should go check that out.
(12:02):
Well, maybe I need to haveyou back on again, Brett,
because Taylor is one ofthe biggest critics of my e-commerce is a good business
mentality, and he said, you need to bringsomebody on who agrees with you. Yeah,
yeah.
Yeah, I know he is. Yeah. Well,
because you tweeted recentlywith your friend fan,
I think that 50% of e-commbrands are worth nothing.
And Taylor tweeted backthat it's like 95%.
(12:24):
95%.
And that is a good clarification becausefans sample is brands that are trying
to exit, and so.
That.
Skews disproportionatelytowards brands that have some.
Value, a little bit, littlebit of cherry pick there.
And I didn't mean,
I just didn't think about that when Iproposed that I wasn't trying to be click
fatty or whatever, but it'sa fair point. But yeah,
(12:46):
anyway, it's.
Still money to be made stillsuccess to be had. Road's not easy,
but still there. So I want to talk aboutthis. We're going to get to p and Ls.
I want to talk about howto design it, and again,
not from an accounting perspective,but how to look at it as a marketer,
as a business owner to drive profits,
drive real business and finance outcomes.
But we were talking about something reallyinteresting prior to hitting record.
(13:07):
You're a big baseball guy. I'mmore of a basketball football guy,
but I love baseball too.We love the same movie,
and you were inspired more by the book,
but tell us about the book thatmaybe shaped you as a marketer
that will, I think, surprisepeople, but talk about it and why.
Yeah, Moneyball.
Moneyball I think shaped a lot ofpeople in a lot of ways actually.
(13:27):
I think it did. It did. Reachwas well beyond baseball fans.
For sure.
Because in my experience,
so I grew up playing baseballas a huge baseball fan,
and when I heard about analyticsin baseball and the early stage,
I had the same reaction as alot of people, which is like,
this is soulless and these nerds are,
(13:48):
they don't understand howbaseball really works.
And then I read the book and was totallyconvinced that I was wrong about that.
A hundred percent.
Percent.
But what ended up happeningis that that book exposed to
me, not so much just astatistical paradigm for baseball,
but it taught me how smart,
(14:08):
analytically minded people thinkabout everything about the world.
So I'm a big Dodgers fan ofwearing my Dodgers hat right now.
The guy who runs the Dodgers, thepresident of baseball operations,
his name is Andrew Friedman, he camefrom Wall Street. He was a traitor.
And so he had an ability to think about
statistical probabilities and some ofthose things and how you use data to
(14:30):
inform better quality decision making,
and to think about the world as a matterof bets that you place and things like
that. Working with him for a long time,
a guy who eventually ran the Giantseventually got fired and is now back as a
specialist of the Dodgers. His name is Dr.Farhan Idi, who has a PhD from MIT
and has never played serious baseball.
And there's teams that have variouslevels of those kinds of guys.
(14:53):
Some former players now arethose kinds of guys or whatever.
So it's not only that,
but the point is those guys were notthinking about baseball first when they
developed those muscles,
they just took a set of musclesand applied them to baseball.
And what I did was the opposite direction.
Moneyball for me was theway that I learned how to think about how to look at a
set of numbers and think about what theymean and how to interpret them and what
they don't mean, which crucially,and I mean Brett, I'll just tell you,
(15:15):
I think I actually justtweeted about this today.
I think that people'sinability to have a baseline
understanding of then the concept ofprobabilistic thinking about outcomes
and of the difference between signaland noise and how to make a distinction
between those two things
is a gigantic hole in theirthinking, especially media buyers.
(15:37):
Media buyers are terribleat this hundred percent,
and they overreact to tiny samples. Andjust for the record, I am media buyer.
I am the person that we're talking about.So all of my thinking about how best
to optimize a lot of mediabuying approaches is like,
how do I get the machine tomake the decisions for me because I am so bias prone
in all of my thinking. Soanyway, Moneyball, for me,
(16:00):
the book really helped me to startworking out those muscles and those
muscles then became transferableto other things eventually.
Also listening to the Freakonomicspodcast helped me a lot with this.
Listening to the Planet Money podcasthelped me a lot with this. Really,
Freakonomics I think wasespecially helpful as well because very similar thing,
right?
You've got guys who are sort of exploringthe world through the lens of data and
what data can and can't tell you,and sort looking under the surface,
(16:23):
little taglines, exploringthe hidden side of everything.
And the hidden side is how data createsincentives and some of that. So they
have all kinds of really fun things,outcomes of like, oh, look at that.
If you look at thenumbers underneath this,
you see patterns andbehaviors emerging. Yeah,
I just think a lot of people would doreally well to, if you like baseball,
you have the best world for this becauseit's the place where a lot of this
(16:47):
stuff is the most publicly digestible.But if you're a basketball fan, Brett,
surely over the last bunch of years,
the thing you've noticed the mostis the rise of the three pointer.
It is a simple calculation,
which is a three pointer is worth morethan 50% of a two point. It's worth 50%.
It's worth 50%, right? More.
Yeah.
Sorry. It was worth more, whichis 50% more than a two pointer,
(17:09):
and therefore there's a massiveincentive unless you make it
essentially your shot doesn't have,
you can be a fairly amount lessefficient at the level of the shot and
still be a more efficient useof your shot in that case. And.
So.
That kind of little tradeoff, it's like,oh, once you see that, that's good.
And by the way,
if anybody ever goes and plays pickupbasketball and you're playing with ones
(17:31):
and twos as instead of twos and threes.
That's even crazier. It's not twice asmuch. You should shoot a two every time,
every time. If you're a driveto the bucket type of player.
You're doing.
It wrong. You can't play in agame, that's one versus two.
It's like you've got to develop thatthree point shot, which I don't have.
I grew up in an era whereI was a post player,
we just pounded down low to takea close shot. That's all we did.
(17:53):
But I'm so glad you brought thisup and we will talk p and l,
we will talk about e-commerce.
Yeah, whatever. We cantalk whatever you want.
But I love that we got into this becausepeople are not failing right now in
e-commerce or in any business for lackof data. That's not an issue right now.
It's not lack of data. It'sunderstanding what does the data mean,
but more importantly, whatdoes the data not mean?
(18:14):
And then based on what it means, wheream I going to place bets and why?
And can I confidently say this,
why I'm going to place bets in thisplace and not in that place? And yeah,
dude, it is just so good.I love the movie Moneyball,
so many quotable thingsin that movie. And.
As it happens, I'm alsoa big Aaron Sorkin fan.
So once Moneyball became both Moneyballbook and also written by Aaron Sorkin.
(18:38):
Was in.
He's.
One of the best, wait, what are someof the other Aaron Sorkin movies?
Well, there's a lot. I mean,
he wrote Charlie Chicago Sevenis one that people liked a lot.
I think that won some.
Did he write Molly's game? Thepoker? He did, yeah. Just so good.
But the West Wing is maybe his still mostfamous thing in some ways because the
West Wings a lot of people andWest Wing I love too. Yeah. So.
(18:59):
You'll be a better media buyer,better business operator,
better Econ Pro. If you watch orread Moneyball, go check it out.
That's awesome, man. So let's breakdown. P and Ls mentioned to you,
I actually love math. I excelled atmath in schools. It was just fun for me.
I hated accounting class incollege, slept through it, hated it.
(19:21):
I've never taken one, so that's fine.
Okay, I regretted it once I starteda business. I was like, oh shoot,
I should have paid closer attention.So I've had to get better there.
There's some differences.
There's gap accounting principles whichare useful and there's a reason for that
and there's a world for that.
But then there's p and ls that areuseful for marketers and business owners.
And so talk to me about howyou think about p and ls,
(19:43):
why it's important, and what functiondoes that serve for you as a marketer?
So at the baseline level,
what I really think here isthat many brands are dead on
arrival and don't realize it.
And the reason they don't realize it isthat they have never done the work of
forecasting
(20:03):
every part of their pand l, the whole thing,
at least in large chunks.
So I am not saying you have to forecastyour Shopify bill six months out or your
Klaviyo bill six months out orwhatever, down to those details,
but maybe you should, but
I'll tell you this,
there are worse things to do with yourtime in e-commerce than to get that
(20:25):
detail in your forecast.
For sure.
But I think a lot ofbrands just don't have a
viable business or it's going to bereally hard or they have filed business,
but they are strategicallyso turned around and don't
know it because they justhaven't done the work of having a
(20:48):
goal. And then forecasting tothat goal in a way that says,
here is what is actually likely or ifthey do the forecast is rooted in hope.
And that's not a forecast. Hope isnot a forecast, it's not a plan,
but to have some reason for why theybelieve the future will be a certain way
and then to forecast their wholebusiness through that lens.
(21:09):
And I think that basically the tool todo that with is a cohort-based forecast
for e-commerce brands where you'reactually forecasting new and returning
customer revenue differently. And thendepending on if you're omnichannel,
how you work those channels in aswell, this gets more complex. But
basically having that kind of thing,
it sounds like ridiculousadvice to say to people,
you need to forecast your business.Like duh, everybody knows that.
(21:31):
But I am telling you, I just see overand over that people do this again,
either they don't do it with anyseriousness or they do it or they
do it with no or no connection toreality in terms of what's happened,
or they do it, like I said,
the Hope vibes forecast kindof thing where it's like, here,
we're just going to increasespend for forever every month,
and it's always going to be at the sameroas and it's going to just be great,
(21:53):
or we're going to have all this revenueand there's no separation with no
understanding. It says returncustomers, new customers, whatever.
So that's the basic principle,
because if you can do this exercisewell and disciplined and clearly,
and if you need help,
there are a lot of people whohelp you with this by the way.
But if you could do it well,
then what you end up with is a mapand compass to the outcome that to the
(22:17):
treasure that you want.
And that is the key stepfor so many brands to do
because if you do the exercise and youget really realistic about it and the
outcome of that exercise is not someprofit number and some growth number
that is satisfying to you,
then that gets shoved back in yourface and you now have to deal with the
(22:38):
reality of, oh, this isnot going to actually,
I actually don't havea business that works.
And then you could starttrying to solve the problem.
And maybe I can break down at somepoint, I'll pause here in a second,
but break down what kinds of problemsurfaces and what makes a good and bad
E-commerce p and l. But that basic thing,
I think a lot of people have not donethe hard work of just doing that in a
(22:58):
disciplined and careful way.
Yeah,
it's so good because I think there's alot of businesses that are in a scenario
where you can't get therefrom here where it's not just,
I'm going to work harder,I'm going to do more of this,
but you are doing the wrongthings and the basis of your
business is flawed. The ratiosin your business are flawed.
(23:20):
You are never going to get to those profitnumbers that you want to hit based on
the way you're operating right now. Andyeah, no amount of wishful thinking,
positivity,
new creatives on meta are going to getyou there because it's fundamentally
broken. And I remember asan agency several years ago,
and we've always been profit actuallyevery year we've been profitable.
We've had some struggles and we'vegone through some issues and had to do
(23:42):
layoffs a little over a year ago andsome other things. But I remember when we
started talking to some PE groups andthey started talking to others and they
explained the way they look at agencies,the way they look at businesses,
I was like, oh wait, we've been kind oflazy in a couple of areas financially.
And it just forced me to think aboutthe business in a totally different way.
And even though we never sold to PEand actually we're looking at acquiring
(24:04):
agencies right now,
that function of thinking abouthow would an outside finance
person look at my business,change the way I ran the business,
not in terms of personality, the way Icare for people or anything like that,
but just the way I look at the numbersand the way I look at the ratios shifted
when I took that perspective. AndI think really every business,
(24:24):
every e-comm business needs to look atthat. How am I looking at my p and l?
How am I looking at my forecast and canI get there from here doing what I'm
doing now? So.
Really good stuff when you dothat, Brett, for the agency,
the same exercise for an agency asit is for an e-commerce business.
It's just a question of theratios are different, right?
Service business,
(24:44):
it's about marked up time and the costof goods is people basically, right?
So do you have a framework throughwhich you're trying to view
how at MG Commerce how much
margin you have per client or per heador something like that, as a percentage?
(25:05):
I'm just curious.
I think you do this if you talkthrough how you think about the agency,
then the same principleapplies across to e-commerce.
Yeah, I think it's goingto be really similar.
So the way we look at a goodagency should be in the 20 to
25% EBITDA margin range,maybe a little bit higher.
And I think as AI becomes more prevalent,
(25:26):
there are other ways you couldlook at making that margin higher,
but that's a pretty good range. Soto get there, what does that mean?
And I think if you look atthe big buckets in an agency,
delivery is the biggest, right?
So these are the team membersthat deliver the service.
So what should thatratio be? You've got ops,
so that's SG and a basically.Actually not S, but anyways,
(25:47):
like the general operating opex and stufflike that. And then you've got growth.
And so growth, we putmarketing and sales together.
That's just the way wedo it to look at growth.
And so those ratios have toline up in a way that then gets
you to that 20 to 25%, ormaybe it is aggressive,
you're looking at 30% EBITDAmargins or whatever. So how are
(26:08):
you getting there? And so thenyou start forecasting, okay,
these are my team membersin these departments and this is what we're investing
and I'm projected to get 8% margin.So then you begin to look at, okay,
where am I out of whack?How do we fix this?
Do we grow our way out of this becausemaybe we have a lot of bandwidth and we
can grow into it. Do we makecuts? Do we get more efficient?
(26:30):
There's a number of things to lookat. So those are the areas we look at.
And then we break it. So we breakit down in big buckets like that.
We look at a p and L onof course a monthly basis.
We update it all the time,multiple times a week,
but then we also break down into eachdepartment kind of p and l and look at how
that rolls up,
and then what does each department needto contribute to then get us to the
(26:52):
overall ratios that we need. And so yeah,
we're planning things out annually basedon that. We also factor in things like,
okay, what is our pipeline?What percentage of deals are we're going to close?
What's our average dealvalue? So that's layered in.
We also factor in churn becauseeven though we think we're great,
we've won awards and people love usand things like that, churn still.
Happens.
(27:13):
It happens more when tariffs are goingon, stuff like that. So then how do we
factor in churn and look at that becauseyou're never going to keep all your
clients. And so we spilled that model andit's like you're constantly adjusting,
you're constantly tweaking.We do a weekly flash,
the finance report that looksat, okay, what changed this week?
How are we looking atthe rest of this month?
(27:35):
So that's kind of the base of breakdown.
And I think that exercise reflectsthere's a target profit number that you're
trying to get to. You just said 20 to 25%.
That could change dependingon all kinds of things.
It could have changed depending on theway that businesses in your sector are
valued. It could changedepending on your goals,
depending on the cash intensivity ofthe business, the cost of capital,
there's all kinds of thingsthat could affect that.
(27:56):
It could change just because of what youwant in life. And that's fine. Totally.
When I talk about this, to me,
it's not about me saying necessarilywhat I think good is in this case because
it's just going to change fordifferent people depending on goals.
I could tell you what I think how thesebrands are valued in the m and a market.
I have thoughts about that,
but then even how much you care aboutthat is your own question and when you
(28:17):
want to sell and all those things. Sothere's all of these other factors that do
that, but then you just kindof work back from there.
Here's the profit numberwe're trying to hit to.
Maybe you have for yourself some kindof a revenue goal that ladders down to a
profit goal that ladders down to yourtake home that you want or a valuation
that you want or somethinglike that. So you say, okay,
I need to hit this profit number,
which means I need to get to thisrevenue number. And then from there,
(28:37):
you just add in your costs. And thisis the thing for e-commerce brands,
you have to play that exact samegame. And I'll say for most of them,
that EBITDA number probablyought to be at least 10 to 20%.
Now, again, with the caveatof everything I just said,
which is in some ways it's up toyou, but for it to be valued highly,
(28:59):
if that's what you're aiming at,if enterprise value is your goal,
probably somewhere around therewhile the business is growing,
and then now you've got to thinkabout how you break down your costs,
very similar to what you justdid, Brett, for the agency.
So I don't know if you want me to gosort of section by section and talk about
what I think the costs ought tobe, then we could talk about it.
But this is where it varies a lot in.
Categories. I love that, and I did skipa very important step. It's like, okay,
(29:22):
we have very specific goals about whatdo we want our total profits to be for
this year, and as we grow andas we do some acquisitions,
what do we want the overallOMG platform to look at?
So you do start there and top line goals,
and then you back into all thoseget all percentages. But yeah,
let's break it down. So what shouldthis look like for an e-commerce brand?
How am I structuring my p and l?
(29:42):
Yeah, so the starting pointfor this conversation is if you
think about the notion,
Taylor Holiday four quarter accountingis a helpful way of framing this.
There are four sections afterrevenue on your p and l.
So it's cost of delivery, CAC and opex,
and then profit. Those are the foursections of your p and l, okay?
(30:04):
Cost of delivery includes every variablecost associated with getting your
product to a customer.
CAC is every ad dollar or marketingdollar that gets deployed.
OPEX is every fixed cost in your business,
which is mostly people andan e-commerce business.
And then profit is left leftover.So let's work backwards. Okay,
so profit obviously the numberyou're trying to aim at.
So one of the things that should behappening in e-commerce business,
(30:25):
basically no matter your sector,
and I think this is the thing that isthe most true across every category,
is that your opex is a percentage ofyour revenue should be pretty low.
And it is amazing to me howhigh this number still is.
But one of the fundamental advantagesof e-commerce is that it scales really
well relative the number of heads youhave and even cost of those heads.
(30:47):
Opposite of agencies. But yes,it's very true for e-commerce.
Opposite of agencies. Soas a simple heuristic here,
your total fixed costs is the percentageof your revenue as you grow in
particular ought to be less than 15%.
So essentially that means if youhave a million dollars in revenue,
your total cost of all opex includingsalaries ought to be $150,000 or less.
(31:07):
Now at a million dollars,
it's pretty hard to hit that numberbecause you have not actually scaled yet.
But the more you scale,
the more you obviously thatpercentage come down because,
and the simple reality that happens inevery part of an e-commerce business,
the illustration I use all the timeis that it costs basically, well,
it costs the exact same amount of moneyto design an email that you send to a
thousand people versus thatyou send to a million people.
(31:27):
The design costs are literallydollar for dollar the same.
You got to pay Klaviyo a little moremoney between those two, but otherwise,
all of the other costs arepretty much exactly the same.
And so that means that the percentageof your cost of people goes down a whole
bunch. If you add in the abilitywith AI now and with offshoring,
which I'm a huge believerand proponent in my team,
(31:47):
I mentioned there's seven oreight of us in the Philippines,
they're incrediblecontributors to my team.
I don't think of them asseparate or something like that.
Totally. They're pure team members.
And they are killers,
and I can get access very highquality talent in the Philippines
for much less money than I can accessthat talent in the US equivalent talent
(32:10):
because of the differences in theeconomies and some of those things.
It's a win-win. So if you addthose two things together,
now you have talked aboutshrinking your opex even more,
and you can be really best in class hereand get that number under 10% and maybe
even lower. I've heard about,
I think Zach Stocks has talkedabout publicly somewhere that,
or maybe that maybe I heard Marketing.
Operators, what brand does he run?
Hollo socks, Zach, some people know himand he had started Homestead agency,
(32:34):
some other.
Brands as well. Great agency. Yeah.
So Zach was talking,
I think on marketing operators thathis brand is like five or 6 million in
revenue per head, which is crazy.That's wild. That is a very,
very lean opex. So thatis the number one thing.
And I think a lot of brandsactually are still sucking.
They're just paying toomuch money for people.
I recently had Ben Perkins onfrom Ann Call on my podcast.
(32:57):
He was at $15 million in revenueand was drowning in debt.
He had taken some inventory based loans,
was paying $65,000 a week in loanrepayments and trying to figure out how
to stay afloat.
He had $3 million in debt against10 million in revenue at one point,
which is not really workablein a lot of e-commerce brands.
So he started smashing all of thecosts that he could in his business.
(33:20):
He ended up cutting half of his laborand discovered something which was that
the business did not change.
Nothing happened, right?
If anything, it got smoother.
And Ben is clear and graciousto say that's not necessarily because those people
were either bad or not working hard.
Part of it's because managingpeople is very hard and he.
Wasn't.
Great at managing them hundredpercent. And so he had made bad hires,
(33:42):
he had not managed themwell, all those things.
But he found that by being leaner,
and I just think so many brands can beleaner. So that's number's number one's.
Also software of analogy onthis that I think it hits.
It's like is meta or YouTube incrementalfor your business? Well, it should be,
but you could be screwing it upand if you're screwing it up,
it might not be incremental at all.
That's right. That's.
(34:02):
Right. I think it's the same withpeople. They're not bad people.
Maybe they're working really hard,maybe they care, maybe all those things,
but maybe you've just got the structureincorrect or you're managing 'em
incorrectly or you just don't need 'em.And so they're busting their tails,
but actually it's not writingincremental value to you. And so yeah,
Ben talked about that.
His solution to the problem was to createa personal p and l for every one of
(34:24):
his.
Employees.
So basically to answer this question,
is this person generating incrementalvalue in the business and here's how we're
going to measure it.
And he said some of them did notwant to partake in the exercise,
so he offered them a graciousseverance and they left.
And then the other ones whowere willing to participate,
it turns out they were driving a wholebunch of value as measured on a p and l,
so he did the exact thing he.
Just said. Interesting.
(34:45):
Yeah, I thought it was brilliant.
So we're driving down our opex.Can't underscore that enough,
especially in e-commerce. Drivedown that opex, okay, what's.
Next?
It's so fundamental to what makes makean e-commerce business work and people
need to be really clear about that.
Software bloat is the otherthing to watch out for. There.
Typically.
Not as expensive as people,but it can get expensive.
People just have too many things tothe chasing shiny object syndrome.
(35:06):
You don't need to do that for a while.
So opex should be shrinking asa percentage of revenue. Again,
in a forecast you shouldsee as my revenue now.
So if you forecast up 1 million to5 million to 10 million in revenue,
whatever that growth rate is,
you should be seeing that you'rehiring is not going linearly with that,
but that people are nowable to create, again,
(35:28):
have operating leverage in their people,
which is to say theygenerate additional value,
not just the same amount ofvalue as before. And so you got to keep hiring them.
Again, very different than anagency to service the revenue.
You have to keep hiring. Okay, exactly.
So that's the starting point. Okay. Thenyou get into CAC and cost of delivery.
Now this is where you're going tohave more variation across different
(35:51):
industries.
So apparel businesses are going tofunction in both of these regards really
differently than supplementbusinesses, than beauty businesses,
than food and Bev.
All of these things are going tohave just home goods, whatever.
And so this is where you get toall kinds of different setups.
What I will say about this is more that,so if you want to say best in class,
(36:13):
let you just want a heuristic here.
If you say 15% opex or lower,
30% CAC or lower in your business,so your total spend is 30%.
So I'm spending a third of my revenuebasically on marketing or on customer
acquisition.
Correct? On.
Marketing.
30% In cost of goods,okay, cost of delivery,
(36:33):
totally delivered to thecustomer. Right? Now you've got.
That's cogs, that's shipping,that's cost of fulfillment.
Costs, merchant account fees.
Refunds, all.
Those things. The 3% you have to payShopify and credit card companies,
everything in there.
The dollar 50 or three PL is going tocharge you for fulfillment costs per
order, plus any pick and pack. There'sall of these little things that come up.
(36:56):
The cost of ordering the product,
getting it from essentially fromyour manufacturer to the customer.
That whole journeyrepresents all these costs.
If you can get that to 30% aswell, now you've got 30% COD,
cost of delivery, 30% cac, that's60% of our money is going out there,
15% opex, and now you have 15%leftover. Did I do that right now?
(37:17):
Now you have 25% leftover,you did 5% leftover.
That would be super best inclass, be amazing, 25% left.
The reality is most businessesdo not have that much margin at
30% total, and they're notrunning their CAC at 30%,
but if you want to know why there areso many supplement businesses in because
they can do both of those things,
(37:39):
they uniquely are able to do this.Their CAC shrinks as a percentage of their
revenue over time because customers comeback so much that returning customers
make up a larger and larger percentageof their revenue pool. By the way,
there's some similar dynamicsin skincare. The product beauty,
the cost of creating theproduct is very cheap.
The cost of shipping the product is cheap.
All of those things come together andyou can charge a good amount of money and
(38:01):
get AOVs to 70 or a hundreddollars or whatever it is,
which can be helpful as well.
You put all that together and you canrun a really high margin business.
The truth is for most brands,
they're going to actually be spendingmore somewhere. And the question is where,
so for a lot of brands, if youcan get even two 60 points,
or if you add 10 more pointsof cost to your cost of
delivery, 30% to 40%,
(38:23):
that's probably more realistic forwhere a lot of brands end up in a lot of
cases.
And now you've got 15% profit margin andthat's still a really healthy business,
something like that.
Still a great business.
Or you have someone like Sean from theRidge who I think he said he spends about
40% on cac, right? So then this.
I going to points.
To.
That side. This is another way to do it,
which is I have a brand thatdoes something very similar,
which is they have extremely highmargin and they want to grow.
(38:45):
So what do they do?
They turn around and they plow moneyinto ads and they're like, We are just
going to push our growth reallyhard on ads, and by doing that,
we're going to be really profitable andby staying lean at the same time with
our team, we're going to be really,really profitable. So now, yeah,
they run like 40% cac, 30% orless cost of delivery and yeah,
15% or less opex, and they'rerunning it like a 15% margin as well.
(39:07):
If everything goes awesome, still agreat business. If everything is awesome,
then there's some places where theycan find some help on all of those.
They're hammering away out theircost of delivery all the time.
In any of those cases, youcan have a strategy. Now,
there's exceptions to thoserules too. We mentioned simple,
modern earlier as anexample of this, and simple,
modern did not start offfirst of all to DTC brand.
(39:29):
They started off as an Amazon brand.
Amazon brand, and that's important.We've seen so many of those, by the way,
so many born on Amazon brands, and whenthey try to make that transition to DTC,
it's so hard because themath is all different.
Amazon is a demand capture platformand it's razor thin margins,
but all the traffic is there and thatsets what you're capitalizing on.
(39:50):
It's not really demand gen propositionthere. And so it makes it very.
Difficult and in competitivecategories on Amazon,
being able to be priced cheaperis a really big advantage.
That's basically a marketingplay, right? There is usually.
Price.
So the simple modern guys tested fivedifferent products when they launched on
Amazon, all within trends thatthey thought were taking off.
It is super genius when youlisten to what they started with.
(40:12):
They're brilliant dudes. Brian Porteralongside Mike Beckham. Brian is there.
I know Brian well, and youadmire Mike. Yeah, he's great.
Yeah,
both fantastic people andjust killers and the softest,
gentlest, kindest killers met.Yes, gentle killers. But Brian,
he talks about the early days and it'sreally helpful to think about this
(40:34):
through a p and l lens because whatthey did was they said like, okay,
we're going to pricecheaper with drinkware,
with stainless insulateddrinkware than other people are,
and we're going to create more variantoptions than what is currently available.
Because if you think about thelegacy players in that space,
the Yeti Hydro flask, theybuilt for mass retail,
and so their business wastuned for mass retail first,
(40:54):
and that meant pricingstrategy, product skew strategy.
All these things were built for that.
Black, white and blue and maybered. That's all I can afford to do.
I got to send that everywhere in retail.
Right? And so they said,we can create more options.
People like to accessorizewith their water bottles,
and so I can create more options at alower price and a really great product.
(41:15):
The net result of that,
and this is the p and l implication thatI think is helpful to think about is
that they have, and they'vebeen public about this,
but I don't mind saying it like30% margin. So at a DTC level,
it's like 60 to 70%,
I think closer to 70% of theirrevenue immediately goes out the door.
Maybe 65% of their revenue immediatelygoes out the door to product costs and
(41:36):
cost of delivery, gettingit to the customer.
So they only have 35points of margin leftover,
which blows up the entire paradigmI just told you about, right?
Right.
Yeah. But it's because itwas a channel strategy,
which was to start Amazon firstand then DTC came in after that.
And this is why, like yousaid, some brands really struggle to go the other way,
and this is where sometimes there isan issue here with product channel or
(41:58):
product business model fit,Where you have the right idea,
but you're just in thewrong channel for it,
and you need to change the whole businessmodel to match the channel that you
are in. And I think thisis actually a problem.
I operated a business like the SE four400 where we just needed to be a mass
retail business because the math didn'twork very well for us. We had low LTV,
it was very expensive to ship,
(42:19):
and it was just really hard for us tomake the math work as a DTC brand. Now,
eventually,
simple modern of course now has areally good DTC business as well because
they're really big.
And so they've been able to generate somuch awareness and all those things that
they can make it work, butit wasn't their lead channel.
And I just think it'shelpful to understand that there's reasons for that. And
when they went and launcheda hydration pack brand,
(42:39):
they're doing that DTC first with apotential mass retail output eventually
because that product makes waymore sense on the channel in
all of the things thatI just laid out before.
And so brands need to get reallyserious about, wait a minute,
if I have low margin,
let's say I end up with 50%margin leftover after my cost
(43:00):
of delivery or 45% mycost of delivery, gosh,
DTC is going to be an uphill slog.
There better be a reason that Ithink I can do it. And there may be,
may be because you have some pricingstrategy that gives you some unique
advantage of, I don't know. But therewould be ways to do it. But yeah,
I think that's the thing that peopleneed to get really clear about is how is
(43:22):
their approach to their margin profilefitting with the channel? And if so,
because my friend Kelsey Lyricand I have debated about this,
but I think it changes the whole modelof the business. The business model,
if you don't have product channel fit inquite that way and you have to think it
very differently about nearly all ofit. The moment you go to mass retail,
the amount of heads you have andthe amount your shipping works,
(43:43):
all that stuff changes.
So sales commissions and allthese different kinds of things.
Your margin profile has to fityour core channel or channels.
That's really important.
I think that's something that not a lotof people think about in the early days
especially, but it's something youneed to think about as you're grown,
as you scale. So let's do this, Andrew.
Let's talk about how are we projecting,
(44:05):
how are we predicting, how are wepivoting along the way as we go?
So we've kind of talked about thesenumbers. Obviously if we're out of whack,
there better be a reason for it.
We'll be able to make thatwork on our channels. If not,
we're going to need to startmaking some adjustments, some cuts,
things like that.
And you may have another note therebefore we talk about projections. Yeah.
Okay, cool. So then how arewe looking at projections?
(44:28):
And again, to use the Moneyballexample, how are we taking data,
this p and l that we're looking atand using it to make decisions and
operate our business so that weactually hit those profit targets?
So what ends up happening,if you do this exercise,
if you forecast all of the parts of thep and l that I just said over a period
of months or years or whateverit is, something will happen,
(44:49):
which is that the numbers will be thrownin your face in a way that will tell
you if you are somewhere or not.
And then their question is if youare close or if you're somewhere,
let's say you get that andyou're like, Ooh, we're at 5%,
and if things go wrong, 5%profit, and if that goes wrong,
that takes us down to zero,that takes us down to whatever.
Then you have to start thinking aboutwhat is the solution to this problem?
(45:12):
Do I need to just grow faster so thatmy opex becomes lower as percentage of
revenue? Do I need to fire people? Do Ineed to go negotiate my manufacturing?
I have a little theory right now,
which is the supply chains are themost underoptimized part of e-commerce
businesses.
Totally agree. Nobody got toin the past, didn't need to,
didn't feel like we needed.
To. And it's a lot to do. It's hard.
There's a lot to do.
(45:32):
Exactly.
Somebody like me gets on a podcast likethis and tells you another thing to
think about and listen, there's 70podcasts like this that are new.
There's probably way more than that.There's probably 500 podcasts like this,
all of 'em with peopletelling you what to do,
it becomes really challengingto stay on top of all of it.
And so anyway,
we went through I think the marketingrevolution in e-commerce where people got
(45:54):
really early on, that wasa big part of the thing.
Finance revolution has been happening.
More and more brands recognizethey need to be profitable.
They can't just try to blitz scale. Theyrecognize their business is worthless,
it's not profitable.
They're listening to the finance operatorsand following mates have and Drew and
Taylor Holiday and people like that on X,
and they're getting their feet wet withhow to think about forecasting their
business and some of the things I'mtalking about. But there's another step
next, which is like now, okay,
(46:15):
how do you actually go negotiate a supplychain and build your supply chain out
and do those things in a way thatis actually good for the business?
And I do think there's a lot of biggerwins there than people realize just by
talking to more manufacturers,negotiating with your three pl,
there's just a lot there. Ihave brands who've done this,
shout out to my friends at MoveSupply Chain, who they've worked with
(46:39):
on this where it was like, wait a minute.
We had this product that wascosting us $5 per unit to make.
Now we got it down to two.
And no customer has ever said aword about it being different.
It's still good product.
They just did a bunch of stuff to gowork somewhere else in the world and.
Make 60% reduction in cogs. Huge.
Gigantic impact on the business. Massive.
(47:02):
And so there's a bunchof stories like that.
So yeah, I just think that could bewhere it is, where you go like, oh,
we have to go manufacture somethingdifferent. I'll tell you from my brand,
my brand is in a category where the
packaging is more expensive thanthe product, than the actual.
Product. Interesting, interesting.
(47:22):
And so we are going to launch with pricesthat we think are pretty decent at the
level of cost of delivery, but rightaway, I'm right away thinking, shopping.
Additional manufacturers that actuallyworked with that same company might move
supply chain. They started with 60, so
a 60 on product and 20 on packaging. So
we already are somewhere on that.We looked at a lot of manufacturers.
(47:46):
But immediately I'm thinking about, okay,
at what level do I get a pricebreak by ordering more of these?
Do I need to go actually redesign thepackaging, the most expensive part of it?
If I could shave two bucks off ofthis, it's probably worth doing.
There's a lot of questions like that thatcome in because I know that everything
in the business will getsmoother if I have more Martian.
(48:08):
It's just a superpower.Totally. And so anyway,
so you can play that out in your businesswherever it is. What are those giant
costs that are just killing you? They'resomewhere in your business probably.
And you just start by saying, okay, whatis the place that I try to go to next?
Look at it with somebody smart, gota coach. If you need some input,
somebody can probably lookat that with you and say,
(48:29):
if you've been in your businessfor four years and you're like,
I have had ideas, thenyou can do those things.
But people will have ways to go andsay, Hey, have you looked into this?
Have you considered that?Have you thought about, Hey,
your air shipping stuff all the time?
Stop doing that because yourforecasting is bad. You're behind.
You need to get back to ocean freight.That's a big whatever, whatever.
There's all kinds of things like thatin every business because it's hard.
(48:51):
And so you could start kind of hammeringaway doing that forecasting exercise.
We'll start to surfacethose things for you.
I love it.
And it's one of those things too thatwith all the tariff madness that's going
on right now at the time of recording,
it's forcing people to look atdifferent locations for manufacturing,
different factories, differentways of getting the product here.
And I think in that process,
even though that's painful and notsomething any of us want to be doing,
(49:14):
you're going to find opportunities inthere and you maybe going to shave off,
you're going to find five or 10 pointsor 20 points or something like that.
That would.
Be, it could be a game changer foryour business or maybe you're not.
Maybe it's going to bea terrible experience,
but you work towards that for sure.
I have a theory really fast, Brett,
that the upside of this whole thing isthat tariffs will be a forcing function
for better supply chain creation forpeople because they're just going to have
(49:34):
to, and that it'll be, and that win forsome brands, not all brands. Totally.
For some way.
Yeah, it sort of relates.
But if you look at the iOS 14 and justall the madness that happened there,
it forced us to be bettermarkers. We had to.
And so I think it's going to dosomething similar here with supply chain.
And I want to be mindful of time, soyou lemme know if we need to wrap up,
but I want to look at cohorts and LTV and
(49:59):
composition of new customers and returningcustomers and how you forecast that
and how that informs this process. So doI have time to get into that or do we.
Wrap up? Yeah, this is good. This'sgoing to be the last question.
So that's, there's a lot there. Best,best, yeah. I'll tell you what to do,
honestly, go to my website,
(50:21):
put your email address in theemail popup or in the footer.
Either one will work. You get my fourfree essential e-commerce resources.
It's going to sign you up for mynewsletter as well. I don't spam you,
I promise. AJF growth.com. Gothere, sign up for my newsletter.
One of the things I will send you isfrom some lovely venture capitalists at
Lightspeed Venture Partners puttogether a whole prebuilt like
(50:44):
custom spreadsheet that helpsyou and walks you through how to
forecast returning customer cohortsoff customer data. It's hard work.
Another recommendation I say topeople is Dave Ook, CXL class.
So the CXL course,
he talks you through how heat forecastbusinesses. He's a really smart guy.
I worked with him really closelyfor a long time. At four 400,
(51:05):
he still runs BambooEarth, but if you do that,
it will give you a whole prebuiltspreadsheet for how to do it.
And I basically had at one pointcommon thread collective took the
Lightspeed model and built ita little bit for themselves.
I've since tweaked it a little bit formyself and I will send you mine for free
so you can do that. And that'sprobably I think the way to do it.
(51:27):
But if you can just seehistorical returning customer behavior over months after
purchasing and then put that into aspreadsheet that will tell you, okay,
what does that mean for the customersthat acquired today in six months?
How much are they worth? You can pileall those cores on top of each other.
You can get a really good revenueforecast. That's surprisingly reliable.
They're more reliable than people think.
And then you can look at, okay,
my new customer acquisition activitiesare underperforming or overperforming,
(51:51):
and what does that do to myprojections? That's right.
And then you can understand, okay,
I need to make some pivots now becausethis is going to have a real material
impact to my business in 2, 3,4, 5 months, things like that.
So awesome resource, a big job.
But if you commit to it, it's abig job. You can do it in a day.
It's not that of a job, butif you commit to it, then
(52:13):
I always say my best clientslive and die by that spreadsheet.
Yep. And it's one of those thingsthat once you start down this path,
it will transform the way you run yourbusiness and things will never be the
same.
And you can unlock a different level ofperformance and profitability that will
never happen for you if you're notlooking at your business this way.
So I agree. Andrew, this isfantastic. I know you got a jet.
(52:34):
What's your website one moretime? So we want to check.
Out that resource. Yeah, AJF,like my initials, AJF growth.com.
And if people can find you on.
Everything there, podcast there,everything. Yep. X at Andrew j Faris.
Yep. And Andrew Farispodcast. Check it out. Andrew,
this has been fantastic,man. Super, super fun.
Look forward to the next go roundand thanks for taking the time, man.
(52:56):
Thanks Brett.
And thank you for tuning in.So we'd love to hear from you.
What would you like to hear more of onthe podcast? Let us know. And with that,
until next time, thank you for listening.
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Well, hello and welcome to another editionof the E-Commerce Evolution podcast.
I'm your host, Brett Curry, CEOof OMG Commerce. And today, man,
(01:29):
am I pumped about myguest. I have the one,
the only Andrew j Farishost of the Andrew Faris
podcast, CEO, founder of AJF Growth,
and just had the privilege of being onhis podcast a couple of weeks ago talking
about YouTube. We hit it off.
I wanted to have him on the podcastto talk about p and l design and
(01:51):
forecasting,
and also why e-commerce brand ownersshould back off from the ledge if you find
yourself there because ofall the craziness going on with tariffs and whatnot,
and so pumped to getinto your story, Andrew,
but then also deliver some value forour guests. So welcome to the show, man,
and thanks for taking the time.
Yeah, thanks, Brett. You askedme how I like to be introduced,
(02:12):
and I think the one theonly is good. That's all I.
Need. Just the one, theonly, that's all we need.
Yeah, yeah, that's right.So that was good. Thanks.
It's so funny, one time I was travelingwith my team, three team members,
and I was not in first class, but itwas just sitting in front of the plane.
They were in the back of the plane andthey all separately walked by and they
touched me on the shoulder andthey're like, are you the Brett Curry?
(02:35):
And the people sitting aroundwere like, who is this guy?
Should we know this guy? The namedoesn't ring a bell, but who is this guy?
And I'm like, it's my team. It's justbeing nuts. So anyway, huge deal.
Fun times. Yeah, yeah, yeah, right,exactly. So dude pumped about this,
but for those that don't knowyou give us a little background.
I believe you told me you'veheld every seat in e-comm,
just about. And so talk us throughthat and then what are you doing now?
(03:00):
Yeah, well, what I just try to tell peopleis that in the e-commerce ecosystem,
at least on the marketing side,
I have been in just about every kindof organization in most of the seats.
So I started off working at klo,
selling silicone wedding rings on theinternet as a media buyer. I was trained,
working directly, closely.
I was Taylor Holiday who had beena friend for a while at that point.
(03:20):
And so Taylor and I becamegood friends and crossed,
crossed paths over that time.Well, we were already friends,
but crossed paths or continued to worktogether in a bunch of different ways.
So I was working with Common Threadcollective from there as a growth
strategist,
and then eventually the head of growththere led strategy at CTC for a while.
At some point, CTC spun off its own brandsinto an aggregator called Four Rifle,
400,
and I led growth there and thenbecame the CEO promptly ran that
(03:44):
into the ground. I alwaystry to clarify this.
It sounds like when you tell astory like this, it's like, wow,
look at my great career advancement whereI'm only ever successful and it's just
not true.
I learned a lot. Never happens that way.
Never happens that way. Wedid some good things, 4, 400,
1 of those brands still is goingBamboo Earth and Bamboo Earth. Yeah,
it's profitable, but sold off all of'em, but won. And I ended up leaving.
(04:06):
And I would just add, I learned,
especially the longer I'vereflected on the experience,
I've learned a lot from mymistakes there. From there, now,
I've been running AJF Growth,
which is a boutique agencywhere we service right
now four brands,
and I've got a team of a few of us inthe US and seven or eight more in the
Philippines and work together todo a great job as good of a job as
(04:30):
we can do servicing brands,really meta adss focused,
but we end up functioning sort of
almost like an outsourcedmix of CMO CFO kind of
deal. CFO is too strong of a word. We'renot forecasting somebody's cashflow,
but we do actually take on the forecastingof the full business in terms of DTC
(04:52):
cohort forecasting, that kind of stuff.
And then we ladder our media plan tothat and then end up being in a lot of
conversations around marketingefforts and stuff like that.
Which is super, superinteresting. Yeah, I love that.
And I've always been abeliever, I've always,
always been a fan of infomercialsand marketing that drives results,
and I've always believed that marketingshould build your bottom line in
addition to your top line.
(05:13):
But now the trend is you'reputting real legs behind
that where as a marketer,
you're helping run the forecast andyou're helping manage the p and l,
not from a gap accounting perspective,but from a practical, helpful,
let's hit these profit targets lensand you're doing it and doing it well.
(05:33):
And so it's super, superexciting. And also, man,
I really appreciate you sharing, hey,not everything in business goes well,
right?
And there's one of these things I heardAlex Hormoz say recently where it's
like, Hey, you expect for entrepreneurshiprunning a business to be hard,
but then you're discouraged because it'seven way harder than you think, right?
You go in thinking this is hardis, but it's really, really hard.
(05:54):
And so you have to be ready forthat. Yeah, yeah, that's right.
Yeah, I think some people,sometimes when I hear people,
you talk about peoplebeing talked off the ledge.
I actually think one of the things thathappens in conversations about the ledge
in e-commerce is that sometimes people'sexpectation is just that it's going to
be easy the whole time or that.
Or.
That you should always growprospect lifestyle each.
(06:16):
Stage up to the right.
Yeah.
I think if you thought that somebody wasgoing to hand you millions of dollars
on the bottom line, that'snot an e-commerce problem.
Just so anyway,
I think there is a real thing therewhere people need to expect that there's
going to be challenges along the way,and not every outcome is what you expect.
(06:40):
Dude, totally. I know you'rea family man, I'm as well.
But it's almost one ofthose things where pre-kids,
you see a family from a distance and yousee a kid acting out and you're like,
my kid will never do that. Myfamily's never going to be like that.
And then you're like, you have noidea what you're talking about,
everything you want toavoid or not have happen.
It'll humble you for sure, butbusiness is the same way. It's really,
(07:02):
really hard, but it's also rewardingand fun and exciting at the same time.
So let's talk about that a little bit.
You hosted a podcast or delivered apodcast recently where you said, Hey,
I'm still bullish on e-comm, and so wedon't want to fully unpack that, right?
People just need to go listen thatepisode. But why did you say that?
And I agree with you by the way,
(07:22):
I've got a couple of thingsI want to add to this,
but why are you still bullish on?
Well, there's a lot of reasons,but at the end of the day,
I think there's more intelligence abouthow to operate an e-commerce business
now for a larger market of customersthan there have ever been for e-commerce.
And I think most of theheadwinds are more short term.
(07:42):
Most of the tailwinds are more long term.So tariffs being the biggest headwind.
And I just should clarify really quickly,
if your brand is existentially threatenedby Chinese tariffs, I understand.
I'm not trying to make light, thatsucks. I'm not trying to say it's.
A big, big.
Deal and no, obviously.
Even taring are currently they weresuper high and now they're low,
and who knows what they'll be with whenthis is recorded, but still volatile.
(08:05):
Exactly. Yeah, and I just thinkso anyway, so having said that,
there's a carve out there, but yeah,
I just think that the toolsare also getting amazing.
This is something people willsit here and talk about how AI is
producing all of this value to make itso that the ad platforms are performing
(08:26):
better and deliveringbusiness results better.
And they're doing thatin all kinds of ways,
and also creative is getting cheap tomake at endless scale and all this stuff.
And then they won't takethe next step and say, oh,
who does that accrue value to?It accrues values to meta it,
accrues values to Google itaccrues values to chat GPT,
who's going to charge youto do it and all that stuff.
(08:47):
But it also cruises values to brands,
values to brands who reducetheir opex meaningfully.
So if that's the future you believein to where the distribution of your
ad creative is getting much, much cheaper,
the labor involved with things likecustomer service and all these things is
getting much, much cheaper.And then at the same time,
(09:09):
the production of your ad creativeand of other creative assets in your
business, including copy on your websiteand social media and all those things,
that's all getting cheaper aswell, drastically, phenomenally,
ridiculously cheaper.If that's all happening,
then that means you can run your businessmore efficiently at every level, And
that means it accruesvalue to you. So you can't,
(09:30):
it's just really hard to say both thosethings at the same time that now the
counter argument to that isthat the barrier to entry is getting so low that all
of these people will do it, andthere will be very few winners,
and I don't know quitewhat to make of that.
I think if there's stillmore winners ultimately,
and if it's very cheap totest the idea, then yeah,
there are going to be somelosers, but, but anyway,
(09:50):
so the combination of all those thingsmakes me still bullish and I just try
to tell people as far as puttingmy money where my mouth is here,
I'm starting a brand right now. I justgot another sample, the sample yesterday.
Love it. So just like.
When will this brand bereleased? Will it be launched.
T by October? Hopefully.
That.
Would be,
but that means for sure later than thatbecause that's how this kind of thing
(10:13):
goes. So.
Yeah, I fully agree with you.
I've invested in some retail andDTC brands even over the last
year. Yes, there headwinds.
We have an Amazon practice atOMG. Amazon is challenging.
There are always challenges there.
The game is always shiftinga little bit there,
but people are going to buy in thefuture more online, not less online.
(10:37):
I'm very, very confident in that.
I do believe we're in a world wheregreat products and great marketers will
win. And so it's difficult.It's challenging, yes,
if you're getting hammeredby tariffs, sympathy to you,
empathy, all of those things.
But there are still bigopportunities in this space.
(10:57):
And I was listening to the operatorspodcast recently, Mike Beckham,
co-founder of Simple Modern, andhe imports everything from China,
or maybe he's actively workingto not do that, but Currently's.
The case. Yeah, they stood up amanufacturing facility in Oklahoma City.
I've been there and it'sreally, really cool and awesome,
but when you hear them talkabout it, it's a tremendous pain.
(11:18):
So it's really.
Difficult. Exactly. But he talked abouton a recent episode, he is like, Hey,
this is chaotic,
but there's more surface area rightnow for me to make changes and pivots
and shake things up.
And I'm confident this is goingto be going to create windfalls
for our business.
And so I think if we remind ourselvesthat during every time of uncertainty,
(11:42):
every economic downturn,
fortunes are made and peopletransform their business in a powerful
way, it's just a good mental reset.
That's right. Because.
Sometimes being an entrepreneur is lonelyand we get down and discouraged and I
got to give myself a pep talk onoccasion. And so I'm glad you did that.
Thanks for posting that episode.Everybody should go check that out.
(12:02):
Well, maybe I need to haveyou back on again, Brett,
because Taylor is one ofthe biggest critics of my e-commerce is a good business
mentality, and he said, you need to bringsomebody on who agrees with you. Yeah,
yeah.
Yeah, I know he is. Yeah. Well,
because you tweeted recentlywith your friend fan,
I think that 50% of e-commbrands are worth nothing.
And Taylor tweeted backthat it's like 95%.
(12:24):
95%.
And that is a good clarification becausefans sample is brands that are trying
to exit, and so.
That.
Skews disproportionatelytowards brands that have some.
Value, a little bit, littlebit of cherry pick there.
And I didn't mean,
I just didn't think about that when Iproposed that I wasn't trying to be click
fatty or whatever, but it'sa fair point. But yeah,
(12:46):
anyway, it's.
Still money to be made stillsuccess to be had. Road's not easy,
but still there. So I want to talk aboutthis. We're going to get to p and Ls.
I want to talk about howto design it, and again,
not from an accounting perspective,but how to look at it as a marketer,
as a business owner to drive profits,
drive real business and finance outcomes.
But we were talking about something reallyinteresting prior to hitting record.
(13:07):
You're a big baseball guy. I'mmore of a basketball football guy,
but I love baseball too.We love the same movie,
and you were inspired more by the book,
but tell us about the book thatmaybe shaped you as a marketer
that will, I think, surprisepeople, but talk about it and why.
Yeah, Moneyball.
Moneyball I think shaped a lot ofpeople in a lot of ways actually.
(13:27):
I think it did. It did. Reachwas well beyond baseball fans.
For sure.
Because in my experience,
so I grew up playing baseballas a huge baseball fan,
and when I heard about analyticsin baseball and the early stage,
I had the same reaction as alot of people, which is like,
this is soulless and these nerds are,
(13:48):
they don't understand howbaseball really works.
And then I read the book and was totallyconvinced that I was wrong about that.
A hundred percent.
Percent.
But what ended up happeningis that that book exposed to
me, not so much just astatistical paradigm for baseball,
but it taught me how smart,
(14:08):
analytically minded people thinkabout everything about the world.
So I'm a big Dodgers fan ofwearing my Dodgers hat right now.
The guy who runs the Dodgers, thepresident of baseball operations,
his name is Andrew Friedman, he camefrom Wall Street. He was a traitor.
And so he had an ability to think about
statistical probabilities and some ofthose things and how you use data to
(14:30):
inform better quality decision making,
and to think about the world as a matterof bets that you place and things like
that. Working with him for a long time,
a guy who eventually ran the Giantseventually got fired and is now back as a
specialist of the Dodgers. His name is Dr.Farhan Idi, who has a PhD from MIT
and has never played serious baseball.
And there's teams that have variouslevels of those kinds of guys.
(14:53):
Some former players now arethose kinds of guys or whatever.
So it's not only that,
but the point is those guys were notthinking about baseball first when they
developed those muscles,
they just took a set of musclesand applied them to baseball.
And what I did was the opposite direction.
Moneyball for me was theway that I learned how to think about how to look at a
set of numbers and think about what theymean and how to interpret them and what
they don't mean, which crucially,and I mean Brett, I'll just tell you,
(15:15):
I think I actually justtweeted about this today.
I think that people'sinability to have a baseline
understanding of then the concept ofprobabilistic thinking about outcomes
and of the difference between signaland noise and how to make a distinction
between those two things
is a gigantic hole in theirthinking, especially media buyers.
(15:37):
Media buyers are terribleat this hundred percent,
and they overreact to tiny samples. Andjust for the record, I am media buyer.
I am the person that we're talking about.So all of my thinking about how best
to optimize a lot of mediabuying approaches is like,
how do I get the machine tomake the decisions for me because I am so bias prone
in all of my thinking. Soanyway, Moneyball, for me,
(16:00):
the book really helped me to startworking out those muscles and those
muscles then became transferableto other things eventually.
Also listening to the Freakonomicspodcast helped me a lot with this.
Listening to the Planet Money podcasthelped me a lot with this. Really,
Freakonomics I think wasespecially helpful as well because very similar thing,
right?
You've got guys who are sort of exploringthe world through the lens of data and
what data can and can't tell you,and sort looking under the surface,
(16:23):
little taglines, exploringthe hidden side of everything.
And the hidden side is how data createsincentives and some of that. So they
have all kinds of really fun things,outcomes of like, oh, look at that.
If you look at thenumbers underneath this,
you see patterns andbehaviors emerging. Yeah,
I just think a lot of people would doreally well to, if you like baseball,
you have the best world for this becauseit's the place where a lot of this
(16:47):
stuff is the most publicly digestible.But if you're a basketball fan, Brett,
surely over the last bunch of years,
the thing you've noticed the mostis the rise of the three pointer.
It is a simple calculation,
which is a three pointer is worth morethan 50% of a two point. It's worth 50%.
It's worth 50%, right? More.
Yeah.
Sorry. It was worth more, whichis 50% more than a two pointer,
(17:09):
and therefore there's a massiveincentive unless you make it
essentially your shot doesn't have,
you can be a fairly amount lessefficient at the level of the shot and
still be a more efficient useof your shot in that case. And.
So.
That kind of little tradeoff, it's like,oh, once you see that, that's good.
And by the way,
if anybody ever goes and plays pickupbasketball and you're playing with ones
(17:31):
and twos as instead of twos and threes.
That's even crazier. It's not twice asmuch. You should shoot a two every time,
every time. If you're a driveto the bucket type of player.
You're doing.
It wrong. You can't play in agame, that's one versus two.
It's like you've got to develop thatthree point shot, which I don't have.
I grew up in an era whereI was a post player,
we just pounded down low to takea close shot. That's all we did.
(17:53):
But I'm so glad you brought thisup and we will talk p and l,
we will talk about e-commerce.
Yeah, whatever. We cantalk whatever you want.
But I love that we got into this becausepeople are not failing right now in
e-commerce or in any business for lackof data. That's not an issue right now.
It's not lack of data. It'sunderstanding what does the data mean,
but more importantly, whatdoes the data not mean?
(18:14):
And then based on what it means, wheream I going to place bets and why?
And can I confidently say this,
why I'm going to place bets in thisplace and not in that place? And yeah,
dude, it is just so good.I love the movie Moneyball,
so many quotable thingsin that movie. And.
As it happens, I'm alsoa big Aaron Sorkin fan.
So once Moneyball became both Moneyballbook and also written by Aaron Sorkin.
(18:38):
Was in.
He's.
One of the best, wait, what are someof the other Aaron Sorkin movies?
Well, there's a lot. I mean,
he wrote Charlie Chicago Sevenis one that people liked a lot.
I think that won some.
Did he write Molly's game? Thepoker? He did, yeah. Just so good.
But the West Wing is maybe his still mostfamous thing in some ways because the
West Wings a lot of people andWest Wing I love too. Yeah. So.
(18:59):
You'll be a better media buyer,better business operator,
better Econ Pro. If you watch orread Moneyball, go check it out.
That's awesome, man. So let's breakdown. P and Ls mentioned to you,
I actually love math. I excelled atmath in schools. It was just fun for me.
I hated accounting class incollege, slept through it, hated it.
(19:21):
I've never taken one, so that's fine.
Okay, I regretted it once I starteda business. I was like, oh shoot,
I should have paid closer attention.So I've had to get better there.
There's some differences.
There's gap accounting principles whichare useful and there's a reason for that
and there's a world for that.
But then there's p and ls that areuseful for marketers and business owners.
And so talk to me about howyou think about p and ls,
(19:43):
why it's important, and what functiondoes that serve for you as a marketer?
So at the baseline level,
what I really think here isthat many brands are dead on
arrival and don't realize it.
And the reason they don't realize it isthat they have never done the work of
forecasting
(20:03):
every part of their pand l, the whole thing,
at least in large chunks.
So I am not saying you have to forecastyour Shopify bill six months out or your
Klaviyo bill six months out orwhatever, down to those details,
but maybe you should, but
I'll tell you this,
there are worse things to do with yourtime in e-commerce than to get that
(20:25):
detail in your forecast.
For sure.
But I think a lot ofbrands just don't have a
viable business or it's going to bereally hard or they have filed business,
but they are strategicallyso turned around and don't
know it because they justhaven't done the work of having a
(20:48):
goal. And then forecasting tothat goal in a way that says,
here is what is actually likely or ifthey do the forecast is rooted in hope.
And that's not a forecast. Hope isnot a forecast, it's not a plan,
but to have some reason for why theybelieve the future will be a certain way
and then to forecast their wholebusiness through that lens.
(21:09):
And I think that basically the tool todo that with is a cohort-based forecast
for e-commerce brands where you'reactually forecasting new and returning
customer revenue differently. And thendepending on if you're omnichannel,
how you work those channels in aswell, this gets more complex. But
basically having that kind of thing,
it sounds like ridiculousadvice to say to people,
you need to forecast your business.Like duh, everybody knows that.
(21:31):
But I am telling you, I just see overand over that people do this again,
either they don't do it with anyseriousness or they do it or they
do it with no or no connection toreality in terms of what's happened,
or they do it, like I said,
the Hope vibes forecast kindof thing where it's like, here,
we're just going to increasespend for forever every month,
and it's always going to be at the sameroas and it's going to just be great,
(21:53):
or we're going to have all this revenueand there's no separation with no
understanding. It says returncustomers, new customers, whatever.
So that's the basic principle,
because if you can do this exercisewell and disciplined and clearly,
and if you need help,
there are a lot of people whohelp you with this by the way.
But if you could do it well,
then what you end up with is a mapand compass to the outcome that to the
(22:17):
treasure that you want.
And that is the key stepfor so many brands to do
because if you do the exercise and youget really realistic about it and the
outcome of that exercise is not someprofit number and some growth number
that is satisfying to you,
then that gets shoved back in yourface and you now have to deal with the
(22:38):
reality of, oh, this isnot going to actually,
I actually don't havea business that works.
And then you could starttrying to solve the problem.
And maybe I can break down at somepoint, I'll pause here in a second,
but break down what kinds of problemsurfaces and what makes a good and bad
E-commerce p and l. But that basic thing,
I think a lot of people have not donethe hard work of just doing that in a
(22:58):
disciplined and careful way.
Yeah,
it's so good because I think there's alot of businesses that are in a scenario
where you can't get therefrom here where it's not just,
I'm going to work harder,I'm going to do more of this,
but you are doing the wrongthings and the basis of your
business is flawed. The ratiosin your business are flawed.
(23:20):
You are never going to get to those profitnumbers that you want to hit based on
the way you're operating right now. Andyeah, no amount of wishful thinking,
positivity,
new creatives on meta are going to getyou there because it's fundamentally
broken. And I remember asan agency several years ago,
and we've always been profit actuallyevery year we've been profitable.
We've had some struggles and we'vegone through some issues and had to do
(23:42):
layoffs a little over a year ago andsome other things. But I remember when we
started talking to some PE groups andthey started talking to others and they
explained the way they look at agencies,the way they look at businesses,
I was like, oh wait, we've been kind oflazy in a couple of areas financially.
And it just forced me to think aboutthe business in a totally different way.
And even though we never sold to PEand actually we're looking at acquiring
(24:04):
agencies right now,
that function of thinking abouthow would an outside finance
person look at my business,change the way I ran the business,
not in terms of personality, the way Icare for people or anything like that,
but just the way I look at the numbersand the way I look at the ratios shifted
when I took that perspective. AndI think really every business,
(24:24):
every e-comm business needs to look atthat. How am I looking at my p and l?
How am I looking at my forecast and canI get there from here doing what I'm
doing now? So.
Really good stuff when you dothat, Brett, for the agency,
the same exercise for an agency asit is for an e-commerce business.
It's just a question of theratios are different, right?
Service business,
(24:44):
it's about marked up time and the costof goods is people basically, right?
So do you have a framework throughwhich you're trying to view
how at MG Commerce how much
margin you have per client or per heador something like that, as a percentage?
(25:05):
I'm just curious.
I think you do this if you talkthrough how you think about the agency,
then the same principleapplies across to e-commerce.
Yeah, I think it's goingto be really similar.
So the way we look at a goodagency should be in the 20 to
25% EBITDA margin range,maybe a little bit higher.
And I think as AI becomes more prevalent,
(25:26):
there are other ways you couldlook at making that margin higher,
but that's a pretty good range. Soto get there, what does that mean?
And I think if you look atthe big buckets in an agency,
delivery is the biggest, right?
So these are the team membersthat deliver the service.
So what should thatratio be? You've got ops,
so that's SG and a basically.Actually not S, but anyways,
(25:47):
like the general operating opex and stufflike that. And then you've got growth.
And so growth, we putmarketing and sales together.
That's just the way wedo it to look at growth.
And so those ratios have toline up in a way that then gets
you to that 20 to 25%, ormaybe it is aggressive,
you're looking at 30% EBITDAmargins or whatever. So how are
(26:08):
you getting there? And so thenyou start forecasting, okay,
these are my team membersin these departments and this is what we're investing
and I'm projected to get 8% margin.So then you begin to look at, okay,
where am I out of whack?How do we fix this?
Do we grow our way out of this becausemaybe we have a lot of bandwidth and we
can grow into it. Do we makecuts? Do we get more efficient?
(26:30):
There's a number of things to lookat. So those are the areas we look at.
And then we break it. So we breakit down in big buckets like that.
We look at a p and L onof course a monthly basis.
We update it all the time,multiple times a week,
but then we also break down into eachdepartment kind of p and l and look at how
that rolls up,
and then what does each department needto contribute to then get us to the
(26:52):
overall ratios that we need. And so yeah,
we're planning things out annually basedon that. We also factor in things like,
okay, what is our pipeline?What percentage of deals are we're going to close?
What's our average dealvalue? So that's layered in.
We also factor in churn becauseeven though we think we're great,
we've won awards and people love usand things like that, churn still.
Happens.
(27:13):
It happens more when tariffs are goingon, stuff like that. So then how do we
factor in churn and look at that becauseyou're never going to keep all your
clients. And so we spilled that model andit's like you're constantly adjusting,
you're constantly tweaking.We do a weekly flash,
the finance report that looksat, okay, what changed this week?
How are we looking atthe rest of this month?
(27:35):
So that's kind of the base of breakdown.
And I think that exercise reflectsthere's a target profit number that you're
trying to get to. You just said 20 to 25%.
That could change dependingon all kinds of things.
It could have changed depending on theway that businesses in your sector are
valued. It could changedepending on your goals,
depending on the cash intensivity ofthe business, the cost of capital,
there's all kinds of thingsthat could affect that.
(27:56):
It could change just because of what youwant in life. And that's fine. Totally.
When I talk about this, to me,
it's not about me saying necessarilywhat I think good is in this case because
it's just going to change fordifferent people depending on goals.
I could tell you what I think how thesebrands are valued in the m and a market.
I have thoughts about that,
but then even how much you care aboutthat is your own question and when you
(28:17):
want to sell and all those things. Sothere's all of these other factors that do
that, but then you just kindof work back from there.
Here's the profit numberwe're trying to hit to.
Maybe you have for yourself some kindof a revenue goal that ladders down to a
profit goal that ladders down to yourtake home that you want or a valuation
that you want or somethinglike that. So you say, okay,
I need to hit this profit number,
which means I need to get to thisrevenue number. And then from there,
(28:37):
you just add in your costs. And thisis the thing for e-commerce brands,
you have to play that exact samegame. And I'll say for most of them,
that EBITDA number probablyought to be at least 10 to 20%.
Now, again, with the caveatof everything I just said,
which is in some ways it's up toyou, but for it to be valued highly,
(28:59):
if that's what you're aiming at,if enterprise value is your goal,
probably somewhere around therewhile the business is growing,
and then now you've got to thinkabout how you break down your costs,
very similar to what you justdid, Brett, for the agency.
So I don't know if you want me to gosort of section by section and talk about
what I think the costs ought tobe, then we could talk about it.
But this is where it varies a lot in.
Categories. I love that, and I did skipa very important step. It's like, okay,
(29:22):
we have very specific goals about whatdo we want our total profits to be for
this year, and as we grow andas we do some acquisitions,
what do we want the overallOMG platform to look at?
So you do start there and top line goals,
and then you back into all thoseget all percentages. But yeah,
let's break it down. So what shouldthis look like for an e-commerce brand?
How am I structuring my p and l?
(29:42):
Yeah, so the starting pointfor this conversation is if you
think about the notion,
Taylor Holiday four quarter accountingis a helpful way of framing this.
There are four sections afterrevenue on your p and l.
So it's cost of delivery, CAC and opex,
and then profit. Those are the foursections of your p and l, okay?
(30:04):
Cost of delivery includes every variablecost associated with getting your
product to a customer.
CAC is every ad dollar or marketingdollar that gets deployed.
OPEX is every fixed cost in your business,
which is mostly people andan e-commerce business.
And then profit is left leftover.So let's work backwards. Okay,
so profit obviously the numberyou're trying to aim at.
So one of the things that should behappening in e-commerce business,
(30:25):
basically no matter your sector,
and I think this is the thing that isthe most true across every category,
is that your opex is a percentage ofyour revenue should be pretty low.
And it is amazing to me howhigh this number still is.
But one of the fundamental advantagesof e-commerce is that it scales really
well relative the number of heads youhave and even cost of those heads.
(30:47):
Opposite of agencies. But yes,it's very true for e-commerce.
Opposite of agencies. Soas a simple heuristic here,
your total fixed costs is the percentageof your revenue as you grow in
particular ought to be less than 15%.
So essentially that means if youhave a million dollars in revenue,
your total cost of all opex includingsalaries ought to be $150,000 or less.
(31:07):
Now at a million dollars,
it's pretty hard to hit that numberbecause you have not actually scaled yet.
But the more you scale,
the more you obviously thatpercentage come down because,
and the simple reality that happens inevery part of an e-commerce business,
the illustration I use all the timeis that it costs basically, well,
it costs the exact same amount of moneyto design an email that you send to a
thousand people versus thatyou send to a million people.
(31:27):
The design costs are literallydollar for dollar the same.
You got to pay Klaviyo a little moremoney between those two, but otherwise,
all of the other costs arepretty much exactly the same.
And so that means that the percentageof your cost of people goes down a whole
bunch. If you add in the abilitywith AI now and with offshoring,
which I'm a huge believerand proponent in my team,
(31:47):
I mentioned there's seven oreight of us in the Philippines,
they're incrediblecontributors to my team.
I don't think of them asseparate or something like that.
Totally. They're pure team members.
And they are killers,
and I can get access very highquality talent in the Philippines
for much less money than I can accessthat talent in the US equivalent talent
(32:10):
because of the differences in theeconomies and some of those things.
It's a win-win. So if you addthose two things together,
now you have talked aboutshrinking your opex even more,
and you can be really best in class hereand get that number under 10% and maybe
even lower. I've heard about,
I think Zach Stocks has talkedabout publicly somewhere that,
or maybe that maybe I heard Marketing.
Operators, what brand does he run?
Hollo socks, Zach, some people know himand he had started Homestead agency,
(32:34):
some other.
Brands as well. Great agency. Yeah.
So Zach was talking,
I think on marketing operators thathis brand is like five or 6 million in
revenue per head, which is crazy.That's wild. That is a very,
very lean opex. So thatis the number one thing.
And I think a lot of brandsactually are still sucking.
They're just paying toomuch money for people.
I recently had Ben Perkins onfrom Ann Call on my podcast.
(32:57):
He was at $15 million in revenueand was drowning in debt.
He had taken some inventory based loans,
was paying $65,000 a week in loanrepayments and trying to figure out how
to stay afloat.
He had $3 million in debt against10 million in revenue at one point,
which is not really workablein a lot of e-commerce brands.
So he started smashing all of thecosts that he could in his business.
(33:20):
He ended up cutting half of his laborand discovered something which was that
the business did not change.
Nothing happened, right?
If anything, it got smoother.
And Ben is clear and graciousto say that's not necessarily because those people
were either bad or not working hard.
Part of it's because managingpeople is very hard and he.
Wasn't.
Great at managing them hundredpercent. And so he had made bad hires,
(33:42):
he had not managed themwell, all those things.
But he found that by being leaner,
and I just think so many brands can beleaner. So that's number's number one's.
Also software of analogy onthis that I think it hits.
It's like is meta or YouTube incrementalfor your business? Well, it should be,
but you could be screwing it upand if you're screwing it up,
it might not be incremental at all.
That's right. That's.
(34:02):
Right. I think it's the same withpeople. They're not bad people.
Maybe they're working really hard,maybe they care, maybe all those things,
but maybe you've just got the structureincorrect or you're managing 'em
incorrectly or you just don't need 'em.And so they're busting their tails,
but actually it's not writingincremental value to you. And so yeah,
Ben talked about that.
His solution to the problem was to createa personal p and l for every one of
(34:24):
his.
Employees.
So basically to answer this question,
is this person generating incrementalvalue in the business and here's how we're
going to measure it.
And he said some of them did notwant to partake in the exercise,
so he offered them a graciousseverance and they left.
And then the other ones whowere willing to participate,
it turns out they were driving a wholebunch of value as measured on a p and l,
so he did the exact thing he.
Just said. Interesting.
(34:45):
Yeah, I thought it was brilliant.
So we're driving down our opex.Can't underscore that enough,
especially in e-commerce. Drivedown that opex, okay, what's.
Next?
It's so fundamental to what makes makean e-commerce business work and people
need to be really clear about that.
Software bloat is the otherthing to watch out for. There.
Typically.
Not as expensive as people,but it can get expensive.
People just have too many things tothe chasing shiny object syndrome.
(35:06):
You don't need to do that for a while.
So opex should be shrinking asa percentage of revenue. Again,
in a forecast you shouldsee as my revenue now.
So if you forecast up 1 million to5 million to 10 million in revenue,
whatever that growth rate is,
you should be seeing that you'rehiring is not going linearly with that,
but that people are nowable to create, again,
(35:28):
have operating leverage in their people,
which is to say theygenerate additional value,
not just the same amount ofvalue as before. And so you got to keep hiring them.
Again, very different than anagency to service the revenue.
You have to keep hiring. Okay, exactly.
So that's the starting point. Okay. Thenyou get into CAC and cost of delivery.
Now this is where you're going tohave more variation across different
(35:51):
industries.
So apparel businesses are going tofunction in both of these regards really
differently than supplementbusinesses, than beauty businesses,
than food and Bev.
All of these things are going tohave just home goods, whatever.
And so this is where you get toall kinds of different setups.
What I will say about this is more that,so if you want to say best in class,
(36:13):
let you just want a heuristic here.
If you say 15% opex or lower,
30% CAC or lower in your business,so your total spend is 30%.
So I'm spending a third of my revenuebasically on marketing or on customer
acquisition.
Correct? On.
Marketing.
30% In cost of goods,okay, cost of delivery,
(36:33):
totally delivered to thecustomer. Right? Now you've got.
That's cogs, that's shipping,that's cost of fulfillment.
Costs, merchant account fees.
Refunds, all.
Those things. The 3% you have to payShopify and credit card companies,
everything in there.
The dollar 50 or three PL is going tocharge you for fulfillment costs per
order, plus any pick and pack. There'sall of these little things that come up.
(36:56):
The cost of ordering the product,
getting it from essentially fromyour manufacturer to the customer.
That whole journeyrepresents all these costs.
If you can get that to 30% aswell, now you've got 30% COD,
cost of delivery, 30% cac, that's60% of our money is going out there,
15% opex, and now you have 15%leftover. Did I do that right now?
(37:17):
Now you have 25% leftover,you did 5% leftover.
That would be super best inclass, be amazing, 25% left.
The reality is most businessesdo not have that much margin at
30% total, and they're notrunning their CAC at 30%,
but if you want to know why there areso many supplement businesses in because
they can do both of those things,
(37:39):
they uniquely are able to do this.Their CAC shrinks as a percentage of their
revenue over time because customers comeback so much that returning customers
make up a larger and larger percentageof their revenue pool. By the way,
there's some similar dynamicsin skincare. The product beauty,
the cost of creating theproduct is very cheap.
The cost of shipping the product is cheap.
All of those things come together andyou can charge a good amount of money and
(38:01):
get AOVs to 70 or a hundreddollars or whatever it is,
which can be helpful as well.
You put all that together and you canrun a really high margin business.
The truth is for most brands,
they're going to actually be spendingmore somewhere. And the question is where,
so for a lot of brands, if youcan get even two 60 points,
or if you add 10 more pointsof cost to your cost of
delivery, 30% to 40%,
(38:23):
that's probably more realistic forwhere a lot of brands end up in a lot of
cases.
And now you've got 15% profit margin andthat's still a really healthy business,
something like that.
Still a great business.
Or you have someone like Sean from theRidge who I think he said he spends about
40% on cac, right? So then this.
I going to points.
To.
That side. This is another way to do it,
which is I have a brand thatdoes something very similar,
which is they have extremely highmargin and they want to grow.
(38:45):
So what do they do?
They turn around and they plow moneyinto ads and they're like, We are just
going to push our growth reallyhard on ads, and by doing that,
we're going to be really profitable andby staying lean at the same time with
our team, we're going to be really,really profitable. So now, yeah,
they run like 40% cac, 30% orless cost of delivery and yeah,
15% or less opex, and they'rerunning it like a 15% margin as well.
(39:07):
If everything goes awesome, still agreat business. If everything is awesome,
then there's some places where theycan find some help on all of those.
They're hammering away out theircost of delivery all the time.
In any of those cases, youcan have a strategy. Now,
there's exceptions to thoserules too. We mentioned simple,
modern earlier as anexample of this, and simple,
modern did not start offfirst of all to DTC brand.
(39:29):
They started off as an Amazon brand.
Amazon brand, and that's important.We've seen so many of those, by the way,
so many born on Amazon brands, and whenthey try to make that transition to DTC,
it's so hard because themath is all different.
Amazon is a demand capture platformand it's razor thin margins,
but all the traffic is there and thatsets what you're capitalizing on.
(39:50):
It's not really demand gen propositionthere. And so it makes it very.
Difficult and in competitivecategories on Amazon,
being able to be priced cheaperis a really big advantage.
That's basically a marketingplay, right? There is usually.
Price.
So the simple modern guys tested fivedifferent products when they launched on
Amazon, all within trends thatthey thought were taking off.
It is super genius when youlisten to what they started with.
(40:12):
They're brilliant dudes. Brian Porteralongside Mike Beckham. Brian is there.
I know Brian well, and youadmire Mike. Yeah, he's great.
Yeah,
both fantastic people andjust killers and the softest,
gentlest, kindest killers met.Yes, gentle killers. But Brian,
he talks about the early days and it'sreally helpful to think about this
(40:34):
through a p and l lens because whatthey did was they said like, okay,
we're going to pricecheaper with drinkware,
with stainless insulateddrinkware than other people are,
and we're going to create more variantoptions than what is currently available.
Because if you think about thelegacy players in that space,
the Yeti Hydro flask, theybuilt for mass retail,
and so their business wastuned for mass retail first,
(40:54):
and that meant pricingstrategy, product skew strategy.
All these things were built for that.
Black, white and blue and maybered. That's all I can afford to do.
I got to send that everywhere in retail.
Right? And so they said,we can create more options.
People like to accessorizewith their water bottles,
and so I can create more options at alower price and a really great product.
(41:15):
The net result of that,
and this is the p and l implication thatI think is helpful to think about is
that they have, and they'vebeen public about this,
but I don't mind saying it like30% margin. So at a DTC level,
it's like 60 to 70%,
I think closer to 70% of theirrevenue immediately goes out the door.
Maybe 65% of their revenue immediatelygoes out the door to product costs and
(41:36):
cost of delivery, gettingit to the customer.
So they only have 35points of margin leftover,
which blows up the entire paradigmI just told you about, right?
Right.
Yeah. But it's because itwas a channel strategy,
which was to start Amazon firstand then DTC came in after that.
And this is why, like yousaid, some brands really struggle to go the other way,
and this is where sometimes there isan issue here with product channel or
(41:58):
product business model fit,Where you have the right idea,
but you're just in thewrong channel for it,
and you need to change the whole businessmodel to match the channel that you
are in. And I think thisis actually a problem.
I operated a business like the SE four400 where we just needed to be a mass
retail business because the math didn'twork very well for us. We had low LTV,
it was very expensive to ship,
(42:19):
and it was just really hard for us tomake the math work as a DTC brand. Now,
eventually,
simple modern of course now has areally good DTC business as well because
they're really big.
And so they've been able to generate somuch awareness and all those things that
they can make it work, butit wasn't their lead channel.
And I just think it'shelpful to understand that there's reasons for that. And
when they went and launcheda hydration pack brand,
(42:39):
they're doing that DTC first with apotential mass retail output eventually
because that product makes waymore sense on the channel in
all of the things thatI just laid out before.
And so brands need to get reallyserious about, wait a minute,
if I have low margin,
let's say I end up with 50%margin leftover after my cost
(43:00):
of delivery or 45% mycost of delivery, gosh,
DTC is going to be an uphill slog.
There better be a reason that Ithink I can do it. And there may be,
may be because you have some pricingstrategy that gives you some unique
advantage of, I don't know. But therewould be ways to do it. But yeah,
I think that's the thing that peopleneed to get really clear about is how is
(43:22):
their approach to their margin profilefitting with the channel? And if so,
because my friend Kelsey Lyricand I have debated about this,
but I think it changes the whole modelof the business. The business model,
if you don't have product channel fit inquite that way and you have to think it
very differently about nearly all ofit. The moment you go to mass retail,
the amount of heads you have andthe amount your shipping works,
(43:43):
all that stuff changes.
So sales commissions and allthese different kinds of things.
Your margin profile has to fityour core channel or channels.
That's really important.
I think that's something that not a lotof people think about in the early days
especially, but it's something youneed to think about as you're grown,
as you scale. So let's do this, Andrew.
Let's talk about how are we projecting,
(44:05):
how are we predicting, how are wepivoting along the way as we go?
So we've kind of talked about thesenumbers. Obviously if we're out of whack,
there better be a reason for it.
We'll be able to make thatwork on our channels. If not,
we're going to need to startmaking some adjustments, some cuts,
things like that.
And you may have another note therebefore we talk about projections. Yeah.
Okay, cool. So then how arewe looking at projections?
(44:28):
And again, to use the Moneyballexample, how are we taking data,
this p and l that we're looking atand using it to make decisions and
operate our business so that weactually hit those profit targets?
So what ends up happening,if you do this exercise,
if you forecast all of the parts of thep and l that I just said over a period
of months or years or whateverit is, something will happen,
(44:49):
which is that the numbers will be thrownin your face in a way that will tell
you if you are somewhere or not.
And then their question is if youare close or if you're somewhere,
let's say you get that andyou're like, Ooh, we're at 5%,
and if things go wrong, 5%profit, and if that goes wrong,
that takes us down to zero,that takes us down to whatever.
Then you have to start thinking aboutwhat is the solution to this problem?
(45:12):
Do I need to just grow faster so thatmy opex becomes lower as percentage of
revenue? Do I need to fire people? Do Ineed to go negotiate my manufacturing?
I have a little theory right now,
which is the supply chains are themost underoptimized part of e-commerce
businesses.
Totally agree. Nobody got toin the past, didn't need to,
didn't feel like we needed.
To. And it's a lot to do. It's hard.
There's a lot to do.
(45:32):
Exactly.
Somebody like me gets on a podcast likethis and tells you another thing to
think about and listen, there's 70podcasts like this that are new.
There's probably way more than that.There's probably 500 podcasts like this,
all of 'em with peopletelling you what to do,
it becomes really challengingto stay on top of all of it.
And so anyway,
we went through I think the marketingrevolution in e-commerce where people got
(45:54):
really early on, that wasa big part of the thing.
Finance revolution has been happening.
More and more brands recognizethey need to be profitable.
They can't just try to blitz scale. Theyrecognize their business is worthless,
it's not profitable.
They're listening to the finance operatorsand following mates have and Drew and
Taylor Holiday and people like that on X,
and they're getting their feet wet withhow to think about forecasting their
business and some of the things I'mtalking about. But there's another step
next, which is like now, okay,
(46:15):
how do you actually go negotiate a supplychain and build your supply chain out
and do those things in a way thatis actually good for the business?
And I do think there's a lot of biggerwins there than people realize just by
talking to more manufacturers,negotiating with your three pl,
there's just a lot there. Ihave brands who've done this,
shout out to my friends at MoveSupply Chain, who they've worked with
(46:39):
on this where it was like, wait a minute.
We had this product that wascosting us $5 per unit to make.
Now we got it down to two.
And no customer has ever said aword about it being different.
It's still good product.
They just did a bunch of stuff to gowork somewhere else in the world and.
Make 60% reduction in cogs. Huge.
Gigantic impact on the business. Massive.
(47:02):
And so there's a bunchof stories like that.
So yeah, I just think that could bewhere it is, where you go like, oh,
we have to go manufacture somethingdifferent. I'll tell you from my brand,
my brand is in a category where the
packaging is more expensive thanthe product, than the actual.
Product. Interesting, interesting.
(47:22):
And so we are going to launch with pricesthat we think are pretty decent at the
level of cost of delivery, but rightaway, I'm right away thinking, shopping.
Additional manufacturers that actuallyworked with that same company might move
supply chain. They started with 60, so
a 60 on product and 20 on packaging. So
we already are somewhere on that.We looked at a lot of manufacturers.
(47:46):
But immediately I'm thinking about, okay,
at what level do I get a pricebreak by ordering more of these?
Do I need to go actually redesign thepackaging, the most expensive part of it?
If I could shave two bucks off ofthis, it's probably worth doing.
There's a lot of questions like that thatcome in because I know that everything
in the business will getsmoother if I have more Martian.
(48:08):
It's just a superpower.Totally. And so anyway,
so you can play that out in your businesswherever it is. What are those giant
costs that are just killing you? They'resomewhere in your business probably.
And you just start by saying, okay, whatis the place that I try to go to next?
Look at it with somebody smart, gota coach. If you need some input,
somebody can probably lookat that with you and say,
(48:29):
if you've been in your businessfor four years and you're like,
I have had ideas, thenyou can do those things.
But people will have ways to go andsay, Hey, have you looked into this?
Have you considered that?Have you thought about, Hey,
your air shipping stuff all the time?
Stop doing that because yourforecasting is bad. You're behind.
You need to get back to ocean freight.That's a big whatever, whatever.
There's all kinds of things like thatin every business because it's hard.
(48:51):
And so you could start kind of hammeringaway doing that forecasting exercise.
We'll start to surfacethose things for you.
I love it.
And it's one of those things too thatwith all the tariff madness that's going
on right now at the time of recording,
it's forcing people to look atdifferent locations for manufacturing,
different factories, differentways of getting the product here.
And I think in that process,
even though that's painful and notsomething any of us want to be doing,
(49:14):
you're going to find opportunities inthere and you maybe going to shave off,
you're going to find five or 10 pointsor 20 points or something like that.
That would.
Be, it could be a game changer foryour business or maybe you're not.
Maybe it's going to bea terrible experience,
but you work towards that for sure.
I have a theory really fast, Brett,
that the upside of this whole thing isthat tariffs will be a forcing function
for better supply chain creation forpeople because they're just going to have
(49:34):
to, and that it'll be, and that win forsome brands, not all brands. Totally.
For some way.
Yeah, it sort of relates.
But if you look at the iOS 14 and justall the madness that happened there,
it forced us to be bettermarkers. We had to.
And so I think it's going to dosomething similar here with supply chain.
And I want to be mindful of time, soyou lemme know if we need to wrap up,
but I want to look at cohorts and LTV and
(49:59):
composition of new customers and returningcustomers and how you forecast that
and how that informs this process. So doI have time to get into that or do we.
Wrap up? Yeah, this is good. This'sgoing to be the last question.
So that's, there's a lot there. Best,best, yeah. I'll tell you what to do,
honestly, go to my website,
(50:21):
put your email address in theemail popup or in the footer.
Either one will work. You get my fourfree essential e-commerce resources.
It's going to sign you up for mynewsletter as well. I don't spam you,
I promise. AJF growth.com. Gothere, sign up for my newsletter.
One of the things I will send you isfrom some lovely venture capitalists at
Lightspeed Venture Partners puttogether a whole prebuilt like
(50:44):
custom spreadsheet that helpsyou and walks you through how to
forecast returning customer cohortsoff customer data. It's hard work.
Another recommendation I say topeople is Dave Ook, CXL class.
So the CXL course,
he talks you through how heat forecastbusinesses. He's a really smart guy.
I worked with him really closelyfor a long time. At four 400,
(51:05):
he still runs BambooEarth, but if you do that,
it will give you a whole prebuiltspreadsheet for how to do it.
And I basically had at one pointcommon thread collective took the
Lightspeed model and built ita little bit for themselves.
I've since tweaked it a little bit formyself and I will send you mine for free
so you can do that. And that'sprobably I think the way to do it.
(51:27):
But if you can just seehistorical returning customer behavior over months after
purchasing and then put that into aspreadsheet that will tell you, okay,
what does that mean for the customersthat acquired today in six months?
How much are they worth? You can pileall those cores on top of each other.
You can get a really good revenueforecast. That's surprisingly reliable.
They're more reliable than people think.
And then you can look at, okay,
my new customer acquisition activitiesare underperforming or overperforming,
(51:51):
and what does that do to myprojections? That's right.
And then you can understand, okay,
I need to make some pivots now becausethis is going to have a real material
impact to my business in 2, 3,4, 5 months, things like that.
So awesome resource, a big job.
But if you commit to it, it's abig job. You can do it in a day.
It's not that of a job, butif you commit to it, then
(52:13):
I always say my best clientslive and die by that spreadsheet.
Yep. And it's one of those thingsthat once you start down this path,
it will transform the way you run yourbusiness and things will never be the
same.
And you can unlock a different level ofperformance and profitability that will
never happen for you if you're notlooking at your business this way.
So I agree. Andrew, this isfantastic. I know you got a jet.
(52:34):
What's your website one moretime? So we want to check.
Out that resource. Yeah, AJF,like my initials, AJF growth.com.
And if people can find you on.
Everything there, podcast there,everything. Yep. X at Andrew j Faris.
Yep. And Andrew Farispodcast. Check it out. Andrew,
this has been fantastic,man. Super, super fun.
Look forward to the next go roundand thanks for taking the time, man.
(52:56):
Thanks Brett.
And thank you for tuning in.So we'd love to hear from you.
What would you like to hear more of onthe podcast? Let us know. And with that,
until next time, thank you for listening.
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