#317 – The Three Numbers That Amazon Sellers Need To Know With Arnold Shields

#317 - The Three Numbers That Amazon Sellers Need To Know With Arnold Shields Speaker 1: Welcome to episode 317 of the AM PM podcast. In today's episode, my guest is Arnold Shields. Arnold is from Australia where he's a chartered accountant, which is similar to a CPA in the US. He's got close to 600 clients that he works with that are e-commerce, primarily Amazon sellers, as well as he's a seller himself doing several million dollars per year on Amazon. So he really knows his business and he really knows this game. And more importantly, he really knows his numbers. And that's what we're going to be talking about today. Not the most exciting thing. It's not the glamour of selling on Amazon and all the cool pictures and video and everything. It's all about the numbers, but it's crucial that you understand this. And hopefully after listening to today's episode, you're going to revisit some of what you're doing and take a good hard look and make sure you know your numbers. Unknown Speaker: Welcome to the AM-PM Podcast. Welcome to the AM-PM Podcast, where we explore opportunities in E-commerce. We dream big and we discover what's working right now. Plus, this is the podcast where money never sleeps. Working around the clock in the AM and the PM. Are you ready for today's episode? I said, are you ready? Let's do this. Here's your host, Kevin King. Speaker 1: Arnold Shields, welcome to the AM-PM Podcast. I'm happy to have you here, man. Welcome. Speaker 2: It's fantastic to be here, Kevin. Speaker 1: It has. When was the last time we saw each other? I think the Billion Dollar Seller Summit, right? Speaker 2: Yeah, 2019. Speaker 1: I know. And then you bought an early bird pass to like the next one, then COVID hit. And so you couldn't come. And then I remember you were you were eager to come back to this this last one. And and you're looking at these airfares because you're coming from from Oz down in Australia. And it was like some crazy amount of money to actually fly here. And you're a taller guy. So, you know, economy seats are just not going to cut it for a 15, 16 hour flight. So I'm looking forward to hopefully maybe seeing you at the event next year. Speaker 2: Yeah, no, it sounds good. Puerto Rico, isn't it? Speaker 1: Yeah, Puerto Rico, exactly, in June. Speaker 2: Yeah, it sounds good. I'd love to be there. Speaker 1: Awesome. Well, let's tell everybody, a lot of people probably don't know who you are. They may have taken the Freedom Ticket course and they may have seen that you have a little module in the Freedom Ticket where you're talking about a bunch of numbers and spreadsheets and stuff, but tell me a little bit about yourself. What brings you to this Amazon game, this e-commerce game? Speaker 2: Well, I'm an accountant, so we've got a chartered accounting practice. And yeah, we specialize now in Amazon businesses, but... A long time ago now, about 2015, I had someone I knew come to me and said, oh, I've done this Amazon course. And they were doing lots of different internet courses at the time. And they said, oh, I think it might be OK. And just can you have a look at it and see how our numbers are going? And they'd actually done fantastically well in their first year. This is back in 2015. And we got a couple more clients after that. And then we just kind of basically said, well, I was using one of their accounts to go in and check which reports we had to download. And I thought, well, this is a bit silly. Why don't we just set up our own product and kind of order 500 units? It's just something that we kind of need anyway. And if it sells, great. If it doesn't, well, we'll give them away as corporate merch. So, that was 2016 and that product just started selling. So, we've been selling consistently now since 2016. So, in 2015, you're just minding your business. Speaker 1: You're just an accountant down in Australia. Which part of Australia? Speaker 2: In Sydney. Speaker 1: So, you're just an accountant in Sydney just dealing with a bunch of stuff. Somebody comes to you, an Australian seller that was probably selling in the US. Speaker 2: Yeah. Speaker 1: Comes to you and says, hey, I need some accounting work done. Says, I'm selling on this on Amazon in the US. You're like, you may have like, oh, OK, that's great. And take a look at it. It looks interesting to you. So you're like, you know what? I want to dabble in this as well. Let me see what I can figure out. And just did it almost on a lark just to kind of figure out how the system works. And now that's turned into actually a business that's still running. And you're still doing the accounting for a bunch of people on the side. Speaker 2: Yeah, so we've got five or six hundred Amazon clients. And yeah, the businesses, we kind of said in the beginning, we're just going to grow this organically. So we're not going to put extra money in. So we put in, you know, I think it was about twelve grand at the beginning and it's grown from there. It's now a multi-million dollar Amazon business. So it's kind of fun. Speaker 1: And are you running that yourself or do you have a team that's under you and you're just kind of supervising or what? Speaker 2: No. I'm just running it myself. I'm about to get a team on. It's got a bit more serious now, so I've got to get a team on to do some of the things. Some things are just annoying in Amazon. Seller Central, it just takes some time. So just getting a team in place to do some of that stuff. Speaker 1: So you're going in there yourself and actually creating the shipping plans and doing the PPC and all that kind of stuff and checking the customer service. How many SKUs is it in this account? Speaker 2: We've got 20 SKUs now. Speaker 1: Okay, and just selling in the US? Speaker 2: Well, we're actually in the UK and Europe as well. Kind of a messy place there at the moment. I'm not that keen on that one. So we're just probably gonna just concentrate in the US for a bit longer. Speaker 1: But no Australia? Speaker 2: A bit in Australia, but it's only what's in the garage type thing. Speaker 1: It's just not much volume down there. Speaker 2: The leftover samples, you know, you buy, when you get an order done, you might say, oh, let's ship one box back here and we'll get some photos done and then you've got, you know, you take two out for samples and photography and you've got another box so I can ship them off to Amazon Australia and see how they go. It's not a big market, it really takes the focus away. Speaker 1: eBay's a big market still for a lot of Australians when it comes to e-commerce, is that correct? Speaker 2: Yeah, it's just it's a different type of stuff you get on eBay as well. It's probably the same in the US, but eBay is much bigger. But Amazon's catching up quickly. Speaker 1: Australia has a big Amazon seller community and you got the endgame network down there. You got some other big outfits. So most of those people are selling in the US then, primarily. Speaker 2: Absolutely, unless they're just beginning. Yeah, okay, we're just starting out seeing how it's going. They're going into Amazon Australia is a very cheap way to get into the whole Amazon marketplace. Speaker 1: Now with five to six hundred you said clients on the accounting side, so are you in the US, you know, there's CPAs. What's the CPA equivalent in Australia? Is there something similar to that? Speaker 2: Yeah, so chartered accountants is similar to CPAs in Australia. Speaker 1: Okay, so you you have a team then of like bookkeepers and people that are doing the books and then you're since you're the chartered accountant you're just doing the final sign-off basically? Speaker 2: Yeah, I've got a team of chartered accountants as well. Okay. So they kind of handle that stuff and I kind of look towards, they handle all the tax and all the compliance stuff and I kind of look at more strategic direction of people's businesses. Speaker 1: So there's probably quite a bit of stuff if you're dealing, are most of your clients Australian sellers or you have people from all over the world? Speaker 2: Most of them are Australian sellers. We get some international sellers coming to Australia but most of them are Australian sellers. Speaker 1: So they probably like that then because then you can come in and you can hone, you know, okay, the US tax stuff so you can help them with that, navigate that process that if they're based in the US especially, that a lot of them might be foreign to them or might be scary to them, you can really kind of hold their hand and make sure they feel comfortable and safe doing that. Would that be correct? Speaker 2: Absolutely. Plus, because we've been running an Amazon business, quite a successful Amazon business, we are one of our most successful clients. Because we've been running it, we know everything they're spending their money on. We know where the pitfalls are, when to change things, when to keep on going, when to slow down, when to speed up. Speaker 1: So your product, what category are you in, the product that you have that you personally have? Speaker 2: We're in office products. Speaker 1: In office products, okay. And was that, what do you think the key to that success was? You said you started out with about 500 and now it's a, you said I think an eight-figure business, is that correct? Speaker 2: Yeah, no, we're doing a couple of million a year. Speaker 1: Okay, so a good healthy seven-figure business. Were you right place, right time in 2016 or is there something that, was it luck or something that you did that made that actually take off to your surprise? Speaker 2: I think it was just a case of all the things you need to do properly. I mean, we've launched more products since then and some of them have gone okay, but I think some of them have done very well. So I think it's just getting in those basics of making sure you've got a good converting page. Speaker 1: But one of the basics when it comes to is, I mean, there's lots of basics in the sexy stuff about the marketing and the converting pages and the videos and all that. But one of the basics that a lot of people overlook is the financial side. And I don't know how many, I know you do all kinds of spreadsheets and you have stuff that you offer for free to sellers. I'm sure you have some more advanced stuff that maybe you help with your clients. And you did the module on the Freedom Ticket that's all, you know, it's a spreadsheet. So anybody that has access to Helium 10, you can go, Freedom Ticket is free. You can go in there and you can find Arnold's module in there and there's some spreadsheets and stuff there. I think he may have a couple others that he's going to share as well in a little bit. But that's so important that most people just They don't do that. They watch a course or YouTube video and it says, yeah, you're selling it for $20. You can buy it from the factory for $3. Amazon's going to take a couple of dollars, a 15% commission. Look at these profits. You're making $13 on every one of them that you're selling or something. And they forget everything. And that's cool. So if I spend $5,000, I'm going to make, you know, it's got this kind of ROI, I'm going to make $10,000. Cool. I'm off to the races. Here's my life savings of five grand. And then boom, two months later, they're broke as a skunk. It didn't work. They're out of stock. Why is it that so many people can't understand the financial side? Is it just because it's numbers? Is it because they don't understand? Because nobody teaches it? Because it's not sexy? What is it about this that always stumbles people? Speaker 2: I think it's a case of there's a couple of things. One is it's the first one is about cash flow. Every business is about cash flow. And in Amazon business, it basically means You've got to be making, understanding what that cash flow means. So, we see a lot of people who will grow really quickly and then basically have no money, go out of stock. So, it's about tempering that business. So, quite often we're talking with people about you don't need to grow super fast or you can't afford to grow super fast, you've got to slow it down. And that's Really, where we started with, you know, where we met a long time ago was one of the first spreadsheets I did was just explaining how that cash flow model works. Because in the first really three or four years, any money that you profits you make, you've just got to buy more and more stock. And you've got to keep on doing that for quite a while to just build up that level of stock that you need. Speaker 1: I think so many people get into this where they think that they want to quit their day job or their other job and like, oh, if I can do this, I can start taking a salary and living high on the hog six months or three months from now. And it just doesn't work that way. Speaker 2: Yeah, absolutely. And we did some studies on our clients and so converted to basically US dollars. If all our clients who had sales of over $700,000 a year were able to pay themselves a salary and none of them under $700,000 were able to pay themselves. So basically, if you were under $700,000, you couldn't afford to pay yourself a salary. But if you're over $700,000 in sales, they all paid themselves a salary. Speaker 1: Where do you see that salary scale? So if I'm $700,000, am I, I mean, I know there's lots of variables in this, but just as a kind of a rule of thumb for someone listening that's maybe just starting out, if I got to $700,000, What could I maybe expect? Is that a $30,000, $50,000 salary? Maybe, depending on if you've got some good numbers, or is it, I can make $100,000? Where do you see that most of the sellers need to be at to actually start making, let's say, $100,000 a year that they can put actually into their pocket and pay their bills and pay their rents? Assuming there's a number of variables, but just on average, where would that be? Speaker 2: So, you've got two factors there. One is you've got to – every time you take out money out of the business, then that is money that you can pay for stock. So, at some point, the business has got to be big enough and it works out about that $700,000 to a million in sales. Where at that point, you've got enough money, the business should be generating enough money that it can have enough to pay a salary and also have enough to fund growth. So, if you want to pull out... Pull out $100,000, you're probably, I would say you're probably looking at about $1.5 million in sales to pull out $100,000. Top line gross sales. Yeah. Speaker 1: Yeah, I would say that's about right. It depends on your turnover, it depends on your margins and a few other Factors in there, but I would say that's about right. So these people that are, you said you started with $12,000 back when you, when you launched your 500, 500 units, do you think it's possible in today's world to start with, with less than $12,000 or less and actually grow a business on Amazon? Or if, can you start with 12,000, it's just going to be a slow climb and maybe you'll have some beer money on the side or can you, what do you think that it's evolved over the last six or seven years since you started? Speaker 2: Okay. Since I started this, a couple of things, and this has happened in the last two years, is the profit margins reduced. So before we were looking at net profit margins, yeah, after advertising, after all expenses, kind of in that 25 to 30% range. For a private label, yes, definitely for a private label. And in the last two years, we've seen that drop to probably 18 to 22. So, there's freight costs, increased PPC, a bit more competition, driven the margins down a bit. So, it makes it a bit slower. But yes, you can start with a smaller amount, probably not 12, maybe 20,000, Aussie, so US$15,000. But it just means you have to go slower. It means the first year, you're getting 50 to 100 grand in sales. The next year, you're getting US$250,000 in sales. The next year, US$500,000 in sales. Or you can put more money in. But you can just do that. It's about having real expectations of what that growth level is, because the faster you grow, the more cash the business is going to need. So, if you can grow slower, and growing slower in Amazon business is doubling it every year, as opposed to going from 200,000 to a million. You can't do that organically. Speaker 1: So if I've got five grand, I don't live in the US, I live in maybe Pakistan or South America or somewhere like that and I've got like five grand saved up or I can borrow it from my family members. Should I be starting an Amazon business? Are there still opportunities there, do you think? Or is it just going to be such a slow climb that I'm not going to be able to really make any money on this for a while, most likely? Speaker 2: You're not going to be making on it for a while anyway. So even if you've got more money, it's still three or four years before you can realistically expect to. You might pay back that five grand, but it's going to be a few years anyway before that money comes out, before you can pay yourself a salary from the business. At five grand, what we're telling our clients who are in Australia who haven't got as much, we say, okay, start on Amazon Australia. Yeah, start building up, build up that experience and what you really want to do is you want to turn that five grand into ten grand, into $20,000. Yeah, and building up those inventory levels so you got enough. The issue you could go into if you're in Pakistan, could you try an Amazon Singapore or Amazon UAE? Speaker 1: Just to get your feet wet and learn the system and learn how it works and just to get somewhere it's not so competitive and don't have to do such a big, yeah. Speaker 2: Yeah, rather than going into Amazon USA and just getting, it's always a tricky thing picking products and you might think you've got a great one but find out it's cutthroat. You can do your money pretty quickly if you're not quite sure. Speaker 1: So when a new client comes to you and says, hey, I've heard some good things about your firm. We'd like you to take a look at our handles, start handling our books. What are some just disasters that you see? Someone comes to you and they're maybe doing a million, 3 million, 5 million, and you take a look and you're like, holy shit, this is just a freak show here. This is just a mess. What are some big mistakes you see a lot of sellers just constantly making when they're coming to you when it comes to the accounting side of things? Speaker 2: Okay, consistently is dropshipping. Okay, that just is a world of pain. There's no margins in dropshipping. So, I've got very few people doing that, but when we get those ones, it is always a world of pain. It may work well in the US from working dropshipping from Australia, it just doesn't work. It's mainly where people have gone basically too hard with things. They've gone, yes, we're fully psyched up for this, we're going in and they've They've probably gone in and said, we're going to discount our product. Now, this is what we quite often see. So, they'll go in as a cheap start. So, they'll order a lot of units. They'll try and muscle their way into the market by starting off with a really cheap price, hoping to increase it later. The problem with that is Everything about their listing is designed for the cheap price and they haven't actually worked out whether it actually converts at a higher price. Then they place another order because sales are so fantastic at that cheap price, they try and sell it at a higher price and it's just gone. I think the other one, so they just can't sell, they end up with 5,000 units of a product that just is not going to sell at the price they want. Speaker 1: So do you have a lot of clients that come to you that think they're doing well and then within a few months or six months or a year they're not a client anymore, they're out of business? Speaker 2: Not many like that. Because most of them do these pretty good courses. Now, in Australia, there's a couple of good courses around that really do train them properly in terms of what to expect. Don't go too hard on it. Don't order 5,000 silicon spatulas. Just take it easy. Order 500 units, sell that 500, get some more, build it up slowly. And freedom tickets are the same thing. They don't push them. You're not giving them wrong advice and things. The mistakes we go at where people are probably go really hard on something. They've got more money to spend, they're really keen to make the success and they push a lot of money in without learning the basics first. Speaker 1: So when I know you create a lot of spreadsheets like you have a cash flow spreadsheet in the freedom ticket and I think that's how I first found out about you back Maybe it's 2016, 2017, you were doing like a little, I don't know how it got on your list, but I think there's like seven listeners or something like that and you would offer like a, you would do this little recording and 20 minute thing and you'd walk some way through a little spreadsheet like that. Man, there's nobody doing this out there. Nobody is actually showing, giving the spreadsheets. You know, they're all on these webinars and stuff just saying it's $20 to sell on Amazon, $3 to buy it from Alibaba. Look at you, you had $17 profit. Yes, you can start with $500. If you buy my course, I'll give you another $500 off the discount, so you have now $1,000 or whatever. There's crazy stuff like that, but you came up with a spreadsheet that's mapped it out for I think three to five years or something like that. How do, and it showed you like your account, your checking account, you like, you started with this and okay, if you order this much and this is your price, your checking account's gonna go negative, you know, on this date and you're gonna have to call your rich uncle and say, hey, I need a quick loan or you're gonna have to go sell the car or whatever. And I was like, nobody is showing this kind of stuff and this needs to be taught because people have a wrong, like you said earlier, a wrong expectation. But what if I don't know? What my costs are. A lot of the projections are just guessing. So how can I best manage that? If I'm new at this and I'm just trying to project out, how can I best manage that to try to have a realistic view of what I really need to do? Speaker 2: There's a couple of easy – the reason why – going back to that spreadsheet, the reason we initially developed it is because people were saying, oh, if I just make a dollar profit, then it's okay. I said, well, okay, that's wrong because the issue is if your profits are not high enough, you're going to need $10,000 this year, but you're going to need $50,000 the next year and $200,000 the next year to keep on running this business. So, getting back to that issue of that financial information they need and the forecasting, it's really just getting a feel for it yourself. I mean, at some point, you end up taking a risk. That first product is always a risk. You've got no idea whether it's going to sell or not. But just saying, okay, I've got 500 units there, let's see how it goes. 750 units, you can just keep on building up from that. I usually tell people not to, in the first year, their object is to get that first product stable. So, the inventory is stable on that. That's their object for the first year. If they try and launch too many products in the first year, they basically run out of money. And then the next year, you've got – you've got probably the second and third product. And a lot of the forecasts are really just based on, okay, how many products do we realistically – how many units are we realistically going to sell a day per product? Sometimes it's 100, sometimes it's 10, but you can get quite a good business just selling 10 units a day. Speaker 1: Yeah, you can. Sometimes it's not about the quantity you sell, it's about how you're selling or what the margins are. So a lot of times you can actually sell less and make more money than selling more. And a lot of people don't realize that. They just see big dollar signs, I need, they see people showing screenshots of high sales amounts, but you have no idea what their take home is off of that. Or if that was in the middle of a launch and a giveaway or some sort of promotion or something when they're showing these screenshots. Or the price was low, like you said earlier, someone comes in really, really low and then when they try to raise it up, it just falls, it's a house of cards and falls down. So what are like three, if you had to tell people like the three most important financial things that they need to know, whether they're a brand new seller or they're an experienced seller, what are the three numbers that you got to freaking know, or backwards and forwards in your business? Speaker 2: Okay, so the first one is your gross profit rate. So that's your sales, less your Amazon costs, less your cost of your product, down to that gross profit rate. You need to understand that that needs to be at least over 30%. Speaker 1: So let's back that, just to break that down. So that percentage is, you said it's the cost of the item, so whatever I'm paying my factory, The cost of the shipping, right? And taxes and whatever it takes to get it in. And that would include, like if it's just, if the shipping price might be, you're paying, I don't know, $5,000 to your broker to get it to California from a factory in China, but then you've got to get it from California into all Amazon's warehouses. You've got to include that price, that cost too. You're including a tacos, a percentage of something that you're assigning to advertising or no? into that. Speaker 2: Not at this point. Speaker 1: Not at this point? Speaker 2: Okay. Yeah. Speaker 1: Okay, so you're not including that, so then you're including any inspection cost, are you including any fixed cost in that at all? Like package design or any of that kind of stuff? Speaker 2: Generally not, because that's usually a once-off, it's sunk cost. But then it's going to be FBA costs. Speaker 1: Okay, so it's going to be storage fees? Speaker 2: Yes. Seller commission, 15%, should also take into account refunds, that refund percentage. If you've got a 6% refund rate, it's probably costing you about 2% of sales. Speaker 1: So should I just factor in, I don't know what my refund, if I'm selling clothing, my refund, or something with size, my refund rate might be 20, 30%. Speaker 2: It could be. Speaker 1: But if I'm, what should I just, before I know the refund rate, I'll figure that out later on, but before I know that, what's a good just ballpark number just to pencil in? Speaker 2: 2% of sales. Speaker 1: Okay. Speaker 2: Unless you're in fashion. Speaker 1: Okay. Speaker 2: Then it'll be higher. But 2% of sales is a good number to be with. And so, all those costs, And then so it's the gross profit which is sales less all those costs equals your gross profit. Then your gross profit rate is your gross profit divided by your sales. Speaker 1: And that needs to be ideally above 30% you said? Speaker 2: Over 30%. Speaker 1: Okay. Speaker 2: If you're under 30% you're going to have cash flow problems. Speaker 1: Okay Okay So that's number that's number one that you got it. You got to know that number. Okay, what's number two? Speaker 2: Okay The second one is tacos. You've got to have a an understanding of what your tacos is a lot of people kind of and That needs to it may not be it needs to be moving in the right direction. You want it to be so if you just launch your product your tacos is going to be horrible and But you want to be having a system so that that tacos does come down. Speaker 1: Just to explain that for someone that listening that may not know what tacos is, it's your A cost which is advertising cost of sale. So if I sell an item for $20 and it costs me $2 in advertising, maybe I'm spending 20 cents a click and it took 10 clicks to make a sale, that $2 divided into the 20, that's a 10% A cost. But on top of that though is maybe I sold one by advertising and also at the same time someone just found me organically. I didn't have to pay an ad and they clicked on it. So I sold two units. And so then instead of a 10%, it's now 5%. And that's where the talk goes. So it's the total advertising for all the sales, not just the sales generated from what you sold because you advertised. So I just want to explain that for those that may not understand that. So he's saying that the talk back on tacos, you got to know this number. So go ahead. Speaker 2: Yep. So I mean, that's going to be different along the way, depending on what we find is businesses that have really high gross profit rates generally will have a high tacos as well. But businesses that are successful that have a low gross profit rate will generally have a low tacos. But you've got to understand that and what that number is and which direction it's going. If you've got a product that's got a really high price on it, well, you're going to be advertising more for that. So, if you've got a premium product, you're not automatically going to be showing in the top of the ranking because your product's too expensive. So, you've really got to advertise there. So, those ones will have more higher things. It comes back to the point where your net profit Your net contribution margin, which is your gross profit less your tacos, that needs to be around 20%. Speaker 1: Okay, so a tacos, that's about a 10% tacos then. Speaker 2: Yeah, so 30%, yep. Speaker 1: So 10% and like you said, when you first start out that might be a 100% because you're having to get some positioning and you're having to introduce the product and get that, get it going, but over time you should be shooting for somewhere in 10% or less on your tacos. Would that be fair? Speaker 2: Well, you should be moving towards a 20% contribution rate. Speaker 1: Okay. Speaker 2: That's where the market seems to be sitting at the moment. Speaker 1: Okay. Speaker 2: And 20% will generally mean that you can grow your business and have enough profits there to buy more stock. Speaker 1: So if my gross profit is 35%, then I might have room for like a 15% in there to get to that 20% ideal that you're saying on the contribution margin. Okay. Speaker 2: Yep, absolutely. And we see our clients just range all the way through that. We have got clients who have got, you know, doing and this is for the bigger clients, not the ones who are starting. They range all around the place, but that's kind of how they ended up. You know, it ended up being, you know, around just over 22% profit margin after advertising and then on average, I think it was about a 15% tacos. Speaker 1: Okay, and what's the number three thing that everybody needs to pay attention to? Speaker 2: I think the next one, and the next one is something especially for bigger players. It is the inventory rate. So basically your inventory at cost divided by your sales. And there's no special number for this. It's going to be different for everybody and everyone's things, but you want that to be moving downwards because that is where everyone's, you know, you made all these profits, you've got this big business, And it's all sitting in inventory. You know, you, you want it in cash. So if you can make your inventory, your supply chain more efficient, basically you're turning that inventory into cash much quicker. Speaker 1: It's not, that's not about inventory turns that that's, that's a different figure. This is more of how much you've, this is almost like an ROI kind of thing. Like how much, how fast can you turn what you invest and how big can you make that and how fast can you make that? Speaker 2: Yeah, exactly. So, it's very similar to inventory returns. It's just an easier way of looking at it. The inventory cost divided by sales. And it's a number just for you, but if you can lower that, it's just going to free up cash. So, what we're doing with our business is, because I was running it myself and it was kind of easy, I'd be ordering stock every three months. Order stock every three months, ship it into Amazon, ship it into a 3PL, Directly into Amazon and that was kind of the system. It ends up a bit inefficient in a way because I'm kind of guessing where the next, you know, sales of the months two and three and it's kind of six months out anyway. So, it's a lot of guessing. So, what we're doing is looking at placing orders monthly and sending in to Amazon Basically weekly and with that we should be able to reduce our stock requirement by half so we can sell. Speaker 1: Why do you think a lot of people just don't pay attention to this just because it's boring and they don't like doing numbers or why is so many people they just they not pay attention to this is a core fundamental key to your success and so many people ignore it. Why do you think that is? Speaker 2: One, it's difficult. It's not that difficult, but it does require more work. But it's not sexy and fun. This is just the hard-nosed business side of it. We're coming down to the efficiency of your inventory and efficiency of cash. But that's something we're seeing across the board. And for most Amazon businesses out there, Unless they're concentrating actually on doing that, they're probably sitting with like a half the amount of inventory they've got. So, if they had $400,000 of inventory, they could probably do the same job with $200,000 worth. But that means there's $200,000 extra cash flow. So, it's just a matter of looking at it a different way. So, that's what we've started to do this year. That's kind of been a big focus. And it was difficult to do in the last two years. The last two years on supply chain was just horrible. Amazon brought in their variety of inventory restrictions. It was slow getting product in. Shipping prices went through the roof. You couldn't find containers, all those type of things. So, it was really difficult to put that in place in the last two years. But the combination of the extra competition, the declining margins mean that you have to become more efficient with your inventory if you want to continue to succeed in it. Speaker 1: So do you think it takes a different mindset depending on the level of seller you are? You know if there's one mindset when it comes to maybe the financial side at zero to half a million, another mindset up to five million or another mindset when it's ten million plus or is it all pretty much the same fundamental stuff or is there any shift that needs to happen? Speaker 2: Oh, there's definitely a couple of different mindsets. You'll see it quite often, you know, you get someone who's a fantastic product developer and they can develop all these products and they create beautiful, successful products. But then when you get to the $1 million mark, you know, $5 million mark, then it becomes an issue of, okay, we've got to do inventory management. It becomes an issue once you get over that point, you're suddenly going, okay, this is an inventory management type of game now. So, you're then looking at saying, well, you've got a bunch of products, you've got to keep them all in stock, you've got to keep them flowing through the process, keeping that efficient. Almost becomes a full-time job. And what we're quite often saying is the position, you've got sales up to a million, you can basically run it and you can run the business reasonably inefficiently. Then from 1 million to 5 million, it becomes an inventory game. At that point, you need to be putting on staff. And one of those staff is going to be inventory management. And then from 5 million plus, It's a whole combination of new things in there. It becomes far more of an inventory cash flow. You've got to just add those next people in and you've got to start looking for different areas to go. A lot of people actually pull out. They cash in at the $2 million to $5 million mark because they don't want to have to then grow this big team that you need to at $5 to $10 million needs a team. Speaker 1: So you see that's where the big adjustment happens when it starts getting scary and starts becoming real and not just something you can like, like you're doing, you know, a one man show doing a couple million a year, when it starts actually becoming a true like enterprise, that's when a lot of people say, okay, I'll sell to an aggregator or sell to somebody on one of the, you know, through one of the brokers or something like that, just so they don't have to go down that rabbit hole. Speaker 2: Absolutely. Absolutely. And that's one of the, you know, when you get to, you know, five million, it's then having a people business. You're no longer being an inventory management person or a content creator or, you know, this great designer. It's like, okay, you've got to manage a team. And you've got to have all these people doing all these different things. And that's where I think the difference is coming in. And some people just, they don't want to be running a team. They just love running their little business themselves. Speaker 1: So if I go down that route, I start my business, I build it to two, let's say I build it to four or five million, I'm like, okay, I'm done. I want to put this up for sale. I'm going to throw it out there, maybe an aggregator buy it, maybe one of the brokers will sell it on one of the sites. And then those people, I find some leads, some people that are interested, maybe I go under LOI. And then they want to look at my books and they're calling you. I'm saying, yeah, talk, talk to Arnold. He's my guy. You know, he can share everything with you. What are some things that they just love when these buyers come in that you've done for your clients that they're just like, holy cow, I love this. This is awesome. So what, and so that way I know what should I be doing to make sure that I'm buttoned up. What are some like just, Really like deal sealers or something that just makes the process go so smooth. Speaker 2: Okay, so there's two parts to it. One is this is what my business is worth, get an LOI and then they go into due diligence. If you want to fail due diligence, you don't have any accounts done. So it doesn't really happen with me because all my clients have got their accounts. All their accounts are right anyway, but not having your accounts done, not having them up to date, not having them accurate is just a deal breaker. Now, in that case, you might sign an LOI, someone's going to buy it for some fantastic number and the business will fail in due diligence and the sale won't go through. So, you've got to have your finances just Set of accounts, balance sheet, profit and loss, all up to date. In terms of what they're looking for and what they really like, they're looking for a continually increasing business across all your SKUs. So, where we've seen For clients who have sold their businesses, the ones that have sold are the ones that have, their products are just increasing every year. They've got a plan. That's something we're seeing a lot more of. The aggregators are actually asking for what's your plan for the next two years? And some of these people just say, I don't know. And you've got to have a plan in there. Just, okay, how do we grow this for the next couple of years? The next, Things that are turning people off is when there is a decline along the way. So, you might be able to say, oh, the decline's there, but it's seasonal. It happens every year. We ended up with a lot that ended up with a COVID boost. And then post-COVID, things just weren't as good. Still great, but just if they looked at those trends, it seemed as though they were going down. And no one wants to buy a declining business. Speaker 1: So from your clients that have expanded like beyond the US, maybe they've gone to Europe or Singapore or Australia or wherever, where do you see that a lot of them pull back from? They're like, ah, let's give this one a shot and France just didn't work. Or where do you see that? Or do you see that? Do you see any patterns there where people try to expand and then they shrink back up just because they just can't make it work in certain marketplaces? Speaker 2: Yeah, we see that a lot. We see that a lot when people expand to those marketplaces when they shouldn't, okay? They're in their first couple of years, okay? Don't. Just stick with it. Stick with the US or stick with Europe, man. If you're just going to do, you might go, I'm just going to do UK. Well, then stick with the UK and do that properly. You know, UK and Europe, but don't go into the US as well, or just go into the US and don't worry about any of these other markets. What happens when you go into these other markets is you end up splitting your stock. So, you've got to hold minimum stock quantities at each of those places, which just cost you more and more money. So you're better off just going, okay, I'm just going to do USA, stick with USA. Until you've really pushed the line on where that, you know, I can't grow anymore in here and you've got extra cash thinking, what am I going to do with it? Then you can go, okay, let's target Europe and move to that market. Well, we see that a lot. I was talking to someone the other day. He was selling everywhere. He said, okay, you're going to stop selling in all those other places and just do the USA because it's just silly. Speaker 1: I agree. I think like the US, I mean, I don't think there's too much you're selling in the US. It's kind of easy to sell into Canada and doesn't take too much extra, but I wouldn't go beyond that really. What about going to Shopify or to Walmart or any of these other platforms? Are you same thing? You're spreading yourself too thin, different stock, or it's just not worth the effort in most cases, or some people will say it is actually. But what do you sense do you get from your clients on that? Speaker 2: Okay. In terms of Walmart from my clients, it's been difficult to sell on Walmart anyway if you've been an Australian. You needed to have a social security number to get onto or a place of residence in the US to sell on Walmart. So, we haven't really seen too much of that. But I think it's again the same for Shopify. It's just like, okay, it's a diversion. It's taking your eye off the prize, which is US. So, we usually suggest that people don't even think about going into Shopify. For at least a couple of years till they've built up some products. And then all they're going to do at that point is to learn to build up the traffic. Organic tracking, moving into Shopify rather than, you know, going spending money on Facebook ads to push money to your Shopify site via three products. It's just not worth it. So that, again, Shopify sits at, you know, we've only just recently opened up our Shopify store and we do a couple of million. Speaker 1: Yeah, I always tell people if you want to have a Shopify that there's no harm really in setting it up just for legitimacy. Just if someone wants to, you know, type in and you've got, you know, a few sales, maybe let Amazon fulfill them for you, you know, now with the buy with prime or something like that, but don't put a lot of effort in or money into driving traffic there. Not for a few years, like you said, but it's no harm in paying probably $30 a month just to have that presence, that legitimizer in case you need it. But other than that, it's just, it's not really, Not really worth the effort. Speaker 2: Yeah, absolutely. I mean, it's just, I mean, if you can build the traffic to it, I mean, that's why Amazon's so good. It's got the traffic. The trouble with Shopify, you've got to spend a lot of money to get the traffic there. So if you've got a Shopify store, Your object really is that just, okay, how do we drive traffic? It's the same with Instagram, Facebook, Pinterest. It's just like, okay, all those things are just about how do you learn to drive traffic to them. And if you can't drive traffic on them, well, they're useless. Speaker 1: That's why Google is probably the best ones right now if you're going to drive outside traffic because Google already has the traffic coming to it and advertising there with the 10% kickback that Amazon will get you, in some cases you can make that work, but you're not having to drum it up like you do on Pinterest or some of the other places. Speaker 2: Yeah, we've been running Amazon attribution from basically the object is not to get a sale on our Shopify site. The Shopify site has a button on it, buy at Amazon that has Amazon attribution on it and just sends them straight there. It's so much easier. Yeah, get 10% free traffic. Speaker 1: Well Arnold, I really appreciate you taking some time today and sharing with us. This has been fun. If someone wants to get their hands on like one of these spreadsheets other than Freedom Ticket or one of these other things that you have or to learn more about you or follow you or reach out to you if maybe they want to get some services, if you're taking new clients or something, how would they do that? Speaker 2: Okay. The best place to go is to our website, which is dolmanbateman.com.au. So, D-O-L-M-A-N, Bateman, B-A-T-E-M-A-N.com.au. Or just search Arnie Shields and you'll probably find me along the way. And if you go to dolmanbateman.ampm, I'll put a link to a whole bunch of spreadsheets that we've got there. We've got a really good one. It's a massive spreadsheet, but I use it religiously. It's a 52-week cashflow and inventory projection spreadsheet. So, basically, we do it a couple of times a year. We work through this spreadsheet and just basically say, okay, this is where our sales are going to be. This is when we have to order stock. This is what our cashflow is going to be. Can we afford to? Grow this fast. Can we afford to order that stock at that time? Basically, I go through that with most of my clients as well. It's a big spreadsheet, but it's just vital in terms of understanding where you're going to be. And it actually gives you, once you've done it, it gives you a lot of peace of mind because you know, well, that's my direction for the next year. All I have to do is make sure the sales happen and order the stock at this time, I should be okay. Speaker 1: So that's dolmanbateman.com.au forward slash AM PM. Speaker 2: Absolutely. Speaker 1: Correct. Awesome. Well Arnold, I'm looking forward to hopefully seeing you at the next Billion Dollar Seller Summit in Puerto Rico. Hopefully by then those airfares will come down and you got a little bit of time, you can come have some good fun with us. Because as you know, the Billion Dollar Seller Summit is a lot of fun, a lot of good information, a lot of good networking. So I hope to see you there next year. Speaker 2: Absolutely. Thank you very much, Kevin. Speaker 1: Awesome. Thank you. Appreciate it, man. Knowing your numbers when it comes to selling on Amazon is one of the most crucial things you have to get a handle on. And it's going to be one of the biggest factors in your success or your failure or your frustrations when doing e-commerce. If you want to see more, remember Arnold's told you to go to dolmanbateman.com .au forward slash AM PM and grab that spreadsheet. It's a fabulous spreadsheet. So make sure you go there and grab that spreadsheet. It's totally for free. Also, he's in the freedom ticket. So if you're a helium 10 member at any level, you have free access to the freedom ticket. Just go log into your Helium 10 account and you'll see a little button up at the top that says Freedom Ticket. Thanks again for joining me this week. We'll be back again next week with another episode of the AM-PM Podcast. I'll be talking to the winner of the best hack at the Billion Dollar Seller Summit. Someone that just started his own podcast, a big time seller, really smart guy. You're gonna really enjoy it. So be sure to check in next week for episode 318. Before we go today, I just want to leave you with these words of wisdom. Success is getting what you want. Fulfillment is giving what you're made for. Success is getting what you want. Fulfillment is giving what you're made for. We'll see you next week.