EP #284] [ENG] - Understand how to make your brand on Amazon profitable - Cyndi Thomason

EP #284] [ENG] - Understand how to make your brand on Amazon profitable - Cyndi Thomason Unknown Speaker: Welcome to The Ecommerce Lab By Ecomcy. This is the place for everything related to Amazon private label and e-commerce. Learn exactly what you need to start or scale your business. Get insights from the top industry experts who will discuss the latest trends and best practices in the world of Amazon. From choosing products and sourcing from a supplier to setting up your Amazon account and marketing your business, you will hear it here. Let's get started. Here is your host, Vincenzo Toscano. Speaker 1: Hello guys, welcome to another episode of The Ecommerce Lab By Ecomcy, the place where it relates to Amazon FBA, Parallel and Ecommerce. My name is Vincenzo Toscano, founder and CEO of Ecomcy and today we bring you another special guest. Her name is Cyndi and she's the president at Bootscape, which is one of the top solutions out there when it comes to providing you with the expertise around bookkeeping and making sure that you can be profitable as a business when it comes to running your brand on Amazon, which This is a topic that every single time I go to events or I come across clients on the street or meet with my team, it's a very delicate thing because a lot of people are struggling to be profitable. Like in 2024, let's be honest, a lot of Amazon sellers are being, you know, Finding out that the margins are not what they used to be, especially with the changes across the Amazon fees, the competition. So now what I really want to do on this episode is bring Cyndi's expertise when it comes to that, give you some of the principles that you know you can implement in your business today. And hopefully 2025 is going to be a much greener year when it comes at least in numbers for your business. So Cyndi, welcome to the show. How are you doing? Speaker 2: I'm doing great. Thanks for having me. Speaker 1: Pleasure. Thank you so much for coming. I've been following you for a while now. I love what you do around, you know, the bookkeeping space. I think it's one of those topics that, you know, sometimes people might feel down. It's not as sexy as PPC, Brandy and all of that, but let's be honest, it's the foundation of a business. If the numbers don't work out, business is dead. So it's the most important thing, right? So I guess before we dive into the topic and everything we're gonna be talking today, which is profitability, tell us a little bit about yourself and your company for those that might not know you. Okay. Speaker 2: My name is Cyndi Thomason. I'm the founder of Bookskeep. We've been around for 10 years, just celebrated our 10th year anniversary. Speaker 1: Congrats. Speaker 2: Thank you. Also, the author of Profit First for Ecommerce, which is this book. Speaker 1: Novet. Speaker 2: It's actually six years old next week, which blows my mind. So excited about celebrating that anniversary. But the new thing for me that I'd just like to introduce is your profit team. Your profit team is just starting in January of this year, and I'm the founder of that. Basically, what we have encountered with folks over this last year is a real struggle with profitability and Profit First has always been our go-to tool to help them, but we are seeing that they need more than that and they really need to spend more time looking forward and thinking about their numbers from a forward-looking space. Bookkeeping, while I love it and got a lot of experience there, let's face it, it looks backwards and that's instructive. But I think our clients also need to be looking forward, and that's what your profit team focuses on. Let's look forward, get cash flow under control over a 13-week period, and then start to really understand the movement of cash in our businesses. Created out of, unfortunately, a lot of need that we're seeing in the space. Speaker 1: Yes, for sure. As I said at the beginning of the show, profit is something that a lot of people, and I'm surprised every single time I have a conversation or I jump on a call, most people don't know what is the real profit in terms of their business. They have an idea. But most of the time it's not even close to what is the number they have in their minds and this comes down to what you're mentioning. They don't have a system in place that allows them to understand cash flow and really from that cash flow understand how they can reverse engineer that to be reflected into a profit into their hands. So based on that I guess we can You know, start with the conversation around that because I feel the reason why a lot of people are struggling to become profitable is because they're lacking the foundation around what is, you know, a business in terms of structure looking like when it's profitable. A lot of people might have the perception of what a profitable business looks like in terms of bookkeeping, how to do cash flow and everything. But a lot of people are lacking the blueprints, which is why I want high-level kind of cover today. So tell us, we can start with the basics, like maybe the mistakes that you're seeing when you're having these calls with Amazon sellers and everything. What are some of the things people keep neglecting that you're saying, wow, this is what, you know, is effectively making your business not being profitable? Speaker 2: Yeah. There are a few things. One, I think, is just not understanding the difference between inventory cash flow And the cash flow of their operating expenses. So typically our clients are private label. They're brands that place large orders at one time and it may take weeks of lead time. So they put a down payment down and then they wait weeks. And then when the product ships, they pay the balance and then they've got to get it into Amazon or whatever platform they're selling. And it just takes a long time for that cash to turn over and they don't really have a sense for how that works. And what happens is they start to have this sell through of the, you know, their first order or, you know, 50th order, whatever it is that those dollars are coming in and they're not setting those dollars aside to help pay for the reorder that they're going to have to make. And so their bank account gets bigger. And as their bank account gets bigger, um, they start to get creative about what they can spend that money on. And unfortunately, um, when it comes time to actually make that next inventory payment, those dollars were spent on something creative that, uh, made a mistake. Speaker 1: I don't want to mention what I spent the money, but I made a mistake many times. Like, Oh, I have cash on the bank. Let's buy a car. Let's travel. Unknown Speaker: Yeah. Speaker 2: Yeah, and so let me tell you why we do that, because it's a behavioral thing, and I talk about it in my book. It's Parkinson's Law, right? And Parkinson's Law is based on the fact ... A British naval historian is the one that came up with it, and what he determined was Whatever the resources are that we have at our disposal, the demand will rise to meet that supply. And so when you see a lot of money in the bank, it's just human nature to think, oh, you know, I'm doing great. I'm going to go buy that thing that I've had my eye on. And then when the dollars are needed for something else, that's like, we don't have them and now we have to go into debt. And when debt was very cheap, you know, that was Took some work, but you could get out of it, but debt is really expensive now, and it's very hard to get out of that cycle at this point. So yeah, that's like one of the biggest mistakes I see. Speaker 1: Yeah, I would say just to go a little bit deeper on the mistakes because something that even myself I have done is some of the struggles is when you start having this cash flow that comes into the business and as you said this pile of money starts to get built up, It's sometimes difficult to understand like what kind of percentage of this pile I can essentially spend without essentially limiting the performance or the potential expansion of my business, which is essentially what you're saying. When those big payments come, From the perspective of hiring somebody or inventory, I just spend just enough to not go under that baseline that would allow my business to stay healthy. So how do you define those baselines? Because it can be tricky, you know, to understand. I always have to have 100k on my bank, no matter what. You see what I mean? So is there a formula for that? Speaker 2: Yeah, right. Yeah, you can you can do it that way. Another way to do it, and this is what we recommend for our clients, is to create bank accounts that are for a specific purpose. So create a bank account for your inventory and create a bank account for your op-ex. Create a bank account for paying yourself in taxes. And that's really the foundation of the Profit First system is, first of all, understand this Parkinson's Law and how it works on us. But then the other piece of it is, is use your bank accounts so that your money is sitting in an account with a specific purpose. So, you know, 100K may be a good baseline for one business, but it may not be for a different business. And what Profit First does with these bank accounts is let you understand what those numbers are for you. And if they're not where they need to be, if you're not paying yourself or you're not putting aside money into a profit account that will grow over time and become partially a rainy day fund, If you're not doing those things, it highlights it and it allows you to see this is an area to improve on and if I can just pull 1% into my profit account, then next quarter I can identify some other expenditure in OPEX that I can cut down and I can put 2% and it becomes a system that actually feeds itself to help you understand what the, you know, what dollars are available for what purpose and One of the things, and I don't know if you're doing this with any of your clients, but we recommend clients put advertising dollars in a account because then they can see If their revenue is going up that, you know, their advertising is performing, those dollars then can come back in to show that, you know, this is an effective strategy. Speaker 1: I agree. I agree. Yeah, something I love about this strategy, and now actually I started to do it after reading Profit First as well, is like by having multiple bank accounts, what I have figured out, which I wasn't doing before, It's that you condition everything that happens in terms of the finances of your business to operate with a percentage that has to go to our profit at all times, which I think is the mistake everybody does. People, when they're getting started with the Amazon business, they just put everything back into their business, which again, it makes sense. But to some extent, you have to figure out if the business long term is going to have the bandwidth to allocate a percentage for profitability, which That's where most people struggle to bring the percentage back into their calculation and never become profitable because the business was never running with a stake being taken for the money to go towards profit, which is why I like the system in the first place. Speaker 2: Yeah, yeah, and that's one of the things we recommend for our clients when they are going through and developing a new product. For example, we tell them run it through our product profitability worksheet and where you build profit into it. And if you can't come up with a cost structure for that product that is going to pay you, Then why are you doing it? You know, I mean we can all have hobbies that are probably more fun So yeah, just you've got to build the business with profitability in mind Occasionally we'll get grief about the words profit first as if that's a greedy position But it's not a greedy position. I mean we all went into the business Yeah to make money right and by making that money we get to employ other people and we get to have a lifestyle that is what we envisioned. What's really sad to me is when people put their savings into their business and they don't have profitability designed in and you know, they're spending lots of time trying to get something going and they're not making money and then their family is like, well, we never see you. So it's financial struggle and then it's family dynamics that are struggling. So profitability really is not a dirty word. It's really what allows the whole engine to work and create the lifestyle for ourselves and for our employees and for those vendors that we work with, right? Speaker 1: Yeah, super important. I think it's good that you brought that to the table. Profit has to be part of the equation at all times or why you might as well just stay with, you know, a regular job or not put all the sacrifice as you mentioned in terms of time with family or friends because, yeah, that's essentially the outcome that we want to achieve to not only change our lives but people around ourselves, you know. Now, when it comes to this process that we're talking about in terms of profitability, and then of course we can go back to our mistakes people are doing, When it comes to that, what is the frequency you recommend people run into this process of checking all these bank accounts and everything? Because some people might only do it on a yearly basis, which maybe is not frequent enough to identify issues. Or some people do it weekly, which is maybe too much. And then you make decisions based on emotion. So what is your balancer? Speaker 2: I recommend the perfect number is two weeks, I think, every couple of weeks, which coincides with Amazon Payout for folks that are Amazon centric. So Amazon kind of acts as your serving plate if you will. They're collecting all those dollars in and then when they transfer the money to you through your payout then you can transfer the The way I like to think about it is transferring the dollars that will replenish your COGS, put that over into your inventory account, put a percentage in if you're just getting started like 1% into a profit account and then the rest of it can just stay in that general bank account and just watch that and you know, I think one of the biggest mistakes people have with implementing profit versus they try to do too much too soon. There's like five foundational bank accounts. And if you try to do all five at one time, when you've got a heavy, Cash flow around inventory. There just isn't enough left to go into all of those buckets. So instead of diving off the cliff and doing all five, I recommend people just starting slowly and we've kind of like walk in from the beach and get used to the water. And so just a couple of accounts, the inventory account, the profit account, and then the account that you've already got allows you to see the dynamics of what's flowing. And if it's hard for you to do that every two weeks, then you can do it every week. But the goal is to get to every two weeks because what starts to happen is you start to see the pattern. If you're doing it every day, it's, you don't get a sense of pattern. If you do it every two months or 90 days, it's too big to understand as well. So every two weeks you can start to see, okay, those dollars have built up in my Amazon account the day that it hits. This is how much I'm putting aside to replenish my inventory. This is the amount I'm starting to set aside for profits. And then the rest is what I'm going to use to operate my business on. And the hard part there is that's a littler piece of the pie, right? Because you've just taken that inventory, I call it inventory float. You've taken it out of the picture now because now you can't spend it. And you have to look at those dollars that are left in your office account or your business checking, whatever you call your standard account. And you have to say, OK, what am I going to do to operate within this bucket of money that I've got? And and that's a good thing, really, because it forces us to be efficient and to be frugal and to be innovative. And those are all things we want to apply to our OPEX account because none of us got in business to really create a big OPEX bucket, right? We want to make a big profit bucket and make the OPEX as small as possible. Speaker 1: I agree. I agree. Awesome. So now jumping into other things that you're seeing, like we already mentioned, like the inventories of things, which I agree, I see that mistake all the time and the way people attribute that within their bookkeeping. What are mistakes are you seeing as well that are heavily affecting profitability of sellers now? Speaker 2: I see that folks are not adjusting quick enough to the changes that are happening. I did a deep dive in August looking back at what had happened for the first six months of the year. And it was really alarming to me because revenue was up. Gross profit was down. And ad spend stayed about the same. That was interesting. And this was looking at my client base, which is about 130 clients. So it's a small data set. I don't know that I wouldn't dare claim it's statistically significant. Speaker 1: But still, it's an insight. Speaker 2: Yeah, it's better than one, right? And so gross margin was down about 8%. But here's the kicker. Net margin was down about 19%. And it took people from being just above the profitability line to significantly below it. And that's a scary place to be. Now, I can't wait to do this analysis again, but I've got to wait till all the books close. But what it's from one time point January to June of 23 compared to that same time period for 24. So they should be comparable situations. So it was it was really alarming to see people were actually not profitable on average for the first half of the year. And and that that's that's concerning. But here's another piece of it that was concerning. As I talk to people in presentations, they would be like, oh, I'm so glad it's not just me. And I'm like, okay, you can have your little moment, but just realize this ship is sinking. Speaker 1: If everybody's jumping from the bridge, that doesn't mean you have to jump as well. Speaker 2: We don't want to hold hands here and be just like, oh, this is great. We've got company in our misery. We need to get in a life raft. And so that to me is, okay, what are we doing? What are we doing to actually affect a change in our business where we get profitable? And so from looking at it, if gross margin was down and ad spend stays the same, which is below the gross margin, the rest of that difference was just in OPEX. So people are spending money on OPEX that is not something that generates revenue for their business. That's something I think people really need to pay attention to. Go through your bank accounts and your credit card accounts. Look at those statements from the last month and figure out what can you cut because you don't want to be on the deck of a Titanic. You want to be in a life raft, right? You want to have time to figure out how you can make some switches to be on top of this game. So that's the next thing is pay attention to OPEX and get it under control. And then I think the third thing is people aren't looking at profitability at their skew level, and they're, they're, they're continuing on with products and skews. That are losing money or tying up money in cash, tying up cash for a long time because maybe they make a good profit on it, but they only sell one every six months or something, you know, it's an emotional attachment, emotional attachment that you want to get rid of it. Exactly. And so you really do need to look at your products and understand What are your top performing products? How can you do more of that? What are your bottom performing products? How can you get those off of your books? Because when you're tying up cash into those things that are not performing and are not profitable, it's sucking the cash out of your business to actually move in a profitable direction. Speaker 1: I agree, I agree. I think just to make a quick This is also on the APEX kind of expenses. I agree like that connects to some extent where you were mentioning that when you see a big sum of money sometimes You start saying, okay, another $50 per month subscription is fine. Another $100 subscription is fine. And then it's these small amounts and then that's where the mistake happens because it happened to me. I was having a review at the end of the year of all the subscriptions I added and it's like hundreds of dollars wasted because I set them and forget and it's small amounts that you then don't go back. But I agree, like you can definitely do A lot of optimization there. And then the last point that you mentioned, this is something that I feel it happens consistently. I see it every day. It's really something alarming. I'm just hoping with things like this that we put out there, people are really starting to implement this as soon as possible, because if not, it reaches a point that your cash flow essentially cannot be revived. It's like it's not coming back. Speaker 2: Right, right. And the option of going and getting a loan, yes, that's out there, but it's a really hefty price tag. And if your margins are already slim, When you take that loan, then you're adding another cost, the cost of the borrowing cost on there, another barrier to profitability. So I know it's oftentimes the only position that you're in, but once you're in that position, then you've got to just start really getting ruthless about the financial decisions you're making because if your margins are slim and you're borrowing that money to keep you afloat, That's not a long term solution. It's it's it's not going to survive without some intervention getting that under control. Speaker 1: I agree. Now, just to make also a take on everything we've been mentioning in terms of margin, do you also potentially could attribute this lack of profitability to everything that's been happening with the increasing Amazon fees and everything? Is that something that maybe on your insights you saw operational costs, shipping and things are having a heavy increase as well across your clients, for example? Speaker 2: Yes. When I looked at the cost of goods sold numbers across all our clients, The Amazon fees went up 4% and the the cost of goods numbers so that could either be shipping or the product costs themselves or you know packing or whatever. That was the other 4% of increase in cost. So yeah, every direction has its handout taking money out of your pocket. Speaker 1: Yeah, for sure, for sure. Cool. Now, I guess to start wrapping everything up, I think something that sometimes can be overwhelming for sellers is that they're hearing all these recommendations and everything makes sense. Because it happened to me. Sometimes you open your books, you open your bank accounts and it's so messy because you haven't done it for months or sometimes years that you don't know where to start. Like you get overwhelmed. So I guess what is your recommendation for those people that are listening this and say everything makes sense but how do I make my first step and make it happen? Speaker 2: I find there's a couple kinds of people in the world. One kind is like the numbers and are happy to get in there and probably would not be in that position that you're talking about because they want to know their profitability numbers and if they've either outsourced their accounting out already or they're comfortable enough doing it and can keep up with it. The other group of folks are people that just don't understand how finances work. They just don't get it and need somebody to help them. Get someone to help you from the standpoint of doing the bookkeeping so that you have good data. I think one thing to look for is that they're going to give you your books. We've organized in a way that you can see the revenue that comes in and the cost against that revenue. We call it modified cash accounting, but that's what allows you to really understand your profitability. If you're operating strictly on a cash basis, you're not going to see that profitability information. It's basically wait until tax time and see how you did. Well, that's really late to be making any kind of adjustments in your business. So get somebody that can help you do accrual or modified accrual. Modified cash is the same thing. Bookkeeping that shows you your profitability, at least through the gross margin level. The other piece of it is if you're finding that piece difficult and you're really in a struggle from a cash perspective, Get somebody to help you do cash flow planning because I find my clients really don't understand or feel comfortable with an accounting type report, but when we sit down with them with a spreadsheet that maps dollars coming in and expected dollars coming in and dollars going out and how frequent those dollars go out, they can get their head around that and they can understand, okay, If I spend these dollars in this week, that puts me in a negative position two weeks down the road. Get somebody that can help you understand the cash flow in your business and when you get your hands around that, Then the accounting takes care of itself. Cash is what you got to keep working. Speaker 1: Cash is pink. Speaker 2: And oxygen and blood. Speaker 1: It's been an amazing episode and thank you so much for all your insights and I know we're just scratching the surface and there's so much more to this and that's why I'm sure some people want to reach out to you or work with you. So tell us how people can find you and of course your details so I can put it down in the description for people to find out. Speaker 2: Okay, great. My name is Cyndi, C-Y-N-D-I, so it's spelled a little different, at bookskeep, B-O-O-K-S-K-E-E-P dot com. So you can email me there. Bookskeep has a website that you can get lots of information. I mean, I've been talking about this stuff. Well, the book came out. It's been a long time. So I try to make everything available for those people that are DIY and want to do it themselves. So go there. You can find lots of stuff. I think I'm going to share with you, Vincenzo, the Your Profit Team information because we've got a great webinar that people can watch to understand how to do cash flow planning. And we'll give you the tool also that we use to do cash flow planning. So that would be another way to dive into. Speaker 1: Love it, Cyndi. So thank you so much. It's been a pleasure. Looking forward to see you soon at upcoming events and more than that. See you in the next one. Yeah. Speaker 2: Thank you, Vincenzo. Speaker 1: Thank you. See you. Speaker 2: Bye bye. Unknown Speaker: Thanks for listening to The Ecommerce Lab By Ecomcy. Be sure to subscribe so you don't miss an episode. While you are at it, we would appreciate it if you could leave an honest rating and review on Apple Podcasts, Spotify, or wherever you listen. 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