The Metrics Most Sellers Aren't Tracking

Chelsea Cohen.m4a [ 00:00:00 ]All right. Hi, I'm Chelsea Cohen, and I am excited to be at the BDSS Market Masters Think Tank. And today we're going to be talking about the key to scale and the metrics that most sellers aren't tracking. So first and foremost, we're going to talk about unit economics. Unit economics is the analysis of revenue and cost from a per-unit basis. And it really is the most important thing to look at when you're looking at ASIN profitability as well as whether your business is scalable or not. The importance of understanding unit economics is to grow your business. And if you don't understand these factors, you can find that your margins are shrinking, your return on investment is eroding, and your cash flow dries up. So if you're wondering, why am I not able to launch new products? [ 00:00:55 ] How many products am I able to launch? And why is my cash flow so tight? This is probably one of the things that you'll want to pay attention to and learn a bit more about. So we're going to talk about that. Here's some examples of the difference between understanding your catalog in depth of unit economics and the positive and negative impacts related to that. So this is a catalog that has some great sellers and best sellers. But there are some. Products that are driving down the cash flow, they're affecting the margins, they're these low-margin products, and they're really putting you at a disadvantage. Here's what would happen if you went to launch new products without doing anything about those other low-margin products. You can see down here, you're going to have some difficulty in your cash flow. [ 00:01:48 ] This is not a good position to be in. However, you see that the benefits are significant. So, what do we do about that? This is going through actually letting go of some of those products, so you can see instead of running out the bottom and running out of cash flow, we've got $24,000 in positive cash flow, and we've still got the $146,000 in revenue. Major impact. So how do we do this? It's important to understand that there are different layers of profit, and one of the drivers that can really get away from you. What I call. The silent profit killers are storage. So the first thing that we're looking at is preholding profit. That's what you're making before your storage fees kick in. [ 00:02:36 ] Then we talk about current profit and current profit is really all about how much money you have spent, not just on preholding costs, but also on storage costs to this day. That's current profit. And then you get into projected profit, and this is really the most important aspect because it's. It's what your products are going to be profiting at the end of the day. What is your profit margin at the end of the day? That's projected profit. So here's something that's pretty familiar to people. The preholding profit. You've got things like your cost of goods. You've got all the all the things in connected with advertising, any FBA fees, that sort of thing, and in this scenario, we say we're selling some lemonade and we're profiting at $1 a glass. [ 00:03:26 ] However, if you start looking at your business differently and you start factoring in accumulated storage, how much storage you've spent over time, you're looking at a lower profit margin, in this case, twenty-five percent profit margin as opposed to twenty-eight percent. So how do we actually determine that you're able to take some data from Amazon Seller Central today and figure out what your accumulated storage costs are? And I can teach you right now. How to do that. How do we do that? How do we actually make this simple? There's something that I like to call the storage multiplier. If we start out with ten units and we have two months' worth of inventory, we're going to sell out in two months. However, we are not paying full storage fees on both of those months. [ 00:04:16 ] Should I start again? However, we're not paying full storage for both of those months. We're paying storage on ten units. And the next month we're paying storage on five units. So what the storage multiplier does is it tells you how much of a multiplier you can put towards every single unit. If we're averaging for every ten units that we have, we are averaging one point five X the storage multiplier. To look at it another way. If you purchased six months worth of inventory. Every single month you're adding point five X onto that multiplier. So by the time you get to six months, instead of paying four cents per unit, you're actually paying fourteen cents per unit. It's a significant difference. [ 00:05:10 ] And this is a very easy way to predict using the storage multiplier what you're actually going to be spending in terms of storage when all is said and done. Now, if you download the app. The FBA inventory report. This report can very quickly help you to understand what your storage multiplier is. Downloading this report, you can see the days of age for your products. This product here is in the 210 day range. And that is going to give you seven months of inventory. Your product has been sitting there for seven months. So, you're looking at a seven-month multiplier, which is four times the multiplier. Significant expenses that you're sitting on. However, if you look at these three items, your inventory does not age all at the same time. [ 00:06:07 ] You have three different aged inventories. So what do we do about that? There's something called weighted cost. In weighted cost, you take the different ages of your product and the different costs involved with that. And you add them all together. And then you average them out. So, we have 18 lemons. We have a total of $6.76. And the average is $3.38 per lemon. That's your weighted cost. That's the cost that you'll attribute to every unit that you sell. So, you can determine what your accumulated cost per unit is. And then finally we get to the projected profit. Projected profit acts much the same way. So consider using the storage multiplier. However, you're looking into the future. So, the same way that we're looking at the storage multiplier for two months. [ 00:07:02 ] We're going to do the same thing and have the same six cents piled on top of all of those other expenses. The one caveat to that is that you're actually going into the future. So, you have month seven and month eight. And we know that we have aged inventory attached to that particular product. You add the additional aged inventory fee and that gives you your projected storage. So, we finally get to the point where we have added all our expenses up. Our pre-holding costs. We've got our accumulated storage which is our current fees. Our current profit. And then our projected storage gives us our projected profit. If you remember, we were at almost 29% profit margin. And now we're at 19%. The difference between this can be as much as 10% in this example right here. [ 00:07:54 ] And then there's the SoStox demo. All right. So that leads us to our last step. I've worked a lot on this topic. It's something that I care deeply about. It's so important for sellers to understand this. This is actually the SoStox software that I founded in 2019. And we've taken steps to be able to take inventory and put numbers behind it. So we're very familiar with a lot of these fees. The accumulated monthly storage fee and the accumulated age storage fee are often new ones for people. And what we've done is we've taken them, looked at them - the age of the inventory, the accumulated fees. We've added them all together. And then we're averaging them per unit. Which is extremely important to understanding your unit economics. And then the aged inventory fees. [ 00:08:45 ] We have the same situation. Where we're averaging those. Those stack on top of the monthly fees. And then lastly, we have the overstock fees. The overstock fees project out for each ASIN. How much storage fee is going to be accumulated for every single month. So that we can understand our profit dollars. We can understand our true profit margin. And scale our business. And be as successful as possible in launching new products. I'm Chelsea Cohen. Again, if you have any questions, reach out to us at SewStocked.com. We're excited to be able to bring this to you. And help you out. And hopefully this was really helpful for you.