10 Biggest Wastes of Spend for eCommerce Brands

In this episode, the hosts discuss the 10 biggest wastes of spend for e-commerce brands. They emphasise the importance of focusing on profitability and tracking cash flow. The first waste of spend they discuss is huge website builds, recommending that brands start with a simple and cost-effective website on platforms like Shopify. They also caution against spending on CRO agencies in the early stages, as the ROI may not be immediate. Other wastes of spend include expensive UGC, search campaigns, overinflated Klaviyo list costs, stock inventory mismanagement, inefficient shipping strategies, unnecessary staff, software subscriptions, and SEO.

Takeaways

- Focus on profitability and track cash flow to avoid wasting spend.
- Start with a simple and cost-effective website build on platforms like Shopify.
- Be cautious when spending on CRO agencies, as the ROI may not be immediate.
- Avoid overinflated Klaviyo list costs by cleaning your list and implementing automated flows.
- Manage stock inventory effectively to avoid overstocking fees and dead stock.
- Optimise shipping strategies and negotiate better rates with carriers.
- Be strategic when hiring staff and prioritise customer support.
- Monitor software subscriptions to keep costs in check.
- Consider the timing and ROI of investing in SEO for organic search growth.
Specialised agencies can provide expertise and leverage in specific areas of marketing.

Chapters

00:00 Introduction
01:32 Waste #1: Huge Website Builds
05:07 Waste #2: CRO Agencies
10:35 Waste #3: Expensive UGC
14:01 Waste #4: Spending on Search Campaigns
16:07 Waste #5: Overinflated Klaviyo List Costs
17:34 Waste #6: Stock Inventory Mismanagement
19:05 Waste #7: Inefficient Shipping Strategies and 3PL Costs
20:52 Waste #8: Unnecessary Staff
22:48 Waste #9: Software Subscriptions
31:43 Waste #10: SEO

Transcript

0:01

Welcome back to the Blues Brothers podcast, a show in which we share the challenges, insights and triumphs that come with taking e -commerce brands from seven figures to eight figures and beyond and building the remarkable teams behind them. I'm your co -host, Sebastian Bench, and joining me as always is the brilliant Nathan Perdreau. How you doing? Edgar. Living the dream, how are you? So welcome to the event. The Thrift and the Birdbarker a waste of spending on e -commerce brands. We're going to listen to the other... and I'm not sure if you want to just speak to high level why this is a worthwhile topic to touch on. I think it's important because you want to be orientating yourselves, particularly as a startup Ecom brand, towards profitability. You don't want to be in a situation where you're watching your cash. And particularly because Ecom is an inventory -based business model, tracking cash flow is really, really important for being able to stay afloat, particularly in the early days when you're not spitting out a lot of free cash flow that can then support the growth of the business. So just making sure that you have your financials. in the right position alongside understanding where the pockets of opportunity are to not waste spend. Because I see, to be honest, every single lecon brand we've ever worked with has made one of these mistakes. So if you can just take these 10 and not make them, you'll be in a really, really good position in the first two, three years of scaling. For sure. I also think a lot of our partners that we've come across, they didn't have a finance background. I think it serves them really well to build a solid grounding in financial operations, especially as a bootstrapped founder. And especially even further, if they are looking to get funding at some point in the future so that they know where they should be spending money when they have access to capital and they don't just start spending money at problems without any understanding of what's actually gonna move the needle in the business. Number one we have is huge website builds. And possibly a better word to use than huge is incredibly costly website builds. Talk to me about that. Yeah, out of the gates when you're small, lean, even when you're medium sized, there was really no point in spending $20 ,000 plus on a website build. Particularly if you're going to be using a platform like Shopify, you can over the weekend figure out how to put a half decent website together yourself, just playing around on your computer and watching YouTube videos. So you have to make the trade off of is a Saturday Sunday, of my time worth $20 ,000 at the beginning of the business. And the answer is probably no. In addition, all the skills that you pick up from actually being able to just get your hands into the nitty gritty on Shopify then pays dividends in the long term. Because you'll be able to figure out does this require a developer or can we just click a few buttons in -house? Should I actually look into fixing this? Should I not? You'll get a more nuanced understanding of all of the... different factors that play into e -comm rather than just going, oh, let me just throw everything to the side, give it to other people and just pay my way through solutions. Because if you're starting approaching e-comm is I'll just pay a bunch of people to do stuff for me and I'll just figure out how to push the product. It's not gonna take you very far because people eventually will take advantage of you, which will hit your cashflow and you'll end up in a position where you'll have to shut down shop. Spending five to 10 grand on a website. It's a little bit more digestible. It could make sense, particularly if you do value your time really highly, but spending $20 ,000 plus is super unnecessary in the early days. Yeah. So again, so we're operating under the assumption that's a fresh brand initial build of a website. Yeah. I think people should know as well, like you can make a really beautiful website with a, with a on Shopify, whether 200,$400 theme, you can find them. I mean, you've built plenty of websites far more than I have. and you just find a great theme and then you do a few tweaks in terms of the messaging and the positioning through your content on your website and you've got a great site. You don't really need to have anything overly sophisticated from day one. Absolutely. The little hack to website design is that it's not in the actual design. 90 % of the heavy lifting is actually in the creative. And so if you're going to go and spend $20,000 on a website build, don't spend it on the website build, spend it on better creative, spend it on some product shoots, spend it on some lifestyle image shoots. and then just put them on a basic Shopify theme and it will look really good as long as the content holds up and has continuity in terms of branding across each page. Hmm, for sure. Number two is spending on CRO agencies. So what are the biggest, I guess, failures that you see from ECOM operators partnering up with a CRO partner? We've partnered and worked with quite a few CRO agencies and there's a few core issues with them, generally speaking. And this doesn't apply to all CRO agencies. There are good ones out there and there are people that know what they're doing and they do it well. The thing to understand is that the CRO agency pitch is a very easy one because it makes a lot of logical sense. It's a logical sell, which is that if your store at the moment is at a 1 % conversion rate and we can take that to 2%, your revenue doubles. The profitability doubles as well because it's the same traffic you're not spending anymore on driving any more traffic. So your profitability and your revenue doubles. So it's a huge unlock on bottom line profit. It's really, really good sell. The issue is when you're a small brand, you're likely not gonna be able to see that kind of jump. out of a CRO agency. And the reason being is that normally operate through structured split tests over time. It's not a website revamp. It's not a, oh, we can immediately improve your conversion rates by doing this, this, this, and let's go implement it. It's no, let's run a split test for a month, see which headline performs the best. Then let's go with that headline. It's a very slow methodical process. And the reason why it's a very slow methodical process is because that's how you should approach it. If you're Nike, if you're a big enterprise brand that has tons of traffic going to site, a slight tweak in headlines, a slight tweak in offerings, a slight tweak in where the image is, if that makes a 0.1 % difference, that inflates to a lot of revenue for those kinds of brands. But if you're only doing 50K a month, it's almost irrelevant. What you want to be focusing on is the quick wins. Is the add to cart button in the right position? If it's not, let's move it. It's an easy quick fix. You can do that in a few seconds. Yeah, I do have upsells and cross sells in car. If you don't, okay, it's a quick fix. You can implement that in the next 30 to 60 minutes. So going and spending on a CRO agency, which by the way, are typically really expensive. They'll normally price themselves at least seven, $8 ,000 a month. And you'll go, how do they price that high? Because of the leverage in the logic cell. It's if we double your sales, it's absolutely worth $7 $8 ,000 a month. So I would definitely steer clear from any CRO agencies in the early days. Before you're really doing at least $200,000 a month, it doesn't make sense to go with a conventional conversion rate agency that's just going to be running split tests over time. But if they're on the smaller end, it does make sense possibly if you are speaking with a CRO agency to see what their quick win process would look like. If you could do an initial, hey, can you just check out my website? Maybe it's a $2 ,000 scope of work where they review, provide all the recommendations that are baked in solid CRO. consumer behavior understanding. And then you can then take that report or whatever they put together, provide that to your web developer and roll. Absolutely, yeah. And there's a clear distinction there, which is there's agencies that run split tests, and then there's agencies that just do a report and say, hey, here's 10 quick actionable tips that's going to help you out. Absolutely go with them, don't go with the split tests. Yep. What else is the issue possibly when working with a CRO agency? Like what do you need to have in terms of your internal resourcing to enable you to actually make the most of an ongoing CRO partner? You need a factor in the price of implementation as CRO agencies will almost never implement the actual changes. They'll make the suggestions and then you have to go and figure it out. So if you're in either of those cases, whether it's the AB case or whether it's the agency that's going to give you quick wins, understand that the quick wins might cost two, $3 ,000, but then you also have to spend an additional one $2 ,000 to go find a developer to then implement those changes on site. And generally speaking, they say, oh, changes aren't going to be easy changes that you can do within a basic Shopify theme. You will have to go outside of that and dig into the code to be able to change the elements around. So factor that into your pricing whenever you're approaching a CRO agency is that they won't do implementation. and get really clear on the expectations there. We've, you know, indirectly worked with or worked alongside a CRO agency and the client was unaware that all of the implementation was their responsibility rather than the CRO agency. So make sure that you get very clear on the service agreement before moving forward. Absolutely. Number three, here is expensive UGC. So going to a UGC agency and spending six, seven, $8 ,000 for four to five pieces of content. Start with, just to play devil's advocate on this piece, when would it make sense for you to spend six grand on a UGC package? And let's maybe say it's five to 10 pieces of content. It would make sense if you're doing about 200 ,000 a month, it would start to make sense to invest in really, really high quality creative, given that you know that that agency is incredible at scripting and staying on to what's working right now. Because that's ultimately what you're paying for, is you're paying for the agency's ability to script. and understand the mechanics of high converting creative. So they understand how to hook users within the first few seconds and then they understand how to sell throughout that piece. you're not really paying for the connection to the creators because you can go and do that pretty quickly. You can go and spend an hour on your phone and you'll be able to find 10 creators that are working for your brand and you can reach out to them yourself. But then when you reach out to them, you will have to do the scripting yourself and the editing yourself as well. So you have to have an understanding of the mechanics of a high performing video asset. So that's what you're paying for. In the early days, you should probably just emulate competitor creatives and try to upskill yourself in that skill. And you can get pretty much halfway there, maybe 75 % of the way there, and the cost will be 80 % lower. Where it makes sense to actually start to layer that cost in is when you have the free cashflow to support it and to be able to run those additional tests and potentially you just need a larger volume of creative on a month on month basis. Yeah. I think there's also some unpacking of expensive. So a 6K package for three to four pieces of content. Under that assumption, that's not a reasonable return for that investment. And unfortunately, I've personally just liaised with about 20 creative agencies from not just in Australia, but around the world. And I've seen plenty of these sorts of packages where it's a massive upfront cost, a rudimentary creative brief that's given to their client. The client hesitantly approves it. And then they get delivery of three to four pieces of content and the client is underwhelmed. And that's it. That's the end of that agreement. On the other hand, I actually have come across a small handful of creative agencies where they're of the size, where they've, sorry, economies of scale. So they have a big network across the globe of creators. They have a mix of full -time, part -time and freelance production teams. and they have graphic designers, copywriters, post -production staff, and they can at a very reasonable price, put together great UGC packages for clients where they have near unlimited revisions of that creative. And unfortunately that's, I mean, the reality is that's only gonna come through a few. very large firms that are very well resourced and they have that economies of scale benefit. But again, I think it comes down to being very clear on what you can expect from a big package because you don't want cheap, but you also don't want to overpay. So get clear there and that'll inform what will make the most sense. But if you are looking at an expensive package, again, it wouldn't make sense until you're two to $3 million brand plus. for sure. The next one here that we've got is, and this switching gears a little bit to Google ads, which is search campaigns. We won't spend too much time here, but the short of this is don't focus on search campaigns if you're an Econ brand, unless you're spending 20, $30 ,000 a month on Google. And the short simple reason as to why that's the case is because you get much higher quality traffic through shopping ads. And... a lot of brands, specifically early brands don't understand that or realize that or understand the difference. And then unfortunately, a lot of agencies don't understand the difference either. So agencies will just do a 50 50 split on search and shopping and go, yeah, it's because we need to test everything. But shopping will always outperform search. And the reason being is you can go and Google for any product right now and look at the search ads that appear, look at the shopping as it appear. And on the shopping ads, you get so much more information prior to the click in comparison to search ads. On shopping, you get image, price, brand name, reviews, potential promotion, shipping rates, how long the shipping will take, all prior to even clicking. The advertiser hasn't even paid, and you've been given all of that information. In comparison on a search ad, you'll get a headline. which will usually just be whatever you searched for. It'll just dynamically fill into the headline. And then you'll have a description that no one ever reads. No one ever reads a description on a search ad. And that's it. And so you end up with a lot lower quality traffic, pathwaying through search campaigns than you do with shopping. So if you're spending under 20 to $30 ,000 a month on Google, avoid search campaigns. Have you ever seen that breakdown, that claim of shopping will always outperform search, early days? What do you mean? Have you ever seen search outperform shopping for an early stage brand? No. There you go. Number five, overinflated clavio list costs. Yeah, this is a pretty simple one, which is if you're not up skilled on email marketing, and if you're not using an agency for email marketing, then you're probably not cleaning your Clavio lists correctly, which means that you're disabling users that haven't engaged with an email over a certain period of time. And so what ends up happening is you pay based on how big your list is. And so Clavio expenses can go through the roof pretty quickly. You can start spending a lot of money and not just Clavio, any EMS. And so just making sure that you're cleaning your list, that you have flows in place. If you don't know what I'm talking about right now, then just go on YouTube for it, how to clean my Clavio list. And you can set up automated flows that are just going to automatically disable users that haven't opened an email in the last four campaigns that have been sent. and that's going to immediately reduce any costs there that are associated. Number six, stock inventory mismanagement. Yeah, this is a this is a twofold point. The first one is overstocking fees in three PLs. So if you're not moving stock correctly in your your orders, your buys are not in line with realistic projections, then you'll end up with overstock. And if you're using a three PL, that'll come with associated fees, which starts to eat up your bottom line. If it's in -house and you ship yourself, it's not as big of a deal. But note that you are just converting cash into stock, which is never a good position for an early stage startup. The second part of this is dead stock. So pretty much what I just said, which is you really don't want dead stock sitting around because it's just cash that hasn't been unlocked. The advice solution here, if you do have dead stock, if you have products that you overbought and now they're not moving is... do tactical bundling with other products and then just discount the dead stock products. And so then you can discount on the top line bundle. So an example is you put three products together, you push that within your marketing and it's discounted by 20%. But the discount isn't coming off your core product range that you actually wanna sell, it's coming off that dead stock that you're just adding into the bundle. Number seven, inefficient shipping strategies and 3PL costs. Similar to the last one, but this is in regards to how you're managing your 3PL provider as well as shipping strategies too. So on the shipping strategy side of things, it's just making sure you always have the best shipping rate with whoever your carrier is. And if you continue to push, AUSPOST, whoever it is, you will get better shipping rates. You can negotiate them down. And once again, it has a huge impact on bottom line. On the 3PL costs, I'll give you an example of a client that we were speaking with about a month ago who came to us and said, we're thinking about switching 3PL providers. And we said, okay, why are you thinking about that? And they went, well, we currently pay $7 pick and pack fees. And then if there's above one SKU, it's an additional $2 per SKU. The interesting thing about this brand is they have a $70 average order value and on average they have 1 .6 items per car. So on average they're paying about eight, maybe closer to $9 per order on pick and pack fees and their average order value is$70. So it's 13 % of revenue is going to pick and pack fees, which is insane. It's just crazy. And so we told them that we said, that's absurd. I don't know what kind of deal you're on, but you need to change that as soon as possible. So they changed three bill providers. They went to market and now they're down to a dollar. And so they've added $7 in net profit per order to their business. And six to 7 % to net margins on the entire company. which is just crazy. They've unlocked $300 ,000 in net profit a year just by making a 3PL change. So really make sure that you're always looking at your 3PL costs and making sure that you are with the best provider. That provider would have had those 3PL costs for a reason. And it would have been because they probably specialize in larger items. They likely had a really large warehouse where they would normally be stocking couches and patio heaters and desks and... This brand owner unfortunately made the wrong decision and chose them when they should have chose a leaner, smaller 3PL provider that specializes in small packages and products where they're going to get better rates. Number eight is unnecessary staff. And we'll simplify down for the sake of this just to pure D2C brands that are using 3PLs. So they don't have any staff that are pick and packing and shipping. And they also don't have any sales people that are going after the B2B play and getting them into stores and getting distributors and retailers. In this instance, really to go to six, seven, eight million a year, you can do it with an incredibly lean team. You really only need two to three people. The number one hire is customer support. That's always where you want to be starting and you want to make sure that you invest well in customer support because it is going to make an enormous difference and it'll compound over time. Can usually be offshore. Doesn't necessarily have to be in Australia and I would probably suggest starting with offshore, but just paying a premium to do so. Don't look for the cheapest offshore customer support person. Actually make sure that you pay appropriately to get someone good that has. years of experience and ideally years of experience at a reputable brand. And give them, just to add in there, give them support, give them training, especially if they're going to be the primary mouthpiece for your brand, the ones actually speaking with your customers day to day. Make sure that they know what's expected of them in communicating with your customers. Yeah, absolutely. In regards to future hires after customer support, it should be highly dependent based on the owner's skill set and where the owner believes their highest leverage point in the business is. So if the owner, for example, has a finance background, it probably makes no sense at all to go and hire a full -time finance, chief marketing officer or accountant or whatever role you would want to fill there. Vice versa, if the founder has a background in marketing agencies and is very into the weeds of Google and Facebook ads, it probably doesn't make sense for them to hire someone from another marketing agency to fill that role. In addition to that, it's looking at the lowest value tasks and offloading them accordingly. So what does the owner believe is the lowest value tasks that are sucking up the most of their time and then offloading that to someone else, but not doing that impatiently. And I think that's a really important point there is there's a lot of content out there and there's books that push the way to succeed quickly is to offload the lowest value tasks at the fastest rate possible. So identify every single day the lowest value tasks and offload them immediately. And then as new tasks come into your deck of day to day, offload them immediately. And I think that just results in overinflation of the team. And you start to realize as well that one person can probably do 90 % of what you're deeming as a low value task. Absolutely. One add on here is just around, let's assume that it's one operator and their, I guess, zone of genius is in product. So a lot of their time is spent on product and possibly speaking directly with customers for feedback and building the positioning of the brand in the market. so that they're going to find an agency to work with, maybe a freelancer, whatever it might be. an agency or a freelance media buyer is not the same as a marketing manager. And I would generally push against the need for a marketing manager for an early stage brand. I really don't see, I haven't seen a situation where we've worked with smaller brands. They've had marketing managers and I've, you know, gotten context around what they're delivering, what the founder is needing from that sort of role. And then without involvement as an agency partner, I haven't seen that be a necessary role. I haven't seen, I haven't had an interaction where I'm like, it actually does make sense for you to be here full time. It's usually not the case. And that's obviously a very delicate conversation to be having, but don't. expect a marketing hire to replace the capability of an entire team that comes with an agency. Correct, and I think we could do a full video on this in itself, but there is hyper special specialization within an agency or a freelancer that you will never get within a generalized marketing manager. Even if you poach them from the specialized agency and want them to continue to carry out that exact task. And the reason being is that an agency is a conduit of. the latest knowledge within that specific field. And so an agency should, a good one, there's not a whole lot of them, but a good one should be able to be on the absolute forefront of specialized knowledge within that field and be educating the entire team across it. And so what ends up happening is the moment you pull someone out of an agency and you put them in -house, you watch their skills within that specialized area. Degrade really, really quickly because you just simply cannot stay on the forefront of knowledge when you're just specified into one brand and you're not talking to people every day that are within that specialized field. And so that's why I think there's actually an immense amount of value in having specialized agencies within a marketing manager that oversees them all and almost manages the entire mix and has an understanding. But do you need that much infrastructure? If you're a sub five, $6 million brand, probably not. It probably makes sense to start with customer support, look at the low value tasks, potentially bring in a second person to help you out. You could title them a marketing manager, you could not, but also making sure that you have that addition of those specialized agencies and the core parts of the business that have the highest degree of leverage. Hmm. And vice versa. I mean, a great marketing manager will know that they will appreciate and understand the value that comes with having a specialized team across, for example, paid media. And they will be able to. validate the efficacy and proficiency of that agency. They will champion that agency. They'll know how to work with them effectively. They'll know how to hold them accountable. They'll know how to relay insights from maybe the directorship or the product team to the agency to enable better marketing initiatives and vice versa. They'll be able to help distill insights from the agency to the directors or any decision makers in the business. but they shouldn't necessarily just be looking to replace themselves. They should be across all things marketing. And that includes customer support if you were to loop in that function. Number nine, software subscriptions. This is a pretty simple, easy one and it applies to almost every single business model. So even if you don't own an eCompro, and this applies to you, which is SaaS costs really need to be monitored on a quarter by quarter basis because they inflate like crazy. And you add a software on, you add an app on, it's only $10 a month, it's only $20 a month, but it's per user. and it actually escalates as order numbers escalate or it escalates based on traffic on site. And so suddenly a few quarters go by, you have nine apps, you've scaled, and now suddenly SaaS is costing you $4 ,000 a month when it absolutely shouldn't be at the size that you're at. And so just keeping a pulse, a finger on the pulse of how much you're spending on software, apps, integrations, et cetera. And just making sure to keep that as low as possible within the context of your needs. Obviously, you're not gonna be able to cut that to zero. You're not gonna even really be able to cut that to some 2 % of revenue. It's gonna be pretty tough for you to do that. But just making sure that it sits somewhere in that sweet spot of two to 4 % depending on. the exact needs and requirements of your business. And this is gonna be very dependent on your business because some people have very custom models which require them to have, for example, a software that automatically generates the product dependent on the specifics of the logo. For example, I'm just thinking about the neon sign behind you right now. That requires a complete separate app that has to go on site and that's gonna be a cost that you can't really get around. But just make sure to monitor it. on a quarter by quarter basis. I'll be asking your accountant to report to you with a report every three months saying here's how much SaaS cost us as a proportion of total rev. For sure. The last one here is possibly a little contentious and people might need to take it with a grain of salt given that we're a paid media company. But the last one is SEO. And the reason we've included this is because we do see a lot of wasted spend or possibly a... a focus on or an investment in organic search out of sequence. So too early for it to make sense or to justify that investment. And so we're operating under the assumption here that you are generating as a brand less than 10 ,000 a month in non-branded organic revenue. If that is you, you shouldn't be investing in an SEO firm. What are your thoughts here? I agree. If you want to scale revenue quickly and profitably out of the gates, it makes a lot more sense to do it through a paid media acquisition strategy or through there's other sales channels as well as not just paid media. You could go through an influencer based acquisition strategy. You could go through above the line potentially, um, or organic, but SEO in the early days, it takes a long time to get an actual ROI. And so you just need to be considerate of the fact that if you are going to invest in SEO, you're not going to see an ROI for six to nine months. Is that the best decision to make when you're doing $20 ,000 a month in rev and you're barely profitable? Probably not. When you could go and take that expense and put it into paid media and see an immediate ROI within 30 to 90 days. So you just have to think about the. the cost curve and particularly how quickly you want to scale. We're not saying that SEO isn't important at all because SEO also fundamentally does build an asset within the company if you're looking to exit, which is that if you're ranking number one across all core key terms within your industry, that will actually provide you with a point of leverage when you go to sale. It's actually a big asset to build. So it's something that you shouldn't neglect, but it's not something that I would be focusing on as a small brand with under $10 ,000 in organic revenue per month. that's non -branded. for sure. I think it's such a challenge for, I mean, the reality is it does take time. There is latency involved in SEO initiatives. It's not to say, I mean, it's a common objection that we hear from clients, oh, you know, the SEO agencies I've worked with, they always say it takes three, six months or 12 months to see a return. That's the truth. I mean, Google's just not going to allow you to rank organically in the top positions when you have, um, you haven't proved yourself as a trustworthy, reliable operator in that market for those search terms. And so, um, the difficulty comes in the commercial viability of a partnership through an SEO agency. It doesn't mean it's not important. I would suggest possibly if you would like to build that asset and you're looking to run that brand for the next five to 10 years plus, then I would suggest either number one, if you do have the cashflow to allow it, you can make that investment. But generally speaking, I would understand the fundamentals that are going to. help build your organic revenue over the next 12 months and possibly take on that hat yourself or if you do have someone helping you in house, give that task to them rather than paying $1 $2 ,000, $3,000 a month for a proper full SEO team. Those were the 10 biggest wastes of spend for A -Commerce brands. Any other comments from yourself before we wrap up? Nope, nothing for me. I think we covered most of it. Wonderful. Well, thank you. For everybody listening, thank you. Grateful for your time. Catch you later.