eCommerce Analytics, Finances & Operations with Valentin Kuznetcov

In this episode, Nathan interviews Valentin Kuznetcov from Optimizator, a fractional CFO specialising in finance, analytics, and operations for e-commerce businesses. Val shares his background and how he became an expert in the field. They discuss the common mistakes made by e-commerce brand owners and the importance of understanding unit economics. Val explains what a fractional CFO is and when businesses should consider bringing one on board. They also explore the transition from D2C to omni-channel and the role of data collection and customer research in building a successful business. In this conversation, Val and Nathan discuss various topics related to e-commerce, including pre-sales as a proxy for future sales, launching new products without buying stock, and testing new products on cold audiences. They also emphasize the importance of long-term investment in branding and building a solid business, as well as the operational issues involved in scaling paid media. Val highlights the significance of prioritizing demand, creation, and delivery before distribution, and the potential pitfalls of overinflated teams and mis-hires. They also discuss the impact of fixed expenses on profit and the importance of choosing the right marketing agencies. Finally, they predict that e-commerce business owners will be focusing more on data in the future.

Chapters
00:00 Introduction and Background
03:36 What is a Fractional CFO?
08:23 Importance of Unit Economics
11:39 When to Bring in a Fractional CFO
23:13 Transitioning from D2C to Omni-Channel
28:18 Approaching Attribution and Analytics
32:49 Data Collection and Customer Research
37:41 Pre-sales as a Proxy for Future Sales
38:09 Launching a New Product without Buying Stock
39:05 Testing New Products on Cold Audiences
39:36 Long-Term Investment in Branding and Building a Solid Business
40:14 Scaling Paid Media as an Operational Issue
40:36 The Importance of Operational Efficiency in E-commerce
41:35 Prioritizing Demand, Creation, and Delivery before Distribution
42:42 The Pitfall of Overinflated Teams in E-commerce
43:12 Mis-hires and the Need for Intentional Hiring
44:44 The Impact of Fixed Expenses on Profit
45:05 Choosing the Right Marketing Agencies
46:37 Avoiding Full-Time CFOs for Small E-commerce Businesses
47:33 Reassessing the Team Based on Mission and Goals
48:23 The Importance of Understanding Bottlenecks in the Business
49:34 The Significance of Fixed Expenses in E-commerce
49:59 The Role of Agencies in E-commerce Growth
52:53 Adapting the Agency Model for Different Business Needs
53:26 The Future Focus on Data in E-commerce


Takeaways

• Pre-sales can serve as a good proxy for future sales and help test the market reception of a product.
• Launching a new product without buying stock and using pre-sales can provide quick insights into its potential performance.
• Building a solid business and investing in branding is a long-term strategy that requires time and effort.
• Scaling paid media in e-commerce is often an operational issue rather than a marketing issue.
• Understanding bottlenecks in the business and reassessing the team based on mission and goals are crucial for success in e-commerce.

Transcript

0:02

Welcome back to the Blues Brothers podcast, the podcast where we talk about the challenges, insights and triumphs that come along with scaling income brands to seven and eight figures. In this episode, I'm joined with Val from Optimizator, my go -to resource for analytics, finances. He's posting almost every day on LinkedIn and he's up skilled me more in the last 12 months. And I think anyone that I'm a part of any group that I'm in. So welcome to the podcast Val. I appreciate it, Nathan. Always a pleasure trying with you and discussing the concepts of e -commerce. And you guys are also a great resource for me when it comes to marketing, acquisition, retention even, even though you don't focus that much, but you guys are amazing. Appreciate it. So before we dive into any technicals, analytics, Ecom operations, I want to start off with how did Optimizer start? How did you become my go -to best resource for finances and analytics? And how did you get such a wealth of knowledge in the space? Sure. Without diving into deep, I started out in finance and analytics, corporate finance and analytics. Quickly realized that corporate was not really a good fit for me and my lifestyle. And I switched to e -commerce. Joined a small business that was doing $1.5 million in wholesale revenue. with big aspirations for e -commerce and expansion into new geographies in the United States, Canada, but they had no knowledge of finance operations, so they weren't sure how exactly they would accomplish all those goals. Long story short, two and a half years later, after joining the business, we grew the business from one and a half million wholesale Canadian dollars to 10 million dollars, both wholesale and e -commerce in the United States, which was an amazing feat. And... They've been using the same systems and frameworks that we implemented back then. It was four years ago. And they've been running like a smooth machine. I realized that that was pretty good at operations, finance, analytics. Decided to leave the company because I had outgrown the role and wanted to do other exciting things. Decided to travel the world. Hopped on the last plane, flying out of Canada into Thailand. That was a... a very spontaneous decision, but turned out to be a life -changing and important one because during the pandemic, I traveled the world, picked up on a few consulting projects where I learned more about marketing. And that's when another realization hit me. When I've learned that there was a lot of misalignment and disconnect between functions within e -commerce businesses, marketing agencies focus a lot on marketing, not so much on finance, operations, et cetera. And finance people don't really care much about marketing. So I knew that someone had to come into a business with this alignment and holistic approach to e -commerce that could reconcile data. reconcile finances across different functions, lay out a blueprint for successful scale, profitable, cash flow positive scale, and serve as this source of truth or as a hub that everyone could trust and rely upon. And that's how Optimizator came about. I started to do more of finance, but with a focus on marketing and operations and analytics as well. And that's where we are at. year later I've been working with a decent number of clients and it's been quite a fun ride. Yeah, awesome. Why do you think Ecom brand owners generally speaking aren't up skilled that well in finances? Why is there a gap in the market that you've essentially pinpointed it and positioned yourself into? Yeah, that's a good question. I think the main roadblock here is that a lot of founders start businesses because they are passionate about the product, branding, marketing. So they want to tell a story about their products and they want to appeal to a larger group of individuals who resonate with that vision, resonate with their mission. And finance has nothing to do with that every day of the week, right? It's a very dirty, very different perspective and you have to... disperse your attention, disperse your resources when you want to focus on both branding, marketing, and finance. And founders would rather not do that. They would rather focus on building the best product, building the best community. And I completely understand that, which is why people like me exist. We want to help founders focus on what they do best, and we'll come in and help them do what we do best. Yeah, yeah, for sure. I would mirror that. It's pretty much always because e -comm founders are people, sorry, they're product people, and they want absolutely nothing to do with the finances and they're not thinking about it. When you're taking on new clients, what are common mistakes that you're finding these brand owners, particularly these product -orientated DTC brand owners, what mistakes are they making? Yeah, I think we talk about this topic quite a lot lately on LinkedIn and you just made a post about it. Unit economics is quite essential and just not understanding the levers that play into unit economics and what kind of control brands have over their unit economics. And that's a very powerful and liberating tool that most brands have at their disposal. by simply looking at their data and building out a certain structure and then seeing how they can use that data to affect and influence change in their company. And I think that's one of the most overlooked one. Whenever I pick up. new client, they never have a real time unit economics sheet that they track data off and then share with their partners. And it seems like there is a lot of misalignment and miscommunication as a result of that. Because if your marketing agency is not aware of your unit economics and how your variable costs change in real time based on your decisions, they will not be effective at their role and at delivering the best possible outcomes on the marketing side. And whenever I see that happen and it happens with 90 % of businesses who don't have in-house finance people, don't have in-house marketing people. It's always left up to chance, left up to exposed to risk of not knowing your numbers. And that's a big red flag every time I come on board and see that. Have you ever onboarded a client and they're clueless about their unit economics? Yeah, all the time. And to be honest, there's always a lot of defense and debate about numbers. Whenever I do an audit, I typically... try to provide them with unit economics data for free, because I think that's a great value for businesses to start with before even getting into other deeper areas of analytics. And whenever they see unit economics, it just never makes sense for them. They enter this defensive mode and they disregard and reject any potential ideas and any potential things and discoveries that they see in their unit economics sheet. And it's always a conversation to have like, guys, this is what's happening in your business. You can reject it, but if I were you, I would accept that as a given and just work towards fixing it. But most brands choose to be blind because that's more convenient. And it's easier to grow revenue. That's the idea. Grow revenue as much as possible. Disregarding your unit economics, not really knowing what your profit contribution margins are because revenue always... hides those problems, it helps in the short term, but once revenue stops flowing in, that's when problems arise. And I see that happen with a lot of 10 plus million brands, right? They've grown to a point that now not understanding unit economics no longer works and you have to switch your focus, but it starts with overcoming the psychological barrier of most brands trying to reject the idea of... profit contribution margins, they're not making as much money as they thought they were. And it's always an interesting conversation to have. How do you approach those conversations? It's a challenging one because it's kind of like a clash of egos and I'm learning to be more mindful and I understand that their reaction is not a reaction to my work and them doubting my work. It's their realization of, wow, we didn't know this was happening, right? And we have to accept it as a given, but it's going to take some time. So typically I usually try to be very patient with. clients and try to educate them as much as possible, try to explain to them what the time series is, because what I do typically, I look at unit economics over time, not just most recent one, to show them how certain strategic changes and strategic decisions impact, how they impact their unit economics over time so that they understand, okay, yes, we did launch a new product collection here, which is why the number of units per transaction went up. which explains the reason why our profit contribution went up. But then our repeat purchase dropped as a result and the unit economics changed dramatically. So you have to understand what's causing the changes in unit economics over time and not just take it as a given and as a fundamental foundation for the brand at all times. It's dynamic changes over time with each decision that you make. And as long as you communicate that to your... to your clients, to yourself, to your team, they will have an understanding of why those changes are happening and how they can control them. I think that I think you there was a nugget of gold in there, which is graphing unit economics over time, rather than having a static unit economic shape that that's just pass that around the team. And that's how unit economics. How, how much of an impact does that make? How do you, does it take a long time to put a time series together of unit economics? Actually for me, no, because I've built out my own proprietary model that I just dumped data into and then it gives me a clear picture of the unit economics over time, over months, and that's how I typically deliver that value. But each brand, every brand can put that together quite quickly as long as you know what type of report to pull and how to calculate your unit economics, how to structure what kind of insights you're looking for. It shouldn't take more than 30 minutes per month for you to put that together and have a realistic... understanding of what's happening in your business. Yeah. I want to switch gears a little bit to being a fractional CFO. Because I'm sure some people are now 10 minutes in 15 minutes and still wondering what, what even is a fractional CFO and how big does a brand need to be? What do they do? Is it strictly finance? Is there an analytics portion of it? Would you be able to flesh out exactly what a fractional CFO is and then what their purpose should be? Because. I know that there's hundreds of fractional CFOs and they all do slightly different things. So it would also be good to get an objective. What should you be looking at when you're looking across the space for one? Sure, let's start with the definition. The definition of a fractional CFO is a full -time value creating specialist who focuses on finance, right? So the first misconception is that fractional CFOs do not do as much work as a full -time CFO, which is completely false. The purpose of a fractional CFO is to deliver full -time value at a fraction of a cost. And the reason why... it's now starting to pick up is because a lot of businesses find their economics not make sense anymore and they have to find savings somewhere. So instead of hiring someone full -time who costs you $200 ,000 in base salary per year, Australian dollars roughly, right? Plus bonuses, plus compensation, all the... payroll taxes that add up to let's say$300 ,000 a year potentially. No kind of brand can afford this at this point unless they're doing over $10 million in revenue and they have very solid margins and unit economics. So with that, the rise of fractional CFO work has been very timely because now you get to work with a... you. specialist who focuses on finance at a fraction of the cost, but they still deliver full -time value. So that's the first misconception. The second misconception is that fractional CFOs only do finance, which is not the case most of the time. A lot of finance people have several domains of expertise. And the reason for that is because finance people need to have a complete understanding of the business they're working with. And typically, The best CEOs are people who come from CFO experience. And you see that happen time and time again. Because when a CFO delivers great value, they understand every single component of the business. And that's how they find savings. That's how they can predict outcomes in the company. That's how they understand levers and inputs that... cause change and drive strategy in the business. And successful CFOs grow to become a CEO at some point because they understand the business in and out and they have this financial outlook on the business. So they can become this bridge between investors, shareholders, stakeholders and internal processes of the business. So they can really bridge the gap. And with that, a lot of... Fractional CFOs and ecommerce space have marketing experience or they have ops experience or they have analytics experience for me For example, I come from very deep analytics and ops background So whenever I work with my clients, I typically try to add value beyond finance as well and I dive into analyze their numbers on a deeper level to get those analytical insights. I also do a lot of supply chain analysis, right? Understanding where we can squeeze some savings. For example, some of the things that I do is looking at the billing from 3PL partners or shipping, right? For you guys in Australia, you don't work as much with 3PL partners, but let's say we'll pull your invoices for shipping. We dive into those numbers and we see, okay, what are the main levers that are causing... certain charges on our billing. It could be dimensional weight being too high for our products, which means that we should probably squeeze the packaging a bit, reduce the packaging, change the design, change the way it fits on the pallet. And that way we can save 15 % on our shipping just because we've optimized packaging dimensions. Or looking at zones, maybe our cost structure doesn't make sense. Maybe we should switch to a different zone structure. its own six, for instance, right? So let's prioritize that. Let's have a conversation with our shipping partner to see if we can squeeze some more savings. So with finance people, you get perspective on a lot of functions in the business, not just finance. And as a result, you can drive a lot of value across the business. And especially if you have marketing, if they have marketing understanding, that goes even further because now they can have a conversation with your marketing partners and basically become this liaison between partners and maximize the value that those partners bring to your business. So that's the second misconception that finance people only do finance in the company. Not true. A lot of finance people or a fraction of CFOs do focus on finance only, but they add value beyond finance and can do analytics, marketing and operations as well. follow up question there for you, because you said fractional CFOs can be really positive agency relationships because they can liaise and provide marketing partners with the information that they actually need. Because in 99 % of marketing agency, Econ business owner relationships, there's absolutely no transaction of unit economics, or really any foundation, foundational financial or operational information that the marketing partner really needs to be able to. execute and do the best job possible. But those questions aren't being asked by the marketing partner. And then usually, the client side has no idea that they should be providing that information. And so you end up with this disconnect and 90 % of agencies aren't able to either align on key KPIs based on actual objectives of the business, which is do we want to are we building towards an exit? Or are we trying to maximize free cash flow? And then Secondly, how are you even meant to set marketing goals or scaling plans if you have no idea what the economics of the business are, or you don't understand the business model? So with all of that being said, do you think a fractional CFO makes more sense than hiring for a marketing manager as a, let's say a five to $10 million brand? Because if you're saying a fractional CFO is going to do the liaising with the agencies and enable those, agencies equally, if not more than a marketing manager would. How do you see those two roles different? Very good question. I think it comes down to the workflow and what exactly the responsibilities of a marketing manager are. Of course, a fractional CFO will not replace branding, right? And alignment between all marketing partners on the branding and content side. Of course, that's not what we are meant to do. And if you have a lot in your pipeline that you keep in -house and you want to continue. that way, then of course having a marketing manager is super critical. So then what happens is if you've grown to a point that you need to have a marketing manager or director of marketing in your company, then the link in communication happens between fractional CFO and that manager. And then the manager communicates the numbers to the partners outside. But if you don't have a director of marketing, you don't have to have one. If you outsource content, if you outsource acquisition retention to partners and you want someone to simply inform those partners of your financial situation, make sure that everyone is on the same page, then a fractional CFO can successfully do that. But if you want someone who can come in and ensure consistency and continuity in branding across different channels, across acquisition retention efforts. then of course you would have to have a director of marketing, unless the founder is fulfilling that role in the short term. Yeah, yeah, that makes a lot of sense. At what point should a business owner consider bringing in a fractional CFO? The easy answer is based on the revenue volume. A fractional CFO typically engages on a more consistent and ongoing basis. So if you're doing anything less than...$2 million in revenue and for that, I mean, U S dollars for Australia, it would be around, I would say 3 million, right? If you're doing anything less than that, then you don't need to have fractional CFO engaged intensively and deeply with your brand. You can get some consultation. You can set up the basics and the foundation for, for finance management in the company. And that should be more than enough. But if you're doing more than that, you should start engaging fractional CFO on a more consistent basis, just to make sure that you are, because again, as you grow, there is a lot of efforts happening in the business at the same time. And naturally founders do not have time to reconcile all those efforts together and know what exactly moves the needle. So the job of a fractional CFO is to come in and add that transparency, add that clarity and make sure that the business focuses its scarce resources on high ROI initiatives. Yeah, yeah, it makes a lot of sense. What would you recommend for the businesses that don't qualify? How do they upskill themselves? How do the founders particularly upskill themselves in financial operations and analytics to the point that they can ideally get themselves or bootstrap themselves to the point where they can work with a fractional CFO? Because as you said, majority of Econ founders stumble into Econ because they're product orientated. and they have no idea about the financial implications, what kind of unit economics they should even be aiming towards when it comes to pricing the products as they're starting to find suppliers. How do you recommend that they upskill themselves to the point where they can bootstrap to five to 10 million? Yeah, I think if you're doing anything less, as I mentioned, two, three million dollars in revenue, basic finance education should be enough for you to scale profitably. You don't even need a fractional, so you'll fall on a full -time basis or ongoing basis. And I took... fractional CFOs in the e -commerce space, like myself for instance. And I share a lot of golden nuggets about finance and analytics for small business owners. And I've also launched a community on school that you guys can share and that you can join. And I think Nathan will share the link under the podcast. But in that community, I will be sharing a lot of courses for free as well as paid courses. teaching the basics of e -comm finance for founders who do not have resources to afford a full -time or fractional CFO. Yeah, yeah, perfect. And I'll make sure to put that in the YouTube description. Switching gears a little bit more. So I spoke about this with the guys from store hero last week, which was about how paid media had essentially a Goldilocks zone about 234 years ago, which is where emmy are was able to sit at such a low percentage that it made sense to just run data, say, Ecom brands. and have no retailer component because you could sit at an MER of 15%, 20 % and retailers typically want 30%. So you have that 10 % of leverage in just going DTC online rather than actually playing in the retail space. But as ad costs have inflated and particularly as you scale and you have that erosion of efficiency and your MER starts to approach 30%, which would be a 3.3, it starts to make sense to start to play. in the retailing space and get your products out there. And I imagine there's an overall uplift as well as you start to have an omni -channel presence. I wanted to get your thoughts on it because I know you work with a couple of clients that are omni -channel and you specifically shine with omni -channel brands as well because there's more analytics and it's a bit more of a confusing business model because you're not operating in the silo of D2C Ecom. What are your thoughts on that? When do you think brands should expand? into retailers and how do you think we as marketing agencies should be approaching tracking an omni -channel brand as well? Let's start one by one. The reason why D2C, pure D2C play no longer works is, like you said, because of economics. And part of the problem is the perspective on what D2C is. D2C is a great channel for testing, iterative testing. You can quickly test product launches, content ideas, get... Focus on creating value that way because it's a constant loop, feedback loop that you fuel with new launches, new strategies, new tests. Most brands do not do that. And that's why they're not as profitable as they desire to be. It's a data play these days. And I highly recommend that whoever's watching this follow John Ivanko on LinkedIn. He's big in e -commerce. He talks a lot about zero party data and that's... Formtoro, they built a tool for data collection. And I always advocate for John, incredible resource. And I also recommend following Chris Daly, who comes from very extensive retail background in database marketing. So a combination of qualitative and quantitative research into your customer is what D2C is about. You can collect data directly from your customers and then use that data to craft better strategy for acquisition, for retention. launch new products, and then build this machine that works seamlessly and smoothly with all that research, with all that data. As soon as you make that switch in your head, you will see the true power of D2C in comparison to retail, wholesale, and marketplaces, where you don't get access to data direct to consumer. That's the whole purpose of D2C, to get your hands direct to consumer, to get your hands on their data. access direct to consumer. What do I think about Omnichannel? I think it's... It's a given to be an omnichannel brand, to have omnichannel presence. And it's no longer online versus offline. You have to build this bridge between online and offline. And like I said, if you approach it, you to see as a learning channel where you learn about your customer, about their needs, about their demand, and then you create supply accordingly. And then you apply the same framework of thinking to your wholesale and retail channels. you can build a very successful business that is profitable across all those channels. And that's why when it comes to attribution, it doesn't really matter where the customer comes from because your goal is to be top of mind of your customers. And to be top of mind of your customers, you have to understand what their pain points are, what their needs are. If you don't understand what those pain points are, you will never be top of mind. And it doesn't matter what channel they come from because it can be an impulsive purchase that came through. Facebook, and then you think, oh, Facebook is a great channel for us to advertise, but you don't really understand your customer. You start to put more resources into Facebook. You scale to a certain point where it becomes unprofitable. And that's where you realize that Facebook was not that great in the first place. But that's a flawed way of thinking. You didn't start with data. You didn't start with the customer. And that's how you ended up in that space. So take it a very data -driven customer-first approach with the help of quantitative and qualitative analyses. on the database marketing side and zero party data side will help you take maximum value out of D2C and build a more successful presence on wholesale, retail and marketplaces. How do you approach attribution now? Do you find attribution at all important? Do you think there's a time and place for it? Or are you more so indexing towards analytics, financial based numbers? For example, are you looking at contribution margin and indexing further towards that and MER and more importantly acquisition MER as well over just return on ad spend in these platforms? sure. My thinking about attribution is what John Ivanko says, and I always quote him because it's very well said. You don't have to make up anything new, but attribution is a company journey rather than customer journey. What you're trying to figure out is where do we get the highest ROI on our investment? And it's a company journey. You don't really think about the customer. You just think about the highest ROI, which is a very flawed way of thinking. And attribution has led a lot of businesses down the wrong path. When you dive into attribution, you just end up wasting a ton of time, right? You will never get perfect attribution. Never, right? No matter how much you try. And again, with all these policies and private data protection regulations, it's going to be tougher and tougher to collect accurate data and know exactly what the customer journey looks like and how you should be attributing your spend and your marketing resources. So I would say that do not obsess with attribution because you're not doing enough on the customer journey and data collection side. Focus your time there before you dive into attribution or try to understand what attribution is about. Because again, it's like understanding where the bottleneck is. If you're, let's say, even if you were to attribute with 90 % accuracy, but you're doing zero on the... customer research and data collection side, you're trying to push from 90 % to 95 % attribution accuracy, but you're doing nothing with the 0 % on the customer research side. So it's understanding what the bottleneck and business constraint is, right? And what you should be doing to fix that first before you focus your limited resources in the areas that are not really lacking. So I would say start with customer research first and foremost, before you start obsessing with attribution. which is null, not perfect and will never be perfect. And the second part of the question, what did you ask about the, kind of forgot. I forgot as well. I was going to follow up just then on where do you, where would an e -comm, an early stage e -comm brand owner even start when it comes to data collection and customer research? Yeah, so it's very simple, to be honest. And a lot of tests have been run by a bunch of partners in the e -commerce space, like No Limit Marketing guys are doing a lot of zero -party data now with Josh Tay and Michael Gavin. So check out their content. They post a lot about the effectiveness of data collection at pre -purchase level. So the idea is that when you give a coupon or sign up discount to your first -time visitors or... website visitors, first time customers, we typically just collect the email. But instead of collecting the email only, ask them five relevant customer oriented questions that will help you understand what the customer is about. And we've seen a slight decline in the fill out rate. If you are lending like, let's say, let's say 10 % subscription rate, right? So whoever lands on your website, one 10th of that people will sign up for a discount. We've seen just a slight decrease in that percentage, but you get way more value out of it because now you've got their data, you know exactly what their pain points are, how you should personalize their journey and experience with your brand. And you can use that over time and perfect it. And that's how you reduce customer acquisition costs essentially, because you use the data that you collect from current customers that you've already paid for, and then you improve everything in your business to make sure that it costs you way less in the future. So it's an investment, right? You invest now, but then in the future it becomes cheaper for you to acquire customers than it would have if you didn't do that. Yeah, I'd argue retention strategies are 50 % emails, campaigns, flows, and then 50% just data collection. Because you can set up data collection at almost every stage within any flow or any series of the customer journey. You should be collecting data if an abandoned checkout doesn't convert all the way at the end. You should be collecting data at the end of every post purchase flow. You should be collecting data at the end of every, uh, browser abandonment flow. There's like so many different opportunities as to when you can collect zero party data, whether it's one, two or three questions. And then that fuels back into the paid media strategy. It feels back into the retention strategy, but then it also flows back into the product launch and operational strategy because you can base all of your future product launches on your actual customers. The worst thing you can do is go and do a product launch and realize, Oh, wait a second. This product actually doesn't cross over with our existing customer database. We're about to send it out and do this product launch to 150 ,000 people. And no one really is going to resonate with it. And people make assumptions. And it's actually really funny when we onboard clients because everything is just an assumption, but there's no data to back anything. It's yet we assume our customers are probably between 45 and 60 because we think that's what Google Analytics tells us. And we think they're trying to solve pain in their knees. because we've got a few Facebook comments about it. You really need a concrete down on who your exact customer is and what the different profiles are. And it is, as you said, it actually is really easy to do. You just need to set up these collection points at different parts in the customer journey and then have a strong analytics process on it to actually understand and delve into that data because I also see on the counter. some brands who have all of the data collection set up and then they just never look at it. And you're like, do you have data on your customers? And they're like, oh, we have heaps. We had 20 ,000 people fill out, fill out a 10 question survey. And you're like, oh, okay, have you ever looked at it? No. Well, I would start there. I would start there. Yeah, it's spot on, right? And it's just, again, the e -commerce is the game of economics. Just like any business is, you have scarce resources, your cash, precious cash. And how do you allocate that cash makes or breaks your business? If you tie up a lot of cash and products that will never turn, you will require... external capital, right? And at some point, that's going to be like a snowball effect. You start borrowing and borrowing and borrowing to a point that you become insolvent, essentially. And at some point you become illiquid, right? You become illiquid and then you become insolvent. And that's not a good position to be in as a business. So starting with the basics of economics, understanding the laws of supply and demand. And if you don't understand the demand, you can't really supply properly, right? That's the basics of it. And how do you understand the demand? You just ask, ask the customers, right? What do you guys want? What do you guys want to see? And this is part of the reason why so many brands are, they suffer from the one product syndrome or one product challenge, right? They, they nailed a great product, which fit the market, product market fit. Excellent. Hero product. We can build a brand around it. But then as they start to obsess with product launches, they add a lot of products that don't really make sense. for the brand, for the messaging that they're trying to accomplish or position themselves as in the market. And they end up launching a ton of products that contribute very minimal value in relation to that hero product. And at some point, the hero product starts to decline in terms of more mature, in terms of market adoption, because there's so many customers you can acquire and capture. And then it becomes very challenging to grow from there with the... with new products because again, they were launched without much research and without much data to back them up. So going back to the root upstream, understanding that we need to start with the customer first and then launch products. That's how you build a successful business. Yeah, I think the one product syndrome probably comes from a false sense of confidence because they got it right on the first product. The first product fit the market perfectly. And so they've gone, okay, the first fit the market perfectly. So I now have a golden touch and now whatever we launch will work without much consideration of the target demographic and the target audience. When realistically there needs to be a sense of everything we launch is going to fail. Let's do our due diligence first to ensure the least likelihood of failure. Yeah, exactly. Or even run some pre -sales, right? Run some pre -sales, understand, test the market, see what the reception is. Because if you don't have any pre -sales, chances are you're not going to have any sales in the future, right? So pre -sales is a good proxy for how many units you could potentially sell in the future. And if your most loyal customers don't really want to buy this product, your least loyal customers will certainly not want it. Yeah, yeah, I think I said this in a podcast like two podcasts ago, or maybe it was a LinkedIn post, it's somewhere in my content, which is a bit of an aggressive statement, but I still hold by it, which is if that if you want to launch a new product, or even if you haven't launched an ecom brand yet, and you want to test a product, don't even buy stock, just build everything and then sell. And if you get sales, just set up an automated email trigger flow that's going to say sorry. the product's actually out of stock at the moment, we can refund you 100 % or we could refund you 40 % but you'll get the product in three months. And then you can get a really quick idea even on paid media acquisition on how that product's actually going to perform. Because you could do pre -sells to existing customer lists and you could segment your Clavio list based on highest engagement and test on them with a small sample size of stock. Or you could just go out to cold audiences with a brand new product, exclude. your Claviyo customer list, make sure none of them say it, and then test a new product on cold audiences. And pretty quickly, you're going to see what your click through rates look like, what your conversion rates look like. And that'll give you a proxy for how successful you could potentially scale it as you start to optimize and refine. Potentially can even collect zero party data on those customers in that sorry email as well. Sorry, products out of stock, by the way, why did you purchase? And what would you prefer to see? Yeah. because we have a version two coming out in two months. It's an excellent strategy. The reason why people don't do it is because it's a long game, right? It's not a short -term gain that you get from it. It's a long -term investment into branding and building a solid business, which a lot of people don't want to do. It takes a lot of time, a lot of effort with no payback right away. Yeah, exactly. I want to ask you how often when you're working with clients, do you find and also working with paid media agencies, do you find that scaling paid media is an operational issue rather than a marketing issue? quite often and there's so much marketers can do if you do not create and deliver product efficiently, right? Distribution. And again, it goes back to the basics of microeconomics and I'm working on putting a piece of content about it. But if you look at the P &L, you can essentially split it into... concepts of microeconomics. When you look at the top line, that's your consumption, demand, right? It's a reflection of demand. If you've grown very quickly, rapidly, and you're not over discounting, you don't have a lot of refunds, that's a strong indicator of product market fit and demand and consumption in the market. Then your next section is the gross profit margin, right? And everything about that variable cost. That's how efficient are you at creating and delivering your product to your customer? to satisfy that demand, that consumption. So if your gross margins are below 60%, you're going to have a very tough time scaling the brand profitably on the distribution side. So it's looking at your creation and delivery systems and seeing if you can improve your supply chain, improve the delivery. distribution that's when marketers come in and they you know pick the right channel for you to advertise on make sure that they We don't run a huge Customer acquisition costs or retention costs whatever it is on the marketing side. So distributing the product is secondary to creating to defining demand and then creating systems to create the product and deliver the product to your customer and only then does distribution kick in so I would say If you look at the P &L, it's kind of like ordered. It's built in order of importance, right? You go from demand to be number one. So understanding your customers top priority, right? Then creating systems that create and deliver the product efficiently. And you can say cost efficiently. And then only then you worry about distribution with your marketers, right? And understanding how you can distribute the product cost effectively too. So I would say that demand... operational efficiency on the supply chain side and then distribution or marketing. Yeah. And one follow up question that I had on that was we've spoken a lot about unit economics being one of the biggest financial mistakes that founders make. But I would follow on from that and say the second biggest, which I've been talking about internally a lot at the moment, would be overinflated teams hiring really aggressively out of the gates without the realization that e -com brands can stay pretty land. and should stay pretty long. I wanna pass it to you and hear your thoughts on that. 100 % agreed. And I've made a post about this, you know, many, many times that if you're a business doing anything under $10 million and you have more than 10 people on your team, you're doing something wrong, right? Because an online, a pure online business shouldn't have more than 10 people on the team to run the business. That goes against the whole idea of an online only business. Because if you look at it, if you build your business similar to Nike and you look at the hierarchy and corporate structure and the org chart, right? Then you replicate the same for your DTC brand, you are doing it very, very wrong because you're taking a concept that's existed for ages, right? For a long, long time in a specific domain. And you apply that to a very new industry, which is e -commerce, right? It's a relatively new industry. and you build it the same way, that's not going to get you anywhere. And at some point you are going to over-inflate your OPEX and your salaries and payroll, et cetera. And then it's going to become almost impossible for you to generate bottom line profit. Because again, if your profit contribution is solid, but your OPEX is over, like it's way over what it should be, then you will never generate enough. profit at the end of the day. Yeah. What do you think the typical mis -hires are? What are the most common ones that you see with clients where you go, why is that person on the team? you It's a good question. It really depends on the niche and the specific segment of e -commerce. So you can say that whatever works and again, it also depends on the approach that the brand is taking. For example, I work with a very creative brand, right? And they really wanna focus their efforts on creating this. visually appealing product, which requires a lot of artistic creativity. So they make the packaging very creative. You could argue that you can outsource this, but if it's a lot of work that goes into it, you're better off hiring someone in -house, dedicating full -time work for them to come up with these concepts, because you're launching so many products and so many exciting ideas on the product side. So it does make sense for them to hire someone. in -house for content, right? And for design, whatever it is, right? But if you're not really a creative brand and you're not investing that much effort, why would you have a content or creative person on your team? It just doesn't make sense to waste of resources. So it's a case -by -case look. But if I were to pick one that I've seen happen time and time again, I would say that the biggest one would be... Yeah, I mean, so I'm just going through the list of everyone I've worked with and it's never really one person that is consistent across the board. But I would say, and again, it's a full-time CFO. It just doesn't make sense. Like if you're doing below $10 million in revenue, don't hire full -time CFO. It just doesn't make sense. You're wasting so much resources on a full-time CFO. Just get a fractional CFO on board. They're going to come in and clean things up, but don't get someone full -time. It's a lot of money that you could invest in other areas of your business that is just tied with that particular person. Do you think there's a process that an Econ business owner could do right now to reassess their team? Are there core questions they should be asking themselves going through role by role and going, does this person make sense? Should we have this within the team? Is there a criteria that they should be looking at? I would say start with the mission. What are you trying to accomplish? Are you trying to build a creative brand? Are you trying to sell as much product as possible? Meaning, what are you trying to be? Are you trying to be a liquid death brand? Because again, the roadmap and the path is completely different for someone who is trying versus someone who is trying to be a... just a volume brand, let's sell as much product as possible, different categories, different whatnot, right? So I would say that you have to understand your mission, what you're trying to accomplish, and then see how your current team fits that mission, that agenda. Because if you have people who do not really push you towards that goal, towards that mission, then it's probably not the right fit, that you should have those people in the first place. Because what typically happens, we hire people to patch up inefficient processes and systems. But do you even need those systems and processes in the first place? Because if you're just hiring someone to patch up something that shouldn't exist in the first place, then that's a double mistake. Again, you created some idea of a system or process that shouldn't exist in the first place, and then you hired someone to patch up that. system that shouldn't exist. So that's a lot of mistakes right there. So going through the basics of business, again, looking at microeconomics, understanding how you can allocate your resources efficiently, seeing if it makes sense and do those people move you closer to your goal is the step number one for me. Off the back of that, another question regarding really fixed expenses, because I know you have a lot of posts about it and it's something that maybe a lot of e-commerce brand owners don't really realize, which is that fixed expenses have a one -to -one relationship with that profit. So really looking at your fixed expenses is an important part of being a strong e-commerce financial operator. Another fixed expense line there is us, it's agencies. What agencies do you think are really important for your average e -commerce brand between different stages of growth? Does a brand need five? Does a brand need one? Do they need any? If they have a marketing manager, is that a replacement? What are your thoughts? I've had this argument and I did say that you shouldn't work with multiple marketing partners at the same time. And a lot of people pushed back on that and said, look, if you're driving value across the board, then that's fine, right? If they can justify their costs and the return on investment, why would you not work with them? To that I said, well, how can they maximize the return on investment if the brand itself and the team, internal team, spread themselves thin by working with so many? partners, right? It's nearly impossible. If you work with an SEO agency and then you work with an acquisition partner, then you work with a paid media partner, and then you work with an email marketing partner, and then you work with a CRO agency, like you're just spreading yourself too thin. Like what are you fixing, right? You're working towards all these goals. And how do you measure incremental benefit, right? How do you know that that particular agency actually drove value, right? Because again, it's goes back to the attribution challenge. Is it the email marketing guys who delivered great results, or is it the acquisition people who set up very good targeting, and they drove quality audience, and that would have converted anyways. So how do you measure all these things if you're working with so many agents? So I would say you should never work with more than two marketing partners at the same time. It's just... counterproductive, you don't know what the incremental value is. I would say work, you should have one based on your, based on your stage and what you're trying to accomplish. Let's say if you're at a growth stage, of course you want to have an acquisition partner on board, right? Paid media partner, whoever it is, so that they can drive that first time customers. And then at some point you realize that, oh, we have a retention issue. Now we need to. put a little bit more focus on the retention side. So now you get someone on the retention side to come in and help you. But then you do all of these things and you realize, oh, we have a conversion rate issue, right? We're driving all this traffic. We're driving people back to the website, but they're not converting as well. So let's get a CRO agency or more. So even though you may end up working with all of them at the same time, but it's done in some sort of batches, right? Project batches. you understand the root cause or the bottleneck in your business and you get people on board on a project by project basis, right? To fix that. And then you say, okay, let's, let's part ways for now or enter this maintenance mode that I call it, right? So let's, we'll continue to work with you, but on the lower engagement so that we don't really waste a lot of resources and allocate some of them towards fixing another issue. So I would say you should have. The most important is to understand the bottlenecks in your business. And as long as you understand that, that you can prioritize your efforts, but you should never work with more than two marketing partners at full capacity. If they can be in the maintenance mode just to oversee the basics, make sure that the foundation doesn't get out of hand, then stick with that, but don't work at full capacity with so many agencies because then you're going to get out of control and not know. who and what drives incremental value. I think that's a really good piece of feedback is when you and we hear this from agencies, sorry, Ecom owners who onboard us alongside three other agencies and their revenue doubles in a three month time span and they're like, oh, fantastic. But what did it, was it the EDMs? Was it the paid ads? Was it the SEO? And then we're sitting here going, well, it was obviously the paid ads because SEO takes 12 months and EDMs is just retention on the paid ads. customer acquisition, but then they have to realistically sit there and go, well, maybe, maybe you guys drove 30 % of it, but would we have done the same numbers if the retention agency wasn't there? And so they do get into this, this sticky situation where it's what is actually driving incremental growth. And then also what are you solving for? That's something Seb said in a previous podcast, which was when you're looking to hire an agency, what are you solving for? Why are you even hiring them? And it's the same question to ask for internal staff. It's like, why are we even hiring for this person? And we have to do that ourselves. We've made hires in the past where we've hired them have gone, why did we even hire for this role? Like we just thought we needed it, but we had all of these limiting beliefs and assumptions that just led us down a path that we shouldn't have walked down. And so I think getting a strong understanding for just the why first, positions you well for what kind of... suite of agencies should we be working with? Because I also don't think the other route of no agencies is the answer. A lot of people push that because it's good messaging, it gets clicks, it gets virality, which is you should never work with an agency, just upscale your in-house team. But I don't think an in -house team can ever be hyper specialized on a very specific skill to the level that an agency should theoretically be. I know there's a lot of agencies that aren't on the forefront of upscaling their team in that specific domain. But realistically, it's going to be very hard to build an in -house team unless you're at unbelievable volume of like 100 mil plus, maybe a billion plus in revenue, where you're going to have a paid media team that's so large that everyone's going to be so far ahead of your competitors in knowing exactly what they should be doing. And the same thing applies for retention and data analytics, right? Like there would be so many brands that just have in -house teams now that have zero. zero, zero party data, right? They're doing no, they're doing no pop up forms that are requiring pre purchase zero party data. They're doing none of it. And it's because they have one person in house that's sitting there, not checking LinkedIn, not watching YouTube, not reading articles, and just with their day to day, and they're not on that forefront of upskilling. And there's no one in house upskilling them, right? There's no head of training in a in a single siloed econ business with with a marketing manager. Totally, totally. You're bang on for sure. And I think, let me take a step back and make it as clear as possible because a lot of people like take the wrong message away. It's not a problem with marketing agencies, right? You have to be intentional with everything you do and understand, like you said, the why behind your decision. If you were getting a retention partner on board. Why are you doing this? Is your 30 day repeat purchase rate going down? If so, that makes sense, right? So what's going on on the retention side? What are we not doing that is driving the purchase rate down over time, right? Is your customer acquisition costs going up double over last year? So maybe getting a skilled acquisition partner on board to see if they can optimize your spend could help. Is your conversion rate trending down as well? What's the issue there? You can get some on board. But again, it's not the matter of how many agencies should I work with. It's about understanding the why behind your decisions. So you've analyzed your data, you see that there is something happening. There's an issue bottleneck in the process. You can get some on board. And as long as you can build systems to measure incremental value, you're totally cool. As long as you can justify, yes. It came from this because we drove the conversion rate up. We know that it generated a certain lifted revenue. We now can recover, you know, the investment. That's totally fine. But it's still just based on my experience because there's so much going on with so many partners, different onboarding experiences, different project scopes, right? You shouldn't work with a lot of them at the same time. Prioritize your highest or largest bottleneck, fix that first, and then work towards other issues. And, uh, I would say that something that should arise in the industry and maybe it already exists, but it's like an adaptable agency model, right? You don't need full capacity agency at full capacity at all times, right? It doesn't make sense. Even for an acquisition partner, maybe you enter low season where you don't need to acquire that many customers. So potentially downsizing your engagement with an acquisition partner and focusing more effort on the retention side. For instance, we know that. you know, spend and customer acquisition costs tend to go up during Black Friday Cyber Monday because it gets overly competitive. The CPMs go up. Doesn't make sense for you to work with an acquisition partner during that time. Potentially you should focus on acquisition right before Black Friday Cyber Monday, right? Increase your engagement with that acquisition partner. And then when Black Friday Cyber Monday comes around, enter maintenance mode with your acquisition partner and focus more efforts on the retention side, because that's when you can drive. a lot of those acquired customers in September, October, back into your funnel, back into your business to buy product during Black Friday, Cyber Monday. And that way you could potentially maximize the output to its fullest potential. Yeah, I think there's a golden nugget in there as well, which is if you push, and this is something I've really only realized in the last six to 12 months, which is that if you're one of the biggest clients in an agency, you'll get prioritized quite heavily and you can make yourself the biggest client in an agency. If you do follow a similar model to exactly what you were just saying, which is that if you know that we should really be pushing for new You can come to an agency and say, Hey, we want to be your priority. We want the best talent onto our account and we want increased resourcing by two X. We want you doing the data deep dives. We want you looking at historical sales data. We want you doing predictive models based on what kind of return on ad spend we need to be hitting. If we're going to be doing this discounting throughout this period, what the LTV looks like off the backend of those cohorts going way further than a regular paid media partner would for the size that you're at. but then coming to them with a proposition of, okay, this is what we'd have to pay to do so. And normally you can see a really large incremental ROI there from just taking the best talent at the agency and putting it on your account for a one to two month period in comparison to just liaising with whoever you've been allocated to for a 12 month period who might not be on the absolute forefront of paid media, data analytics. deep diving into your individual niche and your brand and understanding your business model. I think there definitely is an opportunity there for agencies to adapt the model accordingly to where people can have these boost periods where you essentially get all hands on deck for a couple months. Yeah. Yeah. And it's only going to work. Of course, it's only going to work until everyone starts doing that. So if everyone picks up on this idea that we should double down on our acquisition partner in September, October, and everyone starts doing that, then of course that agency is going to be overbooked in September, October, and then supply demand kicks in. Then it's a different conversation, but as it stands right now, a lot of brands dive into acquisition during Black Friday, Cyber Monday. And I think that's already too late. Put more resources right before Black Friday, Cyber Monday. you. your agency is probably not that booked up, right? They have a lot of free time, double down, maybe invest more, say, guys, we're happy to pay you more money, but help us build out all these models, all these offers for Black Friday, Cyber Monday, and then we'll downsize your engagement a bit during that time so that you can focus on other clients, and we'll work with a retention partner to help us boost our repeat purchases. Yeah, yeah, I think that's a great idea. Before we wrap this one up, I've got one last question for you, which is future prediction. What do you think a calm business owners are going to be talking about in a year from now? 100%, more data, more data. Yeah, it's simple answer. Zero party data, customer data, but a lot more. And I love what Chris Daly is building on his side and I really applaud him. It's called customer generated offers. And this is an amazing concept and I really encourage everyone to read up on it. It's basically the idea of providing negotiation. capabilities on the website. So instead of you saying, take 20 % off, you discover what the customer is willing to buy. And then you generate the offer based on their feedback. So you could have one customer who is willing to buy 25 % off, someone who is willing to buy 15 % off. At some point that will average to 20 % potentially, but you're going to convert way more customers because everyone's willingness to pay is different. Right. And based on that, you maximize the conversion rate on the website because you're converting all these customers, but potentially giving away the exact same percentages you were planning to do on average. Yeah, I've actually reached out to Chris Daly to get him on the podcast. He should be coming on in a couple of weeks, but I'd be really keen to see conversion data on how much of a conversion rate uplift those customer generated offers actually have. But I'm sure... he is a very smart guy. Yeah. Yeah, yeah, absolutely. He posts like 12 times a day on LinkedIn and half of it's gold. I'm like Chris, Chris, just stop, man. It's already, it's already too much value, man. Just slow it down a bit. sure. Yeah. Half the time he comments on my posts and the comments are more valuable than my posts. And I go, oh, well, what are we doing here? Can I just repost his comment? like this, what's it's called? The syndrome. How do you call it? When you're not, yeah, imposter syndrome, right? You're like, fuck, fuck, Chris, you made me question my existence, my role in this space. Exactly. Yeah. Anything else you want to talk about before we wrap this one up? think we've covered everything, so it's been very insightful, hopefully. Yeah, I appreciate it, Val. And I'll also make sure to put the school link in the description below. I'll also link your LinkedIn as well. I couldn't recommend it enough. The content that you put out has changed my entire perspective on marketing and it's pivoted the way that we structure internally as well as to how we approach everything. So I really appreciate it. speaks volumes better than you. Thanks, Will.