If you want this to be a business instead of a hobby, you need to be able to pay yourself. Once I learned there were so many 6-figure entrepreneurs that weren’t able to pay themselves from their biz, I knew I had to record this episode. That stops now, my friends. It’s time to talk money, honey.
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Do You Wish You Were Paying Yourself More?
Since I started consulting with entrepreneurs in their eCommerce business, I've come across a lot of you who are still unable to pay yourself a living wage from your company.
When you're just getting started, this makes perfect sense, especially if you started this as a side hustle? You just continue to invest all of that money back into your business to grow it, which is awesome and smart and exactly what I'm doing with my business.
But there comes a time, especially if you are in the six- or seven-figure revenue range that you should be paying yourself. When I had my brick-and-mortar store, I took a draw every two weeks even with multiple employees and a good amount of overhead.
I have started to see some patterns, and we're gonna dive into those today. If you’re someone who never seems to have money to pay yourself, I want you to listen up. Don't feel bad about this, lots of entrepreneurs go through it and you're not alone. If you think about it, I've run into this enough times that it inspired me to record a podcast about it. So obviously, it's not just you.
The reason why you feel like you don't have money, why your cash flow is all over the place, and why you have nothing to pay yourself with is because you don't know your numbers.
We're going to start high level first, and then I'll go into some more specific effects and things that you should be looking at to help you do this better. From here on out, we're going to do better with everything on this list and start to give ourselves a paycheck.
Start tracking your sales and KPIs
The first thing that I want you to do is to start tracking your sales and KPIs, which are key performance indicators, on a weekly and monthly basis.
Every single week and every single month, you're going to do this. From there, you should also be doing it quarterly, half-yearly, yearly, bi-yearly, ect. You get the point it needs to be done on a regular basis.
Let's quickly talk about KPIs in case you don't know what those are or you haven't heard the term before. Key Performance Indicators or KPIs are things like your sales, the cost of goods, your conversion rate, your website traffic and all the numbers that play a role in the overall success of your business. They’re also something you want to look at regularly. If you're not already doing this, now is the time to start. If you don't know where you're at, you can't make educated decisions about what to do next.
A couple of years ago, I worked with a women's leadership coach and a group program. And one of the things that we talked about was money and how to manage it. One of my biggest takeaways from that program was the lesson that what you nurture grows, and that includes your bank account. Now, having worked in the retail industry for 20 plus years, I was no stranger to monitoring numbers and managing finances, but I hadn't done it quite as well in my personal life. As a young woman, I was terrible with money. As a grown up, I was better but I didn't have a penny saved like at all. My husband and I started using the budgeting software, YNAB for our finances, and I can tell you firsthand, the more time you spend with your money, the more money you will have. And this is true for your business too.
Stop overspending on inventory
Here's the deal. Overspending on inventory is one of the biggest culprits of why you don't have money in your business. We all do this. I have done this. That's okay. We just need to nip it in the bud ASAP and start taking action to move some of that inventory out to free up cash. Then learn how to better manage our inventory moving forward.
It's really hard to speak generally about this because every business is different and it depends on the lifecycle of your product and your particular lead time for new products or replenishment.
But I'm going to share a concept that should help you understand how to approach it and hopefully manage it better. So for this exercise, we're going to assume you already know how much inventory you have on hand, which may or may not be true, but in this case, we're going to pretend that you do.
Now I want you to think about how long it is going to take you to sell through that inventory. Let's say you have 100 units of something, and you sell five units per week. That means you have 20 weeks of stock on hand. Whether or not that's good or bad is completely dependent on your business.
If you sell an evergreen consumable product that people buy over and over again and you have a long lead time, then 20 weeks of stock could be a good, comfortable position for you. Let's say you have a four week lead time from the moment you place your order to the moment you're checking in new merchandise. This would mean you want to reorder roughly every 13 to 15 weeks.
It's nice to have a little extra cushion for delays because you just never know. Or maybe you have a random spike in sales that you didn't anticipate. This way you know that you always have that product on hand to sell.
On the flip side, if you have a trendy clothing boutique and your lead time is only a week or so you probably want to be closer to about four to six weeks of stock. Otherwise, it could go out of season before you can sell through it.
Sort your products by category
If you have a wide assortment of products, the easiest way to start doing this is by looking at your product by category. Using a clothing boutique as an example, you would look at tops, dresses, shoes, jewelry, ect, separately and figure out your weeks of stock for each category.
Why look at each product separately? Because you're not going to sell them all at the same rate. Jeans will be a little bit more evergreen than tops or dresses.
Now we need to know how much each of those categories contributes to your overall business. This is something I fucked up in my boutique. We all do this, it happens, don't feel bad, you just want to do better.
Let's pretend that dresses only make up 5% of your total sales for your whole website, but they make up 15% of your inventory assortment. Of your $100,000 of inventory that you have on hand, $15,000 of that is made up of dresses, but you only sell $5,000 worth. You're never going to be able to sell through that inventory. If you keep bringing in more dresses, you're going to be overstocked in dresses forever. Not only will you be overstocked, but your cash is also going to be tied up in a category that doesn't contribute to your business. At the same time, you want to keep your performing categories fresh. So you're going to keep spending money on those, which means you’re not going to have anything left for yourself.
So if this is happening to you, look at your categories and figure out how much inventory you have on hand. How much are you selling You might need to just mark some stuff down to move it out so you can take that money and put it into a category that actually sells.
You should know that jeans generate 50% of your business. You should know that jewelry is 15% of your business. When you start looking at these numbers on a regular basis, it will be ingrained into your brain
Double down on what's working. Drop, what's not. That's always gonna be a winning formula in everything.
Your product margins are too low
If you're only doubling the wholesale cost to price your product, your prices are too low.
Here’s a few key things that I want you to start thinking about:
- If you're not already keeping track of your margins, start doing it now. Shopify added a cost field over a year ago so make sure you have that filled in for your products so you can see your margin in the analytics.
- Get an accountant that understands the retail industry. If your accountant doesn't understand the retail business, get a new accountant. Period. End of story.
- Generate a monthly profit and loss statement. Your bookkeeper or accountant (even if that's you) needs to be generating a monthly profit and loss statement also known as a P&L.P&L’s will tell you whether or not you made any money for the month and keep track of:
- Your overall sales
- Your cost of goods
- Your expenses for the month
- What went out for shipping
- What went out for payroll
- What went out for marketing
- You don't have to have the same margin across all categories. When I was running my boutique, I sold a lot of brand name, high-end denim, because that's what my customer wanted. But they had map pricing and Manufacturer Suggested Retail Price (MSRP). The margin on these products wasn’t good because I didn't have control over the price I sold them at, I had to sell those at the same price everybody else did.
You can balance that out by buying other things that you can get a higher margin on. So maybe that's jewelry and accessories. Maybe that is some no-name branded stuff that nobody will know the difference and you mark that up three times. On average, you want your overall gross margin to be around 60 to 65% if you're going to make any money.
This is, of course, assuming you run a full retail operation with your own fulfillment. If you are dropshipping items, your margins are going to be lower because you're basically paying those fulfillment expenses upfront. So all of these things are relative, you have to think about how they apply to your business.
You might be spending money in the wrong places.
From your marketing activities to your supplies to your shipping to your team. These are all numbers you need to look at every single month. All of this information will be on your P&L.
Like I said, if you're not already looking at this, make sure you start. Because this is all so specific to your business, there aren’t EXACT numbers I can give you.
Figure out where all your money is going:
- Make sure you're looking at your ROI on all your individual marketing activities.
- Assess your shipping supplies and fees. Thanks to Amazon, you're probably gonna lose money on shipping, that's just kind of the way it is. The goal is to lose as little as possible. If you can break even, you're totally winning.
- Make sure your team is a productive and positive asset to the business and that you are taking full advantage of them. They're not just a button a seat, they need to contribute.
Cut out any unnecessary spending
Over in the eCommerce Mastery Facebook Group the other day, one woman mentioned that one of the ways that she cut her expenses was by no longer printing custom boxes. And guess what? Her customers didn't fucking care. Start to think about how you can cut some of those frivolous things that feel fancy but are truly unnecessary and, in this women’s case, the boxes ended up in the garbage anyway.
So just be really conscious and focus on delivering great customer service and offering products they want. Like they don't care if it's just a plain white box, they really don't.
When it comes to the marketing stuff, not everything is going to have an immediate ROI. And some of it might not have a monetary ROI. Sometimes it's really just about exposure and visibility and that's okay when that's what you intend it to be. You will know that when you drop this money down that it's about gaining visibility, so it's okay if you don't see that revenue back within a month or even within the next six months. Just make sure you know the intention behind it.
At the end of the day, this is a business, not a hobby. So your business needs to be able to pay you. And how much it pays you is 100% up to you.
Everyone has different goals for their business and different factors affecting that, such as the cost of living, which varies so much around the country or even around the world. Maybe it's just pocket money for you, which allows you to have a little something extra to go brunch with the girls and get your nails done. If that's the case, awesome. But if you are building a business that supports your family and provides you with more freedom so that you can spend more time with your kids or travel more, you're not going to get there if you're not paying attention to this stuff.
Don't get emotionally attached to your inventory
Sometimes it can seem like a good deal to buy more units of something. Whether it's a product, your packaging supplies, whatever.
To get that unit cost down you buy a shit ton of them, but if all your cash is tied up in that one thing, and you have nothing left to market your business or to pay yourself, then it probably wasn't worth shelling out all of that cash in the first place.
So before you get starry-eyed at a “really good deal”, or a vendor is trying to unload their crap on you, think about your business first.
Can you actually move that stuff? Can you move those units? Or are you going to be sitting on that shit? Is it going to get dusty in your backroom? Put your business first. Think like a CEO. Don't get emotionally attached to your inventory. We've all been guilty of this, myself included. That's how I ended up with more dresses that I could ever fucking possibly sell because my women just wanted jeans and tops.
like I said at the beginning, if this is you, it's okay. Don't feel bad about it. We all make these mistakes. We just need to do better going forward.
Your next steps
- Start by downloading the Weekly Reporting Template Freebie which includes a template for weekly reporting. Start running your numbers every week and month. Get all your shit together and pay attention to what's going on. Set aside time for it. This is really, really important. Don't let it be the last thing on the list. It's more important than an Instagram post. I promise.
- To get the full value out of this, download Google Analytics. If you don't already have that set up, do it ASAP! It is not retroactive, so it's only going to start collecting data when you install it and begin pulling analytics from your eCommerce platform like Shopify, BigCommerce, WooCommerce, whatever.
- After about a month or so, when you’ve got the hang of this and it's your weekly ritual, you can pass this off to a Virtual Assistant or someone else on your team. It really is below your pay grade to be filling the reports out. In the beginning, it's better that you're the one that does it because I firmly believe that before you outsource things, you should have an understanding of how to do it yourself. Otherwise, how do you know if that other person is doing a good job?
- Once you hand off this weekly reporting, you still need to review it on a weekly basis. Let that be the first task your VA completes each Monday morning so that you can review it later in the afternoon.
- Finally, if you're like, okay, yeah, that sounds great, but I don't know what the hell she's talking about. Come on over to the eCommerce Badassery Facebook Group. And let's chat about it. Just ask your questions in the group, and I will chime in to help you out!
If nothing else, I hope I've inspired you to really dig deep on your numbers and start looking at every nook and cranny of your business. If somebody asks you how many weeks of stock you have on hand of a category you should know.
Ultimately, you have to step up as the CEO and look at your numbers regularly.
Make it a weekly ritual and make it a habit.
