The E-commerce Leader

[00:00:00] Jason: A lot of internet marketing is about intermediation or disintermediation. Meaning do you create an it layer? Bureaucracy that you’ve been at fit from, or do you remove a layer of bureaucracy that you benefit from and ideally in a perfect world, you remove layers of bureaucracy and you’d benefit from that. And customers benefit from that.
[00:00:19] We are Michael Veasey and London, England, and Jason Miles in Seattle. Watch. More importantly, you are the owner of a thriving online business, and you want to become the best e-commerce leader. You can be. We’re here to get you there for show notes, with links and resources mentioned today. And for other GC resources like downloads, just visit our blog, the E commerce leader.com.
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[00:01:26] Intro: Hey folks. Welcome back to the e-commerce leader. One of our deep dive between myself Michael BZ and Jason Miles in London, England and Seattle, Washington, respectively. We’re talking about the shocking cashflow traits of the best e-commerce companies. We’re going to mention some big companies in our discussion probably, but I can’t emphasize enough how I’ve also seen it as Jason has really make a huge difference in the lives of.
[00:01:50] Clients and our own lives as business owners when we get this stuff. So we’re going to talk about a few exciting possibilities from Jason, including gift cards. I’m going to talk about sourcing location, and we’re going to both talk about sales channels and digital products, as well as the name, but a few of the topics that are coming up and really the cashflow characteristics that each of these kind of infuses your business with this stuff is not just for your accountant.
[00:02:14] It’s not just theory. Profoundly business changing and thus life-changing. If you get a handle on it, if you’re not enthused yet about cashflow and the cashflow characteristics or parts of your business, I hope that you will be by the end of the show. Thank you very much in advance and enjoy listening to our show.
[00:02:30] Jason: The membership one is one, I’m a huge, Believer in, we created sewing with cinnamon as our membership example. I didn’t even mention that a moment ago, but yeah, we have, something like 1100 people, in Sona cinnamon, her signature program. She streams now on all the platforms as well.
[00:02:45] So you can find sewing with cinnamon on apple, TV and Roku and, Amazon fire TV device and all of the platforms. She has a membership program that is exactly like the prime video that you’re describing or Netflix. For video creators, you can do that. But there’s another whole example. That’s very common and very obvious that I want to mention.
[00:03:04] And, and that’s gift cards. If this is an example of a negative cash flow business, scenario. And let me just continue the thought here. You, if you’re a big seller on Amazon and then you want to start selling on your own Shopify site and you don’t set up. You’re leaving cashflow models on the table.
[00:03:20] That would be beneficial. And if you don’t set up gift cards, you’re leaving a cashflow models that are beneficial, that on the table or not, not installing them. The customers will buy gift cards for almost any product or category customers will. Customers will, and this is important.
[00:03:36] Customers will buy a gift card, for someone they’ll give it to that person. The. Assumption that person will use that gift card is an assumption that the cash is in your bank account. The gift card is digital, theoretical ish to the prospective new person. You will then, wait for that person to redeem the gift card, if, and when they do you give them the product.
[00:04:00] But if they. It’s free money. And the gift card industry knows this there’s re redemption rates that are known quantities. It’s something in the 75% range or 70% range or something last I heard, but I could be wrong about the specifics, but you can geek out over that if you want on your own as you’re researching this.
[00:04:20] But the idea is on a Shopify site, it’s very simple to set up gift cards. You can make them look nice. And it looks like something that’s getting. And if you’re any kind of industry or business that has in any way that logic to it, you should be doing that. It is really beneficial to business and it’s not new thinking.
[00:04:37] None of those have been around for, I don’t even know how long, 30, 40 years or whatever it is. But they definitely relate to e-commerce operators and, for the folks who we work with, that’s one of the things we talk to them about in our coaching consulting is what’s your gift card strategy.
[00:04:50] And a lot of people were like, what. Oh, let me describe how this works for you. So you know it, because it’s the same thing mathematically, if you said, you sell a hundred, you sell a home a hundred products, but you only have to ship seven. Like how good did that do me? And that’s the same, math.
[00:05:06] So think through that and Michael, I don’t know if you have any thoughts or ideas for gift cards, or if you thought through that with other people before, but never thought
[00:05:14] Michael: about it, but it makes absolute sense. I guess it’s like the gym industry, the sell the idea of gym membership and you certainly have the right to access the gym, but most people don’t.
[00:05:22] And then, they joined in January and give up in April and they admit to themselves, they’re not going to go in for that sort of period of time. They’ve got free cash coming in. Very interesting. Indeed. As you put it, sell a hundred products, ship 70, that’s certainly gonna incredibly impressive, crazy margins.
[00:05:36] Jason: That’s crazy cashflow trips.
[00:05:39] Michael: Yeah. That’s amazing, man. But
[00:05:40] Jason: it’s not, there’s nothing in that. That’s Wrong on cool incorrect. It’s just a function of how gift cards work. And if you understand that and you lean into it, then you’re you benefit from that knowledge? No issue there. It’s just, it’s just how it works.
[00:05:53] Yeah. These are fun. Examples. Any other examples or where else you want to take the conversation?
[00:05:58] Michael: I guess I want to make sure that I bring it keep it doable for those people that I know that I work with, or, hopefully your potential clients or clients that are listening as well.
[00:06:06] One thing is sourcing location. Whilst it is very cool. If you can find a Chinese manufacturer, he will. Give you credit such that you don’t have to pay until the goods land on your shores. That’s great. That’s not easy to achieve. Whereas if you just set up, if you think look through the lens of cashflow characteristics, there’s a better way of putting it at everything you do.
[00:06:23] One of the reasons for changing sorts of medication has nothing to do with anything else, except how quickly you turn your money around. So if you source in the same state as you sell stuff, that would be unusual for e-commerce. You can’t normally control the state, but if you saw us in the UK, a fairly small.
[00:06:37] Country to sell in the UK. Then you’re going to generally find that you put your money down and you get the traveling around the stock is going to be so much quicker that it affects the cashflow characteristics. And, people think of it as a stock management tool, which it is. But the flip side of that is it’s a cashflow management tool.
[00:06:54] So I really think that I would be quite prepared quite often to sacrifice, the gross margin, at least initially. Certainly initially, maybe forever in response for a great cashflow characteristics, because it’s actually the cash that enables growth. If you have no free cash flow or you got no profit either, then that doesn’t work.
[00:07:12] Of course, but I would accept a slight reduction in the profit margin, which is a theoretical constructs by an accountant in response to better cashflow characteristics. Yeah,
[00:07:24] Jason: no, that’s interesting. For physical product sellers, then obviously that sourcing location is central to the cashflow strategies.
[00:07:31] Yeah. And, there’s just so many angles on this. That’s, what’s interesting about it. It’s not a one trick pony. There’s just so many interesting angles. So yeah.
[00:07:38] Michael: So tell me about product types, obviously you an expert in digital products. Tell us, tell me about your thoughts about their cashflow characteristics.
[00:07:46] Jason: Well, digital products are, are fascinating as well. And as it relates to cashflow, sure. There’s a lot of nuance there and, even saying digital products, that’s a whole collection of probably 10 different sub models. But just for funsies, let’s just choose one. Let’s say it’s a digital product.
[00:08:05] That’s a you to me course. I’m just about to go to four 40,000 students on you to me. And that’s super cool. So digital product on you to me. So pretty straight forward you to me as a platform for knowledge, teaching and, sharing your knowledge, you create a course, you upload it and then, they pay you as they make it.
[00:08:21] So the ex the hard costs are front-loaded. You have to time and energy and expense of creating the item. And that’s true for the digital product industry. And that could be software that could be a digitally downloaded item, like a Kindle book or a PDF you sell on your website. I do all of those things.
[00:08:41] And so they all work the same way. If you look at the meta level, the macro level, and that is you, your hard costs and expenses, and, so the maker expense and the thing you’re arbitraging there is you’re arbitraging the, ROI or you’re guesstimating about the ROI. When I created my course on Udemy, when I first won Shopify power, I didn’t know it would do so well.
[00:09:03] So I had to upfront spend time and money and effort making the course itself. So let’s just say in my time, let’s just say I paid myself $50 an hour and it. Whatever 10 hours, $500 that it costs me. That’s not real, but whatever. It just say $500 is what the cost was. I had no idea that I’d make $500 back or how long it would take for me to make $500 back.
[00:09:25] Those are the only questions involved in the, in the. Of digital items. That’s true for software, any of it. But then what happens quickly is if you strike on in baseball terms, a single or a double or triple or home run, let’s just say you pay yourself back in the first month. So you have a hundred percent return on your investment in the first month in month, two, three, and beyond.
[00:09:50] If you’re not operating the platform upon which those sales. And if there’s not any ongoing maintenance costs or other costs, then it’s free cash flow back to you and your, you paid yourself back and it’s all free cashflow. Now in the software industry, there’s server costs, there’s, dev costs.
[00:10:08] There’s ongoing costs, so software, there is an extensive ongoing cost structure, but in other things like a PDF book that you sell on Kindle, there is no ongoing. Cost structure, unless you want to update it at some point. And if you put that Kindle book out there into the universe and you’ve done it in such a way that it really tracks people and you’ve hit on a hot topic and it pays you back for your time and initial setup effort, in the first month, then you could have a rocket ride.
[00:10:38] And that those cashflow dynamics are just. Interesting because it creates a publisher, a business very quickly. As soon as you have one or two of those things happen, you then realize you’re in an industry. That’s like you’re the publisher. And being a publisher is a very different business model.
[00:10:56] And so that’s the way it works. And, and there’s all kinds of nuance there and fun topics and rabbit trails to go into. But digital goods is fascinating. My best suggestion is read free the future of a radical price, by Chris Anderson and in his other book, the long tail, those are old now, but they are the foundational books upon which many people have built incredibly good.
[00:11:16] E-commerce businesses on these principles. So that.
[00:11:20] Michael: Nice. Yeah. You’re certainly the expert in this stuff. I’m an obviously, I guess still you miss top e-commerce instructor with 40,000 students and certainly tons and tons of Kimball books out there.
[00:11:30] Jason: I’m up there, but I’m not the top anymore.
[00:11:32] There’s a, there’s other courses for Shopify. There’s one about how to build a Shopify business for developers. That’s a beating my shop five power course, and there are others too now, but, nonetheless, it’s an honor to have done it. I think. In total has 10, 10 courses on you to me now.
[00:11:47] And that was just a a side hustle gig that just went well. And had the right timing. That’s the way it works on you to me, just as a side note, if you want to teach. And this is true for publishing in general too. My first book, that was published by McGraw-Hill was called, Pinterest power.
[00:12:01] And, I started it as a blog in 2011 marketing on pinterest.com. And the thing that I stumbled into was I was in the right. W there was an epoch of time in which. Do something and have it get traction. It was the right moment, culturally, for me to write about marketing on Pinterest and McGraw-Hill noted that and other publishers were all competing to get a book out.
[00:12:26] And, so Pinterest power came out, on you to me, the Shopify course that I put out six, seven years ago, it was just before Shopify got super crazy. And so there is timing for such things. In, in the publishing world, it’s a lot about timing and reading the society and what’s going to be trendy and what’s not, if you go to.
[00:12:44] Your, multimillionaire. And if you’re marginal at it, you’ll make a living, you’ll learn as you go. And that’s the fun part,
[00:12:49] Michael: yeah, I guess publishing has traditionally been a really difficult industry because you have to pay your authors in advances and try and read what’s coming in.
[00:12:57] And I guess we have an opportunity to be part of that same industry, but without having to pay for expensive offices in New York or London, or what have you. Certainly exciting opportunity. I’m forever begging. Discussions over a couple of beers the other day with the mastermind members basically begging one of them.
[00:13:12] Who’s in the supplements area to go and get somebody to write a book for him, because he’s certainly not a supplements expert. I said, look, London is absolutely full of scientists at top universities. There’s no reason not to. Very interesting. Now the other thing that strikes me when it comes to cashflow characteristics, you’ve mentioned already traffic channels.
[00:13:28] So you’ve mentioned Kindle books obviously sold in Amazon. And you mentioned you to me, which is another marketplace, a third party marketplace. And you mentioned Shopify, which obviously you’re the expert on and as your own store. So presumably that has a big effect on the cashflow characteristics as well.
[00:13:43] Now you have a lot of experience of all of those different, entities. What are your thoughts on how that affects cashflow? It’s a marketing insight to start with.
[00:13:52] Jason: It is very interesting. If you own your own Shopify site and you have the. Gateway set up to, to manage, then you get the sales transactions and data directly, an intermediate dated, a lot of internet marketing about is about intermediation or disintermediation.
[00:14:09] Meaning do you create an it layer? Bureaucracy that you’ve been at fit from, or do you remove a layer of bureaucracy that you benefit from and ideally in a perfect world, you remove layers of bureaucracy and you’d benefit from that. And customers benefit from that. So that’s like super high level idea, but anyway, as it relates to, payment gateways and cash flows and that kind of thing on marketplaces, just simple example, let’s say you sell a hundred dollar item on your Shopify site and, and.
[00:14:40] Someone pays through your Shopify site. You get payment depending on how they pay, but let’s just say they check out with PayPal, you get payment immediately. You get the money, then let’s say you sell the a hundred dollar item through, through Amazon. And you’re a relatively new Amazon seller.
[00:14:55] What’s is it 14 day period before you’d get any payment. Okay. Normally what you have, some people are grandfathered into a shorter duration, I think, but, yeah. Yeah. But 14 days later you get the money. That’s not as good. That’s a long time in when you’re thinking about this kind of stuff.
[00:15:10] And there are other platforms, so here’s even to extend it even further, let’s say that you let’s just say it was a book that you’re selling. And let’s say that book is sold by a distributor. Like in my case, McGraw hill sells my book at Barnes and noble. So Barnes and noble takes the money from the customer, from my.
[00:15:26] It’s my book, but Barnes and noble gives them money to McGraw-Hill my publisher. Then my publisher gives it to my agent who runs all the, they collect all the money and then disperse it to their, to the writers. And, then my agent cuts me a check. That sequence of events is, I get paid twice a year.
[00:15:47] So I D it doesn’t matter if the sales happen every single day, which they do. I get paid twice. So that’s an example of, for my business for cashflow, that’s very different characteristics. If I’m selling it on a click funnels or on Shopify or my own site, whatever. And I get instant payment, those extremes are all just objects of a note and importance, depending on how you rig up your.
[00:16:11] And they’re all relatively in the same industry, which is publishing. So those are the dynamics that you have to think through. And it’s endlessly fascinating to me. I don’t know how people can understand this as boring. To me, if you’re in business, this is what it’s all about is the great game of rigging these things up.
[00:16:25] It could be, to be, to work. It’s can you make this work? So anyway,
[00:16:29] Michael: I’m absolutely with you. I think that, let’s put it this way. If nothing else, if what people take away from this episode of hope is a new lens through which to look at everything in your business. So for example, a book is not just a book.
[00:16:40] You just outlined three different ways in which books can have completely different cashflow characteristics for the person who. You know the author, if you’re also in the role of publisher or not, if you’re in the role of, the marketplace participant versus having your own, mini marketplace of books, yeah, so I think the sales channel. Necessarily the whole story, the product type is not necessarily the whole story was when he put the whole thing in together. And you look at the character characteristics. I love your very simple question. Who’s paying first, is it you, is it your customer?
[00:17:07] Is it the marketplace? That’s really great simple question to go and ask if every part of your business and when you’re marketing, what, when do I pay when I get paid? For example, if you run Facebook ads to something. When do you get paid? And when do you pay Facebook?
[00:17:20] If it’s on a credit card and Facebook, Lexi wait, 14 days, whatever it is these days, maybe you can pay 45 days after you’ve run the ad. In which case, when do you get paid by your customers and how long is your payment? Processor takes to pay you and, Stripe delays everything by a few days.
[00:17:35] Unfortunately, for example, so these are really critical questions. I think you’re absolutely right. Yeah,
[00:17:40] Jason: Totally. It’s and it’s so fun. There’s so many examples. It’s just like, where do we stop? But. Yeah, we me do another one. Yeah, please. Okay. Here’s another one that people will be very familiar with if they’re, internet marketers and online sellers, and that’s Russell Brunson’s model for ClickFunnels.
[00:17:56] And you’ve maybe heard him talk about this, but I’ll re explain what he’s, what I’ve heard it mentioned before. His, ClickFunnels software is one of the fastest growing SAS businesses on the internet. If you’re not familiar with it, it’s basically a tool for building websites and, I remember a conversation.
[00:18:11] He relayed, it might be an expert secrets, but he talked about the fact that, venture capitalists wanted to come and, try to give him money for his business. And the first question they ask is what’s your cost of acquisition? How much does it, how much do you pay? To get a new customer. And he said, we don’t pay for new customers.
[00:18:27] They pay us like, it’s negative cashflow. We get the money first and they were like, what do you mean? What do you mean? He said, we use our Fataar tool. We use the tool we built, called ClickFunnels. And, we give away something like a book. And then we in ClickFunnels have something called an order bump or an.
[00:18:45] And, then as people get the free book, then they’ll add in, into order bump for another like $9 or something like that. And then they’ll maybe they’ll take the one-time offer that’s right in that, software checkout process, and maybe that’s a $99. So that customer has given whatever that was $106 or whatever I said.
[00:19:03] And. They advertise to find a customer that maybe take some $20 to buy, find a customer. And the customer instantly gives them, the $108 right in the transaction. When they’re signing up for the software, that’s an example of a negative cash flow business. Where, to your point previously, Michael, ClickFunnels growth was fueled.
[00:19:24] It’s customers. They paid for them to do all that work because he rigged it up in such a way that the, the customers acquisition was, a net positive thing. And if you have a business like that, the only question in your. How can I get more of these, how do I get more of them? And if the average, the cost of acquisition for that, your average customer is really like those real numbers.
[00:19:46] You just have back up the dump truck in terms of spending money to acquire customers, you could spend $20, you could spend $50, you could spend $99. You spend any amount you want to acquire a customer. If they’re giving you 108. Up to $108. And, so that click funnels model is endlessly fascinating to me as well.
[00:20:03] And he’s been, he’s created a massive business out of it, and it’s because of the cashflow characteristics that he’s described. And he’s, publicly explained to people. Customers are thrilled with ClickFunnels. I love ClickFunnels we’re. We do a lot of sales through ClickFunnels, as a software.
[00:20:20] And, and so anyway, that’s another example of just, how this kind of a cash flow characteristic can be so interesting to, to look at and explain. Let me
[00:20:31] see.
[00:20:32] Michael: I think the last thing I’d like to just say is donut, click funnels. If you’re not, you got to engineer your way to it. And there’s a famous example of Hewlett Packard, which is a manufacturing company and huge.
[00:20:41] So it’s not a great claim. E-commerce small business example, I’m afraid, but they basically hired in a really fantastic CFO, chief financial officer, and he worked over time to change it from a very cash intensive working capital intensive business where hundreds and hundreds of millions of dollars were tied up for a long time.
[00:20:58] To be negative cashflow. In other words, they got paid first and it took them a long time and a lot of work. And they worked through the entire business to the point of seeing it as a lens routes to see everything they re-engineered the entire business to serve this cashflow characteristics. And of course, what it meant was that they could then grow the business based on organic cash flow, as.
[00:21:15] Big of risk reduction, much more efficient, much better in every way. So VC comes to those guys or indeed the stock markets, look at that and they think this is such an attractive business to invest in as well. So I suppose what I’m trying to say is you can go from, very working capital intensive towards a much more positive cashflow model over time, but don’t act like you’ve done it already.
[00:21:36] Cause you’ve got a broken.
[00:21:38] Jason: Yeah, no, these are all to your point. These are all refinements. If you’re already rolling, these are all, opportunities for enhancement or improvement and a logical extension of your current model is obviously w what we’re talking about for people who have an, a going concern, if you’re just starting out in the world and and you want to think about all of these things to some degree, and then, stick your toe in the water somehow, and then start to learn as you go.
[00:22:00] But, yeah, I totally agree. Obviously you have to build from where you’re at and modify what you’ve got. And then to the extent that you can make these little adjustments, as they say, big doors swing on little hinges and these minor adjustments. Imagine, for example, if somebody is selling, let’s just say, you’re doing 50,000 or a hundred thousand dollars a month through a Shopify site, but you don’t have any.
[00:22:25] Program. And you could, or you don’t have a gift card system or you could, or you don’t have a digital product, but you could, those three things alone will radically transform your cashflow characteristics in your business. If you implement them in this year. And that’s not an abstraction, that’s impossible.
[00:22:41] Those are just work a day kind of projects, just set it up, figure it out, get it installed, market it properly and see what happens to your business financials.
[00:22:50] Michael: And just to give us a Amazon slash physical products, focus with even more mundane. If you go and negotiate with your suppliers, if you’ve been buying stuff for them in large amounts for awhile, you may be pleasantly surprised at what you can find, or you may find that they refuse to give you extra credit.
[00:23:04] In which case I would risk, all the pain and effort. Yes. I am asking you to do this. Potentially go to a new supplier because it isn’t just about quality control. Although obviously matters. It. Isn’t just about reliability of those critical. It isn’t just about price and, unit economics, all those obviously critical.
[00:23:21] It is about the cashflow characteristics. I would, to that extent, this isn’t just me saying, this is the people who work for the aggregators who work with businesses and acquire these businesses are saying the same stuff to me as well. So it is just, again, Re-engineering the finances changes everything about the business.
[00:23:36] So you have to be willing to go and do that work, which is less kind of fun and sexy than adding a membership program to a Shopify site. That sounds a lot more fun and creative to me, but difficult conversations around credit arrangements are nevertheless really also important stuff
[00:23:48] Jason: as well. As a takeaway, then your example is great.
[00:23:51] So in summation of that, if you’re adamant. Seller that sells physical product and you literally implemented a better deal with your manufacturer this year. An implementation of a short-term credit card scheme or cash back rewards, a credit card. If you don’t use one of those are low hanging fruit items as well on the Amazon physical product seller side.
[00:24:10] Tactics and strategies exist regardless of your business model. And, every business model has options for optimization and that’s the exciting part of all of this. Yeah,
[00:24:19] Michael: Look, great conversation, man. I really enjoyed today because I think there’s tons of stuff that people could go and do.
[00:24:24] Within the next few months actually to transform their business, which is really exciting. So we’re obviously becoming the cashflow nerds here and I hope we’ve. You go to other people with the enthusiasm that we both seem to have for this topic. Very cool to hear about your, what you’re doing and your businesses is where you run so many different business models.
[00:24:40] Just the last thing to say, to anyone watching or listening is just, don’t forget to check us out. A a couple of places in the calling app these days. So getting very popular. We’ve got the call-in show with Chris green and Carl hammer, as well as Jason and myself on every Tuesday at 8:00 AM.
[00:24:52] Pacific 11:00 AM. Eastern or 4:00 PM UK time. And, of course we’re here on Sundays live normally on, basically all the social media channels. You can take a stick out and on podcast apps near you. So on Spotify, I believe you can now also give it a light glove or some kind so that it gets to do that.
[00:25:09] And don’t forget to subscribe so that we can keep giving you the guidance to make the best e-commerce leader. It can be.
[00:25:14] Outro: That was the e-commerce leader podcast with Michael VZ in London, England, and Jason Miles in Seattle, Washington. If you liked this content, don’t forget to subscribe to the show on your podcast. App. Feel free resources, including PDFs, videos on topics like traffic products and sales channel. Just go to www dot the e-commerce leader.com.
[00:25:39] No hyphens, just as it sailed. Thanks so much for listening.