Let's Talk about Profitability 💰

Hey there! 

I hope you guys are having a great start to August. So crazy that theres only about 30 days left of summer. Where did the time go? 

I wanted to spend some time today to discuss something that's been weighing heavy on my heart as a founder...profitability. 

You may have started your business or took a crazy job to build a sick product, change the world, or create the world's most tasty food or beverage. However, at the end of the day the only thing that really matters and will keep you running your business 6 or 12 months from now is if you're making a profit. 

That means you're responsible for tough decisions. The ones that give you a pit in the middle of your stomach. One's that make you go to bed in tears or break down on the shower floor. Entrepreneurship is not for everyone and my heart goes out to anyone who has ever taken the leap from their full time, secure job to start something. Not that I would know, but I assume that living with the "what ifs" would be the worst feeling ever. Looking back at your life when you're 50 years old saying, "What if I took that chance? or what if I started that side hustle?"

Well with five months left in 2022 there is no better time than this second to figure out what exact moves do you need to make to ensure profitability this year. If your financial model shows that you're running at a loss and you're cool with that, what moves can you make to shrink that loss? Where are you burning or overspending money that in 5 months you're going to look back and say what the fuck was I doing? 

Here's a few things I've been doing over the past few weeks to decide the future of CROSSNET:

Headcount:

This is the hardest one. You've gone out and hired the best of the best to help build your company, now you may have to go back to a few of them and tell them they are no longer going to be on this mission with you. Take a hard look at your team and bucket them in the following groups:

1. A+ Players that we Couldn't Live Without

2. Revenue Generators

3. Nice to Haves

I'm sorry to be the one to say it, but in this economy the "nice to haves" are going to be the ones that go first. You know who these are. The people who take alot of work of you or your other execs plate so they can breathe or maybe get off the computer by 6PM. The ones that absolutely crush their job, but certainly don't bring in close to what their salary is. The ones that you will 100% miss on Slack and work parties, but you know in your heart you'll be okay with saying goodbye to in a few weeks. 

I've seen a million Twitter convos on this topic but the average rule of thumb is that you'd like to have anywhere between 1-2 people per every $750k you make in revenue. I try to stay much more on the leaner side. 

I've also learned over the years one A+, killer talent that may command a $100k+ salary is usually better than 1-3 smaller junior hires that are going to require more hand holding and attention. Especially when you're in the startup stage where everyone must be their own boss and thrive on building their own momentum. 

Marketing:

As I do this exercise internally there are four core areas we are spending money on you. 

1. Performance Marketing Spend

2. Agency Spend

3. Influencers & Content Creation

4. Shopify & SAAS

Performance Marketing Spend

Coming into each month you should have a clear understanding of your budget for performance marketing. Here is a quick made up example for CROSSNET. 

Our August DTC/Amazon revenue target is $400,000. 

My 2022 P&L is built out with a forecast that bakes in a 4.0 ROAS. If my marketing efficiency is less than a 4.0, we will be not earning as much money as we projected to hit our revenue goals. If it goes below a 3.0 we will actually be losing money which is worse then making a sale in the first place. 

I know that my August spend budget is $100,000 based on a $400,000 target. I know I should be spending give or take $3,333 a day across performance marketing (FB, IG, Tik Tok, Snap, Google, Amazon). 

If at any point I see we are well above a 4.0 it is now a fine balance of spending more, while maximizing profits. You need to be checking this daily because is the quickest way to destroy your companies profitability and revenue goals. 

Agency Spend

If you're in the startup stage between 6-7 figures in revenue there is no shot you're managing everything in house. Finding in-house email designers & paid media experts is exceptionally hard and you always got to think why would they want to work for your brand for $7000 a month? When they can do the same thing for 5+ clients a month and bring home $35k. 

Here are three agencies we currently pay monthly for:

Email & SMS Marketing - Structured Social

Performance Marketing - Advisory Marketing

Amazon PPC/Management - Arvanza

With all three agencies I get much more for their agency monthly cost then I would if I brought in these hires full time. However that doesn't mean tough conversations can't and shouldn't happen: 

• As a seasonal product we spend 100% less in the off season. You are managing less spend during these months, can we pay you less? 

• What tiers of billing do you offer? Can we scale up or down? 

• Cash is tight until this date, can we extend our payment terms?

• We make the bulk of our revenue in these three months, can we pay more during these months and pro-rate for the back half of the year? 

• Can you use them just for certain months to optimize for profitability?

Influencers & Content Creation

You can't run ads without content. How much content is too much? 

We're always testing new ads & new influencers, but at what expense when you see profits shrinking and you have a dropbox filled with thousands of assets. 

We've shrunk down our influencer marketing team to be stacked with 5 incredibly talented creatives who are on monthly salaries that range from $500-$2000 month. They are required to create upwards of 25-30 videos per month and we also get the raw assets to chop up & do what we please with them. At this rate we have 5 creatives going for essentially the cost of a low cost junior hire. We also don't have to allocate much money to traditional photography since our creatives have us in their retainer. 

One of the best way's we have been layering on additional money is FINALLY getting an affiliate program up and running. We just started working with Social Snowball after telling them no about six times. I'm not sure why I was hesitant but in the first week's were already making a couple thousand dollars a month from our customers, when before we were making zero. The name of the game is add additional revenue in any and every form possible. 

Shopify & SAAS

This one is pretty simple. How much are you spending on Shopify and all the bullshit apps that you don't need and are slowing down your website? I just downgraded us from Shopify Plus to the standard $299 monthly plan and this alone will save us $1500 a month as we've seen alot of our business move over to Amazon & retail. 

Take a good hard look through your tech stack and ask yourself does this app or membership really make me more than it costs each month or is it just a nice to have? It's up to you, but clicking a few delete buttons on the computer is a much better feeling that having to look your employee in the eyes and fire him. 

Take a good hard look through your tech stack and ask yourself does this app or membership really make me more than it costs each month or is it just a nice to have? It's up to you, but clicking a few delete buttons on the computer is a much better feeling that having to look your employee in the eyes and fire him. 

Opperations

Believe it or not every time one of your packages get shipped...that actually costs money. It's funny to see young entrepreneurs say they are making a killing on a $20 product, when their acquisition cost is $10 and their product is $7 and they haven't factored in any of their overhead. 

Make a list of everything you are spending money on between warehousing, shipping technology, and labor and see where there are potential savings. For us the biggest call outs on our expense sheet were reducing temp workers, asking tech vendors to reduce their monthly bill or we'll churn to a competitor, and not stocking up on Uline boxes & pallets that aren't needed until 2023. 

G&A

Looking at CROSSNET's 2021 food & travel budget, I think I ate my way through 72 filet mignons. Ask yourself, have you been financial responsible and frugal with every dollar you've spent on the company dime this year? If not, cool you lived it up. It's time to fix it.

Here's some of the expenses that are hitting our G&A account. If you're trending towards a loss or need to save some money, here's the first section I'd look to trim the fat on. It may bring down company morale and happiness, but there may not be a company if you don't get your expenses under control. 

Finance

It's honestly baffling that tracking the money you're making or spending could cost hundreds of thousands of dollars a year. From your bookkeeping software, to your accounting services, planning & billing software, to tax software and insurance it all adds up. Reviewing our accounts this week we found about $20,000 in savings that we can trim between reducing insurance policies, switching accounting software, and being a little more frugal. 

However please note, finance and getting your books straight is the one place I'd absolutely not cheap out on as its 100% best practice to keep things completely buttoned up, especially if you have any hopes of selling your business. 

So what do you think?! Was this helpful?

I'd love to hear your feedback and if you're thinking about the end of the year differently. I'm far from a perfect operator but learning and making difficult decisions in real time each and every day. 

If you're in need of a Friday morning listen, I just dropped a new episode of My Biggest Lessons with Adam Reed, the founder of Crown and Paw...that crazy business where they photoshop your dog's face on Abe Lincoln's body... doing over $10M a year!!! You can listen to it here. 

Have a great weekend,

Chris