Why a $3M Ecom Brand Can Barely Profit — Transcript

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1. 0:00I sell a nice range of baby health
2. 0:01products mainly in Australia and New
3. 0:03Zealand. We are wholesale to pharmacy
4. 0:05and baby stores, also on Amazon
5. 0:07Australia and D2C.
6. 0:10Last year we did just over 3 million and
7. 0:13I'd like to be at 5 million in the next
8. 0:15year or two.
9. 0:16This is what's stopping me. We are
10. 0:18growing our small team to get me out of
11. 0:20the weeds
12. 0:22and our profit margin is squeezing to
13. 0:24you know 7%.
14. 0:25>> Okay.
15. 0:26>> Help. Which one of the Mosey six goes
16. 0:28first?
17. 0:29>> Well, it's it sounds like
18. 0:32um
19. 0:32it's likely a money issue of some kind,
20. 0:35right?
21. 0:35>> Being products.
22. 0:36>> Yeah.
23. 0:37>> So
24. 0:38how are you currently getting customers?
25. 0:41>> Well, depending on the channel, right?
26. 0:42So the wholesale is the majority. So
27. 0:46that's recurring revenue. Those Those
28. 0:48big chain stores, those pharmacies are
29. 0:50just ordering every month. That's great.
30. 0:51>> eating up your margin?
31. 0:54>> With them?
32. 0:55>> Well, that's the majority. So what's
33. 0:57eating up your margin there?
34. 0:58>> Yeah, that's a lot of advertising cost.
35. 1:00So obviously you've when
36. 1:01>> them?
37. 1:01>> Yeah, to stay in store and
38. 1:04and things like that. Yeah, it's
39. 1:06probably just a having to re- really
40. 1:09look at our pricing model and saying
41. 1:11what what's going to need to squeeze
42. 1:12potentially
43. 1:14to try and get that bottom line profit
44. 1:16up
45. 1:18across all the layers of the cake.
46. 1:20>> Uh-huh. So your
47. 1:23So when you get the wholesalers, have
48. 1:26they heard of your brand already?
49. 1:27>> Yes, very much so. Yeah. So we've worked
50. 1:30really hard in the last couple of years
51. 1:31to to build a brand in Australia and and
52. 1:34put our case forward to these big
53. 1:35pharmacy chains and baby chains and say
54. 1:37>> on content?
55. 1:38>> Uh yes, I'd like to think so. Um
56. 1:41word of mouth and and demand and people
57. 1:43asking for the product in store. And so
58. 1:45we finally got in, which is great. So
59. 1:46we're about a thousand stockists in
60. 1:48Australia and New Zealand.
61. 1:50So that part's good and it gives us
62. 1:52really good brand leverage because
63. 1:53immediately it builds trust if we're in
64. 1:56said store, then we must be peddling
65. 1:58some really good widgets, which we are.
66. 2:01>> So, what are you spending
67. 2:03So, where are your advertising dollars
68. 2:05going?
69. 2:06>> To To across meta mainly. A little bit
70. 2:09of TikTok.
71. 2:09>> like awareness campaigns or what are you
72. 2:11doing?
73. 2:11>> A small amount, but conversion campaigns
74. 2:14to try and get that D2C direct customer
75. 2:16who's paying full tilt retail. Cuz
76. 2:18obviously when you sell wholesale,
77. 2:19you've halved your price to sell at a
78. 2:22wholesale price.
79. 2:22>> I'm trying to get into. So, if we So,
80. 2:25let's just let's separate it. So, we
81. 2:26have wholesale and then we have D2C.
82. 2:28>> Yeah.
83. 2:29>> I said, what is driving down the
84. 2:30profitability here and you said
85. 2:31advertising, but that's D2C.
86. 2:33>> Yeah, okay, fair.
87. 2:33>> So, what's driving down the
88. 2:34profitability here if that's the primary
89. 2:36revenue driver in the business?
90. 2:37>> Uh then obviously
91. 2:39the layers of the cake, the way we've
92. 2:41structured our pricing
93. 2:43>> Okay.
94. 2:43>> in that yeah. Yeah.
95. 2:45>> Okay, so you have a
96. 2:46>> Prices up or costs down?
97. 2:48>> Yeah.
98. 2:48>> Or a combination of both.
99. 2:50>> Love it. Uh
100. 2:51>> [laughter]
101. 2:52>> solved.
102. 2:52>> Come and talk to my factory.
103. 2:54>> No, so let's let's walk through this
104. 2:55though. So, um
105. 2:58you have a waterfall it sounds like,
106. 2:59right? In terms of your pricing model,
107. 3:01right? So, you say, you know, I'm just
108. 3:03making up numbers here, right? But let's
109. 3:04say, you know, you order 10 of these and
110. 3:06it's, you know, X if you order, you
111. 3:08know, 100 of these, it's X times you
112. 3:11know, 0.9.
113. 3:12>> Yeah.
114. 3:12>> Uh you know, you order 1,000 of these
115. 3:14and it's X times 0.8. I'm just making it
116. 3:16up, but it is it something like this?
117. 3:18>> Yeah, something like that.
118. 3:19>> Okay. So, where are
119. 3:22are the majority of your customers
120. 3:23ordering at one of the tiers versus
121. 3:25another?
122. 3:26Or is it all over the place?
123. 3:27>> Uh this is for our wholesale customers,
124. 3:29right?
125. 3:29>> that's the majority of the revenue, I'm
126. 3:30just focusing there.
127. 3:31>> Yeah, sorry. I misunderstood you there.
128. 3:33I thought that was more at our factory
129. 3:34level if we order certain amount of
130. 3:36stock.
131. 3:37>> Raw materials.
132. 3:37>> Yeah, sorry.
133. 3:38>> Okay.
134. 3:38>> Um
135. 3:39so, we pretty much have a a set price
136. 3:42for our wholesalers, actually. So, it's
137. 3:43not not essentially based on volume. Uh
138. 3:46they just want, you know, if we sell a
139. 3:48million dollars if they sell a million
140. 3:50dollars, they want 10% of that in
141. 3:52advertising, you know, back into their
142. 3:54pot.
143. 3:54>> Okay.
144. 3:55>> So, it's a revenue-based model. The more
145. 3:57we sell to them, the more they want us
146. 3:58to advertise.
147. 3:59>> Yeah.
148. 4:00>> So, I I guess I've just got to look at
149. 4:01my my core costs and along every layer.
150. 4:05>> for how many years?
151. 4:07>> Uh
152. 4:08the
153. 4:0812 years.
154. 4:09>> 12 years, okay. In this 12 years
155. 4:11>> Starting as a side hustle, right? So,
156. 4:13the first
157. 4:13>> go pro?
158. 4:14>> Pardon?
159. 4:15>> When did you get When did you get
160. 4:16serious about it?
161. 4:17>> Uh 2019.
162. 4:18>> Okay, so it's been 7 years.
163. 4:19>> Sure.
164. 4:20>> Realistically.
165. 4:21In that time period, how many times did
166. 4:23you raise your prices?
167. 4:25>> Of the RRP, uh a number of times,
168. 4:27actually. We've gone from $79 and we're
169. 4:29now at $109. So, it's just it's
170. 4:32It's gone up.
171. 4:33>> So, um
172. 4:38Well, you are right,
173. 4:39which is uh we need to raise price and
174. 4:41we need to decrease costs. So, it is
175. 4:43likely a pricing thing.
176. 4:44>> Yeah.
177. 4:45>> Um I'm trying to like solve the next
178. 4:47issue, which is like, "Okay, let's say
179. 4:49you have this conversation with them."
180. 4:51>> Yeah.
181. 4:52>> Are they going to stop wanting to Like,
182. 4:54let's say you raise prices by 10%,
183. 4:56right? Which would more than double your
184. 4:57profit.
185. 4:59>> Okay.
186. 4:59>> What happens?
187. 5:00>> Yeah, those little tweaks just they they
188. 5:02make such a difference. I get it. Yeah.
189. 5:04>> No, but I'm asking it. So, what would
190. 5:05happen So, cuz I want I want you to feel
191. 5:06good about it. So, like, what would
192. 5:07happen?
193. 5:08>> Yeah.
194. 5:09Uh but honestly, the trouble with
195. 5:10wholesalers is that we put it into a
196. 5:12distributor and they sell it to, you
197. 5:15know, thousands of different pharmacies
198. 5:17and we can't control the RRP. And so,
199. 5:20we've got we have a a base price of what
200. 5:22we want them to sell it at and we've got
201. 5:25lots of pharmacies undercutting us on
202. 5:27our own product and selling
203. 5:28>> Yeah.
204. 5:29>> and selling it at $79 in their store
205. 5:31just to make the sale and making 2%
206. 5:33profit and then we're trying to ask our
207. 5:36other stores to respect the $110 price
208. 5:39point and that's what we're selling on
209. 5:40there.
210. 5:41>> MSRP?
211. 5:42>> $110.
212. 5:43>> No, how do you enforce it? Like, cuz in
213. 5:45the US like
214. 5:46>> can't in Australia. You can't. It's
215. 5:48recommended retail only and you have
216. 5:50Yeah, good times. Yeah, you haven't got
217. 5:52a leg to stand on if as soon as you
218. 5:55do a deal with the devil in that Yes,
219. 5:57you you're putting you're getting your
220. 5:59product into the hand of a distributor
221. 6:00and suddenly you've got a thousand
222. 6:01stockers. Excellent.
223. 6:03But that completely removes my control
224. 6:06over my brand.
225. 6:07>> Yeah.
226. 6:07>> And yeah.
227. 6:08>> that then does make sense that you would
228. 6:10raise prices because it'll just force
229. 6:11them to raise price. Now, again, they
230. 6:13might like they will not thin out their
231. 6:15margin if losing money.
232. 6:16>> Yeah.
233. 6:17>> Now, there's the alternative of maybe
234. 6:18they won't stock you.
235. 6:19>> Yeah, yeah.
236. 6:20>> Um if you had to direct
237. 6:22>> I wish they'd actually stop shredding my
238. 6:24my price integrity.
239. 6:25>> this is then this is much easier. Then
240. 6:27just raise the price.
241. 6:28>> Yeah.
242. 6:29>> And then the people who stop selling
243. 6:30because they don't want to undercut
244. 6:31anymore,
245. 6:32you kill two birds with one stone.
246. 6:34>> Yeah. Okay.
247. 6:36I
248. 6:37>> Cuz think about like let's let's go
249. 6:38worst case scenario cuz like Armageddon.
250. 6:40>> Yeah.
251. 6:41>> So, let's say that you raise the price
252. 6:43by 10%
253. 6:44>> Yeah.
254. 6:45>> and you lose half your business.
255. 6:47I don't think that's likely.
256. 6:48>> Yeah.
257. 6:49>> But let's say that it happened. You'd
258. 6:51still make more money.
259. 6:52>> Mhm.
260. 6:53>> Because it's more than twice the
261. 6:54profitability.
262. 6:55>> Sure.
263. 6:55>> So like
264. 6:57and then you probably have more control
265. 6:58on the D2C side and then you recapture
266. 6:59some margin there as well.
267. 7:00>> Sure, sure.
268. 7:01>> So you'd actually make more than what
269. 7:02you're making now.
270. 7:03>> Yeah.
271. 7:04We've actually made plans but when I was
272. 7:06talking to one of the guys on the call
273. 7:07in January, I said between now and when
274. 7:09I get there in March, things might have
275. 7:11changed and we've actually in the last
276. 7:13three weeks we've wrangled control back
277. 7:16of these rogue distributors and we've
278. 7:17actually
279. 7:19taken our product out of the main
280. 7:20pharmacy distributor in Australia, which
281. 7:22is walking away from, you know,
282. 7:24thousands of units of sale, but we've
283. 7:26had to look at our model and say if we
284. 7:28don't do this, then we no longer control
285. 7:30our product and our pricing and so I'm
286. 7:33kind of in that limbo land right now
287. 7:34where I'm going sheesh, I hope that was
288. 7:36the right decision.
289. 7:37>> Yeah.
290. 7:37>> But if we get control of that pricing
291. 7:39model on the wholesale side, then we can
292. 7:41put our prices up, get to see and
293. 7:43>> Can I give you [snorts] something?
294. 7:45Just be bold either way.
295. 7:46>> Okay.
296. 7:47>> Like you can make a If you stuck with
297. 7:49them, you'd make it work and you tell
298. 7:50the story that it was the right call.
299. 7:52And if you say [ __ ] them
300. 7:54and you stick with it, you'll still make
301. 7:55it work and you'll say it was the right
302. 7:56call.
303. 7:56>> All right. Amazing. Thank you.
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