Are you sure you’re making a profit on each sale? In this episode of the Amazon Seller School Podcast, Todd Welch dives deep into the financial side of Amazon businesses with Tyler Jefcoat, founder of Seller Accountant. Whether you’re just starting out or already making six figures, Tyler shares the key metrics every Amazon seller must track to stay profitable and scale their business. Don’t miss this value-packed discussion on optimizing your numbers to build a successful Amazon empire.
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The KPIs Every Amazon Seller Should Track
Understanding how to track your profits beyond just selling products is critical for every Amazon seller. Tyler explains the importance of key performance indicators (KPIs) like unit economics, post-advertising gross profit (PAG), and cost of goods sold (COGS). Learn how focusing on these metrics can help you avoid costly mistakes.
Profit vs. ROI: How to Maximize Your Return
One of the major highlights of the episode is the discussion on Return on Inventory Investment (ROI) and inventory turnover. Discover why focusing on profitability isn’t enough and how optimizing your inventory ROI can be a game changer for your business. Tyler offers expert tips on achieving elite product performance by balancing profit margins and velocity.
Building Strong Relationships for Business Growth
For sellers who are already making over $100,000 a month, scaling comes with new challenges. Tyler discusses advanced strategies like hiring smart, managing team dynamics, and using frameworks like EOS (Entrepreneurial Operating System) to ensure your business continues to thrive.
Resources From This Episode
- Seller Accountant: SellerAccountant.com – Learn more about Tyler’s bookkeeping and CFO services.
- Tyler Jefcoat on LinkedIn: Connect with Tyler on LinkedIn
- Helium 10: Helium10.com – A powerful tool for Amazon sellers to track product performance.
- Sellerboard: Sellerboard.com – Track profits and other financial KPIs for Amazon sellers.
- EOS (Entrepreneurial Operating System): Traction by Gino Wickman – The book Tyler recommends for scaling businesses and building systems.
- Tyler’s Seller Accountant YouTube Channel: Seller Accountant YouTube – For deeper dives into Amazon seller accounting and financial tips.
- From Pain to Profit KPI Playlist: Watch Here – A YouTube playlist for mastering KPIs and financial metrics.
- How to Read Your Financials Playlist: Watch Here – Learn how to understand your financials to make smarter business decisions.
In Conclusion
Whether you’re a new seller or an experienced pro, keeping an eye on the right numbers is essential for scaling your Amazon business. Tyler Jefcoat breaks down complex KPIs in a way that any seller can understand and implement, so don’t miss this chance to optimize your business for success. Listen now, take notes, and start tracking your profits the right way.
Transcript
[00:00:00:00 – 00:00:00:20] TEASER
I really got to keep it simple. I don’t want to spend a lot of money on, on accounting firms. I don’t want to spend a lot of my energy trying to make pristine books. What I really want to be focused on is do I make money every time I sell a unit? We call that unit economics. When I sell a product. Do I have a smile on my face afterwards or do I have a frowny face?
[00:00:00:20 – 00:00:00:20] INTRO
Welcome fellow entrepreneurs to the Amazon sellers school podcast, where we talk about Amazon and how you can use it to build an e commerce empire. A side hustle and anything in between. And now your host, Todd Welch.
[00:00:40:06 – 00:01:38:18] TODD WELCH | CEO AND FOUNDER OF WELCH PRODUCTS LLC
What’s going on everybody. Todd Welch from Amazon seller school here today. And I’ve got Tyler Jeffcoat with me.
He is the founder of seller accountant where they help. Sellers like you maximize their business, especially with their books and their accounting, of course. And then he also leads the seller round table, which is an exclusive mastermind group for seven and eight figure sellers. So he knows. All of the financial information, all the numbers and everything you need to track to have a successful, profitable business.
So what we’re going to be doing is diving into some of those next level key performance indicators that you should be tracking when you’re just starting your business from the couch to 25k, as we call it, 25, 000 a month to 100, 000 a month. 100, 000 a month and more. So gonna be a really great episode.
Tyler, I appreciate you coming on the show.
[00:01:39:03 – 00:01:41:21] TYLER JEFCOAT | FOUNDER OF SELLER ACCOUNTANT
Hey, thanks for having me, Todd. I’m looking forward to this discussion.
[00:01:42:02 – 00:01:54:00] TODD WELCH | CEO AND FOUNDER OF WELCH PRODUCTS LLC
So how did you get into doing accounting specifically for Amazon sellers? Have you always been an accountant or you kind of came into this or tell us a little bit about your background?
[00:01:54:12 – 00:02:56:12] TYLER JEFCOAT | FOUNDER OF SELLER ACCOUNTANT
So I’m one of those guys, I’m an accountant, I studied accounting in, in college here at the university of Georgia and, but my grad school, I’m not a CPA.
I’m not naturally wired to want to go memorize tax laws, to be honest with you. What I did was I went to grad school to study kind of finance and leadership and started a healthcare company. At a grad school in 2012, we had a good, good run, you know, zero to almost a hundred employees and get to sell that business in 2017.
And then to be honest with you, like my wife and I both really like living in the kind of small college town, you know, nothing against Atlanta, but I try to avoid it. Right. It’s just the traffic’s so terrible. And so, you know, trying to do something to invest in, uh, people when I exited the first company, I really kind of harken back to my roots when I was in college, I used to be an eBay seller, kind of buying and selling parts to build guitars and do other stuff like that.
And I’m an accountant by trade. And I really firmly believe that there, there are kind of riches and niches. Can I find something to be really focused on where we can be the best in the world at doing it. And so seller accountant was born, was born kind of ou tta that vision and we’ve been going strong since, uh, 2018.
[00:02:56:27 – 00:03:46:19] TODD WELCH | CEO AND FOUNDER OF WELCH PRODUCTS LLC
Very nice. Yeah. You know, accounting is accounting, but every different niche has specific things that you need to track and e-commerce it. While it’s not really new anymore, for the longest time, a lot of accountants. Didn’t necessarily know exactly how to track the numbers and what to track and what to really look for.
So it’s really cool to have accountants out there that know what myself as a business owner should be looking at. Because obviously, I have forced myself to know a good amount about accounting, but I’m far from an expert and it’s not something that I enjoy doing. So having good bookkeepers and good accountants is an absolute must for any business out there really, but e-commerce especially.
[00:03:47:04 – 00:04:58:22] TYLER JEFCOAT | FOUNDER OF SELLER ACCOUNTANT
Well, just to kind of add to that, I think as entrepreneurs, those of us who go start things, we build things from scratch. and I’m one of them like you guys are like I’m very optimistic. And if my numbers in front of me are kind of blurry, I’m going to tend to kind of believe the best in myself.
Like, Hey, it’s going to work out. It’s probably just noise in the accounting. And I think as our businesses get bigger, and we’ll talk about this more in a minute, Todd, but like, We have to get very focused on letting the data tell us a true story. And so to your point, you know, that’s kind of, that’s kind of a pillar.
One is okay. We got to be really willing to run our business based on data. And then to your point about most accountants kind of pillar two is there’s a lot of data. It’s really confusing. There’s a lot of things. Rose of, of different spreadsheets. And most of your accountants out there kind of look at an Amazon, a statement and be, and it kind of freaks them out.
They’re like, Oh my gosh, I have no idea. And because they have no idea, they tend to kind of cut corners, make things as simple as possible for them. But again, going back to the. Optimistic entrepreneur like you and myself here, Todd, it gives us bad data, which we’re going to be tempted to ignore, which is going to not allow us to make the best choices to build a brand or build the company we want to build.
[00:04:59:09 – 00:06:28:18] TODD WELCH | CEO AND FOUNDER OF WELCH PRODUCTS LLC
Yeah, and that’s one of the worst things to do is have bad data, bad numbers that. Maybe you’re relying on those numbers and you don’t know they’re bad and that can destroy your business or you know, they’re bad. So you’re not paying attention to them and you don’t really know what your profit is. You know, you feel like you’re selling a whole ton of product, but your bottom line is negative and you don’t know it.
And that can tank your cash flow real fast in your whole business. That’s super important to understand your numbers. And that’s something that in the beginning, it really hurt me. And when I first started this, because I was selling, I was doing retail arbitrage, selling 90, 000 a year or a month, I mean, and I thought I was doing awesome.
So I quit my job and jumped into it. And, uh, then all of a sudden, where’d all my cash go? I can’t afford to buy inventory anymore. And I wasn’t, making as much money as I thought. and that was before I really started paying attention to the numbers. And so it’s, it’s a big deal for sure. So let’s go ahead and dive into our first level here.
So for anybody out there who’s sitting on their couch, they haven’t started e commerce yet. They’re just getting going. What should they be looking at when they first start to get the ball rolling in the right direction and not be. You know, fighting, trying to push it uphill the whole time.
[00:06:29:14 – 00:08:42:20] TYLER JEFCOAT | FOUNDER OF SELLER ACCOUNTANT
Yeah. So I have a confession to make here, Todd, and I hope it makes other people feel good.
I’m an accountant with a finance focused MBA and I worked at a bank for five years and still I didn’t really do a lot of accounting for the first six months of any of the three businesses that I’ve started. And the reason for this is as a brand new venture, I kind of have one job. I got to be focused on trying to find a path to revenue and a path to profit.
And so if I were. You know, just starting my e commerce business. Let’s say I have just a couple of SKUs that are maybe I’m a private label brand or, or if I’m a handful of wholesale arbitrage or retail arbitrage products, I’m trying to sell. I really got to keep it simple. I don’t want to spend a lot of money on, on accounting firms.
I don’t want to spend a lot of my energy trying to make pristine books. What I really want to be focused on is do I make money every time I sell a unit we call that unit economics. When I sell a product, Do I have a smile on my face afterwards or do I have a frowny face? Right. And, and, and to your point, Todd, sometimes they can kind of be really unclear.
And so for brand new sellers, I tend to recommend, you know, whatever your tool is, if you’re using helium 10 or TK Metrix or Salix or cellar board, find one of these, Apps that gives you some visibility into how your product is performing after cost to get sold. You may have to upload those after your Amazon fees, after any logistics charges and after your advertising.
And so this is kind of the first KPI I want to introduce you guys to today. We call it PAG, P A G. What it stands for is post advertising or after advertising gross profit. What we really want to have here is what’s the true impact or profitability of the products that we’re selling. And so as a small seller, I’m not going to obsess over a balance sheet.
I’m not going to spend a ton of my energy trying to reconcile every transaction. Although eventually I’m going to have to go back and do that. But initially this is kind of an experiment. It’s a hobby. It’s something I’m just getting off the ground and I’ve got to be laser focused on. Did I make money when I sold that one?
Okay. Yes. Now what about this one? I’ve got to be really in the weeds because it’s not a very big business yet. And that changes as you get bigger. But when I’m starting out, I really want to make sure that my products in and of themselves are just profitable.
[00:08:42:16 – 00:09:00:00] TODD WELCH | CEO AND FOUNDER OF WELCH PRODUCTS LLC
So, PAG, you said post advertising, gross profit, is that something that typically these softwares like seller board or helium 10, are they just going to give us that number when we connect them into Amazon or how do we get that number typically?
[00:09:00:09 – 00:09:38:24] TYLER JEFCOAT | FOUNDER OF SELLER ACCOUNTANT
It’s a good question. So when you look at a kind of a standard American profit and loss statement, and this is the reason we had to kind of change the name of is normally gross profit on a PNL doesn’t include all of those direct expenses, especially advertising that gives us a true picture of profit.
But to your point, most of these kind of API connection tools. Now, as long as I go and upload or put some kind of an assumption for my product cost, what did it cost me to buy the product? Normally their definition of. Profit is what I’m talking about here when I say PAG, because they’re going to go ahead and give you impact after refunds, impact after Amazon fees, impact after advertising, that kind of thing.
[00:09:39:10 – 00:10:05:27] TODD WELCH | CEO AND FOUNDER OF WELCH PRODUCTS LLC
Yeah. And one thing that I like to point out to people too, is a lot of times they’ll just enter, you know, the cost that they paid for that product and they forget about, You know, did you need to bubble wrap it? Did you need to put labels on it that you, of course you needed to ship it. So you need to calculate those costs in there as well.
You don’t only want to look at the cost of the product, but all the costs that went into getting that product into Amazon as well.
[00:10:06:07 – 00:10:26:19] TYLER JEFCOAT | FOUNDER OF SELLER ACCOUNTANT
Yeah, I agree with that completely. They call it kind of landed or loaded cost a good soul where we don’t want to make the mistake of just looking at that factory invoice or P.O. We want to actually make sure that we’re counting all of our freight forwarder or duties, tariffs and you know, other inbound expenses. and because those can kind of add up.
[00:10:28:09 – 00:10:33:20] TODD WELCH | CEO AND FOUNDER OF WELCH PRODUCTS LLC
Yes, that’s eventually you’re gonna want to hire someone. You’re not gonna be wanting to do the prepping yourself.
[00:10:32:25 – 00:13:15:11] TYLER JEFCOAT | FOUNDER OF SELLER ACCOUNTANT
Yeah, very true. And this kind of leads me to maybe my second point is a beginner seller. You’re just getting your business off the ground. I want to give you another kind of KPI to think about. I call it Cal think about it like calories. Like if you have lower calorie, that’s normally better, I guess, whatever in this situation, but it basically is cogs or cost to get sold plus ads.
And if I can have the Some or the addition of my cost to get sold plus my advertising budget below a certain percentage of my total sales. That’s a good thing. And if it’s too high, then it puts a lot of pressure on my business where Amazon fees eat me up or any refunds eat me up. And so give you guys a quick example of this.
My benchmark for an elite product, I’m trying to, by the way you and me are meeting right now. We’re having a cup of coffee. You’re trying to design the perfect elite product that can scale. I would love to have your cow. Be at 40 percent or less. And so let me give you an example to kind of like make the math, not, not mystified.
The average Amazon seller across our entire business that we support here at seller accountant has about a third, about 33 percent of their budget in cost of goods sold. Now, obviously resellers will be a little bit higher. Some brands will have more premium margins, but the average is about a third.
And so if I want my cow to be 40%, And I already have 33 points in my product, then I only have a 7 percent budget, right? 33 plus seven gives me 40. That’s what I can afford to spend on my advertising. And this is really, really important, Todd, because the most common question that you probably get it too, but the question I get at every single conference I speak at is, Tyler, what can you really afford to spend on advertising?
And the answer is, it depends on how much margin you have in the product. If I have a really sexy high margin product, maybe it’s only 20 percent of my sales or the cost of goods sold. I can afford to spend a lot more on advertising. I can, I can buy that real estate on Amazon. I can compete for more keywords.
Whereas if I have lower margins, let’s say I’m. Only 30, 35, or maybe 40 percent of my, of my total profit and loss is just in that product cost to get sold. Oh boy. My advertising needs to be incredibly lean and mean, or I’ve got a product that isn’t going to be very scalable. And so for me, 40 percent cow is elite.
If you look, if you were to pull up your profit and loss and be like, Oh yeah, my cost to get sold plus my advertising is less than 40 know that you have an elite product. That’s a scalable product. You can afford to even borrow money to scale that product. If it touches all the way to 50%. I’m starting to feel some pressure because that means I have a lot of my total budget tied up in those two categories, my cost to get sold plus those advertising expenses, and that may tell you, you either need to raise your price or it might be time to design products that have better margins.
[00:13:16:00 – 00:13:40:07] TODD WELCH | CEO AND FOUNDER OF WELCH PRODUCTS LLC
Interesting. Okay. So if I’m hearing you correctly, then for the cogs ad load, if I have a product and my cost of goods sold for that is 30%. Okay, so I would have 10 percent of that cost that I could spend on ads to be still under that 40 percent that we’re aiming for.
[00:13:40:10 – 00:13:59:10] TYLER JEFCOAT | FOUNDER OF SELLER ACCOUNTANT
Yeah. And it’s not like not, don’t take this as hard, fast science, but I think it’s kind of an anecdotal thing.
Yes. Like basically that’s the point I’m trying to help you guys think through is if I have 30 percent of my cost of goods sold, I have a certain level of ads. Whereas if I have 40 percent cost of goods sold, Ooh, I’ve got a lot less ads I can afford to invest in. That’s right.
[00:13:59:27 – 00:14:37:02] TODD WELCH | CEO AND FOUNDER OF WELCH PRODUCTS LLC
Yeah, I think that’s really helpful.
Especially the 33 percent COGS is really cool to know that in your experience, you know, if you’re doing good, you’ve got a 33 percent cost of goods sold or less than, um, for what you’re selling the product for and having a 40 percent or less for your COGS ad load. I think that’s important.
I like knowing that that’s kind of the elite and then 50%. You start getting more in the danger zone. You better be looking at that product and figuring out how to decrease your costs somehow.
[00:14:37:03 – 00:15:37:22] TYLER JEFCOAT | FOUNDER OF SELLER ACCOUNTANT
And by the way, the most typical example is that kind of right in the middle. Like I would say again, if I had an aggregate study in front of me here for, you know, 200 million of Amazon sales, maybe the, we support here.
So to come the average across the entire population would be something. Thing like 33 percent in my cost of goods sold and about 12 percent of total advertising or total ad load, which would give me that cow, a 45%, which again is good, not elite, not terrible. Right. And so I think the point is, is that as we, because, because you know, this Todd, as we launch new products.
We’re experimenting. We’re trying to figure out, okay, after I get through my launch phase where I’m probably going to lose money for a month or two, how do I know as soon as possible, whether this is a winner or whether it’s a loser. And so one of the metrics that you might be looking at really early on is this cost of goods sold plus advertising load to give you feedback from the market.
The market loves this product and they’re giving me enough margin for me to continue working with it or timeout. We might need to liquidate this inventory and start looking at investing in something else.
[00:15:38:03 – 00:16:25:13] TODD WELCH | CEO AND FOUNDER OF WELCH PRODUCTS LLC
Very good. Now, obviously, uh, we got into a little bit of math there, but we’re trying not to get into too much math on podcasts and stuff, so that was my fault, but that’s okay.
We’re going to include some links in the description of the show to a little bit more detail on some of these, um, different metrics, so that if you want to, and if you’re going to be serious about this, you really should, Click those links and dive into these deeper and learn how to calculate these for your own business as you’re growing it to set yourself off on the right track right from the beginning.
All right, so we’ve got post advertising gross profit. Cogs adds load and we’ve got one more in there, I believe, as well.
[00:16:25:28 – 00:16:51:13] TYLER JEFCOAT | FOUNDER OF SELLER ACCOUNTANT
Yeah, honestly, just for, I think, for the beginning seller, I think this is probably where you want to focus your energy. We’re not going to spend a ton of time on bookkeeping yet. Now we’re, you know, we’re sub 25, 000.
This is kind of your couch to. To 5k, right? Your accounts to 25k is, man, am I just so laser focused on making sure my products are profitable? And then once I prove that this thesis is true, Hey, yes, they are profitable. There’s some other things that we can talk about as you kind of get into the intermediate level.
[00:16:53:00 – 00:17:29:13] TODD WELCH | CEO AND FOUNDER OF WELCH PRODUCTS LLC
Okay. Yeah. And if. If you’re listening, listening to this and you execute on these and tracking these metrics, you’re going to be automatically into the elite of people who are starting out, because I can almost guarantee obvious. I’m making this statistic up. I’m going to guess at least 95, if not 98, 99 percent of people who start businesses in general are not tracking their numbers and they don’t know how good they’re doing actually.
So. By doing this from the start, you’re going to just be way ahead of most people right off the bat.
[00:17:29:17 – 00:18:23:26] TYLER JEFCOAT | FOUNDER OF SELLER ACCOUNTANT
I agree. Totally agree. All right. Go ahead. No, I was gonna say, I just totally agree. I think you’re, you’re right on there. I think it’s, it probably is that may sound guys like a really shocking statistic. But I really think it is like 90, 95 percent of new sellers or even new business owners are completely asleep at the wheel when it comes to trying to understand their profitability until they’ve kind of dug a hole and now they’ve got to try and dig out of a hole.
So I agree with you. You are absolutely right. You have a leg up over your competition. If you just take a few minutes a week, by the way, I love the idea of having a 30 minute moment per week. I don’t want you to spend a lot of your energy on this. Spend 30 minutes a week, just looking at the core margins.
What was my pack? What was that post advertising gross profit? And if I’m happy with it, yay. If it’s trending downward, maybe I need to take a closer look at another metric like Cal or this COGS ads load to try to identify or diagnose what the problem is. And make better investments as a result.
[00:18:24:23 – 00:18:37:00] TODD WELCH | CEO AND FOUNDER OF WELCH PRODUCTS LLC
Yeah. And we’re at this point, they’re pretty much doing that right from their software, like Helium 10, Cellarboard.
You don’t recommend that they’re diving into QuickBooks or Xero or anything like that at that stage.
[00:18:37:10 – 00:19:39:00] TYLER JEFCOAT | FOUNDER OF SELLER ACCOUNTANT
I don’t think so. I think something magical happens when this isn’t an experiment anymore. And it’s not a hobby. It’s some point in some products that might be 20 K among some products, it might be 25 K, 30 K.
You, you, it’s a little bit of a, of a arbitrary number, but at some point, this venture becomes a real adult business. And at that point, you’re going to have to use some more sophisticated tools to give you data. That’s helpful. You can’t just trust what you get from. Helium 10 or take a metrics or whatever your favorite, you know, API tool is you’re then going to start focusing on having a real bookkeeping bookkeeping that tells you the truth so much that it makes you change your choices sometimes and you’re going to have something like a QuickBooks online or a zero be your accounting tool and you’re going to make sure that that accounting tool ends up kind of directionally at least agreeing with these dashboards, right?
You kind of need them both. And that happens once it goes from being baby, baby business to being, Hey, this is a thing. This matters now. I can’t the screw ups have five figures behind them. Now I’ve got to figure out how to not make those screw up.
[00:19:40:02 – 00:20:05:22] TODD WELCH | CEO AND FOUNDER OF WELCH PRODUCTS LLC
Absolutely. All right. Well, very good. Let’s jump to the next stage here.
So you started your business. Things are starting to go well. You’re doing, let’s say, between 25, 000 in sales per month. You’re feeling good. What should you start looking at, at that point, once your business is, okay, this is real, we’re going to do something here.
[00:20:06:06 – 00:23:21:14] TYLER JEFCOAT | FOUNDER OF SELLER ACCOUNTANT
So once you’re Business becomes a business.
I want to kind of give you, I don’t know if any of you guys are baseball fans, but now you need to start thinking about your product a little bit of a layer higher level. And you need to be thinking about it almost like a batter. It’s as we’re recording this kind of the, you know, major league baseball playoffs are happening, right?
And something that really matters for a batter is what their batting average is. What’s the, what’s the average? What’s the expected impact of every time this guy steps up to the plate and in, in Amazon KPI language, that’s called return on inventory investment. Every time I invest money in inventory and I turn that inventory.
So I actually like sell it. What was the happiness? Is this like a, a guy that’s batting 500 and it’s just crushing it? Or is this a really bad. Bad batting average. And so I want you to start thinking about what is my return on inventory investment? And again, we’re not going to get in the math, but it’s just profit divided by cogs.
I’ll make sure I have a link to a video on how to do the math here, but I just want to know how potent this product is at taking my hard earned cash. I either borrowed the dollar. I invested the dollar from my. Um, from my own savings account, or I begged and had mom give it to me, however, I got this dollar.
I now want to know what the return on investment is. And so that’s called return on inventory investment. Most of the same tools, if they’re calculating kind of an ROI, like helium tens, it normally is this return on inventory investment. And we want this to be a hundred percent. Uh, in other words, if I sell a product, it’s a hundred dollar price.
And I make a 20 profit. I would love my cost to get sold to also be 20. We’re like that profit to cost to get sold ratio is a hundred percent. That would be beautiful. This tells me I have a highly potent product. Um, if I’m selling a product in my kind of pag, that bottom line profits way, way less, it’s maybe 50 percent or 0.
5, then I may have a product. That’s going to really be chewing up a lot of cash. Like you actually described this earlier, Todd, where you’re like, man, I woke up. I’m generating 90 K a month in revenue. But I’m running out of cash. What in the world is going on? Well, what’s going on is that this monster that I’ve built, this Amazon business is just, it’s like making a huge sucking noise, sucking up all of my capital, and I’m not getting the return on that investment.
That’s high enough to really make me happy with those investments. And so as we get more sophisticated, we’re going to have great books because we need them to tell us the truth. And we’re going to start pivoting our mindset to be a little bit more return on investment oriented instead of just profit.
And I’ll tell you why, by the way. You guys all have friends. I have friends that have a warehouse that has three and a half years worth of inventory in it. And then, but, but here’s what they say, well, but Tyler, I’m going to make a huge profit when I finally sell this inventory. And what Todd and I are going to say to them is, do you understand how long your cash is tied up?
You’re, you’re not ever going to be happy with that return investment unless you optimize for return on investment, which might mean killing some products and maybe favoring products that have higher velocity over products that just have. In a vacuum, high margins. And so I don’t want to get too much into the weeds of that.
A lot of content that can help you do the math, but just think in my mindset. All right. Profit was the, was the price of admission. I don’t get to be in business if I don’t have profit. Now I need to start thinking about return on investment.
[00:23:22:05 – 00:24:10:23] TODD WELCH | CEO AND FOUNDER OF WELCH PRODUCTS LLC
All right. So, so ROI is what you’re talking about when you’re saying return on inventory investment, ROI, basically.
That’s right. Okay. Yeah, that’s, that’s my favorite metric. I, everybody always talks about profit margin and everything. I’m like, just tell me the ROI. If I put a dollar in, how much am I getting now? That’s what I want to know. If it’s more and it’s enough, I’ll just keep putting dollars in and. So that’s my favorite metric for sure.
and then I don’t know if, if this is a metric that we’re going to be talking about, but I also track one called inventory turn ratio, which kind of goes along with what you’re talking about. How often am I flipping my inventory every year? and so, yeah.
[00:24:09:24 – 00:26:32:00] TYLER JEFCOAT | FOUNDER OF SELLER ACCOUNTANT
Another would be like number of turns. so kind of back to the baseball analogy.
There’s two ways that I can score runs. I can either have an incredibly high batting average or I can get a ton of it bats, right? if I’m a moderately okay batter, but I get 10 at bats, eventually I’m going to get a hit because statistically I’m going to. So to your point, Todd, the two levers that we can pull with any product in our, in our portfolio is one pulling the lever of improving, improving the profitability.
That might be something like raising my price or getting a better price on the product I’m buying or lowering my ad budget or reboxing to not be an oversized product, stuff like that. That makes the margin better. That’s how I improved the batting average. But then the second part that I think is so crucial that you’re mentioning there is what does it look like to get.
More out of every dollar I’m investing. In other words, if I can increase the velocity to get that dollar back, I don’t have to go borrow another one. I can use that one again. I get to go reinvest that same dollar again. And guess what guys, over the course of a year, even if my ROI is kind of moderate, if I’m getting five or six or seven turns per year of my inventory, That can make a very efficient, happy business.
And so I love that comment you made there because in my mind, that’s the Holy Grail of managing KPIs with a product business is it’s actually like profit margin kind of times the number of times I get to do it per year. It’s in other words, it’s the intersection of profit and velocity. And I call that return on working capital.
Um, And it’s just exactly what you said. I, it’s not enough to know what my profit margin is because guess what? I might be sitting on three years of inventory. It’s not good because then I’ve got to take that return and divide it by three years. Oh my gosh. My actual annual return investment is garbage.
What’s what, what might make me way happier is to have a product that sells every month. Or, and by the way, how do you improve your velocity? This is an important question. The way you improve it is you get better terms with your supplier. Can I pay you net 30 or net 60 days? That’s one way to really instantly improve your cash cycle.
Can I kill bad skews? I did these experiments. I’m measuring them. The cow and pad are not where I want them to be. You’re on the chopping block, buddy. You’re out of here. I’m going to kill or cuddle the ones that need to be nurtured. Right. And so this forces us to prioritize our precious resources into our most potent products that have the best velocity.
[00:26:32:26 – 00:27:01:24] TODD WELCH | CEO AND FOUNDER OF WELCH PRODUCTS LLC
Absolutely. Super important in a cashflow intensive business or cash intensive business, like e-commerce, where you’re typically having to buy the inventory and very likely pay for it before you sell it. You got to have good cash flow if you’re going to keep growing or you just have to keep borrowing like you alluded to as well.
All right. So ROI, what’s going to be the next one for the 25 to 100 K level.
[00:27:02:10 – 00:29:30:12] TYLER JEFCOAT | FOUNDER OF SELLER ACCOUNTANT
So just to give you the kind of simplified list, cause you taught you and I kind of just walked through them quickly. But again, I hit 25 K a month in revenue. All of a sudden, bookkeeping needs to actually be accurate. I’m probably not going to have time to do it myself.
I need to hire someone or bring on a team, make bookkeeping an easy button where it’s accurate, That’s the first, the second one that we just talked about return on inventory investment, where I’m actually, this can be a spreadsheet, or you can probably do this through your same dashboarding tool, but I want to really kind of prioritize products that have a better batting average or a higher impact every time I turn them.
And then the third one is okay. Actually Todd, you mentioned this as your kind of favorite KPI. What are my inventory turns per year? How many times per year do I get to recycle that same capital? Like, cause guys, if you think about this, every business has some amount of working capital that’s kind of in it.
And unless I want to have to borrow in perpetuity, let’s just keep borrowing more loans, more loans, more loans. I’ve got to build a business that gets faster inventory turns where I can just use that same dollar. So those were, those were the big things we talked about. And then the final one that we mentioned there, again, we’re not going to get into too much of the math.
But if I’m focused on ROI and velocity, I can then calculate, if you guys are into game theory, I can actually calculate what’s called an EV. What’s my expected value for every dollar I invest? That’s the KPI that I called return on working capital. For every 12 month period, How much happier am I for every dollar I invest in this business?
And just know that that’s the Holy grail. That’s the one that, um, I’ll give you a really, a quick case study on this. I have a CFO client that does almost 10 million a year in revenue on Amazon. They have a huge catalog, very complex operation and applying a method of going through and looking at their products based on return on working capital, which is just.
My batting average times my number of bats per year. And then they were able to actually kill about 800 skews of their roughly 10, 000 and basically get 120, 000 in cash back into the business that was stuck in dead inventory. And so using this kind of return on capital mantra, again, this is my soapbox.
I love return on capital because it is the theoretically, the best way to evaluate any of our businesses. If you stink at evaluating businesses, like it doesn’t need to be me, hire someone that’s good at with a spreadsheet. You can, they can do this for you. It’s not that hard, but I think that’s where you go from being a, okay, I made it.
I actually have a business now to having a wildly successful seven figure business.
[00:29:31:20 – 00:29:36:07] TODD WELCH | CEO AND FOUNDER OF WELCH PRODUCTS LLC
And what would you say is an elite level inventory turn?
[00:29:36:25 – 00:30:40:18] TYLER JEFCOAT | FOUNDER OF SELLER ACCOUNTANT
It depends on the product. I mean, a lead level, like, first of all, if you Todd and I remember the old days where you had these drop shippers that technically had almost infinite inventory turns, because they never had to pay for the product until they already sold it.
But for most. Asian supply chain, private label kind of brands. If I can get three, four, five turns a year, I’m pretty happy. But again, it’s almost like that sliding scale we talked about with advertising. The more turns I have the more acceptable it is to have a slightly lower return on investment, right?
Those two, those two, like I can be wildly successful. With my strength being margin and I can, you know, like you may have a supplier that has a pretty high MOQ, the minimum order quantity is like maybe 10, 000 units. And so I’m going to have to sit on like six months of inventory. That would only be two turns per year.
But if I have an outrageously high margin, I might still be okay with that trade off. I think the point is that again, Todd and I are kind of trying to convince you guys, you got to view them in tandem. You can’t just focused on velocity. You can’t just focus on margin. You got to focus on them together.
[00:30:41:12 – 00:31:24:05] TODD WELCH | CEO AND FOUNDER OF WELCH PRODUCTS LLC
Absolutely. Okay. Very good. So I think that wraps up the 25 to 100 K. Correct? Sure does. So now we move into you’re doing over 100, 000 a month, over a million dollars a year and on up from there. So now you’re kind of at a new level and in my experience, he kind of hit those new levels, you know, at about 100, 000 a year and then about a million a year and then about 10 million a year.
And I don’t have any experience up from there, but as I’m sure you can probably attest to that every time you keep going up, there’s, there’s always new levels of things you gotta look at,
[00:31:25:02– 00:32:29:28] TYLER JEFCOAT | FOUNDER OF SELLER ACCOUNTANT
Right? And so you guys think about this with any. Any game or any sport the higher level you get to the more important, the little details are like you win.
I’m a huge college football fan. And if you’re the most talented team in the country, you’re going to win because you’re just more talented. But once you’re playing a fair fight against another juggernaut, It’s who doesn’t turn the ball over? Who doesn’t have penalties? Who lines up correctly and runs the right play?
Like on the details, the detail, detail, detail. And it’s the same thing as you get bigger Todd, like, and I’d love to actually ask you this, like, okay, you’ve done the little things to make sure you have good return on investment and you’ve got a. Brain that has some teeth now, now that I’m at a hundred K plus per month, I’ve got to start focusing on things like how do I launch the right new products?
What new channels should I get into? And this is the one, I know you have a lot of expertise in is like you might find a lot of money just stuck in your supply chain. I mean, do you have any experience helping either your own brands or others work through, Oh my gosh, I found a 100K just stuck. Stuck in my supply chain because my margins are getting eaten up by it.
Like how, what have you learned about that?
[00:32:30:11 – 00:33:54:29] TODD WELCH | CEO AND FOUNDER OF WELCH PRODUCTS LLC
Yeah, definitely. You know, some of the things we already talked about by eliminating those products that don’t have high enough velocity or high enough margin. You know, a lot of times you’re buying from a supplier. If you’re doing a resale, like I am, you’re just buying a whole bunch of things from their catalog.
And. Maybe you’re looking at the average ROI for the whole supplier all the time. But then if you dive in and look at specific products in there as well, you can start weeding out some of those products and use them for other things. Um, but other than that, you know, focusing on getting discounts is huge.
It can kind of feel like you, uh, don’t have the power to ask for discounts, but then once you actually start talking to these suppliers in a lot of cases, I found out that I’m like one of their biggest buyers of their entire company. I’m like, Oh wow, I’ve got more power than I actually thought I did.
And so in those cases you can negotiate lower prices on the products just important longer net terms, you know, if you can get out there to net 60, net 90, you know, a lot of the products I buy are from in the U S so I get them pretty quickly. So if I can get net 60 or net 90, that’s doing really good.
[00:33:55:11– 00:36:08:29] TYLER JEFCOAT | FOUNDER OF SELLER ACCOUNTANT
Yeah, I love it. So another quick case study, cause I don’t know how you guys are, but I like kind of attached to stories, but I had, um, uh, not a, not a reseller, but a private label guy that I was, I was coaching here recently about 3 million a year in revenue. So he’d gotten a beyond that a hundred K a month in revenue.
And he finally did the thing where he dusted off his passport and he went to, to China and spent about 10 days with his factories and, you know, having meals and developing the relationship. And, and to your point, Todd, yeah. He was laser focused on his ultimate result. He wanted, he didn’t know what that was going to look like.
It could have been, I want better terms. It could have been, I want better pricing. He maybe kind of wanted both as he got to know the supplier. Two things that came, uh, really obvious and they’re really funny. The first one is that the supplier found. About a, I think it was like 50, 000 worth of my friend’s inventory, just sitting in the corner of the warehouse that, that my friend had forgotten about.
And they like, Oh, wow, I bought more tops and there was an entire, you know, pile of pallets of those tops. And so he had an immediate ROI for his journey to Asia and just finding some inventory he didn’t even know he owned. And then the second thing is he was able to understand what his suppliers pain points were and, and realize, Oh, These guys are trying to smooth out their planning for their workers.
And if I’m willing to commit to a bigger order volume for the year, they’ll give me premium payment terms. And they’re willing to kind of smooth it out and give me a better deal. And so at the end of the day, Todd, he comes home and he got everything he wanted, but it’s because he did the work to invest in those relationships.
And so I guess here’s the, here’s the bottom line guys. Once you crest a hundred K a month in revenue, or you realize that you’re an important customer to one of your suppliers, if you’re buying resale products, you need to allocate some of your energy each week to nurturing those relationships. You can’t just do Alibaba, send two emails and feel like you’re done.
You’re never going to get the best deal unless you’re willing to commit to treating these people like human beings. These are your business partners now. And if you get to know them and build trust, then when you need help and you ask for that help, you’re going to get that help. And it’s going to give you a competitive advantage against your competitors.
[00:36:09:21 – 00:37:08:25] TODD WELCH | CEO AND FOUNDER OF WELCH PRODUCTS LLC
Yeah, I agree 100 percent on that. I’ve, I’ve always said that relationships in this business are the most important. You know, a lot of people have got it in their head that, you know, you can do private label or wholesale or whatever, and just sit behind your keyboard and, uh, you know, click on websites and buy stuff and not talk to anybody ever.
But that’s about the worst thing you can do. It does. Businesses fall away very quickly. And, you know, just recently Amazon changed its policy for bundles and pretty much said that if the bundles are not approved by the brand, you can’t sell them. So anybody who was creating those bundles is wiped out now, unless they have a good relationship with the brand permission from the brand and can move these bundles and sell them under the brand’s name.
Relationships is key in e-commerce for sure.
[00:37:09:05 – 00:38:31:19] TYLER JEFCOAT | FOUNDER OF SELLER ACCOUNTANT
And so for some of us who start an e commerce business, we’re like, Oh man, I quit my day job because I didn’t want to deal with Dale in the cubicle next to me. I wanted to, you know, sit in my basement and wear a cape and do my thing and just bam, build this business.
But guys, that’s the difference between that 25, 000 a month business in a real business that you might try to exit someday. Or you may try to, you know, autopilot where you can take some time off is that now I’ve, unfortunately I’ve had to become a CEO. I’ve had to become a relationship manager for my key partners.
And I just, I can’t say this enough. The guys that are in my mastermind always get a huge return on their investment, spending a little bit of time. And you might be shocked at how little time this takes. If I could take a banker out to lunch once a quarter. And if I could try to have like monthly calls with my important suppliers, maybe every other month, depending on the relationship, but actually talk to them and then maybe once a year, go fly and meet with those suppliers, spend face time with them, let them see that you’re for real, that you’re not a, you know, kind of a hack job.
You are going to get preferential treatment. And it’s kind of the same with the banker. You’re going to need a loan next year. And the guy’s going to push your application to the top because you’ve done the work to develop the relationship. The wrong time to develop a relationship with your banker is at two 30 in the morning when you’re in the fetal position, praying that you can make payroll tomorrow, right?
You got to do it in advance. It’s the same thing with your supplier
[00:38:32:00 – 00:39:26:09] TODD WELCH | CEO AND FOUNDER OF WELCH PRODUCTS LLC
Yeah, it’s a, it’s the most important thing in life, really. I mean, if you look at anybody who is wealthy, they’re going to have a very big Network that they’re connected with and have relationships with and if you want to be successful in any business and in life in general, you gotta develop those and nurture those.
I think we’re in a world right now where people because of everything is online. Everything is instant. We don’t really develop those. Connections anymore and relationships. At least people feel like they don’t have to, but if you want to be successful and grow, it really, in the end comes down to who, you know, a lot of times who you’re friends with and who you’ve built relationships with.
I agree.
All right. So that’s over a hundred thousand. Any other things that people should think about once they’ve grown their business over a million a year?
[00:39:27:00 – 00:41:26:12] TYLER JEFCOAT | FOUNDER OF SELLER ACCOUNTANT
Maybe the only other thing I would mention is that the bigger your business gets. The less you’re going to be able to juggle all of the plates as a CEO.
And so just you’re going to, this is tricky. When should I spend money to hire people? Uh, when should I bring on outsourced teammates or firms? It’s tricky. And that’s one of the more important set of choices that you’ll make as the owner of your business. And just know that the consequences are real. If you wait too long to get help, you end up burned out and all those stories you hear were, were, you know, she was a terrible mom or he was a terrible dad and he wasn’t present and he like builds his business and now he’s burned out.
All of those tend to be the fruit of. Obsessing over growth without bringing on the right team. Uh, don’t, don’t do that. Make sure that you have a clear vision of what you want to do over the next couple of years and build the team to make it happen. And then, you know, you’d also don’t want to make the other mistake.
I have other guys that go hire a bunch of six figure employees. Don’t do that when you’re sub 10 million in revenue, you really have to be careful with your money. And so just be intentional. You know, I think that’s something I want to say. And if you’re just what bonus advice here, if you’re taking your business from like solopreneur to having a little bit of a team around you.My favorite tool for doing that safely is just EOS.
It’s called tractions, like building systems and processes and learning how to lead a meeting, learning how to hold people accountable scorecards. You don’t need to go to grad school to learn this. Uh, Gino Wichman wrote the book traction EOS. You know, it’s not the like most interesting read in the world, but find someone who is passionate about EOS, take them to lunch, breakfast, grab them a beer, grab them a coffee, whatever it is, and pick their brand.
Cause it changed my life. Like I recently sold a seven figure business. I’m so thankful for it. And I would say half of the value of that deal. Was the investment that we made in building processes that could scale without us as an ownership team. And you can do the same thing to don’t wait until you’re 10 million a year in revenue before you start putting systems in place.
[00:41:26:28 – 00:41:53:25] TODD WELCH | CEO AND FOUNDER OF WELCH PRODUCTS LLC
Yeah, for sure. Hiring people, ideally people who are smarter than you and whatever they’re doing for their job and building SOPs and systems so that, yeah, you can focus on building your business as they say, rather than working in the business all the time. Right. All right. Awesome, Tyler. This has been fantastic.
Where can people connect with you and get more information?
[00:41:54:07– 00:42:27:07] TYLER JEFCOAT | FOUNDER OF SELLER ACCOUNTANT
Yeah, well, as you mentioned earlier, we’ll try to put a couple of select videos from the seller accountant YouTube page and the show notes in case you want to chew on the math a little bit more than we can. It’s just not, it’s not nice to do this to your friends to talk about spreadsheet stuff without showing it to you.
So we’ll make sure we have those links there, but you know, my name’s pretty unique, Tyler Jeff coat with one F J E F C O a T. So you can find me on LinkedIn or YouTube or seller accountant. com, our website, lots of free resources. And if there’s ever anything we can do to help you on the bookkeeping or CFO side, or in my mastermind, if you’re a larger seller, don’t hesitate to reach out.
[00:42:28:15 – 00:43:00:08] TODD WELCH | CEO AND FOUNDER OF WELCH PRODUCTS LLC
All right. Sounds good. Awesome. So yeah, definitely check out all those resources in the show notes and don’t listen to this episode and then not do something about it. If you’re wherever you’re at in your business, if you’re not tracking all of these metrics, you need to figure it out one way or another and start tracking them, or you could end up doing selling 10 million a year and losing money.
It happens. Yes. And so don’t, don’t let it be you for sure. But Jeff or I’m sorry, Tyler, I appreciate you coming on the show. Have a great one.
[00:43:00:23– 00:43:01:06] TYLER JEFCOAT | FOUNDER OF SELLER ACCOUNTANT
Thanks, Todd.
[00:43:02:00– 00:43:16:04] OUTRO
This has been another episode of the Amazon seller school podcast. Thanks for listening, fellow Amazon seller. And always remember success is yours. If you take it.
