Turn Cash Flow Problems into Profit Opportunities with Charles Leikauf

Okay. If you know me, you know that I love money. I love talking about numbers. It's so important for you to know your numbers. And that's why I'm so excited to welcome today's guest, Charles Alikoff with ECOM Profit Group, who is talking about profit and ways to make more money, ways to budget, ways to help if you're in a challenging cash flow situation, things that you should be forecasting and monitoring. He's got a couple of great stories in today's episode. One's hilarious but really good. You're going to learn so much out of these two stories that he shares today. Things that you can take immediately and start trying and testing and find more profit in your store. I mean, that's exactly what we want to be doing, right? Is we want to grow our business. And so Charles is such a good resource for that. I'm really excited for this conversation, for you to listen, for you to learn, for you to laugh. You'll see what I mean when we get to this part of the show. And so let's dive in to this episode. Welcome to Rooted in Retail. I'm your host, Krystal Vilkaitis. Here we have engaging and informative conversations with successful indie retailers and industry experts. Together, we learn, connect, and grow. All right, here's today's episode. Charles, welcome to Rooted in Retail. I'm thrilled you're here.

Hey, thanks for having me. I appreciate it.

Yes. So I just want to share how we met, because we met last month. We're filming this in June. We met at a conference in Atlanta, and it was a random, like, you know, cocktails at the bar, and it's like, oh, you do retail? You're into retail. Me too. We're kind of like the only retail people here. And it was really great that we connected because I'm really excited for what you do, what you're going to share today. And I know our listeners are going to get a lot of value out of this. So before we dive in, will you take a couple minutes and share more about you and your business?

Sure. Well, hey, it was. It was awesome to meet you. You never know when you go to these events who's going to be there. I think Natalie grabbed me, was like, you got to meet Crystal. Come over here now. She grabbed me by the arm. So she was really, really, really enthusiastic. I also think it was maybe one in the morning.

Yeah, it was a little late, and I just got to give a shot. Natalie is with Dr. Doug, who, if you're in our world, you know, Dr. Doug's because they're a sponsor of our event. And I'm glad she grabbed me because this was a good connection.

She's, she's fantastic. So a little bit about me. I am a corporate finance nerd turned entrepreneur. And so a couple years ago I was working for a really large company, 100 billion a year in revenue doing finance analytics. Basically my whole job was to make manufacturing facilities profitable or close them. So kind of, kind of not the nicest subject when people hear that. But eventually became a CFO of a large e commerce company and I started doing some financial consulting on the side and I realized that I was enjoying the financial consulting work more than my W2 job. Like we all get into owning a business because we want to travel or grow a family or have some time or freedom or flexibility or whatever. And I realized not only was I earning the same, but I was having a lot more fun serving the small clients and helping them grow their business than some large business of cool. You saved them $300 million this year. But like did you change anyone individual's life? Like you made a bunch of shareholders and they didn't for comfort country rich. So be able to make an impact. That's how I got into that. I have been a fractional CFO since 2017. What does that mean? Usually people who are really good at doing the thing or selling the thing are not super good at the numbers of said thing. So when it comes to cash flow or budgets or profitability or bookkeeping or accounting, that's what me and my company Ecom Profit Group does. So if you want to figure out how to make more money with what you already have, you call us.

Yeah, I love it and I love that it's fractional. You're seeing that a lot more often now with fractional cmo, CEO, cfo. Because you don't necessarily, as small businesses, you don't necessarily need a full time cfo. So it's just such a great business model and you specialize in these e commerce businesses who are, you know, a lot of our retailers and we've talked about this, prepping for this interview, I would say majority have an e commerce business. Some are selling more than others. Some it's kind of a back burner. Some just haven't figured out the numbers and making it profitable, which after today I think they'll get some advice and ideas there. And some are really killing it. So. So this is going to be great for this group. And I just want to start by talking about Cash flow. So like I said, most of our listeners, they, they're small businesses and at some point they might face some cash flow challenges. I'm sure some listeners have been there. Maybe you're there right now, especially after ordering inventory, and you need to sell that inventory to generate your revenue. So can you share some practical tips for managing cash flow effectively in a cash strapped situation?

Sure. So this is what I'm best at the world at, because when I work for the really large company and you are in a group that's losing hundreds of millions of dollars, you have to pull every single lever that you possibly can. Now, when you're a large company, you got lots of levers. When you're a small company, your number of levers kind of goes down. And so if you're smaller, there's a couple things you really need to do. I'll give you an instance. So one of my clients we signed on, he just wrote his first a hundred thousand dollar inventory check, kind of nervous, am I going to sell it? When do I sell out of it? It's the biggest check he's ever written in his life at this time. And there's a couple things you can do to manage your cash flow better. And we're going to go over them here. One is figure out how you can pay for your inventory as late as possible. And so I don't know what kind of terms a lot of your clients have, but usually it's, hey, I want to buy a hundred widgets and I have to pay for them a certain amount of time. Sometimes it's today and you get them in two months. Sometimes, you know, you place the order today, you pay a percentage of it now, a percentage of it later. And the idea is you really want to stretch out your payables, which means if you can have IOUs to your inventory suppliers, you want that. So we had a guy who would on day zero, place an order for inventory, and on day 60, he would get it and he would have to pay for the whole order on day zero. So if you think about it, he's out two months of cash, of inventory before he even gets to see it, before he even gets to sell it, much less waiting the one to three days, the merchant processor, to get the money. Meanwhile, he's got rent, he's got employees, he's got, you know, his own salary, right, Electric, whatever. And so we were saying, all right, you're going to place that same order, but see if they'll let you do half now and half on delivery. And eventually over some time, let's do a 30% now, 70% on delivery, and then later we go to, hey, let's pay you 30 days after we get it delivered, or 60 or 90 days. And so if you want to stretch out your payables, I'm sure your people are. Some come from distributors, some come from suppliers. Whatever it may be is you want to have them have a whole list of all their suppliers. And I want them to put a calendar reminder in their phone or in Google or Outlook or whatever they use to manage your time. And on that calendar, you have all of your suppliers, you have all your payment terms of them and how much money you spend with them. What I want you to do is every six months his up every single one of them and ask for better terms, like set it in your calendar. And so we had someone do this and their average days payable was like 15 days across like 30 different suppliers. That means they had like one or two people at like 30 and everyone else was at like zero. They stretched out, change the percentages, push people out. After about six months, they had about 35 days on average to pay for their inventory. And so they were kind of large. It was a big deal. So it's find a way to systematize how you can pay later and then leverage something like an Amex card or a credit card or something. Granted, I don't want you to get killed on interest to push that on another 30 or 45 days. Because ultimately if you can get the thing and sell the thing before you have to pay for it. I mean, not to, not to be exaggerating, but that's technically free money, right?

True, it is. We would love free money. And I love the idea of just revisiting it every six months and checking for better terms. I feel like we get so caught up in just this is the way that I do it. So I always do what I'm. What I do. And you don't need to. You can ask and talk to your vendors. And I feel like a lot of them are willing to work with you, especially if you've worked with them for a while.

So, yeah, they may say no now and that's fine. But it's a lot harder to say no to me every six months for the next two years.

Yeah.

Than it is to say no to me now.

Yes, exactly. We just are so. We can get so afraid to ask, I think. And really the worst thing is that they say no. So you just got to ask. Yeah. Awesome. Okay. Now when I First started my business almost 12 years ago. I got a mentor pretty early, and she's like, what's your budget? And I'm like, what do you mean? And she's like, well, how are you tracking money coming in and going out? And I'm like, well, I use Chase as my thing, you know, and so I had some things to learn, so she gave me this template of a budget for, you know, my type of business, and I modified things, and I. To this day, I still use this budget template. And obviously, with our retailers, forecasting is just so important. And you, you know, I have a side project I'm working on. You shared some stuff with me for templates, and. Which was epic because I love spreadsheets. But we want our retailers to really be forecasting and be using these tools to help support them. So can you walk us through what a cash flow forecast template looks like? Sure. There's a lot of components, but some of those key pieces that our retailers can get started and make sure that they're tracking these things so they can determine how much they should be spending on various aspects of their business.

Okay, so this is really helpful. I have everyone I work with do this, and this works if you're doing $35 million a year. This works if you're doing $50,000 a year. So sizing doesn't really matter. The first is to have a really good idea of the money that's going out. Right. And so, yeah, you can have a fancy cash flow forecast or a good template. There's a million of them online, but it really starts with, like, when are your payments due? And so I will look at that, and I look at that on, like, a weekly basis. And so if there's four weeks of the month. All right, what week is rent due? Is rent due in the first? Right. Or your mortgage payment? Cool. If you pay your employees on the first and the 15th. All right, the first and the second or the end of the second week, those are going to be bigger weeks. When is your. Like, if you have aprons that need to be cleaned. Right. Or materials or uniforms. When is the next inventory payment due? Right. When is, you know, your Facebook ads budget due? What terms are you on that? And just create a list of all the things that you know are going to come out of your bank account on a normal weekly basis. And so say your business here, and you've got $10,000 a month that is automatically coming out, which week all those things come out, and then you can start to layer around your other Payments around that. And so for my clients at large, I go, okay, if you have someone on your payables team, it's, you're only allowed to spend this amount of money per week. And so you figure out how to move things around that way. I don't have to have the business owner do that. Now if you as the business owner are doing that, if you know that you're going to sell $100,000 a month, cool. Over time, you know how much you're going to collect it each day or each week, make sure your payments are spread out. So that way you, you know your bank account doesn't get cut in half on the first of the month, every month. So can you change some of the days that your credit cards are due? Can you change some of the days that your payments are due? Your inventory supplier you want to keep happy, maybe you don't push them out two weeks. Maybe you only push them out one week. So that's like general cash management. As far as having a forecast, I would have projected receivable. So project amount of money that you have coming in, the timing of that. Because if you sell some wholesale on the side, you probably have term set up with that. So you want to project your money coming in, you want to project your money going out. And I like to look at it over the next 13 weeks. So I know I just mentioned the first month. You take that template, that first month and you drive those inputs to that calendar. So that way over the next quarter, when are you going to be low on cash and when you're going to be high on cash and you never really want to be caught with your low because then that's when people make silly decisions. They get nervous, maybe they go get some lending, like a merchant cash advance, which I don't recommend. And so you really just want good visibility on the money coming in, the money coming out, and you just project it over a period of, of 13 weeks, which is the next, the next quarter. So that's what I recommend. There's plenty of templates online that'll help you do that. Those are the things you need to think about. Was it, did that make sense?

Yep, totally. And again, it comes back to asking to change dates on things and just really being aware of that. I just feel if you were to log in your bank account and you're seeing it really low and that panic, that freak, freak out, like you're saying, if we can get rid of any kind of panic, like we're good, but we just need to make sure that we're balancing it out. What would you say would be like, what if there was a retailer listening right now who is like logging in and their bank account is low, they just paid a lot, They've got money coming, but what would be the best way or a couple of good places for them to find some money, get some money to bridge that time until the money comes in.

Okay, so there's always, there's always a couple of thoughts, right? If your idea is there, if we're not talking about like pushing out your payables or moving your dates, then we got to change the other side of the spectrum, which is money coming in. So a lot of people's first thought is, oh, I'll run a sale, right? If you're highly dependent upon foot traffic, that may or may not work, right? I know you encourage people to send emails. I'm sure it's a text blasts, you can bump your numbers up like that. But things get kind of hard and so first budgeting your cash is really important so you don't get stuck like this. The other sort of options are, is like, all right, can we look towards credit? Do you have an American Express credit card? Usually they give you about 45 days to pay, right? You put on the statement, day one, day 30, the statement's posted, you know, after that you have to pay it. So it's an average average of 45 days across. So there's short term financing, long term financing, like SBAs, whatever else. If you have a building, you could get a loan against the building. Granted those are oh, shoot moments. Probably not things that we want to go towards. And then there is, you know, if you have wholesale relationships, right, like you may have some money out there that haven't paid, you pick up the phone and be like, hey, you're two weeks late. Hi, I need money, please. So those are, those are a couple options as far as to bring some cash in. There is always the option of a sale for me. I have a lot of experience in people who buy consumables. A lot of my clients sell consumables. So anytime you're doing a sale, you're bringing money that was going to come in forward, you're bringing it to today. But that means your sales are going to take a dip in the future. And so you familiar with JCPenney, right? JCPenney used to send out when we were younger, all the flyers in the mail for like 50% off, 60% off, 20% off, this, this and this. And it was like Was like a drug. And they actually, a couple years ago, before I had some, a lot more troubles, said, you know what, we're just going to lower prices two days a week. All the other days the prices are going to lower. And it's technically like the overall cost over the week is a lot lower. But their sales actually took a massive dip because people got hooked on the discount drug. And so discounts are really easy ways to get money today. But that's kind of the last lever that I would recommend you pull. And if you are going to extend discounts to certain groups of people, like segment, segment out who you're talking to. Like your VIPs don't give them discounts, they're going to buy anyhow.

Yeah, very true. Well, this is where, you know, we've talked in previous episodes a little deeper on segmentation and having those, the vip, we know who buys a lot, the people who are the sale shoppers. Like if they could be categorized in our system. And that's when we're just sending to those people. And we know they're not going to come for regular priced items. So if I need to make some money fast, I can really segment that list out. But I will say I've heard from a lot of retailers over the years who are like, I just, I did, I don't want to do sales anymore. My customers are only coming for sales. Like they've almost trained them to wait until there's a sale. And that obviously is a whole nother challenge. So I'm glad that you addressed that.

The sales, the sales drug is, is, is powerful. It really, it really is. And to get out of that cycle, you gotta be really aggressive in segmentation, throwing like RFM or recency frequency monetary. Like you gotta be very, very aggressive. Getting out of that can be really hard and takes a long time. It's not like a tomorrow thing. So it's really easy if we just don't go there.

Yep, totally. Now you just said rfm, which I've never heard that before. What is that?

So RFM is a way of segmentating people. It's called recency, frequency and monetary. And you split your customers into buckets and you rank them one to five. So like the top 20% recent buyers, the second 20%, the third 20%, the 40, the third, fourth, so on and so on. And so you give them a score one through five on recency. So how recent they bought, how often they buy and how big their ticket price is. And so someone who's a five across all of those, those are your VIPs. They've bought the most recent, they buy the most frequently and they've spent the most money, don't give those guys discounts. Right. But maybe your people who haven't bought often and haven't bought a lot. Right. Maybe those fit into a different category. And so it's just a way of segmenting people based upon what type of buyer they are and how you should treat them in a mathematical way, just based upon quartiles of the quintiles of your population. And so that's really helpful because it shows you who to discount, who not to discount. Like your twos and threes and those. So on the bottom, who don't buy often, don't buy a lot. Like throw them discounts so they'll never come back. Right. That's a different way. It's just a way to segment people. I'm sure you guys maybe do it like top spenders or most, most often or whatever else. This is just like a nerdier way to do it. If you have a really large data set.

Yeah, that's awesome. And so if anybody who's listening to this and you have that data, when's the last time that you've looked at it and talked to these people, you might be sitting on some really great opportunities to drive traffic and sales. If you don't have this information, start gathering it. You know, now is a great time. I'm such a believer of segmentation. I talk about it a lot. We want to make sure that we have this information. It's going to make you a better business owner. So you can pull the lever like you said, the levers in the beginning. We want to be able to pull those levers and make some money.

Yeah.

Speaking of making some money, you have a pretty cool case study or case a success story that you shared with me and I'd love for you to share with my audience. So you helped a client who is down $900,000 and you brought them to be up $500,000 in Q1. How did you guys do this? And what, what specific actions did you guys take to turn it around? That's a significant turnaround.

I mean everything.

We did everything different.

I mean it felt like it, but he was, he was super willing. And so that's what made it fun. Also very like willing to be flexible, try different things. So this guy was losing about 950, 952 last year. Right. He's pretty large. He's doing about 15 million a year. But when you have to pull $900,000 out of your own personal pocket, that kind of stings. Nobody likes that. And so he came on with this about January and similar topic. We hear all the time, my revenue is the same. My bank account balance is going down. I got a bookkeeper. But I don't like the math just isn't working. I don't understand what's wrong. And so we had to get his books redone. Turns out he was losing more than he thought he was losing. And so my first thought was like, all right, how do we change that? And so we were able to take him from losing 952,000 to in quarter one, which he's really heavy sales in quarter four, like most E commerce heavy guys are. Black Friday, Christmas, you know, he didn't really sell a lot more in quarter one, but he made $568,000 in profit. And so from losing 900 in a whole year to profitable 568 in the first quarter, we had to do a lot of things. And so the first thing we did is we looked at his shipping. He was spending way too much on shipping. So we went and went to FedEx and we negotiated all the shipping costs down. So that's the first thing. So he spends between 2.2 and $2.4 million a year on shipping or save about 833 for the year. So that's great, right?

That's huge. Yeah, yeah.

Went really aggressive on that. The next thing is, is he will. He had two businesses inside of each other, and he wasn't sure which one's profitable, two product lines and which one wasn't. And so we dove into his numbers, and it turns out one of his businesses actually wasn't profitable. He was actually losing a couple hundred thousand dollars a month on that one. And the other one was subsidizing that one. And so we call that like a keep versus kill analysis. The answer to that one was kill. It was not keep. He's in the middle of maybe spinning that off and selling it. But we immediately wound down the advertising spend on that one, wound down the shipping, move the staff over to the other one, and then wound the ad spend back up on that one. And so the combination of shipping savings, some reallocation, or letting go of a couple of employees, saving a couple services he didn't need, better books and better clarity, as well as a little bit more direction on his product mix. Like, he has 15, 16,000 SKUs, right?

Oh, wow.

Yeah. So like some of Those skus are winners, and a lot of those skus are not so winners.

Yeah.

And so when you combine shipping, savings, employee savings, getting rid of a business that's hem a product line that's hemorrhaging money inside of it, and then reallocating that spend energy and resources with the financial clarity, that's how we were able to take them from losing 900 a year to profitable 568, 566, one of the two in the first quarter. But we met with him. We had to make a lot of changes very quickly. And most people aren't willing to do that just to put it out there. Like, it's hard. It's hard work. Like, I could wish I could say, ah, wave the wand and boop, it happened. I don't happen like that.

No, you do. You have to be willing. And change is hard for most people. Like, it's just, it's uncomfortable. I think too, when you're losing money like that, that can also feel. Feel embarrassing or there's vulnerability. Like people are getting in and looking at what's going on. You might feel, you know, frustrated with yourself for not knowing these things or just letting it get too far. But the thing is, is you just, you have to get the help. You have to pay attention to this. I feel like so many business owners, not retail specific, I think this is a business owner thing. Small business owner, they won't pay attention to the numbers. It's like they, they just do. Like, do you agree with me? Do you. Have you seen that?

It's always like, I'll just sell more.

Exactly.

I'll just sell more and I'll be okay.

Yep. And then it's not even like, how much more do I need to sell? It's not, I feel like it's not even that calculated and strategic.

You know, what, how, who's going to sell it? What product is just, I'll just sell more.

Yep. And, yeah. Or like, and you might be spending more to sell more. And then it's, it's, you know, we're just not paying attention to the numbers. And, and I think that's obviously why majority of small businesses fail. We've got to be paying attention to the numbers. But it is hard. It's hard to change. It's hard to ask for help and be willing to do it. But, man, with a case study like that, I hope that inspires anybody who's listening, who maybe is in a tough place right now that needs to have some tough conversations and make some changes. It's worth it. You got to do it. And I feel like every time what ends up happening is you make it out on the other side and you're like, oh, that wasn't that hard. Like, I survived. Won't kill you. You'll be all right.

I totally get it there. How do I. Oh, gosh, how do I put this? They're all a heck of a lot happier now. And usually entrepreneurs get stuck in the spot because they're really good at doing the thing or they're really good at selling of said thing. And so I just think about it like this, right? Like, you probably have people who are cashiers or maybe they help customer service or maybe they're really good at demonstrating the product in there, right? You as a business owner are probably pretty good at all those things. But usually you're really good and really passionate about whatever you're selling. And so usually that means the money skills and open up Microsoft Excel and staring at them until your eyes hurt, which is I love doing. You're probably not going to do. It's probably not even the best use of your time. You know, just like you guys crush it for Facebook ads for people like, they're good at selling the thing. Why don't you guys just drive more foot traffic instead of them? Or I'll just bring on you guys. So it's just find the expert and drop them in. It's a lot easier that way. I don't have to know everything. There's plenty of things I don't know. The things I do know, I'm awesome at everything else. I get someone else to do.

Exactly, yes. Who, not how. I mean, you just. You don't. I don't need our retailers learning Facebook ads and we don't need them in these spreadsheets. But you have to have that support. We have to get the use these tools. And in fact, I just did an interview right before this one, and it was a retail store. And one of my questions in Resilience Round is if, if you had to start your business all over again, what's one thing you would do? And it was, I would invest in people. I don't have the time to learn all this. I'm not the expert in all of this. And you just gotta invest some of that those resources and get help. Is your local Main street feeling a little less lively? Heart on Main street is a nonprofit organization with a mission to change that. I have the honor of sitting on the board. It's a fantastic nonprofit that I highly recommend that you get involved, you check out. Let me tell you a little bit more about what we do here. We're dedicated to helping independent retailers thrive, bringing vibrancy back to the center of your town. We do it in a few ways. We're the financial muscle. We provide grants to local shops so they can invest in themselves. Whether it's a new marketing campaign or fresh coat of paint, knowledge is power. We offer educational programs and workshops to help store owners keep their businesses sharp and competitive. And together we stand. Heart on Main street fosters a network of mentors and connections so shopkeepers can learn from each other and build a stronger community. By supporting independent retailers, we're not just helping businesses. We're helping create a vibrant, welcoming Main street that's the heart and soul of your town. Join us in keeping the local spirit alive. There are things that you could do to get involved. You could even donate as little as $5 a month, maybe $15 a month. You could have it on auto. Just a monthly donation to help this incredible cause. To help other independent RET dealers thrive. You could go to heartonmainstreet.org donate to, of course, donate and learn more to see how you can get involved again. That's heart on main street.org okay, now, speaking of investing resources and Facebook ads, spending on ads can be significant for our small businesses, and their budgets really can vary. What advice do you have determining a good return on ad spend? Roas is how you'll sometimes hear that. And can you share some tips on how retailers can maximize their ad spend?

Okay, so usually finance people, when they think of ad spend, they think of it as a cost. Now, for people who make a living driving new customers, I don't look at it as a cost. I look at it as a driver of profit. So for my clients, I sit down and I go mostly on Facebook, TikTok, YouTube, Google, whatever. I'm like, all right, how much money do you want to make? This is going to drive how much ads we're going to spend. So instead of, oh, if I do a hundred thousand dollars of revenue, I guess that maybe leaves $2,000 for ads. It's no, I want to make a hundred thousand dollars in revenue. This is what I'm going to spend in ads to get there. So first of all, it's like a mindset shift of ads are the driver. Not like they fit in wherever you want it to go. That's number one. The second portion behind that is a lot of people are usually afraid to spend money on ads because they don't understand that relationship. And so when you think about a return on ad spend, people are anywhere from 1 1/2 to 5, 6, 7x. I think most of my clients are around, like, 2.8 to 3.2. Now. Return on spend. That means basically, I put in a dollar into Facebook and $3.2 comes out of it. Now, you can determine how much you can spend on ads based upon how much your products cost you. So if I sell a thing for a hundred bucks and the cost of the goods sold or the item, the widget is $20, well, to me, that means I have up to $80 to spend on facebook. You need to sell enough units to cover your fixed costs. Right. Rent, electricity, salaries, you know, whatever else. And so you think, all right, maybe I need to sell a thousand units at, you know, 100 bucks a piece. I know a certain amount of those is cost of goods sold. I would assume everything else goes to marketing. And so if I'm getting a customer for a hundred dollars, 20 of it goes to pay for the widget. That means I want to be spending $80 or less per customer. And if you look like that's. That's like a 1.2 row as, like, that's not anything great. My goal is to spend as much money on getting new customers as I possibly can. Once you do that, things open up very powerfully for you. So I've seen clients go from 100 grand a month to 3 million a month in, like, a year and a half.

Wow.

Granted, they have a box called facebook, and they know that they put in a dollar and three and a half dollars comes out. They get a shovel, and they're shoveling in cash, and then they get a dump truck, and then they get a conveyor belt. You know what I mean? Like, they're pushing money into that furnace as fast as they can. So for them, it's, are we profitable on these ads? If yes. So that's determining the. The raws that they need. My first thought is, how can I spend more? And my next thought is, is how can I make those customers more valuable? So if I don't make any money on the first customer, okay, do I sell consumable? Are they coming back next month?

Right.

Oh, that's free money for. Until. Until I, you know, upset the customer enough that they don't come back.

Exactly.

And so the larger retailers, the larger e commerce companies think of it like that. Instead of, oh, if I want to grow, maybe I spend a thousand dollars a month on Facebook or maybe this, it's, how do I spend more money to grow? Do I need to change my offers? Do I need to change my pricing? Do I need to change, like, what I sell to them after they buy the thing? Right. Like they buy the kayak. Well, here's some carbon fiber bottles that are really better. You want these? And so that's what I think of when it comes to ads is a, if you're getting a roas above three, like, you should be printing money. You should spend a lot more. If you're not your union, economics are wrong. Please fix that. That's number one. Two is eventually you'll reach a point with your ad spend where it doesn't make sense anymore. Like, your roas will go down as your ad spend goes up. That's when you increase your average order value or increase your lifetime value. And then you can, you can go up again in that spectrum once you figure out that it's kind of like a video game. Like, it's not super hard.

Yeah, it's true. It's knowing those things and then testing and trying and paying attention. And I think that the retailers who, you know, hit the boost button, that's kind of a common thing because they're not really going in. I know they're not really going in and setting up these ads. Multiple ads, multiple audiences, testing creative, like testing the different offers, doing those things. It's just boosting because it's easy. And they don't know ads manager. They don't want to be in business suite. But we're just. Yeah, that's. You're paying to get extra eyeballs on that piece of content, but there's really no strategy behind that. There's so much more that you can be doing. And ultimately it's going to help, you know, visibility of that one post, but it's just not going to build the business like you're wanting to build the business. You got to pay attention to the return and you shared this story with me. I don't know if you can share it on our show and if not, then we can just cut this. But about soaps and, like, how you just how you handled. I know it's funny, it's funny soaps.

But, like, am I telling you what the soaps do?

Yeah. I mean, you don't have to. We could just say so.

For those of us laughing, I once had a client who focused on soaps that brighten your nether regions and armpit regions. Women who happen to have darker pigmented skin. Yep. So bot whole Soap. So this business was owned by a. He was 20 because he wasn't allowed to drink at the time. And he started out and he was doing not, not a lot, maybe like two, $3,000 a day, like nothing. That sounds a lot, but hold on. Decent. But he wasn't profitable on his Facebook ads. He was ramming his head into the wall trying creatives. Like he said earlier, hit the boost button. Doesn't work. Like, you know, you can test hundreds of creatives in a week once you get up to scale. And I'm sure you guys test a lot, so you know that I'm pre acquire. But he was like, oh, what if I change what I sell slightly? And so at first he tried one bar of butthole soap. Now I was losing like $3 per transaction. What if I try $2 and I raise the price 10 bucks? Oh, now he's losing like a $50 per transaction. He's like, what if I raise the price $5 and add on like a 10 cent scrubby glove? Huh? Well, now he's making one or two dollars a transaction. He's like, all right, what if I do buy one soap, get one free, plus free scrubby glove for the exact same price. Now he's making 15 a transaction. So he went from $3,000 a month to $60,000 a day in a span of a month and a half.

$60,000 a day.

A day. A day.

Wow.

And that was he spending 20, $30,000 a day on Facebook. That was before he was 21.

Yeah. That's nuts. Okay. And I just feel like if you can make $60,000 a day on Butthole Soap, like, what the hell am I.

Doing with my life?

There's opportunities out there, like, but they. But what? I was amazed. I was amazed with this story in many ways. But one of my big takeaways was, you gotta test the offer, you gotta test the price, you gotta test the offer. You're testing the creative, what it says. It's not just, I boost something and now I make money or I set up ads and now all of a sudden I make money. There's often this testing period and really understanding what's resonating and working. And if you're an established business, you might know some of that already. So now you're putting that in to advertising and you're faster at seeing those results. But it just does take some of those that time. But it's worth it. Because when we're going from $2,000 to $60,000 by tweaking the offer. I mean, it's crazy.

And that's. That's probably the most egregious story that I have of this. But tweaking what you sell in ways that are almost imperceivable to you of difference can have a massive difference to other people. And the thing is, is I have a decent sense for marketing. I've just seen a lot of e commerce things, so I've seen a lot works. What kind of doesn't work? Because I don't have the data points of just me. I have all my clients and all the people I've spoken to. And even then, I'll be like, you should try this, and I'll give someone example. So I recommend test four different offers, and I'll give an example of two, and I'll let the client come up with the other two. Half the time, my two are the wrong two, right? So whatever you think's gonna happen, it's probably wrong. So test that one crazy thing, because it might be right, but it might be change your life, right? And so work on changing up the offer. That's way better than coming up with a better headline or coming up with a better creative or, like, a prettier guy or girl to, like, do your ad. Just change up what you sell. And it's, you know, kayak plus free paddles, plus free carbon paddles, you know, plus free cooler. With kayak, maybe the cooler is 50 bucks, and you raise the price. The kayak, $100, right? Oh, shoot. It comes with a free, you know, yeti. I love that I'm buying the kayak.

Yep, exactly. There's so much psychology around this, and we did a webinar around price psychology. We'll link to this because we have it available just forever through our partners at Management One. And you just. You got to test different things. You got to get in the heads. You got to understand. But that's where we're talking about this, because this can make you more money. It can make the ads more successful, and. And of course, that's what we want for our retailers. I shared this with you, and I just want to share this on the show. We can't guarantee this, but for some of our clients, we're seeing as high as 48 return on ad spend. Like, if.

If I had an opportunity to get that, I would take out a second mortgage tomorrow and hand you $100,000 tomorrow.

Put the money in.

Here you go.

Yep. Feed the monster. I mean, and again, like, that's not our average, but I just want to share that with our listeners. Because again, the who, not how. We're doing a lot of the testing. We're reporting back these metrics and to see our retailers grow. Like our most successful retailers, they use ads. And I know that you're passionate about ads. That's what you're saying is how can we leverage this to make us more money? It's. It's not an expense. It's helping us grow. I mean, it's obviously an expense, but it's helping us grow the business and profit.

Absolutely.

So good. Thank you for sharing that story.

If you have to head out the word butthole free feel too.

Yep. No, we'll keep it in. You know, I think it adds a nice effect to the episode.

Look at this nerdy guy talking about butts on the Internet.

Why? Yeah, this podcast took took a turn here. Oh, my goodness. On that note, Charles, are you ready for the resilience round?

All right, fire away.

All right. Best business book.

Never split the difference.

Ooh, I have not read that one yet, but I've heard really good things about it.

Yeah, I've read it three times. Do it. Absolutely.

Okay. Awesome. Best retail technology, like an app or software.

I'm going to cheat here. QuickBooks.

Yep, that's a good one. How do you keep up with the ever changing retail landscape?

So I like to figure out what's working today and not yesterday. So I talk to everyone, and every time I get off a call, I go, what's working for you now and what's not working for you? And that way I can have data points from everyone who's actually doing it. So that's. That's my biggest kind of tip, is ask everyone what's working.

Good one. Love it. To help retailers be stronger, more rooted in success, what's a foundational best practice when it comes to budgeting?

First of all, if you can't measure it, you can't management manage it. So get your books done and then get someone who's an expert to look at them. Could be someone like me. Could be not someone like me. Could be a trusted partner, someone that you know or even you yourself, because you can guide them, measure it so you can manage it.

So good. If you had to start your business all over again, what's something you do different?

I would go a lot harder, a lot bigger, a lot earlier, and I would find someone who's done it before and just attach myself to them. And I would have gotten like, mentorship and community way earlier.

I agree. What do you think the Future of independent retail looks like.

So I think independent retail and you can tell me if you disagree, but I think people don't trust companies anymore. They trust individuals. And so when I walk into a retail store, I'm looking to be guided. I don't want to find 70,000 different options of things. I want you to be like Charles. Like I walked into an RTI a while ago and I was like, I need a hiking backpack. Guy looks at me, sees how tall I am. He goes, sees my strength, sees my wellness. He's my budget goes, this is the perfect bag for you. Here's why. I'm going to get it set up, then I'll walk it over to the cash register. I spent 400 bucks not even blinking.

Yep.

And I knew it was going to be the best thing possible for me and I could just turn off my brain. So I think custom curated showcase instead of Costco, I can buy everything out there possible.

I am so that person too. I think majority of people are. They want help make it easy on me. We are making so many decisions every single day now more than ever I feel like especially because technology so much faster and information's coming in. So if you can make my life so much easier on shopping and not give me a ton of options and segment curate for me, that sounds great. I'm in love that. Oh, so I agree with you, Charles. Where can people find more about you and connect with you?

Sure. So you can always find me at Charles Lykoff on Instagram if you're interested in having us take a look at some of your books or whatever else. The name of our company is Ecom Profit Group. It says for e commerce people go book a call. We can talk. If it's a good fit, cool. If it's not, I can point you in a better direction to get to where you want to go. So Instagram and our website would be the best place.

Awesome. And we'll link to all this but the website web address is ecom profit group.com. perfect. Awesome. Charles, thank you so much for sharing your wisdom and your number nerdiness on the show today. I appreciate it.

Hey, thank you so much for having me.

Awesome everyone remember that I'm rooting for your success. Have a great week ahead. Bye. Thank you so much for being here. It means the world to me. Don't forget to join the Rise and Shine newsletter which is social media news you need to know sent via email every Monday morning. Go to crystalmediaco.com rise to join and don't miss the newest episode of Rooted in Retail, which drops every Sunday morning.