E-Commerce for Dummies Part 3 Q&A (Plus June Numbers)

I get to milk my online lecture one more time. The post in question is here.

But first, let’s celebrate June. An otherwise strong month faded this week, but it still turned out OK.

June:

Total income: +18.1%
Total COGS: +16.6%
Payroll: +50.4%
Marketing: -6.3%
Net Income (Profit): -162.8%

 

Year to Date:

Total income: +4.1%
Total COGS: +5.3%
Payroll: +8.4%
Marketing: +13.8%
Net Income (Profit): -81.2%

Spinning the month: Income is up; that’s good. COGS rose by less than income; that’s good. Payroll – WTF? Marketing is down; that’s good. And the $149 drop in net income can be explained by that wacky payroll jump, which just means more money in my pocket now and less at the end of the year. Predictably, bird kites and lighted caps made the month.

Spinning the year: In January I threatened to give myself a raise if I made plan (+7.5%) as of June 30. Fortunately for my balance sheet, I didn’t. COGS is up more that income, which is bad; payroll is up more than income, which is good for me but bad for Curio City; marketing is way over budget, but I’m gradually whittling down my disastrous Facebook experiment. Net income is down thanks to all of the above items…but the $621 that it represents is recoverable.

Worries: Several of June’s larger sales compelled me to special order new merchandise or replace inventory ($600 for a six-month supply of mini briefcases especially stings). After breaking down and buying some long-delayed new products as well, I spent $800 more on product than I could afford. Payroll taxes are due again in July…during which Curio City is “closed” for a week. It is so easy to throw cash flow into crisis.

Now here’s that last Q&A session.

Q: You describe about the positives and negatives of starting your own business. I read in "The World is Flat" that our world is in Globalization 3.0, which is the ventures of being your own boss, and starting your own company. The fact is though, I understand the positive of being your own boss, but the negative of that nothing gets done unless you do it, but based on business, in your opinion what are your top 5 things that one must research and learn and becoming familiar with in knowledge and execution before or while starting their beginner stages of an online business?

A: Before you even get into the nuts and bolts of starting a company, answer some fundamental questions.

1. What is your objective? Are you trying to earn a modest living while working from your home during your own hours, or are you trying to build a big company and get rich? How much time and money are you willing and able to invest in that goal? Is a home business a stepping stone to a large business, an end in itself, or something you should avoid entirely?

2. What are you good at? What do you enjoy doing? Conversely, what are you bad at and what do you hate doing? What type of venture plays to your strengths and interests? Can you outsource or avoid your weaknesses, or achieve competence in them? Are you selling goods or service? What kind?

3. How much will it cost to do what you defined above? Include everything that you can think of, from software to packing supplies, and, when you have to guess, overestimate costs rather than underestimating them. Can you finance this yourself, or will you take out a loan? Is that going to be a bank loan or are you going to solicit investors? This is where you begin writing a business plan. You might need to join a trade association to get reliable numbers for your industry, or you might get lucky and find enough free information online. If you’re going to need outside money, you’ll need a formal business plan. Even if you’re going to self-finance, an informal business plan will eliminate surprises.

4. How much revenue does your business need to generate to cover these costs? How much can you reasonably expect? This is the other half of a business plan.

5. Is implementing your plan physically feasible? Do you have the space to set up a home office and store products? Do you have adequate transportation to haul boxes and supplies? Do you have a convenient shipping/receiving facility (like the UPS Store that I use)?

When you’ve addressed all the above, implementing them is just a matter of following a script.

Q: A lot of what you describe in your blog sounds great - being your own boss, not having to dress up, being responsible for your own time, etc. But you also write about the near constant work and lack of time off. How do you cope with that part? How do you draw the line and know when to quit for the night? I think that, if I owned my own business, I would work like a maniac, because if I don't work, I may go under. I'm truly not sure I'd be able to handle this kind of stress. I'm already the type who has a pretty high baseline stress level.

Also, what insights has running your own business led you to, with regard to business management and the economy? I'm just curious about things you learned that you didn't expect to learn, mistakes you made, and what you would do differently (or what you did right and wouldn't change!).

A: I hope I didn’t give you the impression that I’m a workaholic. My customers determine my workload. From Halloween through MLK Day I work 40+ hours a week. During the two weeks after Thanksgiving I’ll exceed 60 hours. During the summer doldrums, though, I might work as little as two hours a day. There’s just not much to do when you don’t have any orders to pack or money to spend. You can only spend so much time fiddling with your pay-per-click campaigns and looking for new products (that you can’t afford to buy anyway).
When it’s slow, it’s slow. Flogging yourself will not change that very much. I felt driven to work all the time when my business was new and I was flailing around, before I understood that disconnect between effort and results. Now I have more of a Zen attitude. Slow summer sales give me time for vegetable gardening.

I suspend my advertising and post “warehouse closed” notices on my News page and my front page for 10 days every July. That’s my vacation. I still check email every day during that week. I email anyone who places an order to make sure they know about the shipping delay. If a product sells out, I remove it from display. That might take as little as 15 minutes a day…but I do at least check in 365 days a year, and I can’t imagine that ever changing.

Insights? Sorry, but that bears more thought than I can give it right now. It’s a good idea for a future blog post. If you should happen to become a reader, you’ll probably see that topic come up in the next few weeks.

 
Q: As you stated in your lecture, you have a strong aversion towards marketing. I found this interesting because as your own boss/employee it is up to you and you alone to market your business. With such a high level of competition in the online market with more and more people starting their own online businesses, do you believe marketing is going to become an increasingly more imperative part of your business strategy? If so how do you plan to "get over the hump" so to speak between finding a balance between your own ability to market your business and having to outsource marketing efforts to others?

A: I wish I knew the answer to that. Last year I invested some money in two Facebook ad campaigns with poor results. In case my amateurism was at fault, I paid a marketing company to manage a FB campaign this spring with disastrous results ($350 spent did not yield one single sale). I spent $750 on these efforts that proved beyond any doubt that FB advertising is a complete waste of money…which I already suspected before conducting the experiments. 

I haven’t figured out how to monetize my free FB page. Being an asocial person by nature probably doesn’t help; I only post when I actually have substantial information – new product announcements, coupon codes, etc. It seems to be a complete waste of time, but at least it doesn’t take very much time.

Twitter baffles me completely.

Two areas that I might be able to affect are Random Acts of Media and B2B sales. I had another Random Act of Media just last night: After selling exactly one Doomed Crystal Skull shotglass (no link because it’s sold out) last Christmas, I sold the remaining 11 pieces within an hour. Somebody somewhere must have blogged about it. The demand will be history by the time I can restock that item. Random Acts of Media strike without warning and blow over very quickly. Trying to get products reviewed and linked in blogs and gift guides is something I’ve tried, haltingly and unsuccessfully, but haven’t given up on.

I get several B2B sales each year, too. It’s not unheard-of for someone to drop $1,000 on Panther Vision caps or $800 on bird kites or $600 on golf balls for a tournament. Being approached by a company or a tournament organizer is another random event that I might be able to encourage. The drawback is that large customers expect discounts. Given my cost structure, I would be in trouble if a major share of my business was discounted by 20%. But it’s something else that I can explore.

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Speaking of marketing…I have a new reason to hate Google! I’ve been uploading a monthly product feed to Google Base for years. A year or so ago they renamed it Google Product Search and required UPC codes for all of my products. Entering those was tedious and pointless work, and at least a third of my products don’t use UPCs at all. Last December Google threatened to suspend me over this. I appealed and won. Since then, I’ve been slowly adding UPCs wherever I can.

Well, now Google Product Search is going to become Google Shopping. Google wants me to create ads, managed through my AdWords account, for all the products in my feed. Worst of all: “bid is one factor in how products will be ranked on Google Shopping.” Yup, it’s going to be another pay-per-click medium, with the transition beginning in July. I’ve been avoiding looking into details. So far I only know that it will be complicated, expensive, and lucrative…for Google.

Google Base/Product Search only ever brought a few clicks a day, and I don’t know if any of those ever converted to sales. I probably wouldn’t notice a difference if I just dropped it completely. Should I consider this a new advertising opportunity or an expensive new chore? Google’s bribing people with a $100 Adwords credit and a 10% discount on clicks through the end of the year. I’ll probably try advertising a few products (ones that have UPCs!)…but I won’t be happy about it.

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Speaking even more of marketing…based on this Internet Retailer article, I logged onto Pinterest to see if anybody had ever pinned any of my products to their boards – and discovered, much to my surprise, 23 pins and re-pins! I had no idea. Now I need to figure out if I can capitalize on this. Pinterest users seem to be my demographic (older women, mainly) and the focus is on products and shopping. I got my invitation to join Pinterest yesterday.

Hello Crisis, My Old Friend

I expected March to finish behind LY, so the goal was just to keep the YTD numbers in the black. How’d I do?

March
 
Total income: -25.8%
Total COGS: -31.1%
Payroll: +37.1%
Marketing: +22.5%
Net Income (Profit): -262.7%

Year to Date: 

Total income: -1.0%
Total COGS: +7.6%
Payroll: +24.1%
Marketing: +30.0%
Net Income (Profit): -327.7%

I did not expect March to finish that far behind LY. This week was the worst of the year so far. I don’t know why. Maybe it’s something to do with Easter, that wild card of a holiday. Or maybe Google is punishing me because my site was offline for half of Monday.

There's nothing good hidden in those numbers. YTD sales are really down by more than Quickbooks knows, because QB thinks that an invoice that I prepared for a customer price quote was a sale. QB thinks gross sales are only down by $144, but Excel knows that it’s really more like $900…at least until that customer closes on his estimated sale. The numbers will line up again if he eventually comes through.

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The SEO dude that I talked to last week knows his stuff. An hour-long follow-up phone call convinced me that they can increase my monthly traffic by at least 6,000 visitors, and possibly as many as 12,000, just by optimizing my site (using non-sleazy methods) for my four best keywords. I figure that would increase sales by a minimum of $1,200 per month using the most conservative assumptions and as much as $4,800 under the rosy scenario. Unfortunately, their cheapest plan runs $495 per month, and it takes 90-120 days for SEO to deliver the calculated improvements. I could spend $2,000 before traffic picks up sufficiently to cover the new line item…and, of course, there is no guarantee that it really will. This month’s sales figures make it obvious why that can’t happen. With payroll taxes due in a couple of weeks, my old familiar cash flow crisis is back again. The 10 vendors currently on my new-product wishlist will have to stay wishlisted indefinitely.

So I put the guy off until July. Who knows? A miracle could happen between now and then. Last week’s post called down a plague of SEO spammers, as I expected, so I shall not write  those letters again. At least I learned a few tricks that I can implement myself that should improve things incrementally.

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Citizens Bank announced that they were going to screw me over by changing my seven-year-old Business Partners checking account to a Business Advisor account. Um…what? Old terms: $12 monthly fee, $10,000 average daily balance to avoid it – and, thanks to a 2005 business recruiting drive, mine was supposed to be free for life. New terms: $25 monthly fee, $35,000 average daily balance, and no more promotional waiver. Gah!

A quick phone call unveiled their Business Green account: $10/mo fee, $2,000 minimum balance, and a mere five transactions per month to waive it. Whew. Why didn’t they tell me about that in my notice letter? Undoubtedly because some fraction of their customers will suck it up and pay the new fees.

The Gambler

My Facebook advertising experiment needed to generate $2,500 to be an unqualified success; $1,500 would have justified continuing and refining the ads. I was sure that it would at least recoup its $350 up-front cost – that’s only 10 sales, after all. Actual sales that I can pin to FB ads: $0. This year’s FB referrals fell by 34% over the same period LY, from 56 to 37. My “weekly total people reached” moving average rose from 47 to 42,158. The only result I’m seeing from that 10,000-fold increase is a spike in marketing pitches. I did pick up seven new “Likes,” which might be worth slightly more than zero. Very slightly.

The ad agency had strongly recommended linking the ads to my FB page rather than to my store, as most FB users don’t like to leave FB. You’re apparently supposed to send them to a landing page with a “click for special offer” gimmick that gives people a discount code and refers them to your website. That might have worked a little better…but spending extra to generate discounted sales is a losing strategy.

So that unambiguous failure makes the cancellation decision easy. I spent $700 on three tests over two years to prove to myself that FB advertising is 100% worthless for selling products.

OK, I gambled and lost. What now? It just so happens that I’m weighing another gamble. That will be next week’s post.

I Am the Decider

I suck at making decisions. When I’m facing a choice or a problem, thoughts swirl around my brain until they come to rest in well-worn slots and I wind up right back where I started – nothing solved, no decision made. If I shake my brain like a snow globe the same thoughts take the same paths to the same slots. Sometimes I can work that out right here in my blog. But my innate aversion to risk usually paralyzes me. This is not a good trait for an entrepreneur to have.

 

Example One: A caller quizzed me about international sales – a sour topic, as I generally don’t like them. They’re a trivial fraction of my business with disproportionate hassles. Would I like to increase them while reducing the headache? His employer would take over my international shipping at no cost to me. All I had to do was implement a few lines of code, and foreign customers would be directed to his company. I would merely ship domestically to their warehouse and they would do the rest. I asked him to send me some materials to review.

After a few days he called back. I hadn’t received his email (he had the address wrong). He resent it. I started researching it, got bored, and set it aside in the hope that it might just go away. It didn’t. He called again; I put him off again. Although his company has plugin modules for several PHP shopping carts, they don’t have one for Sunshop; I’d have to do a custom implementation. He assured me that the process was simple and that their support people would hold my hand. I’m skeptical. Nothing technical ever goes smoothly and I’d very likely end up paying my developer to get me out of trouble. It would complicate future version upgrades. Customers using a ship-to address in a different country than their credit card issuer and their IP address would definitely set off my credit card fraud filter. Google didn’t have any feedback from other merchants, but I did find some customers with various complaints about their service and prices. It seems like something with low risk and a small potential payoff, but a high initial hassle factor.

My gut says that it’s more hassle than it’s worth, and that the potential benefits wouldn’t outweigh the probable drawbacks. A Cayman Islands resort placed last week’s big Create-a-Bird kite order. Would I have still made that sale if we’d had to go through this consolidator?

But caution and inertia might be behind all these rationalizations. Over the years I’ve toyed with ending international sales entirely. Wouldn’t it be better if I could farm them out instead, and possibly even increase them in the process?

See those thoughts landing in well-worn grooves? I think the salesman might have finally given up and gone away while I decided not to decide.

Example Two: A personable young lady rang me up last week to pitch her advertising agency. Ordinarily I get people like her off the phone as soon as I can politely do so…and I’ve been known to skip the politeness part when I’m in a bad mood, which is most of the time. But she happened to reach me while I was despairing over this year’s sales funk, and she persuaded me that Facebook advertising might just break down my limits. I spent several hundred dollars last year trying to tap into Facebook’s bajillion users for Valentines Day and again for Mothers Day. I wrote off Facebook advertising as overpriced and ineffective when those experiments failed. 

But what if I just wasn’t doing it right? What if somebody a lot savvier than me could turn a comparable investment into a big sales increase? This company charges about what I wasted on LY’s experiments. They will succeed or they will not – the results are easily measurable. At worst, I’d waste a few hundred more bucks that I can’t afford and ruin my chances of reining in advertising costs this year. But at least nobody dies. At best, adding a major new advertising campaign might pump my sales up enough to get some momentum going again. I could even pause my Google campaigns for a couple of weeks to cover the cost. Next week was one of the slowest of last year, so I wouldn't even forfeit very much business.

What to do? What to do? As usual, my brain tormented me for days. When my wife joined me on my morning walk one day, she let me blabber on about both of these issues at great length. She asked some good questions as the miles slipped by. I got them answered, and I made a decision: I signed up for Facebook advertising. They have my Amex number. The meter starts running when the campaign goes live next week.