Final:

Have you ever driven around a wealthy suburb where the houses are worth millions of dollars,
but the cars parked in the driveways are Teslas and Audis, not Porsches and Maseratis?
I mean, you might even live in one of those suburbs. It's an interesting dynamic digging into where people choose to spend their money, and one that caught me off guard for a lot of years in retail. And as a result, it cost me tens if not hundreds of thousands of dollars. A quick heads up before we dive into today's episode.Next week, I am opening the doors to the Marketing That Works Bootcamp. If you're an established store owner who is tired of every campaign feeling like you're starting from scratch, this is for you. We're building a repeatable marketing system that generates predictable results without constant discounting. It's specifically designed for retail and e-commerce owners who are doing well, but know that there is another level just waiting for them. We'll be opening the doors next week. You can jump on the waitlist over at marketingthatworksbootcamp.com.

So picture this, I am standing in my stock room staring at a wall of high-end nappy bags. Beautiful designs, they are very stylish, very functional, the kind of thing I like, stylish and functional, and the kind of craftsmanship that just makes you want to reach out and touch them.

So before I bought these products in, I'd done my research. The new parents in my area had money.

I mean, most of the prams that were coming in were $1,500 to two and a half thousands of dollars. These parents bought premium everything. These bags have been featured in all of the parenting magazines.
So on paper, this, in my opinion, was a really smart buy. I'd done the research. It was on trend. I brought them in. Six months later, those same bags were walked past them to the $89 canvas tote bags, which was from a different brand. So what happened? Well, I made a really classic mistake and it's one that I see successful store owners make all the time.

I assumed that because my customers could afford premium products, they would prioritize premium in every category, just like the house and the car. But here's what just because someone drops $1,800 on a pram does not always mean that they want to spend $450 on a bag to hang off it. Those weren't their values in that particular purchase category. My customers wanted durability and practicality in their nappy bags. They were saving their premium purchases for the things that they would use for years, the pram,
the cot, the car seat. The bag was functional. It was trending. There was a good chance they were going to buy another one next year. I mean, let's be honest, if you've had kids and you've had a nappy bag,
you know they're going to get destroyed along the way. So I was right about my customers having money.
I was wrong about where they wanted to spend it. So that mistake cost me $8,000 in dead inventory at around eight months of cash flow. But more importantly, it taught me a really valuable lesson that I won't ever forget. Product strategy isn't about what you think will sell well. It's about understanding the invisible rules that your customers have, not your competitors' customers, but your customers have and where they'll invest versus where they'll economize. Just like the $3 million house and the $60,000 Tesla.
And this has been particularly relevant. I'm sure that you've seen this in your business over the last 12 months because we've seen consumers picking and choosing where they want to spend their dollars.
Thankfully, this would be a really timely episode to run as you're reordering and filling your shelves.
Welcome to the Bringing Business to Retail podcast, where we talk all about the strategies and solutions and the mindset shifts that make you more money. After auditing over a thousand retail or e-commerce businesses, something that I see time after time after time in successful businesses is owners who are doing well with good revenue and loyal customers. But when we dig into that they have the feeling that they could be doing better.

Like, they're working harder than the results justify. There should be more profit left at the end of the month given how busy they are. They're not broke. Their bank account just doesn't seem to match the effort that they're putting in or the potential that everybody says the business has. And here is what is frustrating. I know that you know your products. I know that you understand the market, that you've built relationships with your customers. But somewhere in your product strategy, there are what I call profit leaks. Now these generally aren't catastrophic mistakes. They're subtle misalignments that compound over time. So today we're unpacking three of the most common ones because profit leaks aren't always obvious. They whisper. They whisper through the inventory that moves slower than it should, through margins that look good on paper but don't account for full cost, through cash that is tied up in product that your customers like but don't actually love enough to buy at the frequency that you need. So let's dive in.
Now, the first place that you might be leaving money on the table is before you even make a sale.
Here's how it plays out. You put an indent order in because the product range sells well. It brings in a lot of customers. So you can't afford not to have it. And for this supplier, indent orders are the only way that you can secure the products. So you pay up front $10,000, $15,000, $25,000, sometimes more because there's a minimum order quantity and there's a deposit required. Some even require you to pay in full, but you don't push back on the payment terms because you want to maintain the relationship. You can't afford not to carry this range or you'll lose customers and sales. Then you calculate your margins based on the wholesale price. Maybe it's a 50% markup, which looks great on paper, but you don't fully account for the landed cost. The freight, the duties, the customs fees, the packaging costs, all of those things add up. And then three months later, when that stock finally arrives, you're excited, you run the promotion, but here's what just happened. You've had tens of thousands of dollars sitting in someone else's warehouse, earning you nothing while your cash flow gets tighter. And when we finally do the real math, including every single cost between placing that order and getting the product on your shelf, your margin maybe isn't 50%. Maybe it's 47 or 42% or even less. Maybe that is not going to sink you, but it is. costing you opportunity.
That $25,000 could have been working harder for you. It could have been invested into faster moving stock. It could have been earning you additional revenue while it sat waiting. It could have been invested in marketing that brings new customers in who buy at higher margins. What successful retailers do differently is they negotiate. Always, even with suppliers that they've worked with for years.

We've been stocking this range for years. Can we do 30% now and 70% on delivery rather than 50-50?
That's an angle that you could be taking. Every 7 or even 14 days makes a difference to your cash flow.
Even splitting up the payments helps. Then they make sure that they calculate the true landed cost before they commit. Every single variable, the wholesale price, the freight, even if it's included, it is built into that product price somewhere. Duties. Customs, packaging, labels, payment processing fees, storage if it's not going straight onto the shelf. And then once they have that number, they decide if the margin still works.
And here's the big one. They only commit to the minimum order quantities that they know that they are confident that they can turn over in 45 to 60 days because your money should be moving, not sitting. You know, So let me tell you about a beautiful homeware store that we worked with. The owner has impeccable taste, like absolutely her Instagram looks like a magazine shoe. When we ordered this business she had $16,000 worth of artisan ceramics sitting in her stock room. They were all handmade by a local artist. These were the kind of pieces that interior designers go absolutely crazy for.
They'd been sitting there for seven months. When we talked about moving them on, she got really emotional, but they're so beautiful. I don't want to cheapen my brand. The artist is amazing. I don't want to cheapen their brand. And then I asked her, well, how much revenue have you generated from your top one performing product in the last seven months? She looked it up. $47,000. Right. So what could you do if you had… that $16,000 freed up to buy more of just that one product. And then the moment hits. So we ran the numbers. If she cleared the ceramics even with a modest discount to move them fast, if she took that money and reinvested in her best performing categories, she could conservatively generate around $35,000 in additional revenue in just the next couple of months. That's the opportunity cost of holding on to slow inventory. But here's where it gets interesting for an established store. It's not usually a bad buying decision. Your taste is probably excellent. Your product knowledge is probably solid. It's the emotional attachment that overrides the business math. Every product sitting on your shelf for longer than 60 days is costing you rent, it's costing you the opportunity cost of money that could be used elsewhere, the mental bandwidth, the staff time, diminishing perceived value by your customers. But what top performing retailers do is they track their stock religiously and then they use sales as a marketing strategy. as just part of their overall business as usual. They don't see it as a failure. You know what that slow moving stock does? Getting rid of it frees up capital to invest in what's working, but it creates a psychological space for new opportunities. This is one of these things that I never thought that I would discover. It's one of those things that I just never correlated, but the amount of business owners who tell me once they get rid of the old stock, it is like a giant weight lifted. It's pretty much every person that I have ever worked with.
Okay, so let's recap. When it comes to how your product strategy can drain your profit, we've covered negotiating with suppliers on their trade terms and the opportunity cost that comes with product selection that doesn't quite hit the mark for your customers. The third sneaky way that your product strategy can drain your profit is often where established businesses have the biggest blind spot, fulfillment and delivery costs. probably offer free shipping because everybody else does. So you've looked at your competitors and said, you know what? I have to do this to compete. And if I'm guessing, you probably include beautiful packaging because presentation matters to you. You add tissue paper, branded stickers, thank you cards, maybe even a small gift. All of this enhances the customer experience. And I'm not one to say don't do it.
But what I will always ask you is, per order. When I worked with a sports nutrition business, I asked them to do exactly that, to calculate what it costs for the team to pick and pack an order. When we did the math,
I think it was around about $4.85 per order on packaging and fulfillment. Now that was before shipping costs were even factored in. The average order value was $58. So over 8% of revenue payment processing or cost of goods. So when we audited that process, what we found was there was two lots of custom tissue paper, branded box, branded stickers, two branded stickers, there were thank you cards and then there were small samples of other products that she had paid for, not promotional products that had been sent by suppliers. Was it lovely? Of course. Her customers often mentioned in their reviews the beautiful unboxing experience but was it sustainable? Not Making some small tweaks, her profit margin actually increased 30% in one month. That is more cash in her pocket, not extra expenses. So know your numbers, my friend. Know your numbers. Alrighty, let's bring this all together. If your product strategy is leaking profit, it usually shows up in one of three places or maybe more, more than one of the three places before the stock arrives. Now that could be in the payment terms that tie up cash longer than necessary. or margin calculations that miss the full picture while it's sitting on your shelf. That's that slow moving inventory that I talk about all the time that could be converted into working capital and as it leaves your business, the fulfillment costs that erode your margins without proportional customer value. This my friends is the money pillar, understanding how money comes into your business, how it moves around your business and how it leaves your business. Now generally… Not one of those things will sink a successful business. But when you compound them, when you stack them on top of each other, that the difference between a business that's doing well and a business that's doing exceptionally well, between working hard and being properly rewarded for that work, between having cashflow stress and cashflow confidence. Now next week on the podcast, I'm going to be talking to you about why your marketing might not be working and what to fix before you spend another dollar on your marketing. And if you want help mapping this out and turning it into a clear profitable plan, the Marketing That Works Bootcamp opens next week. You can jump on the wait list at marketingthatworksbootcamp.com. We'll be building a repeatable system that generates predictable results without the guesswork. Grab your spot over at marketingthatworksbootcamp.com and I'll see you on the next episode. That's a wrap. I'd love to hear what insight you've gotten from this episode and how you're going to put it into action. If you're a social kind of person, follow me @thesalenaKnight. make sure to leave a comment and let me know. And if this episode made you think a little bit differently or gave you some inspiration, or perhaps gave you the kick that you needed to take action, then please take a couple of minutes to leave me a review on your platform of choice. Because the more reviews the show gets, the more independent retail and e-commerce stores just like yours that we can help to scale. And when that happens, it's a win for you, a win for you and a win for your customers.