Salena, thank you. Where are you joining us from?

Right now from sunny Newport Beach in California. As you might be able to tell, I am not a native Californian. I'm from Australia. You don't say. I'm here enjoying a little bit of winter sun. Yeah, no, I can't fault you for that, California. Very pleasant.

So you've also, you're a podcast host and like me, you've done 500 plus episodes. Congratulations. Yeah, congratulations to you too. It's... It's interesting, isn't it? Because I think when you've been in the industry so long, and for me, it's been since 2007, it's amazing what stays the same, but also what changes. And so it was interesting when you're saying, you know, people have this one blind spot. It's like, I've seen this for years. It hasn't changed. It's one of those fundamental things that regardless of what's happening in the economy, what's happening with all those external circumstances. There are fundamental things within your business that never change. And I love, like, I think I love the control that you have over those things. You can't control the external circumstances. You can't control tariffs. You can't control the weather, but you can control what's happening within your business. And I think for the most part, I would say most business owners and entrepreneurs were actually secret control freaks. So how nice is it to have something that you can actually control?

No, absolutely. Yeah. Worrying about, you know, I'm just an anxious person by nature, but you're worrying about, you know, all these external factors that you can't control, especially as a business owner, you very quickly would make yourself completely crazy. So, yeah. All right. First tip there from you, focus on the things you can control. Okay. I like that.

And, you know, we're really, it seems like the issue very clearly that people are running into is understanding, monitoring, viewing cashflow and understanding it. From an economics background, health of a country is determined by how much and how easily money flows back and forth through a system. Not what anyone's doing with it. Just, hey, how easily does this flow? How much flows? Great. That is how we're going to measure health here. Tell me, how should we be viewing our business? What are people getting wrong here? What should they be doing to get it right?

I don't think that people get it wrong. And I'm going to put my hand up and so I... did university when I was older. I did a business degree. I failed accounting not once, but twice, which makes me... Oh, it's so boring. You're probably thinking, well, what the hell? My whole brand mission, my brand vision is we create strategies that make money for retail and e-commerce stores. We are not actually financial advisors. Everybody on my team just loves helping people make money. And that does not necessarily have to be through more marketing and we all have different expertise, but the reality is we have to be in control of our money. So your question about where do people go wrong? I don't think they go wrong. I think there are a few things that sit in the background.

One is you could be like me and when you did commerce or accounting or whatever at school, you failed. And I distinctly remember when I opened my first store, I knew nothing. I had a business degree. I knew nothing. Like the business degree does not teach you about running your own business. It teaches you about working in an enterprise level company. And I had my Excel spreadsheet and I was putting in all the, you know, the income and the expenses. And I still, I actually just get chills saying this still to this day, I remember sitting on the stool at the counter, the shop was quiet. And I remember thinking, oh my God, this accounting thing, it's just money. It's like, how much money do I have in my account? How much money do I have to spend? How much money do I owe? How much money is in the tip? Why didn't someone just say to me, it's just money? And at that point, I probably would have understood it, but the double journal account, still to this day, I don't understand it. What I understand is money. I understand money needs to go to pay for this. Money needs to come in from here. This money is accruing interest. This money is costing us. This is costing us money. And so if I think about it in terms of money, I'm totally okay.

As your business grows, keeping a handle on income and expenses in an Excel spreadsheet is really easy when you're doing $20,000 a month. It's not so easy when you're doing $200,000 a month because not only is the scale bigger, but the economics, the unit economics change. And so where you maybe used to get one box from a supplier with multiple different products, you now might be getting containers worth of stuff. And so working out things like, you know, shipping, like I call it freight in and then shipping out, like shipping to the customer, shipping, bringing it to you as freight. I just like to have two different words.

Where do people get it wrong? Not having financial people like bookkeepers and accountants who understand retail. And so, for example, that simple thing like calling, getting the product to you freight and calling it, getting it to the customer shipping. I can't tell you how many businesses I've audited where the shipping line item was crazy. Like, I don't, you've only sold this much. How have you, have you spent that much on shipping? And it's like, well, some of that is getting it to me. I'm like, no, you can't have that because how do we know what to change? We don't know if the problem is getting the freight to you and we need to organize our own freight service or we need to look at, you know, getting a different logistics company or if it's you getting it out to the customer, in which case do we need a different courier service or do we need, you know, different, what's it called again? Sorry, I'm having a mental break. End of, end of line? No, I don't know. There's a term. Like the finish line, the part that gets- Last mile. Last mile. Last mile. I was like, I know this, but I also took me a second. Yeah. So is it getting it to us or is it the last mile? And if we don't understand those things, I call them money leaks and money fountains. So they're always money leaks and money fountains in a business.

The biggest, can I just skip to this part? Because this is like my- Yes, please. This is the thing you will always hear Sal harp on about. It's inventory. If I can tell you a story, back when I first started and they didn't teach me about this in accounting, I didn't understand that inventory is actually an asset. I thought an inventory was an expense. And so I got to end of financial year and all of my suppliers were having sales. And I was like, oh my God, this is amazing. I can just buy all this stuff, all this 30% off. Like, what does that do to my margin? I'm going to make so much money here. Fast forward a few months later when I go to my accountant and he's like, why do you have so much inventory? I'm like, because everybody had it on sale. And he's like, you know, now you have to pay tax on that. I'm like, but I don't understand. How do I pay tax on an expense? It's not an expense to you. It's an asset. And so the difference that you pay between what you had at the beginning of the year and what you had at the end, that difference is now an asset in your business and you have to pay tax on it, which completely still to this day boggles my mind, but it is the way that tax office works.

So that is a huge one is just having money sitting in inventory because it is, if you come back to my analogy of everything is just money, every product sitting on your shelf is cash. So we want to fix that stuff. And you know, that's like quarterly annual review. You could do that. Assuming you have the balance sheet, right? It starts with bookkeeping. I use Bench, makes my life easy. And a lot of people use QuickBooks Online. And so, all right, if we get that right, now we have a much better picture handle on really the health of our business. So now we can make more informed, confident decisions.

Yes. Because the worst case scenario, and it would shock people how often this happens. I mean, it's not like all the time, but a business where they think they are profitable on a purchase, they think they're making money, revenue's great, cash is moving through the business. And then when you look closer at it, discover, oh, we actually lose money every time we make a sale. We're paying customers to take the stuff away from us practically.

Yeah. And you were saying, where do people get it wrong? I don't think people get it wrong. I think that there is so much to be across that sometimes it can be overwhelming. And so I love educating people, but I don't think people get it wrong. It's just that no one teaches us this stuff. And as you grow... I see people grow broke. Like I see $5 million businesses with no money because they're self-funding everything. Like they're taking every growth moment is coming from profit. And as much as people don't like to go into debt, there comes a time in business where you are going to need external money, whether that is just to ride out seasonal fluctuations, whether that is to grow, to open a new location, to expand your product range, whatever that is, very few businesses can grow off profit alone.

Are we advocating getting loans or getting... I'm not a financial advisor. I'm just saying, find ways to put the money into your business. Like if you are complaining that that is the thing, and I don't know, Kurt, is that the thing that you hear? Like, oh, I can't spend more money on ads because I don't have it. You know, I need to do more marketing, but... Costs have gone so high. Like, what do you hear people saying is the constraint in their business?

It's the formula. You know, for an online store, what's that cost of customer acquisition? You know, when I send traffic to the site. All right, what's my conversion rate? What percent of that's going to buy? What's my AOV? You know, how much of that? Ultimately, you know, at the end of the day, if I don't understand contribution margin, those are, you know, in the last several years, I've discovered that's like the magic KPI. Oh, yes. Separates the wheat from the chaff among online stores. If I understand that number, then I can have a healthier business. But until they can get, you know, until you get to that point you end up with that scenario where I'm definitely, I could acquire customers. I could build an audience. I can get that list. But for sure, I'm paying them a little bit of money to take the products.

Do we need to talk about contribution just really, really quickly? Absolutely. Okay. Just even just to reiterate its importance. Okay. It's money, right? Like, how about you talk about it? And then I will just be like, yes, it's money. It's money. It's money. It's money.

So the problem with contribution margin is like, you know, how much, which costs are we going to put in there into it? But ultimately, you need to understand is, you know, all right, I could figure out on a typical purchase, like there's going to be a number one bestseller. So let's just focus on that. We don't want to get contribution margin for everything. I just want to know when that hero product in your store sells in an online store sale, deduct the average CAC, customer acquisition cost, from that cost of goods sold, right? and then we will roughly have the profit margin that this one sale contributed to the overall bottom line. It doesn't have to be exact. You know, you make yourself crazy figuring that out. And then I want to pair that with a much broader number, media efficiency ratio, where I'm just, you know, I'm looking at, okay, what are all my expenses going into marketing? You know, and what's this rendering for straight revenue? Then I've got my efficiency.

And so one of the things that I would say, and people are listening going cost of goods sold, another money leak that I see is it kind of comes back to that shipping concept, which is the fact that people forget about the money that they're spending. And so where I mean that is if you're not using 3PL, you forget that it costs money for someone to go and pick an order. You forget, you know, for one of your staff to walk to a shelf and pick it up and put it in a box costs money. The box costs money. The tissue paper costs money. The flyer that you stick in it, the sticker that you use, the shipping all costs money. And quite often what we do is we go, this is what it costs to get it to me. And this is, you know, this is my average shipping cost. But the shipping cost is the actual postage cost, not the box, the tissue, the sticker, and the time it takes for someone to go and pick and pack it.

And so that bit there, we worked with a brand and increased their profit margin by 30% just by doing that, by auditing how much it costs for her staff to pick and pack and then moving to 3PL. So she ended up, when she did the math, it was $6 for her to pick and pack, not including the postage. Now, most 3PLs are not going to charge you $6 to pick and pack. Yeah, they have operational efficiency and economy of scale and essentially pass the savings on to you, right? Because they're doing it in this much bigger operation. And so you're all kind of sharing the benefits of those reduced expenses. And that, like when we come back to cost of goods and your contribution margin, I think that is like another big piece that people just forget. It's like, well, cost of goods cost me this and it cost me that to ship it out. But this little bit in between. And it's so much easier with 3PL, right? Like they just give you a bill and you understand it. And so you can account for it a lot easier. But when you're doing that in your own warehouse, or, you know, if you have a bricks and mortar store, you've got, you know, if you've got e-commerce, but someone in a store is packing for you because you're shipping from different destinations. If you don't understand that, your contribution margin is like whack, right? It's just a made up number.

Yeah, 100% you're right. The other thing, like flipping it on its head, you said the thing that merchants, that entrepreneurs that store owners don't get is psychology is money understanding it psychology of money we focus on like the money in their own business what about consumer psychology you know did I see a lot of people projecting you know their own subjective values on pricing onto their customers okay this is like my second love can I just say um I'm like a pop psychologist I have literally no psychology degree and being upfront. That makes two of us. No psychology degree. However, I have done so much research on behavioral psychology, both within teams, but also obviously consumer. And so this is DeSalle's version. Don't come at me with pitchforks if I'm wrong.

One of the things I see is founders and owners putting their own economic bias onto the customer. Right now, as I film this, I'm sitting in a five-star hotel and I've stayed here before. I was literally in a scenario last time I was here where I was by the pool and the trash can was, it was just across the footpath, three feet away, like one step to get to the trash can. And the guy beside me asked, like the pool person, to put his wrapper in the trash and then handed him cash.

I know we laugh about that, right? But this is how rich people think. Rich people are constantly looking at ways to collapse time and they're happy to pay for it. Because time is the one- Money is a tool to buy back my time. Money is a tool to buy anything. It gives you choices. It gives you, it can buy time. It can buy experience. It literally collapses time because if you have money, you can go to an expert and say, what do I need to do? You can ask the pool person to put your trash in the can so you can continue your conversation with your lovely wife. We don't necessarily think like that. And if you don't understand how rich people think, then this, and I'm going to say, I came from a very, very poor, like extremely poor background. So this has been a lot of work for me.

If you don't understand what people value, then you could be doing your marketing completely wrong. You could have the wrong product mix, you can have the wrong pricing. Or the wrong positioning. I've got another brand I can think of where literally a luxury product, and she did a 30% off sale and nobody bought. Literally no orders. And she's like, what the hell happened? I would have panicked. I would have assumed that something was broken. She did. And this was before we worked together. And then she came to me and she's like, I don't know what's going on. I sell this product day in, day out. She only had like five items, five SKUs. I just had a 30% off sale and I didn't sell. I was like, well, no one's buying your stuff because it's cheap. It's like $100 a bottle for this serum at $70. The only people who are going to buy are the bargain hunters. And you don't actually have any bargain hunters on your email list. So the reality is you actually just devalued your product in the eyes of your existing consumers. And so something like a gift with purchase works better for that. Like you don't go to Chanel. It's not on sale, right? Like they understand that customers don't want to devalue the experience. And so I always say that if you ever use the word affordable, when you talk about your store, you are probably the most affected by external economic climate and you're probably not making a lot of money.

Can I just quickly talk about, I've just got another great story. I'm full of stories. So just cut me off whenever you're ready. I worked with a store that sold adult products and the owner was very, very passionate about sexual education and sexual health and did a lot for the industry. But when we went through his money leak, we went through the orders and I'm like, you get an awful lot of orders on a Thursday. What happens on a Thursday? And she's like, well, I guess because we do express shipping, I guess people are buying it for the weekend. I'm like, oh, because we have overnight shipping. And I was like, so why don't we just offer Uber? Like, they can have it like on Saturday, even on Friday, it'll be there in less than two hours. She was like, would people pay for that? Like, it would be expensive. I'm like, you know what? Someone's buying $500 worth of product, pay $35 to have it in the next hour or two. Like, let's just test it. It costs nothing to test. You put the plugin into Shopify, you plug it in and the customer does the rest. The customer can choose whether they want the free overnight shipping or do they want to pay the $35 for Uber. A remarkable amount of people chose the two-hour delivery window with Uber.

But to make it even better, so one, we've made the customer happy. Like all of a sudden it's like, wow, I can get my item in time for the weekend. It's date night on Saturday. They're ordered on Thursday. They're planning ahead. I appreciate it. But that's the Amazon mentality isn't, I want it now, I want it now. So as an independent business, we have to work out, okay, we maybe can't compete against Amazon, but we can compete on this last mile bit. And so that happened, but even better cash baby, when people were getting the overnight shipping, she had built that pricing into her products. And so it was free, free overnight shipping. But when they were paying for Uber, that $10 that she was paying to get it shipped out in profit in the back pocket, because the customer was now paying the full price of shipping. Does that make sense? Yeah, the shipping price had already been baked into the product, but now you're passing through the cost of the, yeah. And you could, you know, in a Shopify store, you could plug in, in the US anyway, you could plug in DoorDash. Set this up where it's like, okay, I know I have the inventory in this zip code. Someone ordering from this zip code should have this as an option. I see this very rarely, but it just, you know, it seems like such a cool thing. It's one of the most underutilized things. It's convenience. And there are people who will pay for convenience.

And this is where it comes back to understanding what your customer values, because if you don't, if you don't understand that convenience is important to them, then you are missing out on money. And you're missing out on customers and you are missing out on giving your customers the experience that they actually want that will bring them back again and again. I'm just going to say, this is a point of difference, right? If you have, I'm sitting here in my hotel room and I need to buy a new phone case and I have a choice between someone who can Uber it to me in the next couple of hours or Amazon, or I have to go across to a store and get it. Which person's getting my business? It might be Amazon, if they have what I want. But if they don't have what I want, the person who can get it to me while I'm here is the person who gets my business. Just something so simple as plugging that into your Shopify store literally could be a point of difference for you against a sea of sameness.

You're absolutely right. You have a 12-week program, like a course or a coaching program. They all start somewhere. Using that framework for people listening who like this advice, what's the starting point? What's the thing? Leaving this episode that they should go do?

Whether it's that 12-week program or we also do strategic advisory for seven-figure businesses, the first thing that we ask you to do has nothing to do with money. It has nothing to do with your marketing. It has nothing to do with whether you've got five stores or 10 stores. And it's actually probably the thing that most people find the hardest, which is simply telling me what you want. What do you want? What do you want in life? What do you want in business? You know, when do you want to, how long do you want to have this business for? One of our latest clients, literally we made her do this exercise and she's like, can I take three holidays a year and two weeks each? And I'm like, girl, you can do whatever you want. Like we just have to build it in.

So 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 at TheSelenaKnight. And 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 your community and a win for your customers.

This episode originally aired as a guest conversation on The Unofficial Shopify Podcast with Kurt Elster.

Kurt asks sharp questions, cuts through fluff, and brings on guests who actually know what they’re talking about.

You can check out his show here: unofficialshopifypodcast.com