Customer Profitability Analysis Questions Answered
(Listen on Apple or Spotify. Full transcript below.)
INSIGHTS FROM OUR RECENT Q&A SESSION: MANAGING CASH FLOW AND CUSTOMER PROFITABILITY ANALYSIS
I’m answering BABOYOT Questions!
Once a quarter our BABOYOT members gather together for a live event. Members share updates about their businesses, what they are working on, ask for and share support with one another, and ask me anything about food business finance and the world of CPG.
In this episode of The Good Food CFO podcast we’re sharing some of the Live Q&A portion of a recent live event. Below is a glimpse into the episode and the questions that I answer.
Q: What steps can I take to complete a customer profitability analysis and make informed decisions about which customer relationships to maintain or end?
I love this question! Because every founder should be doing this analysis.
It's a common dilemma in business: sales are growing, but profits aren't following suit. Many business owners find themselves wondering if they're really making money with certain customers. The good news is that analyzing customer profitability isn't as complicated as it might seem – it just requires some dedicated time and the right approach.
Start by gathering your sales data. If you're using QuickBooks or a similar system, export a Sales by Product/Service Detail report. It shows customer purchases, including information about products sold, number of units, revenue, and any discounts or promotions by customer.
Once you have this data in a spreadsheet, create a pivot table to summarize the information. This will transform those individual transaction lines into a clear overview of total units sold and revenue generated per product for each customer. The next crucial step is adding your cost of goods sold (COGS) for each product. This allows you to calculate your actual profit margin per item and overall for the customer.
But don't stop at basic product costs. Consider all the expenses associated with servicing that customer – things like delivery charges, promotional discounts, and any special handling requirements. These costs can significantly impact your true profitability. For instance, a customer might appear to generate a 50% margin on paper, but once you factor in regular deliveries and promotional discounts, that margin could drop to 30% or lower.
This analysis often reveals surprising insights. A high-volume customer might actually be less profitable than smaller accounts due to demanding lower prices or requiring more resources to service. Once you have this clear picture, you can make informed decisions about whether to adjust pricing, modify your product mix, renegotiate terms, or in some cases, end the relationship.
While it might feel daunting to analyze customer profitability this deeply, it's an essential exercise that should be performed at least annually. The insights gained can dramatically improve your cash flow and overall business health, and can support transparent conversation and negotiations.
Q: How can I use the Cash Flow Projector to make better spending decisions to build and maintain a healthy cash runway?
Many businesses find themselves frustrated with their cash flow tools, wondering why they're still struggling to pay bills on time despite having sophisticated tracking systems in place. The answer often lies not in the tool itself, but in how it's being used.
The most common mistake is treating a cash flow tool as a bill pay tracker rather than a cash management system. Think of it this way: tracking your spending after the fact is like checking your fuel gauge after you've already driven across the desert. Instead, you want to check your fuel before the journey to make informed decisions about your route.
To use your cash flow tool effectively, consult it before making spending decisions and input potential expenses to see how they'll impact your cash in the future. For example, if you're considering a major purchase, enter it into your projection first. If you see your three-week cash runway suddenly shrink to one week, you can make an informed decision about whether to proceed, delay the purchase, or explore alternative payment methods like credit terms.
Another crucial aspect is being realistic about incoming funds. Only include confirmed income, such as purchase orders with set payment terms, in your projections. Avoid the temptation to include hoped-for funds like potential loans or expected sales that haven't materialized. While I love an optimistic outlook, cash flow management requires concrete numbers and confirmed commitments.
By shifting from reactive tracking to proactive management, your cash flow tool can become what it's meant to be: a decision-making compass rather than just a historical record of your spending.
Q: What Should I Consider Before Saying Yes to a New Sales Opportunity?
When considering new retail opportunities for your products, whether it's a local collective or an e-commerce platform like Bubble Goods, it's crucial to carefully evaluate the financial implications before making a commitment and setting your prices. Here's how to approach these decisions strategically.
Start by identifying all the costs involved. For example, if you're considering a local collective, factor in both fixed costs (like monthly rent) and variable costs (such as commission rates). If you're quoted $150 monthly for shelf space plus a 15% commission, you need to calculate exactly how many units you'll need to sell just to break even and confirm your profit margins.
For e-commerce platforms, the calculation is a bit more complex. Consider setup fees, monthly platform fees, commission rates, and shipping costs. Some platforms offer different commission structures based on your fulfillment setup – for instance, Bubble Goods charges different rates depending on whether you handle shipping yourself through Shopify or use their shipping labels.
The key is to run the numbers thoroughly before making any commitments, and using a tool like The Good Food CFO’s Perfect Pricing Calculators can make the analysis process simple, and will help you make informed decisions about which retail opportunities truly align with your business goals.
THANK YOU TO OUR BABOYOT MEMBERS
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To learn more about our BABOYOT Membership, how it supports The Good Food CFO podcast, our reach and impact, and to learn about the exclusive perks - like live Q&As, Member events, bonus content, Beta Testing new tools, and more… click here.
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Episode Timeline
00:00 Introduction and Book Club Announcement
09:21 Exploring 'Barrens' and Its Impact on Food Industry
15:25 Live Q&A with BABOYOT Members: Customer Profitability Analysis
37:09 Member Questions and Financial Insights
Full Episode Transcript
You are listening to the Good Food CFO podcast. I'm your host, Sarah Delevan, joined as always by our producer, Chelsea Stier. Chelsea, what do you have lined up for us today? Today, Sarah, we're airing parts of our Q &A that we did live with BABOYOT members recently. We're also going to have a book club announcement. So excited. But before we get into any of that, I wanted to just shout out
those that are following us on Apple, subscribe to our YouTube channel. We thank you so much for your kind of vote for the podcast, right? Through your follows. And just a reminder out there for anyone who hasn't done so yet, make sure you're following, make sure you're subscribed. And remember that the number one free way that you can support this podcast is by leaving a review on Apple, YouTube, wherever you can. Yep. All right.
Drum roll, please. You have a book club announcement. I do. I have been kind of sitting on this announcement for months because if you think back to our previous book club announcement we did 4,000 weeks and I was torn between that book and the book that is now our current book club selection. I'm going to share it here on the screen for those watching on YouTube. It is called Barrens.
Money, Power, and the Corruption of America's Food Industry by Austin Frerich. This came into my world via the Marion Nestle newsletter, which I am an avid subscriber of. She had, I believe, gotten to read the book before it was available for sale. She talked about it in her newsletter and I hopped on the pre-order list really quickly. And I think that it is a must-read book for
people who eat, but especially for people like us and the food founders who listen to this podcast to really dig into this book. So Austin is from Iowa and over the years he has seen that state transform from one with many small pig farms to one with a few large corporate pig farms and the closure of many, many of those small.
farms and in the loss of livelihood for many small farmers. So he decided to research hog barrens. And as he was digging into, you know, that part of the food industry and what has happened over the last few decades in the world of hog ranching, he realized that it's just a small piece of a much bigger story about the corruption of America's food industry. So he decided to profile seven barrens.
with the goal of using each one as a window into how power has consolidated and our food system has been fundamentally transformed. And so in the book, so interesting, he talks about the transformation that has happened in the last 40 years in the areas of the hog industry, the grain industry, the coffee industry, the dairy industry, the berry industry, slaughter industries,
and grocery. So first of all, Sarah, you just said berry industry. I never even thought of berries as like their own, right, industry. That's so kind of wild. But also, I think it's really interesting hearing all of this come from you. I this is something that you talk a lot about consolidation. And it seems like even so,
I remember the first time you read the book, you came out of it like WTF. Yeah, I will say that this is the most written in book that I've ever read. I'm one of those people who buys the book so that I can write in the margins and take notes and highlight and circle things. And the things that I wrote in the margins of this book are unlike
any other as well. There might be some expletives written in the margins. And it comes from absolutely like learning brand new things. think for me, I was familiar obviously with the grocery industry and the consolidation that we see there that's been happening there that's continuing to happen on a certain level there. Right. I was completely unaware of what was happening in coffee. I wasn't truly aware of what was happening in dairy, grain.
animals, slaughterhouses. mean, those I have had a certain level of awareness of. But what Austin does in this book is that he goes deep. He goes to the history and really tells the story of how did we get here? What were the policies? What were the actions of individuals and corporations that led us here? And then ultimately, what can we do?
to change this, right? And again, that is like one of the primary reasons that I think it's not only important for members of our industry like us to understand the many ways that consolidation is happening and what it looks like within our industry, but also how much corporate control there is over our food supply chain, right? And specifically for our audience. And I think the primary reason that I chose this book for the book club
is because he talks about the many casualties, environmental and otherwise, that come from this consolidation. And the really big ones for me are the loss of local business, the explosion of inequality, and the removal really, the absence of community wealth. And this book, educated, informed, and truly inspired me to continue on the path that we've been on at
SDC and the Good Food CFO. I want to say thank you to Austin for really helping me to see that what I want ultimately is not more good food brands on the national level, but more successful local and regional businesses and the importance and the value of that for the communities, for the founders, for their employees, for the farmers, right? It just goes on and on and on. I think that
that businesses really do have an opportunity to have the biggest impact on that level. Yeah. mean, I think you could compare it right to not a one-to-one comparison, but like same with politics, right? We always talk about like your local politics or where things really happen, where things really impact your community. And I think you're right. It is the same with business. It is where you have a huge opportunity to impact the area.
around you, the people around you, those communities. And I love that this book seems to compliment that value of the Good Food CFO so well. And so I'm really excited that we're going to be reading it together. Yeah. One of the things that he argues very strongly in the book, as I said, is for local businesses. And he points out that as depressing
as it is when you sort of reach the end of the book, you've realized the current state of all of these industries and the fact that we as a society in a way have chosen to build a food system that is dominated by a handful of barons, as he calls them. But he also thinks that it's freeing because it means that it is within our power.
to build the food system differently and that we can opt to create a different system that better reflects our values. And he shares 10 ideas for creating a better system in the book. And I really appreciated that aspect. wasn't just a look at all of this terrible stuff that's going on. Let me tell you the story of how we got here and we're all doomed. It's here's what you can do.
But again, it doesn't fall on the shoulders solely of food founders or consumers. But let's look at this sort of with a broad lens, if you will, to say, okay, what can I do? What are the things that I can do? Which brings me to his vision for the food system, which is truly the same as mine. And that is a vision where any American can sit down in a locally owned restaurant or go to a neighborhood grocery store and buy affordable local
food that was grown, picked, processed, transported, cooked, and served by people earning a fair wage. He hopes readers of this book, just like I do, will join him in building this system. And that starts with being educated, which is why we have chosen Barron's as our book club selection for this season. I love that. And so
if you are listening and you want to read Barron's along with us, you can pick up your copy in our Good Food CFO bookshop. Remember that whenever you purchase a book from our bookshop, you are contributing not just to the success of this podcast, but to the success of independent bookstores across the country. can get to our bookshop from our website. Just go to the goodfoodcfo.com and click on book club and you'll find it there.
Then you can join us for our live discussion on January 23rd. That is a Thursday. Sarah, we're doing something a little different this time. We're going to do it at 8 a.m. Yeah. I feel like morning book club is the right energy. You know what I mean? A nice cup of coffee or tea. I was literally going to say any excuse to have a cup of coffee with friends over the internet. Exactly.
Please do join us for that event. can register as well on the website. When you click on book club, you'll find that as well. And again, that's at the goodfoodcfo.com. And Sarah, like I mentioned at the top, today's episode is actually parts of or a portion of the live Q and A that we held last month with our BABOYOT members. And I love that these two things kind of got paired together on the schedule because we have our
our member event, which is part of the episode, BABOYOT Member Event. But then here in the intro, we're talking about our book club event. And I thought this was a great opportunity for us to once again, just really clarify the difference between these two types of events that we host at the Good Food CFO. Yeah. Well, it's really important for us to have free events for just general Good Food CFO community members, people who listen to this podcast, people who
read the newsletter, follow us on Instagram. We feel like it's important to read books and to support the BABOYOT energy, right? This idea of building a business on your own term. Everything that we do with the book club is really in an effort to exercise that muscle. But that alone, I think, is not enough, right? When we come together in community, we talk about the books, we talk about our businesses.
there's a chance to connect. And you and I both agree that that is so, so valuable. And we get to do that regardless of whether you are a BABOYOT member or not. If you choose to be a BABOYOT member, we want to say our sincere thank you to those who continue to support the podcast in that way. That is our paid membership. It comes with benefits like this Q &A session.
that we recorded and are airing a part of where folks get to come with their questions. Some are very specific, some are general. They can give feedback about what kind of tools and resources and episodes they hope that we would create and share. And it directly supports the creation of this podcast, the creation of our free newsletter and the blog posts that we share. And so it really does help us to continue to do what we do. And so as a thank you for that, there are some extra special
member only events that do take place throughout the year. Yeah. And I love something you're going to hear from this event, right? Specifically is that even with these live Q and A's, if you're a member and maybe you're unable to attend a specific event, like you can still submit questions ahead of time and get them answered from you, Sarah, which I think is so cool.
Another one of those benefits that you're talking about, we actually also talked about in this episode, which is one of my favorite benefits because it was suggested by a member, which is that beta testing benefit. So we have right now at the time of this recording two tools that we are actively beta testing. And obviously when they go out of beta testing, they become unavailable.
you in that format, but it's free access to BABOYOT members to try these tools, to give us feedback on how they work or what you would like to see in the tool or how we can make it better and better serve you. So we have a customer profitability analysis spreadsheet right now, and we also have our growth planner right now. And so if you're interested in becoming a BABOYOT member, you know, to test out those tools, I mean, you can do that, right? You're supporting the podcast, you're supporting
the creation of tools and improved tools to support this community and to achieve these missions that we talk about here and that Austin is talking about in his book. And so we would love more folks to join us in beta testing. I think it's a really exciting opportunity for founders, but also for us. It's a really, really fun process. Yeah. Well, I am super excited for everyone to hear the...
questions that we and like you very specifically answered at our event. So should we get to it? Yeah, let's do it. I want to take a moment to thank our BABOYOT members whose contributions have supported the continued production of this podcast. Whether you are a one time monthly or annual member, your contributions are helping us to grow our impact. And together we are changing the way that food business is done.
If you want to learn more about our BABOYOT membership, how it supports this podcast and our impact, and to learn about the exclusive perks like live Q &As, member events, bonus content, beta testing new tools, and more, you can visit thegoodfoodcfo.com slash BABOYOT. That's B-A-B-O-Y-O-T. Now back to the show. Sarah, as we...
mentioned in the intro to the episode today, we are answering why should say you, I am not the expert you are answering our BABOYOT member questions today. Yeah, I'm excited. This is our first live q &a in a couple of months in our last of 2024. We've got some folks here live with us in the room. So I'm really excited to be here today. Yeah, we do. Like you said, have some BABOYOT members here in the room. But we also had a couple BABOYOT members that couldn't make it.
And so they submitted their questions ahead of time. And I thought we could start there. idea. How does that sound? OK. So the first question we had submitted by a BABOYOT member was basically they're saying we're using the cash flow tools, but it's not helping us to pay our bills on time or have more cash. What are we doing wrong? That is a great question.
And I'm going to first say that this is not uncommon because the cashflow tool, I guess, could be used two ways. One way is to know what you've spent money on and then essentially utilize it as a bill pay tool, which is what this person is describing, where you spend however you've been spending and then you pop that spending into the cashflow tool and then you see,
I have the money or I don't have the money to pay that bill today. That's not really using it as a cashflow management tool. As I said, that's using it as a bill pay tool. Ideally, when you're using a cashflow management like software or our cashflow spreadsheet, you're making your spending decisions based on what the tool is showing you. So if you have cash runway for let's say three weeks and you can see that in the tool and you want to make a purchase,
or you need to make a purchase and you go ahead and make it and you enter, or let's say you're examining whether or not to make it. You enter that information into the cashflow management spreadsheet and suddenly it says, you run out of money next week. Well, then you're fully informed. So you might have to make that decision and you might have to adjust how your bills are paid, or you might say, I'm not gonna make this purchase with cash. I'm gonna use a credit card or I'm gonna try to purchase on terms to get my payment.
15 or 30 days out, right? So what they can be doing is using the tool before they spend and using it to understand how would this theoretical spending affect my cash? And is there anything that I can be doing regarding this individual purchase or spending and purchasing in general to create more of a bank balance in my account or a longer cash runway?
It's interesting that this question is being asked because I had this situation with a client recently with whom I was hired to manage their cashflow. But the issue that we ran into was that they didn't consult the cashflow management tool or the cashflow manager before they would spend money, right? So bills would start appearing in our cashflow management tool, like the bill, you know, the bill pay tool. And we did a whole episode on that. But the
The bills come into the bill pay tool. I find them. I put them into the cashflow. Our five week cash runway is now two. That's not, I can't manage cashflow just like a founder can't manage cashflow if we're not actually utilizing the tool for that purpose. Yeah. And it sounds like you're saying the management part is the decision making. Right. Exactly. It's so funny because it's this whole
question and your answer is reminding me of when we launched our cash flow projector and we were talking about it on the podcast and I was basically sharing how this is how I like to look at a budget because I can change things in real time and see if I do this, this happens. If I do this, this happens. Yeah. Exactly what you're talking about. Yeah.
I want to add something else to this conversation to something else that happens with the cashflow management or cashflow projector spreadsheet is that sometimes people put in assumptions of cash they're going to receive. So this is really common where you're like, okay, I'm expecting a payment to come in in 30 days or I'm expecting to get approved for a loan or I'm expecting to sell X, Y, Z. And so you pop that income into your projector
even though you're not really sure if and when it's come in or it hasn't been committed. Right. If someone submits a P.O. and the terms are net 30, that's a committed payment. That's the kind of payment that we do put into our income inside the cash flow projector tool. But if you're hoping to get a loan, you don't put that loan money into the income until you have gotten that money until the bank or whomever is giving you those funds says,
they're on their way. Because what happens is you're spending money you don't have, right? Within that cash flow management tool, you're saying, okay, well, I have this income coming in. And so you're making spending decisions, but then suddenly that money doesn't come in, or doesn't come in when you think it is. And now your projection is off. I am all for positive thinking, but you have to be very, very realistic and work in concrete numbers when you're
utilizing a cash flow projector to actually manage your cash flow. Well, thank you, Sarah, for clearing that one up for us. We do have another question that was submitted by one of our BABOYOT members, and it reads, I'm not sure if I'm really making money with some of my customers. What information can I use to understand what I'm making with each individual customer profitability analysis?
I love this question. I love this question so much because I think this is analysis that we should be doing at least on an annual basis, if not on a quarterly basis, right? If you've got customers, especially if you're a business that you're saying, I'm selling and I don't know where my cash is going or my sales are growing, but I'm not really seeing the results in my gross profit margin dollars or what have you.
And we recently, love bringing this back to my real life, we recently did this for a client of ours that has a big customer, it's a retail store. They sell a lot of their product, but they've got the lowest prices of all of the customers that they sell to. And in looking at the product margins, right, so using our perfect pricing calculator, looking at those margins, we could see that they're very
close to 50 % profit margin, right? And on top of that, there's promotions, there's delivery, there's these other expenses that go into servicing this customer. So it was a really big question for us. Is this customer actually generating profit for this company? Are they really generating even positive revenue from this customer? And if not, what decisions do we
need to make? Do we need to, you know, modify our pricing? Do we need to modify the product mix? Do we need to withdraw from this customer completely? And so this is where I'm going to nerd out with a little bit of step-by-step for what you can do to actually analyze this. And it's not difficult, right? But it just will take a little bit of time. So first of all, I love QuickBooks and I hate promoting specific things on this website, but at the end of the day, QuickBooks is a great
cool for A, having customized financials, which is something that I love, but B, invoicing your customers, specifically your wholesale, your retail and your distributor customers, invoicing through QuickBooks actually gives you a lot of good data. So if you are invoicing through QuickBooks, that's the sort of scenario I'm going to walk you through. But even if you invoice through Square or some other system, ideally that system will have reports.
sales reports that give you detail about product, customer, number of units sold, and revenue per sale. If your system that you're invoicing through doesn't give you that info, I would recommend finding another system because this information is so important. So in QuickBooks, have this report called, and I'm pulling this off the top of my head here, but I believe it's called Sales by Product Detail. And that report
actually gives you a ton of information. And so you can you run that report, you can see all of your customer profitability analysis for a specific timeframe that you've built via invoice, what you sold to them, how much they paid, the date of the invoice, etc, etc. And now QuickBooks has these updated filters where you can say, okay, just show me customer ABC, and nobody else and give it to me for this timeframe. And when you export that data to an Excel spreadsheet, so very easy to do takes like
know, two minutes to run this report, you export it to Excel, and then what you can do is run or create a pivot table. And a pivot table is just a fancy word for summary of information, right? Charts that summarizes information. So when you export the data from QuickBooks, it's going to be a bunch of lines that all say customer ABC on the left, the date that the invoice was sent, and then all of the individual products that you sold to that customer.
And when you're looking at it that way, it's not very helpful. When you create a pivot table, what it does is it essentially summarizes the information. Meaning if we sell blueberry jam, strawberry jam, and raspberry jam, all of those individual lines of those jam sales on the initial report turn into three lines in the pivot table that tell me the total number of units sold and the total revenue generated for that particular product. The next step is where things get, I think,
really powerful. So here you're able to see how much revenue you generated and how many units you sold to this customer. Typically you can also see on that report if you discounted or did a promo or charged them for shipping, things like that, that'll show up in that product detail report. So you can also see those like discounts. Next to the pivot table where you've got the total number of units and the total revenue generated per product,
Enter your cost of goods sold. So let's say you generated, I'm just going to use really simple numbers, $1,000 on really simple numbers, 50 units of product, right? And that's basically $2 worth of revenue.
$20 worth of revenue. $20, yeah. Thank you. Per unit. And then if your cost of goods sold is $10 per unit, then you know that you're generating $10 of gross profit dollars and a 50 % margin. Right? So literally, you've got your units, you've got your total revenue, you can pop your cost of goods sold in there per unit, calculate the total cost of goods sold for that product, and then determine your margin. And then when you do that for each of the products that you have in your pivot table,
Then suddenly you've got your total revenue, your total cost of goods sold, right? And so now you can see the actual profitability of that customer. And so in the case of this customer profitability analysis, this client that we were looking at, they were sub 50 % once the discounts and stuff came in, their freight charges were not there, right? So we had to do an estimation of, it costs us about X number of dollars every time we deliver. We clearly are delivering once a month.
And so if we take this total profitability and then we subtract what we believe our delivery cost to be, we're at like a 30 % margin here. And so no wonder this customer profitability analysis, even though it's our biggest customer, is not helping us generate cash for our business, it's actually costing us to be here. So then the difficult decision comes to be, what do I do? And then the next steps are analyzing.
Do we change the product mix? Is it like, you know, our best seller that's not generating any money, but then we've got some products that are. And so then you can start to play around with the numbers. Okay, well, what if we took this product out and we grew the sale of this product? What if we increase our prices, right? To figure out if there's a solution so that you can go back to them and try to negotiate, here's some changes we need to make. If it's much that would need to change or it's simply just a, you know, a...
broken partnership in the financial sense, you make the difficult call to say, we've got to stop selling to you. And that happens from time to time. But we know, if you think back to that pulling out of retail episode that we did, when you remove yourself from a customer relationship that's not making you money, your cash flow can really change really significantly very quickly.
And so while it's very hard to do typically the financial rewards on the other side of that difficult conversation and difficult decisions is really worth it. I love that. And so what this is making me think about, right, is if you are maybe looking at an opportunity, right, this is taking me back to our conversation with Gwen Richardson and and her tactic for negotiating.
right with distributors and how she would just be very transparent and very open and say, this is going to make me money or it's not going to make me money. Is there a way to walk through this process and really look at if a customer profitability analysis before entering into the deal with them? Like so that you could use that in the negotiation. Yeah, absolutely. I mean, you have your product margins, like you should.
work through that, right? First and foremost. And then you should absolutely calculate your shipping or freight costs. What is it going to cost me to get my product to this customer? If they are across the country from you, that's quite different than if they're down the road from you, right? If you're selling through a B2B e-commerce site, that's very different than if you're selling direct versus distribution. So what are the costs to produce my product? What are the costs to get my product to the customer?
Right? And then if you are working in this instance with a retailer, a B2B e-comm site, a distributor, ask them what their fees are. Ask them what their costs are. Gather all of that information before you make the decision. I cannot tell you how many times people have come to me and said, we moved forward on this, but we didn't know everything that it was going to cost us. We didn't know all the fees that were associated. Now, here's the deal. As I've said many times, this industry loves secrecy.
And the more information that they can keep from you, the better it is for them in the long run, right? Because they're gonna charge you and they're gonna make the money and you're stuck with it. Cause somewhere possibly in the contract, it was hidden and you agreed to it. So, you know, we're working on trying to really create a tool where people can see these are all the possible things that someone can charge you for that we are aware of. And so you can sort of go through and cross your T's and dot your I's in that sense, right?
But when you know your margins, when you understand what the shipping or freight costs are to get your product delivered to the customer, and then you have a conversation with them about what their margins are or what their markup is or what their ad fees are, what are the promotional requirements that they're going to run you through, then you can build a model. I love that word model, right? It's just math.
math that you can see and math where you can sort of change some levers to see what is the outcome here. And typically you can make a decision whether or not you want to move forward with that customer based on, for example, if you're profitable within the first year or not, right? Is this relationship going to simply cost me money for 365 days plus before I start making money? And if the answer is
Yes, it is. Then you can say, okay, do I have the cash to support this? Yes or no. Does this meet the direction and the vision that I want to take my business in? If the answer is no to any of those things, you don't move forward. You might look at it and say, okay, I'm not cashflow positive or profitable in the first six months, but I get to profitability within a year. Maybe that works better with your cash situation. so then you do move forward. But I think
Running the numbers is the best thing that you can do. We're actually in the process of creating a tool right now where every, as I kind of hinted at, where every possible slotting free, free fill, intro allowance, promotional requirements, a lot of bigger retailers have like a 90 day, first 90 days you're like on promotion the entire time. Ad fees, like all of these things, these long-term
promos, you can put all of the information into a very simple form and it will help you figure out based on the velocity or the number of units you believe you can sell per week or month, if the relationship would be profitable or not. The tool is not going to tell you move forward or don't move forward. It's going to tell you here's the expected outcomes. How does this
work for your business? How does this work for your cash situation? How does this when put into other models like the cash flow model or the forecast? What does that look like for your business as a whole? BABOYOT members, I want to remind everybody have access to the tools that we are beta testing. This is a brand new tool that's going into beta testing. We've got the growth planner and projector that we already have in beta testing. As a member, you get access to these things. It helps us
when you all beta test to make the tool the best it possibly can be and also helps us to do it more efficiently. And then you get access to the tool forever for life and all of the upgrades and improvements that come along with it. So if this is something that like the person who asked this, like we'll get you access to the tool, beta test it, work through it, you know, bring it to the next live Q and A or to a CFO office hours and use it and also give us feedback for it.
long and short of it, or long of it is yes, you can do that math to figure it out beforehand. So you're not six, eight, 12 months into a relationship and realizing, shoot, we're not, we're not making any money here. Yeah. It sounds like the bottom line, especially around negotiations, right? Is that the more open your eyes can be, the more clear eyed you can be, the better decisions you can make for yourself. Yeah.
Yeah. And for the relationship too, right? Because I like to think that negotiations are two sided and it shouldn't be that one side is like trying to get all of the benefit in the relationship, you know, in an upcoming episode, I think, I don't know where this one is airing in the season compared to one of the BABOYOT episodes with the founder of French squirrel. We'll just kind of share that here. She talks about her name is Sydney. She talks about a transparent negotiation that she had with
current customer and was open with them. Here's the margin and what you're earning on my product. And here's the margin of what I'm earning on this product. with this information, it's why I'm asking you to pay me more for, you know, for my product. And they said, no, thank you. And she was like, great, I know where you stand. You don't actually want my product on the shelf. You wanted my product at a specific margin and it doesn't work for both of us. And she was absolutely okay.
to walk away. But in other instances, people come to the table that way and she had this experience where you just open their eyes to what's really going on and sort of the imbalance of the relationship and they go, I didn't realize that it was that much money for you. Yeah, we can meet you halfway. Or yeah, we can cover the shipping cost. So I love running the numbers so you know what works for you, but also then being able to share it.
with the person that you're negotiating with. So it can be a true conversation and a true understanding of what is going on on both sides. So you can find a way to make it work or respectfully say, you know what, this isn't going to work for us. Maybe in the future, if things change, come back and we'll see if we can, you know, have all of our needs met in a different iteration of this relationship. love it. Well, we are ready to open up the floor. If anyone has any questions. I do.
Thanks for having me today. I'm really excited to be joining the live BABOYOT session. I'm Kelly Avid. I'm the roaster and owner, CEO of Unleashed Coffee. We're a farm to cup specialty coffee company based in Northern California. We work directly with farmers in primarily Brazil and Guatemala, but I've got a few more coming on in 2025 from hopefully Nicaragua and El Salvador. Awesome. And what is your question? It's kind of along those same things. First,
I wanted to get your feedback if you know anything about bubble goods, D2C platform. And then I have been approached for an opportunity to sell in a local collective that's not specifically CPG, but they're trying to get, it's a collective of small local brands, more artists kind of ideas, but.
She's trying to get a few more CPG things in. She doesn't want to go too overboard because she doesn't have to worry about dealing with the health department and extra permitting. it's $150 a month rent to have two shelves and I can put as many product SKUs on as I can fit. So it's not a slotting fee, but it's a monthly rent. And then 15 % commission.
the collective. And I'm trying to decide if it's worth the risk to do since it's not a CPG centered establishment. And there's a coffee shop at Stone's Throw away across the street. Okay. I mean, it's a cafe, but they do sell beans. And then there's another coffee shop, another block away. So I figured
The timing was good. I was approached on this on Thursday. And so I thought, well, I will go to the BABOYOT meeting and I'll throw it out there. And then I wanted to know if you knew or had any thoughts on bubble goods, because I just started researching that one as well. That one, I kind of liked the idea, you know, the drop ship that makes it easy, but they do have a $200 onboarding and they do have a monthly fee. think it was.
$35 or something like that to be on their platform. And then if you're on Shopify, it's 25 % commission. And if you're not on Shopify, it's 35 % because if you're not on Shopify, they create the shipping label for you. If you are on Shopify, you create your own. And I'm in the process of moving my e-commerce store from WooCommerce to Shopify. And I'm hoping that it will be finished by the end of the month and ready to launch by the first.
Because WooCommerce has gone by way of Minolta. It's it's it's not keeping up with e-commerce well enough. I've decided it's cost me too much money for too long. So I'm cutting ties. OK. And when they create, when Bubble Goods creates the shipping label, does that mean you're not paying for shipping? Correct. OK. So free shipping to you, the brand. Meaning it doesn't cost you anything to ship your product.
Right. But then I have to pay 10 % more commission. 10 % more commission. So you said it was 25 % commission if you're on Shopify. And then I have to do my own shipping through Shopify. And if I'm not on Shopify, then they create the label and I don't pay the shipping. But you pay 35 % commission. My number's backwards there. Okay.
Okay, so to answer your question, I'm aware of Bubble Goods and we're actually adding a calculator to our perfect pricing calculator for Bubble Goods specifically. Yay. So it's always a good time to sort of share that we did a big upgrade or update to our perfect pricing calculator. So we've got the standard sort of D2C wholesale direct and distributor calculator, right? Which is like the cornerstone of that tool.
where everyone should start no matter what. But then we also have a B2B e-commerce which really helps to handle like FAIR and Mabel and those commission only plus fees. You know what I mean? So it's like they're paying the commission, then you've got a processing fee. They're going to want you to do a promo a couple of times a year. You've got a calculator now specifically for that. We also have an Amazon calculator.
Now there is some work that people have to do with all of these to figure out some of your own information. But when you gather it and you put it into the calculator, you can really get better insights into, does this relationship as Chelsea was saying, does this relationship make sense to for me or not? And then bubble goods is one that we're working on. So what I would say is that'll be, that's probably available at the time that this episode is airing. And so you can pop in there and say, okay, here's my
onboarding fee, here's my monthly fee, here's my shipping cost, right? And what we're working through is this a way for you to essentially say, okay, how much do I think I'm going to sell here? Or how much do I need to sell here to break even? Because I think that with that, you can go, all right, now I know what my milestone is. If I need to sell 15 units a month to break even, then I know what I'm working toward.
And I also know, you know, maybe I can predict how many months I won't be breaking even for, for example, right? It just kind of gives you some perspective. Essentially, the same idea applies to the collective. You've got a $150 fee, right? Just that alone, you can say, how many units do I need to sell to break even on that 150? And then if I'm giving 15 % of my revenue on top of that, well, then how many
units do I need to sell to break even? And if it's new, they may not know what the foot traffic is. Right. So what I would say is it could be worth a shot, but don't sign a long-term contract. So the shortest contract they have is six months. And I'm like, just do it through the end of, know, through the holidays, but it's a six month contract, a six, nine or 12 month contract. And they've only been open since August 1st.
Okay. August was supposedly a pretty decent month. September was kind of slow. Supposedly October is picking up again, which it should since we're now in a Q4. But so would so putting that information in, I would use the same part of the calculator as the bubble goods. What I think I'll do based on this request is probably make a different calculator where it's sort of like a not consignment, but I'll call it the collective calculator where you're basically
You are paying rent, essentially, right? So I'm going to call it shelf rent in the calculator. And then your commission rate, you can pop that in. And then I think the way that I'm going to structure it is like, because it's not going to be really perfect pricing. I kind of need to think through that a little bit, but we'll get you something that says, OK, helps you decide, do I move forward with this or not? And do I?
Or what would my price on shelf need to be? Does it need to be a little bit higher? Is it okay where it's at? You know what I mean? So I'll work on something for you. And I want to reiterate this too. We sent it out in our newsletter update. We want to hear from you all what new things are coming up as opportunities. What do you desire to have a calculator for? And we'll either show you an existing calculator, right? That can do that for you or create a brand new one. Like the bubble goods is going to be its own.
thing probably because of the way that they operate and because their fees are a bit different than Mabel and Fair, for example. But if we can, and then the commissions, I'll probably do that as its own calculator as well. So are these like different tabs within one? Yep. And then there's a video associated with every tab. So if you're just like, I just want the bubble goods tab.
you can just navigate to the bubble goods section, watch the video on how to, and then when you download the pricing calculator tool, you'll see the name of each of the tabs on the bottom. And so you can just go to that. If you're someone who has the older version of the perfect pricing calculator, you can just go to the the like area on the website. We currently call it courses that might be changing, but go there and just re-download the newest version of the tool.
So you can still keep the original one you had, but you will always get the most updated version. This is not in beta testing. This is a live product that you do have to purchase from the website. If you're an annual member, you get 10 % off, right? And then you'll always get the updates anytime there's an update in a new calculator on the sheet, on the tool. Does that make sense? I think you're an annual member, Kelly. I am, yeah.
So you'll make sure you have your discount code. And if you don't email support at the goodfoodcfo.com and she'll get you the code. Once we buy the tool, we have it forever with updates. don't have to do a renewal every year, just the membership. Yep. When you buy any tool on the Good Food CFO website, it's yours forever. Like we don't require you to be a member to keep it.
like it's yours, you have the ability to download that tool. You have access to the videos and to the updates. Like as long as we exist and there are updates, you will have access to it on the website. And then even if we ceased to exist, the tool is in your hands and it is yours to use forever. And it's in Google Sheets. It's in Google Sheets and you can use it in Google Sheets or you can download it to Excel. Works both ways.
I know that's why we use Google Sheets because it's like most people like it that way. And I've been out of Excel now for so long that when I go back to like create a pivot table there, I'm like, hmm, let me put it into Google Sheets. It's so much easier. It's like user friendly. So I'm a fan. But yeah, you can use it in both both formats. I do not support numbers. So if you're a Mac user, number, I think we're going to have exactly Kelly. Exactly.
Yeah. So hopefully that helps. can't give you an answer like right here right now, but we're going to work on getting that for you. And then we'll send you a personal email, Kelly, when that's when those tabs are updated. Cool. Thanks. Well, you know what? I want to thank our BABOYOT members that submitted questions beforehand, but that are also here today. Kelly and Sharon, it was so good to see you and connect with you for this event. And Sarah, as always.
Thank you for answering all of our questions and just being the financial guide and guru that we all need. My pleasure. Thank you to Sharon and Kelly for joining us today. My favorite part of doing this is interacting with people one on one. So it's the most fun. I'm grateful that you're here. I'm grateful for your support of the podcast and of the Good Food CFO in general. And I hope to see you at our next event.
Thank you. Thanks for having us.
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