Expert Advice for Startups From a $400M Brand Founder
(Listen on Apple or Spotify. Full transcript below.)
These soundbites will help you build a profitable food business
Sometimes the best podcast episodes come from unexpected moments. That's exactly what happened recently when I found myself frantically taking notes during what started as a routine monthly meeting with a founder who has built a $400 million company.
What made this conversation different? The words this founder spoke echoed the principles we've been championing at The Good Food CFO, and I couldn't wait to share these insights with our listeners.
Unexpected expert Advice for startups
Picture this: I'm sitting in a meeting, pencil in hand, when this founder starts making statements that align perfectly with everything we've been preaching on The Good Food CFO podcast. What began as normal note-taking quickly turned into me scribbling direct quotes, trying to capture their words verbatim.
For years, I've worked with food founders who often feel pressured to follow "traditional" industry wisdom. I've watched clients struggle with the conventional expectations: giving heavy discounts, chasing multiple sales channels without focus, and making decisions without solid data. It can feel lonely swimming against these currents, when you’re doing “everything right” but the business really isn’t working.
There is no Roadmap,
but there are proven strategies to guide you
What made this a particularly powerful meeting was knowing that this founder had achieved profitability early on, with little investment, and refreshingly they weren’t preaching ‘one way to build a business’. They were preaching fundamental strategies.
Their success came by following principles that might seem counterintuitive in today's growth-at-all-costs environment:
Know your customer inside and out (really know them)
Protect your margins religiously
Let data drive decisions
Focus on profitable growth from day one
Know Your Customer, Really Know Them
What struck me was how this founder pinpointed their audience with remarkable precision. They sell a product that has existed for decades, and can be bought almost anywhere. But they identified an underserved customer base and, instead of following the traditional retail path, built their distribution model around where their customers actually wanted to shop. It's a powerful reminder that success comes from truly understanding your customer and building a business model that serves them - not just copying what others have done.
Whether you’ve created a new food invention like Nooish, or are reimagining a pantry staple, knowing your customer and meeting them where they are is critical for your success.
Marketing Shouldn’t Drive the Offer
The first quotable moment, which led to an "aha" moment for me as well, came during a discussion about marketing and discounts. This founder, who has invested significantly in online marketing, firmly stated that "marketing shouldn't drive the offer."
I was surprised, and thought I knew what he’d say next, so I asked him to elaborate. He emphasized that while marketing can identify potential offers, the numbers should always drive the final decision, and that you need to protect your margins fiercely. This perfectly aligns with our consistent message about protecting margins and building sustainable growth.
My aha moment? Realizing a distinct difference in growing via e-commerce vs big retail. You don't need to rely on margin-eating discounts to drive trial in e-commerce, there are more strategic ways to acquire and create returning customers while maintaining profitability.
The Power of Focus
One of the most valuable pieces of advice from the meeting was to give each channel a solid quarter of consistent effort before making major changes. This means committing to specific offers, products, and strategies long enough to give it a real chance to work and gather meaningful data.
Let’s be real, we all want (and expect) immediate results. And we’re in an industry where there is strong temptation to pivot quickly or add new and exciting sales channels when they pop up.
This more disciplined approach to testing and learning for a minimum of three months resonated deeply with our philosophy of data-driven decision-making. And also with our plea to founders to “make a choice” - choosing to focus on something and give it enough time to work, or not. If it works, amazing! But more importantly when something doesn’t work and you’ve gathered data about it you can do better next time. When something doesn’t work and you have no data, your decision making can’t be improved.
The Numbers Never Lie
Perhaps most validating was their emphasis on having robust management reports and understanding your numbers inside and out. Even at $400 million in revenue, this founder still maintains a keen eye on the data. It's a testament to what we've always believed: while finance work might not be the most exciting part of building a food business, it's absolutely crucial for sustainable growth.
Why This Matters for Food Founders
This episode represents more than just success strategies. It's proof that there's another way to build a food business - one that prioritizes profitability from day one, truly understands its customers, and makes decisions based on real data rather than industry conventions. It's validation for every founder who's chosen to build their business differently, who's stuck to their principles even when it meant going against conventional wisdom.
Join the Conversation
This blog post barely scratches the surface of what I have to share from this amazing conversation. Hear all of the quotable moments from my meeting and more insights into how this founder built a successful brand wherever you listen to podcasts.
Trust me - if you're building a food business on your own terms, you won't want to miss this episode!
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Episode Timeline
00:00 Introduction to the Good Food CFO Podcast
09:11 Insights from a Successful Founder
11:27 Understanding Your Customer and Business Model
15:27 Marketing Strategies and Their Impact on Margins
26:24 Setting Realistic Revenue Targets
32:12 Understanding Profit Margins
39:59 The Importance of Management Reports
Full Episode Transcript
This episode of the Good Food CFO podcast is sponsored by Settle.
you're listening to the Good Food CFO podcast. I'm your host, Sara Delevan, joined as always by our producer, Chelsea Stier. Chelsea, what episode are you bringing us today?
Hey, Sarah, and hey, listeners. Sarah, today we're bringing an episode where you're sharing some insights from a founder of a multimillion dollar company. Yes. Before we get into that though, I want to remind everyone listening about our big goal here on the Good Food CFO podcast. And that goal is to reach 1 million food founders.
There's a couple of ways that everyone listening at home can help us reach that goal. And these are free ways. So if you're listening and you want to help, you can share this episode with your friends. Rate the episode wherever you're listening to it, whether that's on Spotify or Apple. You can leave a review, especially on Apple helps a lot to get the show out there. And then if you're watching on YouTube, like it, subscribe.
Leave us a comment. Any of those things help get this episode in front of more faces. And that's what helps us grow. Okay, Sarah. So today, as I mentioned at the top of the episode, we are going to be getting into some insights that you brought to the podcast from a meeting that you had had. And I remember
you this episode came together really quickly like you got out of the meeting and you were like let's hit the studio i have thoughts i'm i'm ready to talk about this
Yeah. Yeah. I started calling them sound bites because I was in a meeting. And as I mentioned in the main episode, we're keeping a lot of details about this private. Like it was part of a private, like client consultation. So, you know, I always respect, you know, privacy and non-disclosure agreements are very important, but the takeaways from the conversation are absolutely worth sharing. And I wanted to share them right away because they were things that we've said here on the podcast.
things that I have shared with clients in consultations. And whenever someone is confirming a strategy that I have, confirming a belief that I know to be true, I want to share that with our audience because the more power I think we have in those things, the more people are saying, yes, this works. This is a strategy that is important for your success, the better. so this was a very
I've had many meetings with these individuals and this one was sort of a more candid kind of like Q &A where a founder was asking this founder who I'm quoting some questions and he was giving really like quick solid answers and I remember just hearing the answers and scribbling down like exactly what he was saying in quotes. And so when I left the meeting, I had several quotes written down.
And I immediately then went to like a Word doc or Google doc and started jotting down context. And what did he mean by this? Why is this important? Why do I want to share it with our listeners? And as you said, yeah, it just kind of came together in a couple of minutes and I'm super excited for folks to hear it.
Yeah, before we get into the conversation though, Sarah, I hear you have an announcement for us today.
I do, do. Are you ready? Maybe a little drum roll, please? Yeah.
Give me one second.
Club announcement, our latest book club selection is called BE 2.0. It stands for Beyond Entrepreneurship 2.0. It is by Jim Collins and Bill Lazier. BE stands for Beyond Entrepreneurship, and this is a new edition of the original Beyond Entrepreneurship, which was written in 1997. Jim Collins, you may recognize his name. He is
I think most well known for books like Good to Great and Built to Last. Those are books that I read in grad school. I read Good to Great, I think, three times. I had different bosses who were like, you guys, everybody on the team has to read this book. They're great books, but they've never been a book club selection because they focus on publicly traded companies, really big companies, and sort of yes, how they became great, but it just never really spoke to me.
as an entrepreneur or someone building a small business. Much to my surprise, I had no idea that this book existed. It's been popping up on social media and in different spots where I kind of learn about books. I thought it was a newer book. It's not. It's one of Jim Collins' first books, if not his first book ever. Bill Lazier was a mentor of his. He has passed away, but he was a mentor of Jim's at Stanford where he went to business school.
and taught a class on entrepreneurship. And so this book is really about as an entrepreneur, as a founder of a small startup, a small business that you're trying to grow into a medium-sized business, right? What are the things that you can do to ensure your success? But the thing I love about what I've come to know about this book is it's not about creating a model and then like…
here's the roadmap. Now everybody just do the roadmap. This is the way you do it, right? So like fill out this template and you'll be a successful business, which I feel like has been the way that things have been done in this industry and in other industries, you know, for the last several years. And I'd like to read something from the back of the book. Now, this is a quote from Reed Hastings, who is the co-founder of Netflix. So quite a big business, right? He was a student at Stanford. I believe he was a student of Jim
Collins or they met via Stanford somehow. But Reed says, beyond entrepreneurship, transformed my leadership style more than any other book or person. I reread it every year for more than 10 years. The focus on core rather than surface emboldened me to be my best and most natural self rather than try to imitate others. I have not read this book.
I purchased it from our bookshop on a recommendation and that quote on the back when I got it delivered to my house, I thought to myself, is some BABOYOT energy. And I'm really excited to dig in and to have our listeners and community dig into this book with me. As I mentioned, Good to Great and Built to Last, there are…
concepts in those books that I still keep in mind and utilize today, things like the big hairy, audacious goal, often called a b-hag. We have one of those, to reach a million founders, right? Yeah. Things like the hedgehog concept. They're all core concepts for making a business great. And I'm excited to see how he translates them and how they appear.
in this book and how he speaks to entrepreneurs differently or the same as, you know, he speaks to readers in Good to Great and the other books. So I've not read this yet. I'm super excited to dive in and I'm really excited to hear from all of you, you your takeaways, your learnings and what you think about this book as well.
Yeah. And, you know, if you're going to read along with us, if you're planning to read along with us, there's a couple of things you need to know. Number one, this live book club discussion is going to be happening on Wednesday, April 9th at 9 a.m. Pacific. So that's noon if you're in the Eastern time zone. And to find out more details about not only that event, but how to get the book, you know, where to find the book.
you can visit thegoodfoodcfo.com and click on book club and you'll find all the information there. And Sarah, I do want to mention if you are planning on getting this book from our bookshop, not only are you supporting our podcast, but you're supporting independent bookstores across the country. And bookshop.org has actually recently introduced not just
hardbacks, know, paperbacks, but also e-books as well. So check that out.
Yeah.
Yeah, we love our partner bookshop.org. So yeah, definitely check that out and support all the folks as you participate in the book club. Awesome. Well, Chelsea, I'm really excited to dig into the book. I'm really excited for everybody to hear this episode. So I think we should get to it. What do you think?
Yeah, let's dive in.
Good food founders, let's talk about cash flow, the metric that truly determines your ability to grow your business. We all know that figuring out your true costs, your margins and projecting cash flow isn't always as straightforward as it could be. When your data is scattered across systems, it is easy to lose track and leave money on the table. That's where Settle comes in. Settle is the only platform built for CPG brands that combines inventory, payments and procurement into one unified system.
and they offer integrated financing for your invoices to help extend your cash runway. helps you make smarter decisions and keeps your business on track to grow sustainably. Head over to settle.com slash good food to learn how brands like carnivore snacks use settle to manage their cashflow and growth. Just you know that when I talk about a brand, I don't usually lead with their top line revenue statistics, right? But today I am going to.
because we're sharing insights from a founder who has a $400 million business, meaning $400 million in annual revenue in 2023. And the reason I'm okay leading with that stat is because they were also profitable. And not only were they profitable at this $400 million in annual revenue mark, but they were also profitable early on due to low overheads and strategic pricing and growth strategies.
And I've had the ability to meet with this founder a number of times over the last year or so. I'm not going to share the why or the how because it's all confidential. But in a recent meeting, I found myself writing down these things that he was saying. There's sort of like sound bites. There are these like sentences that I had captured in my notebook that he was saying. And some of them are things that I have said here that echo, you know,
what we talk about, right? And there's also an aha moment that I had that I really wanted to share with everybody.
Yeah, I'm really excited. Like I'm very curious to know where you guys overlapped or like what were the things that he said that I am sure I hear you say all the time. I'm excited to get into this.
Yeah. And I will say that the reason I want to talk about them here is because when a successful founder who grew a million dollar business with little to no outside funding, which is the story of this particular founder, shares similar points of view and advice, which goes against industry and media norms, and that has resulted in a profitable business, I want people to hear that. Right? A, it validates
my point of view, it validates the work that I've done with my clients, like validates it, right? But then to hear other folks validating it, that means something to me, right? For me, it gives weight to what we're doing. And then I can say, look, it's not just me. It's just these handful of clients that I've had the opportunity to work with and create change with. It's working on all different sort of levels and with all different types of businesses.
It validates the work we're doing here, and I think it validates what many of our listeners are doing when they're deciding to build a business on their own terms and to do it without conforming to big grocery or big retail in the way things are sort of, as we say, have always been done. The other thing I want to say before we dive into these sound bites that I've gathered for everybody is that
Yeah.
this founder knew his audience. And this is like new with all capital letters, right? Okay. They pinpointed their customer so specifically, they identified that they weren't being served and how, right? This is not a new product. This is a product that has existed for a long time, but that has been modified to meet a certain customer need. And then they made their product available online.
instead of in retail stores because by understanding their target customer, they also understood that they were not the kind of person who was going to go do their shopping where this product would typically fit, right? Meaning there's a fit between the product and the customer, but there was not a customer retailer fit. And recognizing that, the founder said, you know, okay, well, then my model needs to be direct to consumer and we're going to do that through
a website. And this is so important because the further I get into working in the food industry, more and more apparent it has become how critically important it is to know your customer and to build a business model that serves them, right? Because you cannot take someone else's model and replicate it. It's not going to work if that model isn't right for your customer.
Yeah.
Yeah, I mean, I think this goes right back to just a few episodes ago when we kicked off the episode talking about the stuffed spuds and where they were going, right? And that was One Direction and convenience stores, C stores, and then the main episode talking about Big Spoon.
Exactly. That's two different businesses, both in the food space, choosing not to be a part of big grocery, but choosing different paths. The paths that best served their customers, And met them where they're at and met them with a level of customer service they wanted and met them with the product that they wanted. But while you can't take someone else's model and simply apply it to your business,
you can identify or put into place some fundamental financial and strategic things to help you in the process of figuring out your model and creating financial sustainability. And that is what these sound bites that I'm going to share are all about.
Well, as I said before, I can't wait to hear where the overlap is, but honestly, I just can't wait to get into these and talk through them. So what's the first sound?
Right. Yeah. Okay. So the first sound bite, and again, this like pictured me like in a meeting, you know, we're talking about finances and conversations going on. And this founder who has invested in, you know, online ads, invested in marketing, like big marketing, and like I said, ad spend, says the following. I'm writing it down. Are you ready? He said...
Marketing shouldn't drive the offer.
And so what does he mean by that exactly?
Specifically, he was talking about discounts, right? So marketing is relationship building, right? There's a lot that goes into what marketing is. But one thing that happens is like we talk a lot here about like driving trial, right? With online marketing and online ads in particular,
Of course, if we do an offer of 20 % off, more people are likely to buy than if we don't offer a discount. That's just kind of like a bit of common sense or like, you know what I mean? But what he said is that offer eats into your margin. And he says, what are you teaching and telling your customers? His whole point here was like, don't
eat into your margin. Don't let marketing drive the offer. And I'm reading between the lines here. I just want to be like the next like bit of what I'm going to say is reading between the lines. Marketing agencies want to be successful. Okay. So if they come up with an offer and we have seen this happen, they come up with an offer that is going to create a high conversion rate, then they're doing their job well.
And they should come up with an offer that creates a high conversion rate. But if that conversion rate comes at a cost to your margin, which we know then comes at the cost of your cash flow, that's not really a great offer. And that's what he's saying when he says marketing shouldn't drive the offer, right? The numbers need to make sense and you have to be able to hit your target margins.
In other words, the numbers should drive the offer. In response, like sort of in the back and forth of this conversation, I said, well, marketing could definitely identify the offer, right? Like, hey, we think that this bundle or this offer is going to be successful with your customer base. That's a great step one, but it should come back to the numbers and you adjust things to make it work. Concrete examples, free shipping.
I have said time and time again that free shipping is never actually free shipping. Yeah. And it can sound disingenuous, right? But like…
it will eat into your margin too much to offer truly free shipping. So we've got a course all about this, right? It's like finding that offer that works both for your customer, meets their needs and meets your needs. And so oftentimes free shipping is actually like, raise the cost of my product a little bit. So I'm covering half the cost of shipping and the customer's covering the other half. And that's a win-win for both of us because I'm hitting my target margin and they are getting
a deal in the sense that they're not paying for full shipping, right? Bundles is another example of this. Bundles, and he called this one out, is that they're inherently discounted because when you buy more, you save more, right? But the margin works because you should be bundling your products in a way that they're profitable.
Yeah.
Yeah, I mean, I definitely have heard this from you before. We've done whole episodes about this, right, of looking at like what are your highest margin products and how do you bundle those maybe with your medium margin or your lower margin products so that your overall blended margin stays above target.
Exactly. And so your customer is experiencing a savings in that they're paying less per product, like per unit, than they would if they bought a single unit. And that might be a great offer to market, but it's not going to be an offer that hurts your margin, as we've said, right? Another thing that he called out was like free product with purchase. And this makes sense in a situation where you're long.
on a particular product. Let's say you've got a ton of inventory of something or you know what I mean? You've got a situation where something's not moving, it's not a popular product, maybe it's getting close to expiration.
Yeah, that's what I was going to say, right? Talking about expiration dates.
Yeah. So you're running a risk here of like, we're paying for storage if we're just like hanging onto a lot of this product or we're going to lose this product if it expires before anybody gets a chance to eat it, then go ahead and create an offer where you're giving a free product with purchase that is not going to like that same. Like product is not going to be offered with every future purchase. So it's a bonus instead of a discount. doesn't truly eat into your margins. It's actually protecting your overall margin because you're
moving a product that would not otherwise move is what's saving you money in a sense. This is about the time that I had an aha moment in the conversation because I was thinking about the difference between an e-commerce business and a grocery business, like a big retail, big grocery business. Because in big grocery, we talk about like Kroger, Whole Foods, et cetera. We talk a lot about driving trial.
I'm making air quotes for anyone who's not watching on YouTube, but like the necessity to offer promos and discounts to drive trial. Well, whenever we're doing that, we're eating into our margin. And we're doing what this founder has said of like teaching our customer that this is going to go on sale, right? Is every single person only going to buy your product when it's on sale? No, right? But like we're teaching some people, like my husband, I've talked about it on this podcast before.
that they can wait until these things go on sale and then you buy them then. With e-commerce, you never have to do that. You're driving trial with your marketing really, right? And your opportunity to market is very different between when you're in a retail store and when you have your product in a D2C website.
Yeah, even to take that even a step further, I feel like when you are in a retail store, that marketing again comes out of your budget or out of your margin to the store.
Right. Yeah. And what's interesting is like you can set a marketing budget, right? Like, for example, in retail, you might go into the flyer once a quarter, right? Okay. That's to me is like marketing spend, or I guess you could consider it ad spend. I'm probably not using the right marketing terminology here. I'm sorry to all the marketing experts out there. Sorry, Felice, I'm getting this wrong. But like you can set a budget and you can say, okay, this is how much money I am spending.
Yeah.
to promote my product to my target audience and then I'm going to sell my product and get my full margin, the full value of it. That's very different than saying, I'm going to discount my product, I'm going to reduce my margin, right, and then see how much I sell to drive trial. It's just a different way of thinking about things and it was an aha moment for me because I was like, you don't have to…
Yeah.
use discounts to drive trial online. This person has proven that, and they've proven that not just by not doing it, but by knowing who their customer is, knowing what they want, how to speak to them in the marketing, and offering ways to purchase so that the customer can identify what is that win-win situation for them. It was just a shift in my brain in that moment.
Yeah, it sounds like really utilizing that online marketing in a different way is ultimately showing the customer what the value is and where the value is in that product.
Yeah. And I think what's interesting too, and this is something I'm just thinking about now, people will say sometimes like, I don't have the money to run ads. Okay. If you don't have the money to run ads, do you have the money to offer a 20 to 25 % discount? Right? Like, I think there's a really tough question that founders have to ask themselves is, do I have enough money to execute? Really, truly. Do I have enough money or do I
this. Yeah.
or how much money do I have to grow this business? And can I do it in a way… because when you're offering a discount, you're reducing your inflow of cash. It's not helping your financial situation, right? There's the theory that it's driving trial and we hope that that person will come back again in the future. And I get that. But I think that if someone is…
doing a discount when you're selling direct to consumer rather than spending on marketing and really touching your customer and bringing them into the fold and kind of creating a committed person to your business, I wonder if it makes sense.
I think you're right on. think that what you're saying is, is that discount really going to create a loyal customer? Right. A repeat customer.
Yeah. And if you're offering that discount because that's a way to drive trial as opposed because you don't have enough money to do marketing and to invest in marketing, I question whether you have enough money to be focused on that channel, right? And to be focused on growing, right? And that leads me to actually the next sound bite. Okay. Actually.
Yeah.
And that was that it's great to have targets, but what you need is a channel that you can consistently profitably grow. So let me set the stage for how this soundbite came to be. So in the conversation was another founder and that founder was talking about creating their annual revenue targets.
What the founder said, who I'm quoting, was that it isn't really necessary to have a full year's forecast, particularly if you aren't exactly sure of the profitability of each of your sales channels and or which of those channels you can consistently profitably grow. What he said was a good goal for the quarter.
not for the year, but for the quarter, would be to identify what is the right channel to grow from. And I'm going to say that the founder who was talking about the projections and who's getting this feedback has three channels, okay? And so the advice is essentially to give a good, consistent effort to each channel. Give it a good shot. And what he meant by that was,
Okay.
commit to something. Find profitable products. Find a fit with the offer, right, the marketing offer. Be consistent with the thing you're promoting. Be consistent with what you're focusing on, right, in terms of the products in each of the channels. Give them all the best possible shot to succeed. And at the end of the quarter, you can look at the data and you will see which one of these
offers and channels did we see the most growth in? Which one of these offers and channels was the most profitable in that period of time? I love this advice because there are so many founders who are in so many channels and they're trying to do it all. We've heard this before, I think, around forecasting and around choosing. That's something that we talk about. You have to make a choice of what you're going to focus on.
And this founder is echoing it in a sense where he's saying, narrow down the offers that you're focusing on, the products or the product bundles that you are focusing on, and your three core channels that you have and give them a good shot. Don't change your mind a bunch of times. Don't leap from one idea to another.
And I think that can be so hard because especially as a founder, as someone who is probably creative, is probably a problem solver, is probably right. You're constantly thinking about, well, what if I try this? hold on, I need to pivot because of this. And to give it a full quarter of, I'm going to do this one thing. I'm going to focus on this one thing. I'm going to...
give it its best shot and then I'll look at the data and decide whether or not that works.
Yeah. Yeah. And I think something important to touch on here too is the common desire for immediate gratification. Right? We can give some insight into how we do some tracking in our business, right, Chelsea? So if we put a new course or a new tool on the website, we of course want people to be excited about it and to purchase it, right? Yeah.
That's a big ask.
And I would say back in the day, like the earlier days of my consulting business and having tools and things available online, if I didn't sell something in a week or in a month or I didn't sell as much as I thought I was supposed to, I would think, this is not working. This is not working. This is a bad idea. We're going to scrap it. The same thing happens with food founders, right? But where – like that's not enough – your sales numbers are actually not enough information alone to say whether or not something needs to be stuck to.
So relating it back to our business, it's like we have to look at how many people came to the website based on how many people, not even just to the website, to the specific page where the thing we have made available is available. How many people made it to that page? And of that number of people, how many people purchased? And what is that percentage? And how does that percentage compare to, let's say, businesses in the industry?
That gives you context and we need context in all of our business decisions. So if we put together three offers, let's say across three channels, we're devoted to trying these things out for the quarter and we only pay attention to sales and we don't pay attention to the effort and we don't pay attention to the number of customers who have come to it, right? You can't actually identify what the issue is.
You will always think the issue is either bad marketing or people don't want my product, when in reality it could be that people aren't seeing the product or the wrong people are seeing the product. And that's the stuff you get to figure out and fine tune and tweak over the quarter. Real deal, you might get to the end of the quarter and none of the things you tried might work. But you will have learned stuff and you can do it again better with different offers, right, or different products in the next quarter. And you will find it.
Yeah.
right? And then you will know the channel to spend your money on and focus on growth.
Yeah. And as I already said, Sarah, like I know that that can be hard for a founder to really drill down and focus on one thing, but I want to give a little shout out to like our Bobby Yacht community. We do events once a quarter and that's a great place to come talk to other founders, talk about what you're doing and get that support from other people. Um, because I think that it is.
not just hard to drill down and focus in on that one thing, but it becomes exponentially harder when you feel like you're alone.
Yeah, yeah, that's a great shout out. I'm going to stay on the topic of targets for the next sound bite. This one's a little bit less snazzy and kind of shocking as the other two, but he said, if you're projecting a specific gross profit margin for your business, if you're doing annual or quarterly projections, let's say you're projecting 55 % gross profit, the only way you'll actually get there is if your product margins are higher.
than that 55 % gross profit margin.
Okay, and so what's his reasoning there? What,
Yeah. So there's more than just the cost of your product that goes into calculating your overall gross profit margin. So let's just pretend we're working with one channel here. There's going to be obviously the cost to make your product. There's going to be some merchant fees. There might be some shipping costs. There are other things that go into that COGS category on your P &L, for example, than just your product cost.
If you start at 55 % gross profit margin on your product and from that you take out the merchant fees and from that you take out the shipping costs, you are below 55%. In addition to that, I will say that if you set a target gross profit margin in your projections and that's what you're working with, when you're projecting profitability for the quarter or for the year,
or you're trying to project your cash flow in a certain way and you haven't actually done the calculations of what your gross product margins are or you don't have a sense of how much you're spending on shipping, etc., you're just plucking a number from the air and making it up. We hear from founders all the time like, don't know where to start with my projections. You have so much concrete information that
The majority of your forecast is already done for you. What you don't know is your sales numbers, but everything else you have or should have in your business. I want to do a real world example here of a company that we have created both forecasts and targets for and how we make that work. I work with the brand
or business, I should say, that we talked about who grew their gross profits, like the annual monthly profits year over year for the month of July. I can't remember what episode that was, but we talked about how they did that, right? And it was working within their business to make it more efficient, to make sure their products were priced right. This is a great example of saying, okay, we know we need our gross profit margin to be above 50%.
in order to have enough cash, right? So we basically said, last year sales were X. The gross profit margin was so low that it didn't produce enough money to cover all of our operating expenses. The way we forecasted for that business for the next year was to say, let's assume all sales, like all revenue stays the same. Let's assume that our operating costs stay the same.
And when we assume our operating costs are going to stay the same, what I'm actually saying is we're going to make sure our operating costs stay the same, right, within a bit of a variance. The other thing that we can control is our gross profit margin. So if we have the same income and we have the same operating expenses, we need more gross profit margin and more gross profit dollars to cover our operating expenses. So what do we have control of in that part of our business, in that cog section?
Right? Because revenue and cogs create gross profit margin. We have our product costs. We have our prices. We have our product mix. Right? We have – they had some labor also that was controllable as like a separate line item in their cogs reporting. So what we did first was we went directly to their products and said, what is the margin of all of your products? Because if we need to have at the end of the day a 51 % or higher
gross profit margin and we know what your labor costs are about and we know what your shipping costs are, then we know that our products actually need to be at like 70 % margin or higher. That's like the only way that we're going to be able to guarantee that we can land at 51 plus percent. We wanted to do better than break even. That is what we did first. We made sure that every product that was sold
whether it was like purchased for resale or made in-house had a margin of, I think it was like 68 % or higher.
And so was that a mixture when you did that work, was that a mixture of like maximizing or I guess minimizing would really be the right word, your cogs on certain products and then also addressing like prices of products?
Both. It also… So it was the product mix that some we just had to get rid of because there was the value for the price that had to be charged. It didn't make sense. Right? So those products were like, oh, we love these, but it just doesn't make sense. So we got to get rid of it. For some items, it was like changing the recipes a little bit or making the product a little bit smaller and sort of like lowering the price a bit, but making sure that the margin worked out. So there was like a little bit of that happening as well.
So was kind of all the things, if you will. But I never want to leave out the fact that we had to cut some things from the product mix to make it make sense. Yeah. And then we know, okay, if this is our starting point, we have a good shot at hitting 51 % gross profit margin or higher. If you haven't done that work, there's no way you can know if it's possible to hit that target.
Yeah, that makes total sense.
I don't want you to be setting yourself up for failure, nor does this founder that I'm Or relying on. Really. I want you, if you're going through the work of creating forecasts, which I love for people to do, you want it to mean something. Yeah. Right? This is an area I often talk about how you're not going to be 100 % sure. Again, that comes in typically at
luck.
and the revenue side of things, because you cannot control that always. There's a lot that's out of your control in terms of how much product you sell, but you can absolutely control your margins and you can pretty much control your operating expenses. There's going to be some things that pop up here and there, but for the most part, these are controllable and they're forecastable. I loved that piece of advice because it's foundational.
Yeah.
You know what I mean? Like you have a goal to be cash flow positive in 2025. Know your margins.
And I love that at the beginning you said, yeah, this one's not maybe as flashy, but I think you're right, right? It's very, very foundational and should be on everyone's list.
Yes, I agree. agree. Okay, Chelsea, I have one last sound bite for you. And that sound bite is have management reports. Okay.
Okay.
Okay, that was what he said.
Yeah. And I have it in my notes, this is a little less of a soundbite and a bit more of a philosophy, I think, on how to gather data and how to see your business. And so when I say management reports, people might better relate to the term like KPI or Key Performance Indicator. And again, I'm kind of reading between the lines here and what I know about this founder. So what this boils down to for me is like,
the data of your business in a way that is meaningful to you, right? And look at those reports often. So of course, I'm going to call out the PNL, right? We talk a lot like in emails, on our website. I'm sure we've talked about it here on the podcast a couple of times too, is that you can customize your PNL.
Yeah.
for your business and for you, the founder and your team to be able to see information that is valuable to you in a way that doesn't require a lot of extra work or side calculations and stuff. So if you can do that, that's a great step one to having management reports and being able to keep an eye on KPIs. You can look at your P &L and go, okay, what's my gross margin? Am I hitting that 55 %? What is my revenue?
Am I hitting my monthly revenue goal? Am I hitting my quarterly revenue goal? Those are KPIs pretty much for every business that you're going to be looking at. But let's just say that you've got a P &L that you can't customize further. I'm going to give an example. So John, who's been on the podcast before from Ranch Write, they've got a really great system of how they keep their books. And they do it in…
in a certain way so that if there's more than one entity, for example, they can create consolidated financial reports with ease. Everything sort of matches up the right way. They can also, from what I understand, gather data across all customers to understand what are the norms here? What are some benchmarks? How are our set of customers performing?
financially. So they can zoom out and look at all of the ranches they work with or like subsets of ranches they work with very easily because all of their books are kept pretty much the same way. if I, and I have, gone to them and said, can we customize this further? The answer is no for a very good reason. And so what we do there, which is very similar to what we do with our profit assessment,
Yeah.
is that they make a managerial report is what we call it, where they take the P &L and instead of restructuring it within the P &L, they restructure it in a spreadsheet so that the founder and the advisors can see it in the way that makes the most sense to them. And then John's team still gets the data and information that they need in their reporting to provide value to their customers in the way that they do. So it's like it's a win-win situation.
With the profit assessment that I just called out, the P &L has lots and lots of information. We basically take the P &L and reformat and summarize it in a way that tells a very specific story to a founder so they can understand where to focus within their business to improve profitability. That's not to say that the P &L, the way that it's structured isn't valuable. It's just the two things offer different types of value.
different types of information. The P &L cannot be everything to everyone. So having the ability to create unique reports from it is extremely helpful.
And the thing that this is all reminding me of even like beyond looking at a PNL right when we talk about KPIs is also that those KPIs can change. Right? What is the story that you're trying to see in your business at that moment? And it's not always going to be the same.
Yeah. And I think that's a great point to bring up too, where it might only be a couple of things that you're gathering in terms of KPIs from your P &L. And the other KPIs might come from your Shopify backend. We just talked a couple of minutes ago about how many people are visiting a particular page. What's the conversion rate on our products? You know what I mean? How many people are coming to our website? If you need a thousand people to come to your website based on your conversion rate to get the number of revenue dollars,
in each month to hit a goal and you aren't getting all of those visitors, well, then you know, like that's your KPI, right? Key performance indicator, how many people are coming to the website. Then you know you need to drive more people to the site, right? So then you
Yeah.
You focus on selling if the problem is not the selling it's the getting the eyes on the product.
Exactly. Your conversion rate might be exactly where your conversion rate needs to be. But if there's not enough people coming, you're not going to have the sales numbers that you need. And this goes back to what we were talking about before, right? Is like have specific things you want to achieve in each of your channels, right? Give them all a good shot. Look at the right data so that you can be giving them their best shot so you know what levers to pull.
to keep you moving toward your targets. Those things are your KPIs. And they're going to be, I'll add, different for every channel. Right? Yeah, definitely. wholesale channel KPI is going to be very different than your e-commerce KPI. Right? It's going to be very different than a distribution.
Yeah. And I think a lot of that comes down to really understanding your business, right? And understanding where you're trying to go.
That's such a good statement because I was literally just thinking about someone in office hours who recently asked me, are the reports I should be looking at weekly, monthly, quarterly? And my answer was, where do you want to go? What are you trying to do? And that always goes back to that vision and goal setting that we think is so important for everybody to do, right?
Nothing we talk about on this podcast strays from these very specific things that we talk about. Have a vision and a set of goals, whether it be for a quarter, for a year, for five years, for 10 years, whatever you're capable of wrapping your head around. Then identify where you are now and identify where you need to be in order to move closer to that goal. Identify what...
Yeah.
The actions are you need to take, identify the measurements that are important to help you know if you're on the right track or if you need to change what you're doing. Everything we talk about, even though we talk about it from different angles and we talk about it in different contexts and things, it doesn't change. It's so foundational. And I've said many times, finance work is not sexy until it makes you a lot of money. That second part I just added now for the first.
That's a new piece. That's why I laugh so hard.
Right? Like this founder that I'm talking about whose soundbites I am sharing, with all due respect, he is a nerdy dude. Yeah. He's, from what the internet tells me, his education is in finance and information management, which me too, information management, which what that means is spreadsheet nerds, means can see the stories and data, right?
Understanding your customer is often data. It's also sometimes like, know, feely and emotionally as well. Running ads, data, right? Choosing offers, testing them out, data. That might not be your strong suit. Finances might not be your strong suit. Find someone who it is their strong suit to help guide you. Because if there's one thing that
Yeah.
this founder has proven to me is again, is that there is so much value in looking at the numbers of your business, paying attention to the numbers of your business and being consistent about that. He's got a $400 million in annual revenue business and he is still looking at the data.
And Sarah, think that explains why he continues to master the model of his business. And as you said, be profitable in a big way, honestly.
Yeah, yeah. That's all the sound bites that I have for today. But I hope the listeners enjoyed this. It was fun for me, I have to say, and hopefully helpful for everybody. As always, if you enjoyed this episode, let us know. You can read and review it. And also, you can always shoot us an email to hello at thegoodfoodcfo.com. We love to hear from you and we also love to hear your episode ideas. So if there's something you want us to cover, something you're curious about, a question that you want to ask,
go ahead and send it to us there as well.
Yeah, again, that email was hello at the good food CFO.com and you're right, Sarah. We love hearing from you guys. So hit us up.
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