In this episode, Brett sits down with Andrew Faris, CEO of AJF Growth and host of the Andrew Faris Podcast, to break down the critical elements of P&L design that separate ecomm brands that are dead on arrival vs. those who thrive. Andrew shares his hard-won insights from holding nearly every seat in the e-commerce ecosystem, including his experience running an aggregator "into the ground" and the valuable lessons learned along the way.

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Sponsored by OMG Commerce - go to (https://www.omgcommerce.com/contact) and request your FREE strategy session today!

—

Chapters: 

(00:00) Join Us in NYC at Our Exclusive YouTube Event!

(01:08) Introducing Andrew Faris & His eCommerce Journey

(07:06) The Current State of eCommerce

(13:16) The Influence of Moneyball by Michael Lewis in Marketing

(19:29) Understanding P&L in eCommerce Success

(23:34) Understanding Your Profit Goals & OMG Commerce’s Case

(29:35) How to Structure Your P&L as an eCommerce Brand

(34:48) Optimizing Operational Expenses

(34:56) CAC and Cost of Delivery

(39:33) Channel Strategy and Product Margin Fit

(42:51) Forecasting and Adjusting Business Strategy

(49:50) Resources & Closing Thoughts

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Connect With Brett: 

• LinkedIn: https://www.linkedin.com/in/thebrettcurry/ 
• YouTube: https://www.youtube.com/@omgcommerce 
• Website: https://www.omgcommerce.com/ 

Relevant Links:

• Andrew’s LinkedIn: https://www.linkedin.com/in/andrew-faris-980b84108
• AJF Growth: https://ajfgrowth.com/
• Andrew’s Podcast: https://open.spotify.com/show/7ssrhISeeGHgCLpzZgrxuJ
• Moneyball by Michael Lewis: https://www.amazon.com/Moneyball-Art-Winning-Unfair-Game/dp/0393324818

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ads.

Well, hello and welcome to another edition

of the E-Commerce Evolution podcast.

I'm your host, Brett Curry, CEO

of OMG Commerce. And today, man,

am I pumped about my

guest. I have the one,

the only Andrew j Faris

host of the Andrew Faris

podcast, CEO, founder of AJF Growth,

and just had the privilege of being on

his podcast a couple of weeks ago talking

about YouTube. We hit it off.

I wanted to have him on the podcast

to talk about p and l design and

forecasting,

and also why e-commerce brand owners

should back off from the ledge if you find

yourself there because of

all the craziness going on

with tariffs and whatnot,

and so pumped to get

into your story, Andrew,

but then also deliver some value for

our guests. So welcome to the show, man,

and thanks for taking the time.

Yeah, thanks, Brett. You asked

me how I like to be introduced,

and I think the one the

only is good. That's all I.

Need. Just the one, the

only, that's all we need.

Yeah, yeah, that's right.

So that was good. Thanks.

It's so funny, one time I was traveling

with my team, three team members,

and I was not in first class, but it

was just sitting in front of the plane.

They were in the back of the plane and

they all separately walked by and they

touched me on the shoulder and

they're like, are you the Brett Curry?

And the people sitting around

were like, who is this guy?

Should we know this guy? The name

doesn't ring a bell, but who is this guy?

And I'm like, it's my team. It's just

being nuts. So anyway, huge deal.

Fun times. Yeah, yeah, yeah, right,

exactly. So dude pumped about this,

but for those that don't know

you give us a little background.

I believe you told me you've

held every seat in e-comm,

just about. And so talk us through

that and then what are you doing now?

Yeah, well, what I just try to tell people

is that in the e-commerce ecosystem,

at least on the marketing side,

I have been in just about every kind

of organization in most of the seats.

So I started off working at klo,

selling silicone wedding rings on the

internet as a media buyer. I was trained,

working directly, closely.

I was Taylor Holiday who had been

a friend for a while at that point.

And so Taylor and I became

good friends and crossed,

crossed paths over that time.

Well, we were already friends,

but crossed paths or continued to work

together in a bunch of different ways.

So I was working with Common Thread

collective from there as a growth

strategist,

and then eventually the head of growth

there led strategy at CTC for a while.

At some point, CTC spun off its own brands

into an aggregator called Four Rifle,

400,

and I led growth there and then

became the CEO promptly ran that

into the ground. I always

try to clarify this.

It sounds like when you tell a

story like this, it's like, wow,

look at my great career advancement where

I'm only ever successful and it's just

not true.

I learned a lot. Never happens that way.

Never happens that way. We

did some good things, 4, 400,

1 of those brands still is going

Bamboo Earth and Bamboo Earth. Yeah,

it's profitable, but sold off all of

'em, but won. And I ended up leaving.

And I would just add, I learned,

especially the longer I've

reflected on the experience,

I've learned a lot from my

mistakes there. From there, now,

I've been running AJF Growth,

which is a boutique agency

where we service right

now four brands,

and I've got a team of a few of us in

the US and seven or eight more in the

Philippines and work together to

do a great job as good of a job as

we can do servicing brands,

really meta adss focused,

but we end up functioning sort of

almost like an outsourced

mix of CMO CFO kind of

deal. CFO is too strong of a word. We're

not forecasting somebody's cashflow,

but we do actually take on the forecasting

of the full business in terms of DTC

cohort forecasting, that kind of stuff.

And then we ladder our media plan to

that and then end up being in a lot of

conversations around marketing

efforts and stuff like that.

Which is super, super

interesting. Yeah, I love that.

And I've always been a

believer, I've always,

always been a fan of infomercials

and marketing that drives results,

and I've always believed that marketing

should build your bottom line in

addition to your top line.

But now the trend is you're

putting real legs behind

that where as a marketer,

you're helping run the forecast and

you're helping manage the p and l,

not from a gap accounting perspective,

but from a practical, helpful,

let's hit these profit targets lens

and you're doing it and doing it well.

And so it's super, super

exciting. And also, man,

I really appreciate you sharing, hey,

not everything in business goes well,

right?

And there's one of these things I heard

Alex Hormoz say recently where it's

like, Hey, you expect for entrepreneurship

running a business to be hard,

but then you're discouraged because it's

even way harder than you think, right?

You go in thinking this is hard

is, but it's really, really hard.

And so you have to be ready for

that. Yeah, yeah, that's right.

Yeah, I think some people,

sometimes when I hear people,

you talk about people

being talked off the ledge.

I actually think one of the things that

happens in conversations about the ledge

in e-commerce is that sometimes people's

expectation is just that it's going to

be easy the whole time or that.

Or.

That you should always grow

prospect lifestyle each.

Stage up to the right.

Yeah.

I think if you thought that somebody was

going to hand you millions of dollars

on the bottom line, that's

not an e-commerce problem.

Just so anyway,

I think there is a real thing there

where people need to expect that there's

going to be challenges along the way,

and not every outcome is what you expect.

Dude, totally. I know you're

a family man, I'm as well.

But it's almost one of

those things where pre-kids,

you see a family from a distance and you

see a kid acting out and you're like,

my kid will never do that. My

family's never going to be like that.

And then you're like, you have no

idea what you're talking about,

everything you want to

avoid or not have happen.

It'll humble you for sure, but

business is the same way. It's really,

really hard, but it's also rewarding

and fun and exciting at the same time.

So let's talk about that a little bit.

You hosted a podcast or delivered a

podcast recently where you said, Hey,

I'm still bullish on e-comm, and so we

don't want to fully unpack that, right?

People just need to go listen that

episode. But why did you say that?

And I agree with you by the way,

I've got a couple of things

I want to add to this,

but why are you still bullish on?

Well, there's a lot of reasons,

but at the end of the day,

I think there's more intelligence about

how to operate an e-commerce business

now for a larger market of customers

than there have ever been for e-commerce.

And I think most of the

headwinds are more short term.

Most of the tailwinds are more long term.

So tariffs being the biggest headwind.

And I just should clarify really quickly,

if your brand is existentially threatened

by Chinese tariffs, I understand.

I'm not trying to make light, that

sucks. I'm not trying to say it's.

A big, big.

Deal and no, obviously.

Even taring are currently they were

super high and now they're low,

and who knows what they'll be with when

this is recorded, but still volatile.

Exactly. Yeah, and I just think

so anyway, so having said that,

there's a carve out there, but yeah,

I just think that the tools

are also getting amazing.

This is something people will

sit here and talk about how AI is

producing all of this value to make it

so that the ad platforms are performing

better and delivering

business results better.

And they're doing that

in all kinds of ways,

and also creative is getting cheap to

make at endless scale and all this stuff.

And then they won't take

the next step and say, oh,

who does that accrue value to?

It accrues values to meta it,

accrues values to Google it

accrues values to chat GPT,

who's going to charge you

to do it and all that stuff.

But it also cruises values to brands,

values to brands who reduce

their opex meaningfully.

So if that's the future you believe

in to where the distribution of your

ad creative is getting much, much cheaper,

the labor involved with things like

customer service and all these things is

getting much, much cheaper.

And then at the same time,

the production of your ad creative

and of other creative assets in your

business, including copy on your website

and social media and all those things,

that's all getting cheaper as

well, drastically, phenomenally,

ridiculously cheaper.

If that's all happening,

then that means you can run your business

more efficiently at every level, And

that means it accrues

value to you. So you can't,

it's just really hard to say both those

things at the same time that now the

counter argument to that is

that the barrier to entry

is getting so low that all

of these people will do it, and

there will be very few winners,

and I don't know quite

what to make of that.

I think if there's still

more winners ultimately,

and if it's very cheap to

test the idea, then yeah,

there are going to be some

losers, but, but anyway,

so the combination of all those things

makes me still bullish and I just try

to tell people as far as putting

my money where my mouth is here,

I'm starting a brand right now. I just

got another sample, the sample yesterday.

Love it. So just like.

When will this brand be

released? Will it be launched.

T by October? Hopefully.

That.

Would be,

but that means for sure later than that

because that's how this kind of thing

goes. So.

Yeah, I fully agree with you.

I've invested in some retail and

DTC brands even over the last

year. Yes, there headwinds.

We have an Amazon practice at

OMG. Amazon is challenging.

There are always challenges there.

The game is always shifting

a little bit there,

but people are going to buy in the

future more online, not less online.

I'm very, very confident in that.

I do believe we're in a world where

great products and great marketers will

win. And so it's difficult.

It's challenging, yes,

if you're getting hammered

by tariffs, sympathy to you,

empathy, all of those things.

But there are still big

opportunities in this space.

And I was listening to the operators

podcast recently, Mike Beckham,

co-founder of Simple Modern, and

he imports everything from China,

or maybe he's actively working

to not do that, but Currently's.

The case. Yeah, they stood up a

manufacturing facility in Oklahoma City.

I've been there and it's

really, really cool and awesome,

but when you hear them talk

about it, it's a tremendous pain.

So it's really.

Difficult. Exactly. But he talked about

on a recent episode, he is like, Hey,

this is chaotic,

but there's more surface area right

now for me to make changes and pivots

and shake things up.

And I'm confident this is going

to be going to create windfalls

for our business.

And so I think if we remind ourselves

that during every time of uncertainty,

every economic downturn,

fortunes are made and people

transform their business in a powerful

way, it's just a good mental reset.

That's right. Because.

Sometimes being an entrepreneur is lonely

and we get down and discouraged and I

got to give myself a pep talk on

occasion. And so I'm glad you did that.

Thanks for posting that episode.

Everybody should go check that out.

Well, maybe I need to have

you back on again, Brett,

because Taylor is one of

the biggest critics of my

e-commerce is a good business

mentality, and he said, you need to bring

somebody on who agrees with you. Yeah,

yeah.

Yeah, I know he is. Yeah. Well,

because you tweeted recently

with your friend fan,

I think that 50% of e-comm

brands are worth nothing.

And Taylor tweeted back

that it's like 95%.

95%.

And that is a good clarification because

fans sample is brands that are trying

to exit, and so.

That.

Skews disproportionately

towards brands that have some.

Value, a little bit, little

bit of cherry pick there.

And I didn't mean,

I just didn't think about that when I

proposed that I wasn't trying to be click

fatty or whatever, but it's

a fair point. But yeah,

anyway, it's.

Still money to be made still

success to be had. Road's not easy,

but still there. So I want to talk about

this. We're going to get to p and Ls.

I want to talk about how

to design it, and again,

not from an accounting perspective,

but how to look at it as a marketer,

as a business owner to drive profits,

drive real business and finance outcomes.

But we were talking about something really

interesting prior to hitting record.

You're a big baseball guy. I'm

more of a basketball football guy,

but I love baseball too.

We love the same movie,

and you were inspired more by the book,

but tell us about the book that

maybe shaped you as a marketer

that will, I think, surprise

people, but talk about it and why.

Yeah, Moneyball.

Moneyball I think shaped a lot of

people in a lot of ways actually.

I think it did. It did. Reach

was well beyond baseball fans.

For sure.

Because in my experience,

so I grew up playing baseball

as a huge baseball fan,

and when I heard about analytics

in baseball and the early stage,

I had the same reaction as a

lot of people, which is like,

this is soulless and these nerds are,

they don't understand how

baseball really works.

And then I read the book and was totally

convinced that I was wrong about that.

A hundred percent.

Percent.

But what ended up happening

is that that book exposed to

me, not so much just a

statistical paradigm for baseball,

but it taught me how smart,

analytically minded people think

about everything about the world.

So I'm a big Dodgers fan of

wearing my Dodgers hat right now.

The guy who runs the Dodgers, the

president of baseball operations,

his name is Andrew Friedman, he came

from Wall Street. He was a traitor.

And so he had an ability to think about

statistical probabilities and some of

those things and how you use data to

inform better quality decision making,

and to think about the world as a matter

of bets that you place and things like

that. Working with him for a long time,

a guy who eventually ran the Giants

eventually got fired and is now back as a

specialist of the Dodgers. His name is Dr.

Farhan Idi, who has a PhD from MIT

and has never played serious baseball.

And there's teams that have various

levels of those kinds of guys.

Some former players now are

those kinds of guys or whatever.

So it's not only that,

but the point is those guys were not

thinking about baseball first when they

developed those muscles,

they just took a set of muscles

and applied them to baseball.

And what I did was the opposite direction.

Moneyball for me was the

way that I learned how to

think about how to look at a

set of numbers and think about what they

mean and how to interpret them and what

they don't mean, which crucially,

and I mean Brett, I'll just tell you,

I think I actually just

tweeted about this today.

I think that people's

inability to have a baseline

understanding of then the concept of

probabilistic thinking about outcomes

and of the difference between signal

and noise and how to make a distinction

between those two things

is a gigantic hole in their

thinking, especially media buyers.

Media buyers are terrible

at this hundred percent,

and they overreact to tiny samples. And

just for the record, I am media buyer.

I am the person that we're talking about.

So all of my thinking about how best

to optimize a lot of media

buying approaches is like,

how do I get the machine to

make the decisions for me

because I am so bias prone

in all of my thinking. So

anyway, Moneyball, for me,

the book really helped me to start

working out those muscles and those

muscles then became transferable

to other things eventually.

Also listening to the Freakonomics

podcast helped me a lot with this.

Listening to the Planet Money podcast

helped me a lot with this. Really,

Freakonomics I think was

especially helpful as well

because very similar thing,

right?

You've got guys who are sort of exploring

the world through the lens of data and

what data can and can't tell you,

and sort looking under the surface,

little taglines, exploring

the hidden side of everything.

And the hidden side is how data creates

incentives and some of that. So they

have all kinds of really fun things,

outcomes of like, oh, look at that.

If you look at the

numbers underneath this,

you see patterns and

behaviors emerging. Yeah,

I just think a lot of people would do

really well to, if you like baseball,

you have the best world for this because

it's the place where a lot of this

stuff is the most publicly digestible.

But if you're a basketball fan, Brett,

surely over the last bunch of years,

the thing you've noticed the most

is the rise of the three pointer.

It is a simple calculation,

which is a three pointer is worth more

than 50% of a two point. It's worth 50%.

It's worth 50%, right? More.

Yeah.

Sorry. It was worth more, which

is 50% more than a two pointer,

and therefore there's a massive

incentive unless you make it

essentially your shot doesn't have,

you can be a fairly amount less

efficient at the level of the shot and

still be a more efficient use

of your shot in that case. And.

So.

That kind of little tradeoff, it's like,

oh, once you see that, that's good.

And by the way,

if anybody ever goes and plays pickup

basketball and you're playing with ones

and twos as instead of twos and threes.

That's even crazier. It's not twice as

much. You should shoot a two every time,

every time. If you're a drive

to the bucket type of player.

You're doing.

It wrong. You can't play in a

game, that's one versus two.

It's like you've got to develop that

three point shot, which I don't have.

I grew up in an era where

I was a post player,

we just pounded down low to take

a close shot. That's all we did.

But I'm so glad you brought this

up and we will talk p and l,

we will talk about e-commerce.

Yeah, whatever. We can

talk whatever you want.

But I love that we got into this because

people are not failing right now in

e-commerce or in any business for lack

of data. That's not an issue right now.

It's not lack of data. It's

understanding what does the data mean,

but more importantly, what

does the data not mean?

And then based on what it means, where

am I going to place bets and why?

And can I confidently say this,

why I'm going to place bets in this

place and not in that place? And yeah,

dude, it is just so good.

I love the movie Moneyball,

so many quotable things

in that movie. And.

As it happens, I'm also

a big Aaron Sorkin fan.

So once Moneyball became both Moneyball

book and also written by Aaron Sorkin.

Was in.

He's.

One of the best, wait, what are some

of the other Aaron Sorkin movies?

Well, there's a lot. I mean,

he wrote Charlie Chicago Seven

is one that people liked a lot.

I think that won some.

Did he write Molly's game? The

poker? He did, yeah. Just so good.

But the West Wing is maybe his still most

famous thing in some ways because the

West Wings a lot of people and

West Wing I love too. Yeah. So.

You'll be a better media buyer,

better business operator,

better Econ Pro. If you watch or

read Moneyball, go check it out.

That's awesome, man. So let's break

down. P and Ls mentioned to you,

I actually love math. I excelled at

math in schools. It was just fun for me.

I hated accounting class in

college, slept through it, hated it.

I've never taken one, so that's fine.

Okay, I regretted it once I started

a business. I was like, oh shoot,

I should have paid closer attention.

So I've had to get better there.

There's some differences.

There's gap accounting principles which

are useful and there's a reason for that

and there's a world for that.

But then there's p and ls that are

useful for marketers and business owners.

And so talk to me about how

you think about p and ls,

why it's important, and what function

does that serve for you as a marketer?

So at the baseline level,

what I really think here is

that many brands are dead on

arrival and don't realize it.

And the reason they don't realize it is

that they have never done the work of

forecasting

every part of their p

and l, the whole thing,

at least in large chunks.

So I am not saying you have to forecast

your Shopify bill six months out or your

Klaviyo bill six months out or

whatever, down to those details,

but maybe you should, but

I'll tell you this,

there are worse things to do with your

time in e-commerce than to get that

detail in your forecast.

For sure.

But I think a lot of

brands just don't have a

viable business or it's going to be

really hard or they have filed business,

but they are strategically

so turned around and don't

know it because they just

haven't done the work of having a

goal. And then forecasting to

that goal in a way that says,

here is what is actually likely or if

they do the forecast is rooted in hope.

And that's not a forecast. Hope is

not a forecast, it's not a plan,

but to have some reason for why they

believe the future will be a certain way

and then to forecast their whole

business through that lens.

And I think that basically the tool to

do that with is a cohort-based forecast

for e-commerce brands where you're

actually forecasting new and returning

customer revenue differently. And then

depending on if you're omnichannel,

how you work those channels in as

well, this gets more complex. But

basically having that kind of thing,

it sounds like ridiculous

advice to say to people,

you need to forecast your business.

Like duh, everybody knows that.

But I am telling you, I just see over

and over that people do this again,

either they don't do it with any

seriousness or they do it or they

do it with no or no connection to

reality in terms of what's happened,

or they do it, like I said,

the Hope vibes forecast kind

of thing where it's like, here,

we're just going to increase

spend for forever every month,

and it's always going to be at the same

roas and it's going to just be great,

or we're going to have all this revenue

and there's no separation with no

understanding. It says return

customers, new customers, whatever.

So that's the basic principle,

because if you can do this exercise

well and disciplined and clearly,

and if you need help,

there are a lot of people who

help you with this by the way.

But if you could do it well,

then what you end up with is a map

and compass to the outcome that to the

treasure that you want.

And that is the key step

for so many brands to do

because if you do the exercise and you

get really realistic about it and the

outcome of that exercise is not some

profit number and some growth number

that is satisfying to you,

then that gets shoved back in your

face and you now have to deal with the

reality of, oh, this is

not going to actually,

I actually don't have

a business that works.

And then you could start

trying to solve the problem.

And maybe I can break down at some

point, I'll pause here in a second,

but break down what kinds of problem

surfaces and what makes a good and bad

E-commerce p and l. But that basic thing,

I think a lot of people have not done

the hard work of just doing that in a

disciplined and careful way.

Yeah,

it's so good because I think there's a

lot of businesses that are in a scenario

where you can't get there

from here where it's not just,

I'm going to work harder,

I'm going to do more of this,

but you are doing the wrong

things and the basis of your

business is flawed. The ratios

in your business are flawed.

You are never going to get to those profit

numbers that you want to hit based on

the way you're operating right now. And

yeah, no amount of wishful thinking,

positivity,

new creatives on meta are going to get

you there because it's fundamentally

broken. And I remember as

an agency several years ago,

and we've always been profit actually

every year we've been profitable.

We've had some struggles and we've

gone through some issues and had to do

layoffs a little over a year ago and

some other things. But I remember when we

started talking to some PE groups and

they started talking to others and they

explained the way they look at agencies,

the way they look at businesses,

I was like, oh wait, we've been kind of

lazy in a couple of areas financially.

And it just forced me to think about

the business in a totally different way.

And even though we never sold to PE

and actually we're looking at acquiring

agencies right now,

that function of thinking about

how would an outside finance

person look at my business,

change the way I ran the business,

not in terms of personality, the way I

care for people or anything like that,

but just the way I look at the numbers

and the way I look at the ratios shifted

when I took that perspective. And

I think really every business,

every e-comm business needs to look at

that. How am I looking at my p and l?

How am I looking at my forecast and can

I get there from here doing what I'm

doing now? So.

Really good stuff when you do

that, Brett, for the agency,

the same exercise for an agency as

it is for an e-commerce business.

It's just a question of the

ratios are different, right?

Service business,

it's about marked up time and the cost

of goods is people basically, right?

So do you have a framework through

which you're trying to view

how at MG Commerce how much

margin you have per client or per head

or something like that, as a percentage?

I'm just curious.

I think you do this if you talk

through how you think about the agency,

then the same principle

applies across to e-commerce.

Yeah, I think it's going

to be really similar.

So the way we look at a good

agency should be in the 20 to

25% EBITDA margin range,

maybe a little bit higher.

And I think as AI becomes more prevalent,

there are other ways you could

look at making that margin higher,

but that's a pretty good range. So

to get there, what does that mean?

And I think if you look at

the big buckets in an agency,

delivery is the biggest, right?

So these are the team members

that deliver the service.

So what should that

ratio be? You've got ops,

so that's SG and a basically.

Actually not S, but anyways,

like the general operating opex and stuff

like that. And then you've got growth.

And so growth, we put

marketing and sales together.

That's just the way we

do it to look at growth.

And so those ratios have to

line up in a way that then gets

you to that 20 to 25%, or

maybe it is aggressive,

you're looking at 30% EBITDA

margins or whatever. So how are

you getting there? And so then

you start forecasting, okay,

these are my team members

in these departments and

this is what we're investing

and I'm projected to get 8% margin.

So then you begin to look at, okay,

where am I out of whack?

How do we fix this?

Do we grow our way out of this because

maybe we have a lot of bandwidth and we

can grow into it. Do we make

cuts? Do we get more efficient?

There's a number of things to look

at. So those are the areas we look at.

And then we break it. So we break

it down in big buckets like that.

We look at a p and L on

of course a monthly basis.

We update it all the time,

multiple times a week,

but then we also break down into each

department kind of p and l and look at how

that rolls up,

and then what does each department need

to contribute to then get us to the

overall ratios that we need. And so yeah,

we're planning things out annually based

on that. We also factor in things like,

okay, what is our pipeline?

What percentage of deals

are we're going to close?

What's our average deal

value? So that's layered in.

We also factor in churn because

even though we think we're great,

we've won awards and people love us

and things like that, churn still.

Happens.

It happens more when tariffs are going

on, stuff like that. So then how do we

factor in churn and look at that because

you're never going to keep all your

clients. And so we spilled that model and

it's like you're constantly adjusting,

you're constantly tweaking.

We do a weekly flash,

the finance report that looks

at, okay, what changed this week?

How are we looking at

the rest of this month?

So that's kind of the base of breakdown.

And I think that exercise reflects

there's a target profit number that you're

trying to get to. You just said 20 to 25%.

That could change depending

on all kinds of things.

It could have changed depending on the

way that businesses in your sector are

valued. It could change

depending on your goals,

depending on the cash intensivity of

the business, the cost of capital,

there's all kinds of things

that could affect that.

It could change just because of what you

want in life. And that's fine. Totally.

When I talk about this, to me,

it's not about me saying necessarily

what I think good is in this case because

it's just going to change for

different people depending on goals.

I could tell you what I think how these

brands are valued in the m and a market.

I have thoughts about that,

but then even how much you care about

that is your own question and when you

want to sell and all those things. So

there's all of these other factors that do

that, but then you just kind

of work back from there.

Here's the profit number

we're trying to hit to.

Maybe you have for yourself some kind

of a revenue goal that ladders down to a

profit goal that ladders down to your

take home that you want or a valuation

that you want or something

like that. So you say, okay,

I need to hit this profit number,

which means I need to get to this

revenue number. And then from there,

you just add in your costs. And this

is the thing for e-commerce brands,

you have to play that exact same

game. And I'll say for most of them,

that EBITDA number probably

ought to be at least 10 to 20%.

Now, again, with the caveat

of everything I just said,

which is in some ways it's up to

you, but for it to be valued highly,

if that's what you're aiming at,

if enterprise value is your goal,

probably somewhere around there

while the business is growing,

and then now you've got to think

about how you break down your costs,

very similar to what you just

did, Brett, for the agency.

So I don't know if you want me to go

sort of section by section and talk about

what I think the costs ought to

be, then we could talk about it.

But this is where it varies a lot in.

Categories. I love that, and I did skip

a very important step. It's like, okay,

we have very specific goals about what

do we want our total profits to be for

this year, and as we grow and

as we do some acquisitions,

what do we want the overall

OMG platform to look at?

So you do start there and top line goals,

and then you back into all those

get all percentages. But yeah,

let's break it down. So what should

this look like for an e-commerce brand?

How am I structuring my p and l?

Yeah, so the starting point

for this conversation is if you

think about the notion,

Taylor Holiday four quarter accounting

is a helpful way of framing this.

There are four sections after

revenue on your p and l.

So it's cost of delivery, CAC and opex,

and then profit. Those are the four

sections of your p and l, okay?

Cost of delivery includes every variable

cost associated with getting your

product to a customer.

CAC is every ad dollar or marketing

dollar that gets deployed.

OPEX is every fixed cost in your business,

which is mostly people and

an e-commerce business.

And then profit is left leftover.

So let's work backwards. Okay,

so profit obviously the number

you're trying to aim at.

So one of the things that should be

happening in e-commerce business,

basically no matter your sector,

and I think this is the thing that is

the most true across every category,

is that your opex is a percentage of

your revenue should be pretty low.

And it is amazing to me how

high this number still is.

But one of the fundamental advantages

of e-commerce is that it scales really

well relative the number of heads you

have and even cost of those heads.

Opposite of agencies. But yes,

it's very true for e-commerce.

Opposite of agencies. So

as a simple heuristic here,

your total fixed costs is the percentage

of your revenue as you grow in

particular ought to be less than 15%.

So essentially that means if you

have a million dollars in revenue,

your total cost of all opex including

salaries ought to be $150,000 or less.

Now at a million dollars,

it's pretty hard to hit that number

because you have not actually scaled yet.

But the more you scale,

the more you obviously that

percentage come down because,

and the simple reality that happens in

every part of an e-commerce business,

the illustration I use all the time

is that it costs basically, well,

it costs the exact same amount of money

to design an email that you send to a

thousand people versus that

you send to a million people.

The design costs are literally

dollar for dollar the same.

You got to pay Klaviyo a little more

money between those two, but otherwise,

all of the other costs are

pretty much exactly the same.

And so that means that the percentage

of your cost of people goes down a whole

bunch. If you add in the ability

with AI now and with offshoring,

which I'm a huge believer

and proponent in my team,

I mentioned there's seven or

eight of us in the Philippines,

they're incredible

contributors to my team.

I don't think of them as

separate or something like that.

Totally. They're pure team members.

And they are killers,

and I can get access very high

quality talent in the Philippines

for much less money than I can access

that talent in the US equivalent talent

because of the differences in the

economies and some of those things.

It's a win-win. So if you add

those two things together,

now you have talked about

shrinking your opex even more,

and you can be really best in class here

and get that number under 10% and maybe

even lower. I've heard about,

I think Zach Stocks has talked

about publicly somewhere that,

or maybe that maybe I heard Marketing.

Operators, what brand does he run?

Hollo socks, Zach, some people know him

and he had started Homestead agency,

some other.

Brands as well. Great agency. Yeah.

So Zach was talking,

I think on marketing operators that

his brand is like five or 6 million in

revenue per head, which is crazy.

That's wild. That is a very,

very lean opex. So that

is the number one thing.

And I think a lot of brands

actually are still sucking.

They're just paying too

much money for people.

I recently had Ben Perkins on

from Ann Call on my podcast.

He was at $15 million in revenue

and was drowning in debt.

He had taken some inventory based loans,

was paying $65,000 a week in loan

repayments and trying to figure out how

to stay afloat.

He had $3 million in debt against

10 million in revenue at one point,

which is not really workable

in a lot of e-commerce brands.

So he started smashing all of the

costs that he could in his business.

He ended up cutting half of his labor

and discovered something which was that

the business did not change.

Nothing happened, right?

If anything, it got smoother.

And Ben is clear and gracious

to say that's not necessarily

because those people

were either bad or not working hard.

Part of it's because managing

people is very hard and he.

Wasn't.

Great at managing them hundred

percent. And so he had made bad hires,

he had not managed them

well, all those things.

But he found that by being leaner,

and I just think so many brands can be

leaner. So that's number's number one's.

Also software of analogy on

this that I think it hits.

It's like is meta or YouTube incremental

for your business? Well, it should be,

but you could be screwing it up

and if you're screwing it up,

it might not be incremental at all.

That's right. That's.

Right. I think it's the same with

people. They're not bad people.

Maybe they're working really hard,

maybe they care, maybe all those things,

but maybe you've just got the structure

incorrect or you're managing 'em

incorrectly or you just don't need 'em.

And so they're busting their tails,

but actually it's not writing

incremental value to you. And so yeah,

Ben talked about that.

His solution to the problem was to create

a personal p and l for every one of

his.

Employees.

So basically to answer this question,

is this person generating incremental

value in the business and here's how we're

going to measure it.

And he said some of them did not

want to partake in the exercise,

so he offered them a gracious

severance and they left.

And then the other ones who

were willing to participate,

it turns out they were driving a whole

bunch of value as measured on a p and l,

so he did the exact thing he.

Just said. Interesting.

Yeah, I thought it was brilliant.

So we're driving down our opex.

Can't underscore that enough,

especially in e-commerce. Drive

down that opex, okay, what's.

Next?

It's so fundamental to what makes make

an e-commerce business work and people

need to be really clear about that.

Software bloat is the other

thing to watch out for. There.

Typically.

Not as expensive as people,

but it can get expensive.

People just have too many things to

the chasing shiny object syndrome.

You don't need to do that for a while.

So opex should be shrinking as

a percentage of revenue. Again,

in a forecast you should

see as my revenue now.

So if you forecast up 1 million to

5 million to 10 million in revenue,

whatever that growth rate is,

you should be seeing that you're

hiring is not going linearly with that,

but that people are now

able to create, again,

have operating leverage in their people,

which is to say they

generate additional value,

not just the same amount of

value as before. And so you

got to keep hiring them.

Again, very different than an

agency to service the revenue.

You have to keep hiring. Okay, exactly.

So that's the starting point. Okay. Then

you get into CAC and cost of delivery.

Now this is where you're going to

have more variation across different

industries.

So apparel businesses are going to

function in both of these regards really

differently than supplement

businesses, than beauty businesses,

than food and Bev.

All of these things are going to

have just home goods, whatever.

And so this is where you get to

all kinds of different setups.

What I will say about this is more that,

so if you want to say best in class,

let you just want a heuristic here.

If you say 15% opex or lower,

30% CAC or lower in your business,

so your total spend is 30%.

So I'm spending a third of my revenue

basically on marketing or on customer

acquisition.

Correct? On.

Marketing.

30% In cost of goods,

okay, cost of delivery,

totally delivered to the

customer. Right? Now you've got.

That's cogs, that's shipping,

that's cost of fulfillment.

Costs, merchant account fees.

Refunds, all.

Those things. The 3% you have to pay

Shopify and credit card companies,

everything in there.

The dollar 50 or three PL is going to

charge you for fulfillment costs per

order, plus any pick and pack. There's

all of these little things that come up.

The cost of ordering the product,

getting it from essentially from

your manufacturer to the customer.

That whole journey

represents all these costs.

If you can get that to 30% as

well, now you've got 30% COD,

cost of delivery, 30% cac, that's

60% of our money is going out there,

15% opex, and now you have 15%

leftover. Did I do that right now?

Now you have 25% leftover,

you did 5% leftover.

That would be super best in

class, be amazing, 25% left.

The reality is most businesses

do not have that much margin at

30% total, and they're not

running their CAC at 30%,

but if you want to know why there are

so many supplement businesses in because

they can do both of those things,

they uniquely are able to do this.

Their CAC shrinks as a percentage of their

revenue over time because customers come

back so much that returning customers

make up a larger and larger percentage

of their revenue pool. By the way,

there's some similar dynamics

in skincare. The product beauty,

the cost of creating the

product is very cheap.

The cost of shipping the product is cheap.

All of those things come together and

you can charge a good amount of money and

get AOVs to 70 or a hundred

dollars or whatever it is,

which can be helpful as well.

You put all that together and you can

run a really high margin business.

The truth is for most brands,

they're going to actually be spending

more somewhere. And the question is where,

so for a lot of brands, if you

can get even two 60 points,

or if you add 10 more points

of cost to your cost of

delivery, 30% to 40%,

that's probably more realistic for

where a lot of brands end up in a lot of

cases.

And now you've got 15% profit margin and

that's still a really healthy business,

something like that.

Still a great business.

Or you have someone like Sean from the

Ridge who I think he said he spends about

40% on cac, right? So then this.

I going to points.

To.

That side. This is another way to do it,

which is I have a brand that

does something very similar,

which is they have extremely high

margin and they want to grow.

So what do they do?

They turn around and they plow money

into ads and they're like, We are just

going to push our growth really

hard on ads, and by doing that,

we're going to be really profitable and

by staying lean at the same time with

our team, we're going to be really,

really profitable. So now, yeah,

they run like 40% cac, 30% or

less cost of delivery and yeah,

15% or less opex, and they're

running it like a 15% margin as well.

If everything goes awesome, still a

great business. If everything is awesome,

then there's some places where they

can find some help on all of those.

They're hammering away out their

cost of delivery all the time.

In any of those cases, you

can have a strategy. Now,

there's exceptions to those

rules too. We mentioned simple,

modern earlier as an

example of this, and simple,

modern did not start off

first of all to DTC brand.

They started off as an Amazon brand.

Amazon brand, and that's important.

We've seen so many of those, by the way,

so many born on Amazon brands, and when

they try to make that transition to DTC,

it's so hard because the

math is all different.

Amazon is a demand capture platform

and it's razor thin margins,

but all the traffic is there and that

sets what you're capitalizing on.

It's not really demand gen proposition

there. And so it makes it very.

Difficult and in competitive

categories on Amazon,

being able to be priced cheaper

is a really big advantage.

That's basically a marketing

play, right? There is usually.

Price.

So the simple modern guys tested five

different products when they launched on

Amazon, all within trends that

they thought were taking off.

It is super genius when you

listen to what they started with.

They're brilliant dudes. Brian Porter

alongside Mike Beckham. Brian is there.

I know Brian well, and you

admire Mike. Yeah, he's great.

Yeah,

both fantastic people and

just killers and the softest,

gentlest, kindest killers met.

Yes, gentle killers. But Brian,

he talks about the early days and it's

really helpful to think about this

through a p and l lens because what

they did was they said like, okay,

we're going to price

cheaper with drinkware,

with stainless insulated

drinkware than other people are,

and we're going to create more variant

options than what is currently available.

Because if you think about the

legacy players in that space,

the Yeti Hydro flask, they

built for mass retail,

and so their business was

tuned for mass retail first,

and that meant pricing

strategy, product skew strategy.

All these things were built for that.

Black, white and blue and maybe

red. That's all I can afford to do.

I got to send that everywhere in retail.

Right? And so they said,

we can create more options.

People like to accessorize

with their water bottles,

and so I can create more options at a

lower price and a really great product.

The net result of that,

and this is the p and l implication that

I think is helpful to think about is

that they have, and they've

been public about this,

but I don't mind saying it like

30% margin. So at a DTC level,

it's like 60 to 70%,

I think closer to 70% of their

revenue immediately goes out the door.

Maybe 65% of their revenue immediately

goes out the door to product costs and

cost of delivery, getting

it to the customer.

So they only have 35

points of margin leftover,

which blows up the entire paradigm

I just told you about, right?

Right.

Yeah. But it's because it

was a channel strategy,

which was to start Amazon first

and then DTC came in after that.

And this is why, like you

said, some brands really

struggle to go the other way,

and this is where sometimes there is

an issue here with product channel or

product business model fit,

Where you have the right idea,

but you're just in the

wrong channel for it,

and you need to change the whole business

model to match the channel that you

are in. And I think this

is actually a problem.

I operated a business like the SE four

400 where we just needed to be a mass

retail business because the math didn't

work very well for us. We had low LTV,

it was very expensive to ship,

and it was just really hard for us to

make the math work as a DTC brand. Now,

eventually,

simple modern of course now has a

really good DTC business as well because

they're really big.

And so they've been able to generate so

much awareness and all those things that

they can make it work, but

it wasn't their lead channel.

And I just think it's

helpful to understand that

there's reasons for that. And

when they went and launched

a hydration pack brand,

they're doing that DTC first with a

potential mass retail output eventually

because that product makes way

more sense on the channel in

all of the things that

I just laid out before.

And so brands need to get really

serious about, wait a minute,

if I have low margin,

let's say I end up with 50%

margin leftover after my cost

of delivery or 45% my

cost of delivery, gosh,

DTC is going to be an uphill slog.

There better be a reason that I

think I can do it. And there may be,

may be because you have some pricing

strategy that gives you some unique

advantage of, I don't know. But there

would be ways to do it. But yeah,

I think that's the thing that people

need to get really clear about is how is

their approach to their margin profile

fitting with the channel? And if so,

because my friend Kelsey Lyric

and I have debated about this,

but I think it changes the whole model

of the business. The business model,

if you don't have product channel fit in

quite that way and you have to think it

very differently about nearly all of

it. The moment you go to mass retail,

the amount of heads you have and

the amount your shipping works,

all that stuff changes.

So sales commissions and all

these different kinds of things.

Your margin profile has to fit

your core channel or channels.

That's really important.

I think that's something that not a lot

of people think about in the early days

especially, but it's something you

need to think about as you're grown,

as you scale. So let's do this, Andrew.

Let's talk about how are we projecting,

how are we predicting, how are we

pivoting along the way as we go?

So we've kind of talked about these

numbers. Obviously if we're out of whack,

there better be a reason for it.

We'll be able to make that

work on our channels. If not,

we're going to need to start

making some adjustments, some cuts,

things like that.

And you may have another note there

before we talk about projections. Yeah.

Okay, cool. So then how are

we looking at projections?

And again, to use the Moneyball

example, how are we taking data,

this p and l that we're looking at

and using it to make decisions and

operate our business so that we

actually hit those profit targets?

So what ends up happening,

if you do this exercise,

if you forecast all of the parts of the

p and l that I just said over a period

of months or years or whatever

it is, something will happen,

which is that the numbers will be thrown

in your face in a way that will tell

you if you are somewhere or not.

And then their question is if you

are close or if you're somewhere,

let's say you get that and

you're like, Ooh, we're at 5%,

and if things go wrong, 5%

profit, and if that goes wrong,

that takes us down to zero,

that takes us down to whatever.

Then you have to start thinking about

what is the solution to this problem?

Do I need to just grow faster so that

my opex becomes lower as percentage of

revenue? Do I need to fire people? Do I

need to go negotiate my manufacturing?

I have a little theory right now,

which is the supply chains are the

most underoptimized part of e-commerce

businesses.

Totally agree. Nobody got to

in the past, didn't need to,

didn't feel like we needed.

To. And it's a lot to do. It's hard.

There's a lot to do.

Exactly.

Somebody like me gets on a podcast like

this and tells you another thing to

think about and listen, there's 70

podcasts like this that are new.

There's probably way more than that.

There's probably 500 podcasts like this,

all of 'em with people

telling you what to do,

it becomes really challenging

to stay on top of all of it.

And so anyway,

we went through I think the marketing

revolution in e-commerce where people got

really early on, that was

a big part of the thing.

Finance revolution has been happening.

More and more brands recognize

they need to be profitable.

They can't just try to blitz scale. They

recognize their business is worthless,

it's not profitable.

They're listening to the finance operators

and following mates have and Drew and

Taylor Holiday and people like that on X,

and they're getting their feet wet with

how to think about forecasting their

business and some of the things I'm

talking about. But there's another step

next, which is like now, okay,

how do you actually go negotiate a supply

chain and build your supply chain out

and do those things in a way that

is actually good for the business?

And I do think there's a lot of bigger

wins there than people realize just by

talking to more manufacturers,

negotiating with your three pl,

there's just a lot there. I

have brands who've done this,

shout out to my friends at Move

Supply Chain, who they've worked with

on this where it was like, wait a minute.

We had this product that was

costing us $5 per unit to make.

Now we got it down to two.

And no customer has ever said a

word about it being different.

It's still good product.

They just did a bunch of stuff to go

work somewhere else in the world and.

Make 60% reduction in cogs. Huge.

Gigantic impact on the business. Massive.

And so there's a bunch

of stories like that.

So yeah, I just think that could be

where it is, where you go like, oh,

we have to go manufacture something

different. I'll tell you from my brand,

my brand is in a category where the

packaging is more expensive than

the product, than the actual.

Product. Interesting, interesting.

And so we are going to launch with prices

that we think are pretty decent at the

level of cost of delivery, but right

away, I'm right away thinking, shopping.

Additional manufacturers that actually

worked with that same company might move

supply chain. They started with 60, so

a 60 on product and 20 on packaging. So

we already are somewhere on that.

We looked at a lot of manufacturers.

But immediately I'm thinking about, okay,

at what level do I get a price

break by ordering more of these?

Do I need to go actually redesign the

packaging, the most expensive part of it?

If I could shave two bucks off of

this, it's probably worth doing.

There's a lot of questions like that that

come in because I know that everything

in the business will get

smoother if I have more Martian.

It's just a superpower.

Totally. And so anyway,

so you can play that out in your business

wherever it is. What are those giant

costs that are just killing you? They're

somewhere in your business probably.

And you just start by saying, okay, what

is the place that I try to go to next?

Look at it with somebody smart, got

a coach. If you need some input,

somebody can probably look

at that with you and say,

if you've been in your business

for four years and you're like,

I have had ideas, then

you can do those things.

But people will have ways to go and

say, Hey, have you looked into this?

Have you considered that?

Have you thought about, Hey,

your air shipping stuff all the time?

Stop doing that because your

forecasting is bad. You're behind.

You need to get back to ocean freight.

That's a big whatever, whatever.

There's all kinds of things like that

in every business because it's hard.

And so you could start kind of hammering

away doing that forecasting exercise.

We'll start to surface

those things for you.

I love it.

And it's one of those things too that

with all the tariff madness that's going

on right now at the time of recording,

it's forcing people to look at

different locations for manufacturing,

different factories, different

ways of getting the product here.

And I think in that process,

even though that's painful and not

something any of us want to be doing,

you're going to find opportunities in

there and you maybe going to shave off,

you're going to find five or 10 points

or 20 points or something like that.

That would.

Be, it could be a game changer for

your business or maybe you're not.

Maybe it's going to be

a terrible experience,

but you work towards that for sure.

I have a theory really fast, Brett,

that the upside of this whole thing is

that tariffs will be a forcing function

for better supply chain creation for

people because they're just going to have

to, and that it'll be, and that win for

some brands, not all brands. Totally.

For some way.

Yeah, it sort of relates.

But if you look at the iOS 14 and just

all the madness that happened there,

it forced us to be better

markers. We had to.

And so I think it's going to do

something similar here with supply chain.

And I want to be mindful of time, so

you lemme know if we need to wrap up,

but I want to look at cohorts and LTV and

composition of new customers and returning

customers and how you forecast that

and how that informs this process. So do

I have time to get into that or do we.

Wrap up? Yeah, this is good. This's

going to be the last question.

So that's, there's a lot there. Best,

best, yeah. I'll tell you what to do,

honestly, go to my website,

put your email address in the

email popup or in the footer.

Either one will work. You get my four

free essential e-commerce resources.

It's going to sign you up for my

newsletter as well. I don't spam you,

I promise. AJF growth.com. Go

there, sign up for my newsletter.

One of the things I will send you is

from some lovely venture capitalists at

Lightspeed Venture Partners put

together a whole prebuilt like

custom spreadsheet that helps

you and walks you through how to

forecast returning customer cohorts

off customer data. It's hard work.

Another recommendation I say to

people is Dave Ook, CXL class.

So the CXL course,

he talks you through how heat forecast

businesses. He's a really smart guy.

I worked with him really closely

for a long time. At four 400,

he still runs Bamboo

Earth, but if you do that,

it will give you a whole prebuilt

spreadsheet for how to do it.

And I basically had at one point

common thread collective took the

Lightspeed model and built it

a little bit for themselves.

I've since tweaked it a little bit for

myself and I will send you mine for free

so you can do that. And that's

probably I think the way to do it.

But if you can just see

historical returning customer

behavior over months after

purchasing and then put that into a

spreadsheet that will tell you, okay,

what does that mean for the customers

that acquired today in six months?

How much are they worth? You can pile

all those cores on top of each other.

You can get a really good revenue

forecast. That's surprisingly reliable.

They're more reliable than people think.

And then you can look at, okay,

my new customer acquisition activities

are underperforming or overperforming,

and what does that do to my

projections? That's right.

And then you can understand, okay,

I need to make some pivots now because

this is going to have a real material

impact to my business in 2, 3,

4, 5 months, things like that.

So awesome resource, a big job.

But if you commit to it, it's a

big job. You can do it in a day.

It's not that of a job, but

if you commit to it, then

I always say my best clients

live and die by that spreadsheet.

Yep. And it's one of those things

that once you start down this path,

it will transform the way you run your

business and things will never be the

same.

And you can unlock a different level of

performance and profitability that will

never happen for you if you're not

looking at your business this way.

So I agree. Andrew, this is

fantastic. I know you got a jet.

What's your website one more

time? So we want to check.

Out that resource. Yeah, AJF,

like my initials, AJF growth.com.

And if people can find you on.

Everything there, podcast there,

everything. Yep. X at Andrew j Faris.

Yep. And Andrew Faris

podcast. Check it out. Andrew,

this has been fantastic,

man. Super, super fun.

Look forward to the next go round

and thanks for taking the time, man.

Thanks Brett.

And thank you for tuning in.

So we'd love to hear from you.

What would you like to hear more of on

the podcast? Let us know. And with that,

until next time, thank you for listening.