Hi – I’ve been running a business for 5 years. Our progression (revenue) has looked like 180k->400k->750k->1.1M -> looking like 1.8-2M this year.
I have nobody to talk to who has similar experiences to lean on for advice. The issues are that every time revenue increases, it seems like labor, insurance, expenses, etc creep up too. I mean, that’s expected -> but I still can’t quit my job and go full time into this because I would end up replacing Some of the manual labor component only to be able to pay myself, and would essentially not have enough time to do the Ecom / marketing / sales component which I think has got us here in the first place.
Why? Well, to increase revenue every year -> we add more SKUs. More SKUs = more inventory => more $ to buy inventory needed. More labor needed to package, ship, and take deliveries, build pallets, organize inventory etc…
I just purchased another industrial printer for 8k. I just installed two HVAC systems for 14k. I just bought 2 shipping containers for 4K. Another forklift for 15k. Etc..
We’re running out of room at our 10ksqft warehouse and have resorted to using shipping/ocean containers as additional storage outside.
I thought by now there would be diminishing requirements/ crossover for labor needs. I mean, it almost seems like it’s a direct 1:1 for new revenue -> more labor required. I’ve looked at automating the business with respect to packaging the products automatically, but those machines are 80-140k domestic, and that’s just for the packaging component only…
Additionally -> we need insurance and are in a high risk industry, so my insurance is 13k on 1.2M revenue. I can only imagine it being 20k next year…
You might say “why not raise prices” -> I’ve noticed a direct correlation to raising prices and seeing SKUs drop to 0 revenue overnight. We have competitors and they’re able to sustain at this pricepoint, in the same type of business model. The only thing I can potentially see as an issue is shipping costs are sometimes 30-50% total gross revenue… so maybe I could do some recon on our competitors and see if they get cheaper rates. But we have FedEx + UPS reps and are a little bit better than ShipStation rates for example -> which are pretty aggressive.
We have had companies cold outreach us for our services and one large F500 company invite us to their HQ to see how we could work together, asked about cash infusions / buyout -> but I don’t want to give up, and a buyout of a company doing 2M with minimal net profit is probably a shitty payout. Maybe I’m not seeing the forest for the trees and should just keep onward with this path.
Posted by ICanGetThem
7 Comments
Would be looking forward to the change in your situation. Hope it works out well for you!
You need to do some analysis on your financials – Where are the money going?
This can be easy or hard, but you need to figure out what you’re expected profit should be. Also you talk about increasing number of SKU’s – How much cash do you have tied up in inventory, whats the turnover etc is there alot of dead capital there?
For instance – is there any competitors in you field that you can access the financials of? This will give you ratios on income -> expenses and give you a starting point for where to look and compare.
If it is 2MUSD rev it sounds kinda strange that you don’t make any profit at all – do you build email lists of customers and resell/retarget etc to get the CAC down?
Keep onward, don’t stop now since you are doubling revenue. Figure out how to cut expenses like getting a bigger warehouse than you need to sublease some of it to help lower your rent. Also you may find someone in your industry who would pay for inventory control which could get you better shipping rates and maximize your labor costs.
As an accountant, I would be happy to give advice or feedback if needed. Especially with your inventories and new purchases you mentioned! Maybe that’s a better start? Although, if your heart isn’t in giving up, DONT!
> I’ve noticed a direct correlation to raising prices and seeing SKUs drop to 0 revenue overnight. We have competitors and they’re able to sustain at this pricepoint, in the same type of business model.
Compete with a Walmart, and you’re going to need a similar billion-dollar logistics chain. The point is everybody decides they will get ‘market traction’ with rabid price slashing.
It works. But this traps you in a market segment and brands you as a total lower cost discounter, similar to Walmart. Your customer base is made up of chiselers, who can’t comprehend the concept of value but by lowest price points.
I understand the trap. But that does no good when your leg is in the trap. You’ll have to actually run the business you have chosen.
…Don’t cut costs, *crush costs.* The people in this position are adept at negotiation, volume buying, and pressuring suppliers. You should be just the same.
…Innovate. Sorry to say this but you made your bed, now you sleep in it. Want more profit? Get more innovative. Problem being those who replace thought with price have a notable poverty of imagination.
You have not divulged information, and I consider that a favor. This is a difficult situation and I do not envy the corner you decided to paint yourself into.
You can try is forming some sort of buying circles and or subscription model. Look into shipment efficiencies — there used to be a bunch of startups selling remainder space on cargo ships and trucking.
Basically, you have to do everything you thought you got out of selling to bottom feeders. One thing some people have found is diligent data analysis of worst consumers — fire them. Also look into experimenting with referral programs, like refer five customers and get a percentage off *when they buy.*
[Consumers Aren’t Customers](https://www.reddit.com/r/RoastMyIdea/comments/8vbxlk/consumers_arent_customers/)
Im a financial manager and accountant, currently managing a company doing about 5m/year which had similar problems to yours until I stepped in and implemented some systems.
Without seeing your financial statements, its going to be hard to give you any specific advice, but based on what you told me, I have a few ideas.
I would be happy to have a look over your accounts and give you some general feedback of anything that jumps out to me.
Im quite busy tonight, but throw me a DM and Ill see what I can do. It seems like you have the makings of a successful (and profitable) business there if you figure out the issues.
Amortize those equipment purchases and your bottom line will look a lot better.