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Firing The Man
THANK YOU TO OUR 25,000+ LISTENERS! We are so thankful to be one of the TOP E-Commerce Podcasts delivering high-quality authentic content to you! Serial Entrepreneur’s David Schomer and Ken Wilson share tips, advice, and insider knowledge about all things Amazon FBA, Walmart WFS, and E-Commerce. Discover how you can create multiple income streams by selling physical products online so that you can have the time and freedom to do what you love - whether that is spending more time with family or traveling the world. Ken and David have successfully created several six and seven figure online business ventures. During the journey, they have had major wins, losses, and lessons learned. This podcast will teach you about selling physical products online through platforms such as Fulfillment by Amazon, building a team, outsourcing, listing optimization, pay per click (PPC) advertising, driving traffic to your listings, and productivity tips / life hacks that will provide a path to be successful in building your online business. It’s a mix of interviews, special co-hosts and solo shows from Ken and David you’re not going to want to miss. Hit subscribe, and get ready to change your life.
Firing The Man
Profit First: Stop Leaving Money on the Table with Rocky Lalvani
Ever wonder why your business shows profits on paper but your bank account tells a different story? Rocky Lalvani, the Profit Answer Man, joins us to shatter conventional accounting wisdom with a simple yet revolutionary approach: take your profit first.
Most entrepreneurs follow the traditional formula of sales minus expenses equals profit, making your financial reward an afterthought—whatever happens to be left over. Rocky flips this equation, teaching that successful businesses approach it as sales minus profit equals expenses. This fundamental shift ensures you get paid first, forcing your business to operate within its means.
Through riveting breakdowns of real-world scenarios, Rocky illuminates why even businesses with strong sales often struggle financially. From e-commerce sellers battling slim margins after marketplace fees to service businesses failing to account for their own time, the root problem usually traces back to incomplete math from the beginning. "If you didn't do the math on your business when you started," Rocky explains, "how did you know it would be profitable?"
The conversation takes a fascinating turn examining the cash conversion cycle—how long it takes for a dollar invested to return with profit. For many e-commerce businesses, this cycle stretches beyond 160 days as products move from manufacturing to customer delivery to payment processing. This extended timeline creates a dangerous trap where growth actually threatens survival, as each new sale demands more cash before previous investments return.
Rocky's airplane analogy perfectly encapsulates the entrepreneur's journey: "Running a business is like flying an airplane—you need to know your destination, have enough fuel to get there, and constantly course-correct along the way." Many businesses crash because they build an aircraft designed to carry more than it can handle, without enough runway to take off or fuel to reach their destination.
Whether you're just starting your entrepreneurial journey or working to scale an existing business, this episode provides the financial clarity needed to build a company that serves your life rather than consuming it. Visit ProfitComesFirst.com to access free resources that will help you implement these principles right away.
How to connect with Rocky?
Website: https://profitcomesfirst.com/
YouTube: https://www.youtube.com/@profitanswerman
Facebook: https://www.facebook.com/ProfitComesFirst
Linkedin: https://www.linkedin.com/in/rocky-lalvani/
Instagram: https://www.instagram.com/profit_answer_man/
Welcome everyone to the Firing the man podcast, a show for anyone who wants to be their own boss. If you sit in a cubicle every day and know you are capable of more, then join us. This show will help you build a business and grow your passive income streams in just a few short hours per day. And now your hosts, serial entrepreneurs David Shomer and Ken Wilson.
Speaker 2:Welcome back to the Firing the man podcast, the show where we share the stories, strategies and systems behind entrepreneurs who have taken control of their future and fired the man. Today, we're joined by a guest who's all about flipping the script on the traditional accounting formula in making sure that entrepreneurs actually profit from their hard work. I'm talking about none other than Rocky Lalvani, the profit answer man. Rocky is a certified profit first professional who helps business owners stop living paycheck to paycheck and start putting profit first. Literally, instead of the old school formula of sales minus expenses equals profit, he teaches a much smarter approach Sales minus profit equals expenses. It's all about ensuring that you get paid first without sacrificing your values, because for Rocky, people always come before money.
Speaker 2:His story is just as powerful as his message. As a son of immigrants who started over in their 40s, rocky knows what it means to build success from the ground up, from losing his mom at a young age to becoming financially independent and living the life he dreamed of. Rocky's journey is nothing short of inspiring. Whether you're deep in the weeds of running your business or just getting started, you're going to walk away from this episode with real, actionable steps to make your business more profitable and your life more intentional. So let's dive in with Rocky and learn how to profit. First. Rocky, welcome to the show.
Speaker 3:Thank you so much for having me, david, excited to be here with you today.
Speaker 2:Absolutely, absolutely. I'm looking forward to it as well. So to start things off, you talk about flipping the traditional accounting formula to put profit first. Why do you think so many business owners struggle with profitability even when sales are strong?
Speaker 3:So A well, when they started their business, they said they were going to be profitable. Maybe they did the math, maybe they didn't, which is part of the problem. So the first step is if you didn't do the math on your business when you began, how do you know you're going to be profitable? You might've picked a business or a model that wasn't, and I think more often than not that's what happens. People buy something and they go, oh look, I can sell it on Amazon for double or, back in the day, ebay, and they thought they were making money until they actually sat down and did the math and realized they were not making money, especially when you compute your own time.
Speaker 3:The second thing is there's a whole lot of emotions inside of business and money. So you start to make a little money and you start to get a little revenue. And then what are we told? Well, you have to reinvest it, right? You're not told you need to remove it from your business. Nobody ever says that to you except me. You should be removing profit from your business. That's the purpose of profit to remove it.
Speaker 3:So I think they get stuck up in that cycle of reinvesting and most business owners pay themselves last, they pay everybody else before they pay themselves, and that also creates another problem. So they might say, hey, David, I'm profitable. You go wow, you had, what a 10% profit margin. That's wonderful. How much was your salary last year? Oh well, that was my profit. Oh, wonderful. How much was your salary last year? Oh well, that was my profit. Oh oh, your profit was your salary. You made 50 grand in profit, but when you were working for the man, you were making 150. Where is your profit now? Yeah, these are all just things that we see over time across the board. They don't appropriately allocate costs, they don't sit down and figure out the business model and they don't do the math.
Speaker 2:You know, you brought up a really helpful step that a lot of entrepreneurs forget to make and I can tell you that I've started plenty of businesses where I have forgotten this step and that is looking at the economics of a sale and whether you know from the get go you are going to be profitable. And so for people that haven't gone through that exercise, what are some, some tips that you would give them?
Speaker 3:The whole thing is a simple equation and when you put everything into the equation, you can go backwards and forwards through the business. And what we do is we look at that business with three different drivers and each of the drivers has about five leverage points. So the first driver is how do we drive sales? Well, sales is pretty simple how many people are interested in your product? What percentage of them actually buy the product? So that's your marketing sales conversion cycle. When they buy your product, how much is it? So if something's $10 and somebody buys one, well, you know your revenue is $10. If you sell 10 of them, now I know my revenue is $100. This is not calculus, right? It's basic, not smarter than a fifth grader math. Now the question is do they buy it once or do they buy it every three months? So now, if I've got 10 people buying 10 items and they buy it once a quarter, now I know I have 40 sales at 10 bucks a piece. So I know I made $400. You can add all the zeros you want. It's irrelevant whether it's 400, 400,000, 4 million, it's just zeros at the end of the number. The math is all the same. So the first part is how do we drive the revenue? The second part is how do we drive profit? So that's the next bucket. So when we look at driving profit, well, if I'm going to sell that for $10, I had to pay for it, didn't I? There was a cost of making it. Let's just say it's $3. So now, every time I sell one, my gross profit is $7. But that's not all. There is right. You don't just sell it and pay for it and you're done. There's a whole lot of overhead and there's sales and marketing. So how much did I pay for my advertising, my salesperson, my marketing, to drive that sale? How much did I pay for overhead, your telephones, your software, all that other stuff? Maybe you've got admins who put up the posts in whatever social media, all of that stuff. What is it costing me to run my business? Let's just say, for argument's sake, all of that stuff together adds up to $6. So we had $10 minus three, I have a gross profit of $7 and $6 to run my business. Now I have a net profit of $1. All right, that's not bad. 10%, not the end of the world.
Speaker 3:The next thing is driving cash flow. This is where nobody looks and this is where it gets scary, and this is why most businesses get in trouble. I just sold a bunch of these widgets. I'm not going to do the math, but let's just say my net profit was $100,000. But I now need to order more stuff and it's coming from China and it's going to take six months and they want a deposit and then I got to pay for it before it gets on the ship. That order was $200,000.
Speaker 3:My $100,000 net profit went into a minus $100,000 in cash flow. Right, amazon's good. They pay you immediately. Not everybody pays you immediately, depending on the thing. If I've got stuff in accounts payable or accounts receivable, that means I turned into a bank. So maybe there's $20,000 that people still owe me. Now I'm minus $120,000.
Speaker 3:Nevermind, I had to order inventory while I had inventory on the shelf thousand dollars that people still owe me. Now I'm minus one hundred and twenty thousand dollars. Never mind, I had to order inventory while I had inventory on the shelf, I still had thirty thousand of inventory on my shelf. Now I'm minus what? One hundred and fifty thousand dollars, even though I was profitable. And so, understanding all these numbers, understanding how you source goods, how you pay for it, what your terms are what your gross profit margin is, how much you're selling on sales and marketing. All of that stuff needs to just be calculated like that and literally you can do it on a basic calculator with a plus minus times button. This isn't rocket science and we teach all of this all the time, so we teach it on the podcast Profit Answer man. We have a free giveaway. We give away all this stuff, like you can. Everything we do for our clients, we teach and give away because some people want to do it themselves and some people go. You just do that for me.
Speaker 2:Absolutely so. The exercise that you outlined, where you're going through your sales price and your unit cost and all the costs of your business, that is an exercise that I do in my business and I call it fail on paper and I have a criteria for pass fail. Am I gonna move forward with this product launch or not? And I can tell you, had I gone through this exercise, there are hundreds of products that I would not have launched in the past, and so I'm curious when somebody goes through this example or through this exercise, where do you draw the line on? This is something that is that is a good idea and you should move forward with, or this is a bad idea, that margins are too tight and it's going to fail?
Speaker 3:So, at minimum, at minimum, you want a 10% profit margin, but if that's where you're starting, you're screwed, because 10%. You know, what I outlined for you was a whole bunch of different steps. Let's just say each step was off by 1%. Well, if each step was off by 1% and you're 10% and there's 10 steps, you have the possibility of making zero. Why are you doing all this work for nothing? Like I want that number to be as high as possible, or we don't do it. But I was going to ask you a question, so A congratulations on doing that. When you talk to people about how you do that, do people go? What Do they go? Yeah, I do that too. Like, is that a normal conversation?
Speaker 2:I don't think so. I don't think I. When I talk to people, it often seems like and I will say I'm a retired accountant and so this is in my nature to do, and I think a lot of people would look at it and say, oh, of course David does it, he's a retired accountant. However, it is not that hard. You don't need an accounting degree to do it, and I'll share with you my pass fail rule.
Speaker 2:I focus very hard on what's my landed cost, so that's going to be my unit cost, plus any packaging, plus any labeling, plus my transportation cost. What does it cost to get this item in sellable form? In the location that it's sellable, say that's $10. Location that it's sellable, say that's $10. I need the average sales price of products like that to be 4x my landed cost, and so that's a rule that I use. Now, if I'm thinking about launching 10 products, I will line all of them up next to each other. Sometimes it's 5x, sometimes it's 3x, but that's helpful. That exercise is helpful in me spending my dollars on the highest ROI items. So that's the exercise that I go through, and I am shocked at the number of people that don't go through that exercise.
Speaker 3:And that's why I asked you the question, because I have found very few people do it and it saves you a lot of heartache and a lot of problem. I like your Forex number. It gives me a lot of margin for failure throughout the system and I don't think people realize that. And especially if you're selling on Amazon, I mean, let's just go work backwards. Even if I'm buying something. So it's a $10 item, your landed cost was 250. When you say landed cost, is that into amazon's warehouse or your location to ship it to amazon into amazon's warehouse? All right, so we're delivered into amazon for 250, so ten dollars. Hi, you know these numbers better than me. What does amazon take? Like 35 percent.
Speaker 3:So I um, I would say it's approximating 40 to 50 percent oh, all right, so if it goes in for 10, they take five. That leaves you five dollars, right, and that includes the rent and the storage and all that stuff. Correct, ok. Does that include advertising? Or do we need to do marketing on Amazon on top of that? Sometimes that includes advertising, all right. So at this point you're making two dollars and 50 cents. Do you ever have to deal with shrinkage? And by shrinkage I mean stuff disappears, of course, of course.
Speaker 2:So what percent disappears. You know, I would say, like, on returns, I would say between five and seven percent on returns, things going up, missing, things being returned and then not being able to be put back in inventory, I would say between five and and 7%.
Speaker 3:So now you're at another $0.70 out. So now you're at $4.30. Sorry for all the math people, but this is what you got to do. So at this point, if you pay $2.50 for it, you've got $1.80 in profit, but we still have more to go, by the way. But we still have more to go, by the way, from the time you buy something or pay for it how long? Till you actually get your cash back.
Speaker 2:My cash conversion cycle this year, which is a KPI that I was heavily focused on, was 162 days.
Speaker 3:Whoa. So you're a bank loaning out money for 162 days and we didn't factor that in yet, did we? We sure didn't. So let's just say you had to pay 10% to borrow that money, which I don't think is unreasonable for somebody starting out. We're now down to $3.30. That leaves you 80 cents to run your business. Now you still have to run your business, right? I mean, you've got a phone, you've got a computer, maybe you've got some people who have to put the ads up on Amazon, the VA. I don't know how you do that for 80 cents and pay yourself, unless you got ungodly amounts of volume.
Speaker 2:Yes, and this is something that we touched on a little bit before we hit record. But I would like to dive into kind of the economics of an Amazon sale and where you see successful e-commerce entrepreneurs, because this very exercise in what you're outlining is something that I've been living for eight years and a lot of people look at that 4X rule and they say, oh, that's price gouging and that is a minimum requirement to keep your head above water.
Speaker 3:The only price gouging is Amazon. I don't disagree with that. They're taking a lot of money for that sale, yeah.
Speaker 2:Let's talk about this a little bit more. I mean, for people that are getting into e-commerce and I'm sure there's a bunch of them listening right now that's a question that they have is do I go the Amazon route, do I go the Shopify route? And you work with a lot of e-commerce entrepreneurs, so where do you see your more successful clients placing efforts on in terms of sales channels?
Speaker 3:So if we're going to a channel that takes all our money, we've got to have better than that margin you're talking about, because otherwise it's going to be extremely difficult. Second of all, if we're going to go through a platform that takes all your money, I want to do anything and everything I can to figure out how to convert that client from that platform to mine. Because if you think about it, if I sold that same item on my platform, what was the cost goes? You may be 10% versus 50%. So I just picked up ungodly amounts of money. So the question is how do I make that conversion and how do I do that Now, before we even get there, right, somebody else's branded product is probably never going to have those margins.
Speaker 3:So you've got a private label. You've got to find something different, unique, like that's all pre-planning that we don't even need to get into. I'm sure you'd cover that on other shows, but you've got to have a competitive advantage. So now the question is how do we get them off of this platform and onto ours? Because that's the only way we're going to make money at at scale. Or we've got eight to one or ten to one type of margins because we're selling a product that has a very low cost of creation but a high perceived value, and that there are those out there. Um, usually it's when you're the inventor right, or in a sense you're the inventor of something like that. I don't know, have you ever, have you been able to take a, a regular item, and create that kind of margin, and not so much?
Speaker 2:In other words, taking something and putting a brand on it or changing it, or you know, I would say at this point in time I have probably done between 2,500 and 3,000 product launches, and so I can identify examples at the far end of the bell curve that have great margins and are a success story. Now, if I look at the far end of the bell curve that have great margins and are a success story, now, if I look at the fat part of that bell curve, very infrequently am I having rock solid margins, and I think there have been. I've gotten better at that. But one example or one instance that I found, and if you think back to economics class of supply and demand, what I found on Amazon is and let's just use a $20 product where you go to PPC, you will find a keyword that converts at 10% and magically the price will be a dollar because the supply and demand for that keyword pushes it towards breakeven.
Speaker 2:And I have experienced that and I have seen it with a lot of other e-commerce entrepreneurs who have great margins or decent margins before PPC, but when they look at the supply and demand of keywords after PPC, they are approximate breakeven and that's a tough situation to be in. And so I've seen that with Facebook ads, google ads and Amazon, ppc in particular. On PPC in particular, and it seems like there are other. There are like influencer outreach is one where it takes some legwork, takes some relationships. There is not a competitive marketplace for supply and demand of influencers as there is for keywords, and so the keyword market is very efficient and I think it pushes you towards breakeven. What do you think about that?
Speaker 3:Well, whenever you have something with a fat margin, you're going to attract people who are going to come after those fat margins. So every time you think you've made it, you need another product, because that's what's going to happen. Influencer marketing I have seen nothing but headaches with this, and the headaches are some of these influencers are nutty and you're putting your reputation on them. Influencers are nutty and you're putting your reputation on them. The influencers fight each other behind the scenes. So if your influencer is promoting your product and another influencer who doesn't like that influencer is funny gets that one, your product gets caught in the crossfire.
Speaker 3:Yeah Right, there's all these other things going on behind the scenes. It's it's just work, it's all you have to play the game. You have to be nimble On top of that and we haven't even touched on it. The other person you have to fight is the man, amazon, because somebody who's your competitor might put a case against you and it's not even true and you can prove it. Good luck, because you know, at a tech company, nobody answers the phone because, you know, at a tech company, nobody answers the phone.
Speaker 2:Yeah, yeah, no, you're absolutely right, and that's something that you were talking about. You know, a message to Amazon sellers is, you know, try to push them over to your own platform, and it's something that I run into. You know, there's a saying that I really like, and people who have listened to the show have heard me say this a hundred times A clean conscience is a comfortable pillow, and when I'm running my Amazon brands, I am very conscious of following terms of service. There's certainly sellers that aren't, but I am using the income from these brands to support my family and I want to do everything in my power to be a good Amazon seller, because there are a lot of ways to get your account turned off, even if you are making best effort to operate within the terms of service, and so I think that's something that people have a tough time, and I'll use product inserts as an example.
Speaker 2:Product inserts with QR code that take people to your website against the terms of service. Is it an effective way of pushing traffic towards your website? Certainly. However, it presents this odd scenario of well, what do I do? I know what's best for my brand, but also I want to operate within the rules, and so I'm curious as you work with different entrepreneurs, have you found any effective strategies to push traffic towards a website that are by the book?
Speaker 3:That's a good question. That was the question I was going to ask you. Do we have to follow the book? So, depending on the product, online instruction manual, that that kind of gets them into your ecosystem? Ecosystem? Um, I don't know, how do you create a hook that makes the person so the? Really what you want to do is build a brand and build. So you've got all these different products. How do we build a brand around all these different products? So, instead of going to, they're looking for the brand and somehow doing it. From that standpoint, I think is big. What other ways could we get them off? Yeah, amazon's got so many rules and it's difficult to be able to do that without breaking the rule. Sure, have you found ways to kind of get around it.
Speaker 2:And if you don't want to say that's totally understandable, because no, I you know pricing is one that is not against terms of service. I do not believe everyone listening check into this, but it can impact your results on the algorithm. So if you have something listed on Amazon for $19 and you have it on your website for $16, amazon may see that and punish the algorithm.
Speaker 3:They will punish you, they will, and that honestly, that technically, should be against the law On their side.
Speaker 2:If you look at some of the lawsuits against Amazon, that's often something that gets cited. You're handcuffing business owners on pricing on their own website, and so I have not found that to be an effective strategy. And so I have not found that to be an effective strategy. And so now I would say I am scratching the surface on influencer marketing and stepping up our game on social media, and then I make a decision on whether I want to push them to the website or to Amazon, and that's something I also measure. You know conversion rates much higher on Amazon and so, but the fees are also higher, and so it's kind of a delicate balancing act and it's something that you're starting to see some competitive forces. You know Walmart's coming on the scene, timmy is coming on the scene, and I think that is good for third-party sellers. I think competition generally is good for third-party sellers because it has not been, you know, for a long time.
Speaker 2:Amazon has kind of been the only show in town, and and so I've talked about some of the positives I'll talk about, or I've talked about the negatives. You know, on the positive side of things, if it's a mall, it's a huge mall. There's more people coming to that mall than any other mall in America and they have a built-in trust established with their customer, where the customer knows I'm going to get this item in two days. If I'm a prime member, I've got free returns for 30 days, and that trust has taken a lot of time and investment to build, and when you start a website, you don't start with that trust on day one. It's something you need to build, and so there's definitely pros and cons and, as I kind of look at my overall e-commerce strategy, I view Amazon as being a component of a brand, but not the lifeblood of a brand.
Speaker 3:You should never. Don't build a business on someone else's platform, and I don't care if it's Amazon, it could be Facebook. Don't build a business on Facebook because if Facebook cuts you off, you're done Right. And that's true of any other platform, and it doesn't matter whether they're good, bad or indifferent, it's just if you're building on someone else's real estate, they own it and you can find yourself in a heartbeat, cut out. So how do you be able to do that? At the same point, well, the question is how much? And again you go back to traditional marketing channels, putting stuff into stores. But again, that's not easy either and that takes a ton of work and that takes more overhead. So there's a million other issues you kind of have to deal with.
Speaker 2:Yeah, let's circle back on mindset and mindset of entrepreneurs when they are approaching big business decisions like this. What are some mindset shifts? And and, and, if you can get into the flipping the accounting equation on its head.
Speaker 3:So probably, at first, the whole principle of it is sorry. Sorry because you're an accountant, right? Accountants say sales minus expenses equals profit, which means your profit's a leftover, it's an after the fact, something that occurs based on everything else, whereas profit first says it's sales minus profit equals expenses. So now you're taking your profit first and you have a leftover and you're going to have to figure out how to run your business on those expenses, and if you can't, well then you don't have a profitable business, so don't do it. And so it's just flipping the way you look at that equation and it's built on an age old principle of pay yourself first and that's all it is. Principle of pay yourself first and that's all it is. Just pay yourself first, and if you can't, your business is broken. This isn't about greed, it's not about anything else, it's just like, hey, you should pay yourself first.
Speaker 2:Yeah, for the people that go through this exercise where they are looking at, okay, I'm going to do the profit first equation, this is what I'm going to do next month, and they notice that they do have too many expenses or the economics of it doesn't work. What is your recommendation? And give up and start over isn't an option, because I think this is something that you know. I've got a business that I've had for eight years. I've had great years, I've had bust years and I've had times where I look at that equation and it's not favorable for paying myself first. And so what would you recommend? Somebody you know, if they recognize this is a problem, what would you recommend that they do?
Speaker 3:Pivot, so it's not necessarily starting over. The question is what needs to change? And so when we look at this, the first question is let's do kind of an analogy. Running a business is like flying an airplane, correct? In the sense that well, let's talk about it. When you get in the airplane and the pilot's there, the pilot tells you where we're going, correct? So if we're in LA, he says, hey, we're going over here, we're going to land at JFK, right. And so when he goes to take the plane off, you know where your destination is. We talked about that. When you begin selling something, you did the math to know where your destination was, did you not? Hopefully there's different kinds of airplanes Small business, it might be a single engine, jet, or not even jet, but a prop plane versus a 747.
Speaker 3:When you're a 747, you're a big business. You go up in that cockpit. There's a million dials, there's a lot of things to take care of, you're carrying a lot of passengers, employees, along the way, right? You need a ton of fuel cash to be able to get somewhere. You and I, we run small businesses. Maybe there's one engine, two engines. We don't have that many gauges. If the sun is shining, I don't even need gauges, I can see where I'm going, kind of. You know, use a compass and go the right direction.
Speaker 3:I think too often people build their business, their airplane, to carry more than it can carry. They don't have enough fuel, they don't have enough cash, they don't have enough runway to take off, they don't have enough ability to do what is necessary to run that business. But since they got in the airplane and go, hey, I'm going to fly somewhere today. I don't know about this airplane and I don't know about that runway, but we're just going to gun it and go for it. Right, that's a crash waiting to happen. This is why businesses fail, because they didn't bother to do the basics of how to do that. And so I think that's the important thing is to understand how your business operates and then to make sure that it's properly sized for what you want to do and that you have the cash to get where you want to go, so that you have the fuel to be able to do that.
Speaker 3:Now, when I go from LA to JFK, the reality is I'm going to be off course 99% of the time. I'm going to hit turbulence. I might hit bad weather, like I can get signals that tell me bad weather's coming right. I can talk to people and hear there's turbulence. I'm going to constantly course correct and be able to reach my destination, and so it's the same thing in business. You've got to be able.
Speaker 3:And then what are the metrics to tell you? What are the signals that are telling you you're on track? For all of that, amazon actually does provide great data for people. I can go into someone's Amazon dashboard. All I want to do is I want you to sort one thing from negative to positive. I just want to know how much profit you made on everything you sold. And when you do that little exercise, people's eyes light up because they realize how much money they're losing just on the Amazon dashboard and they're like I guess I should stop selling this stuff. Yes, yes, you should. So I think that's a big part of it is just having that clarity of where you're going, what you're doing. Do I have the fuel to place the order in China or wherever you're placing your order? Do I have enough cash till my cash conversion cycle comes back? How many people you think get on Amazon and go? I wonder what my cash conversion cycle is? Nobody, hardly the ones who survive and do well.
Speaker 2:It's all. I view that particular topic is almost one that you need to live before you fully understand it. Where you place the order? It sits in China, it sits on a boat, it goes to port, it takes forever to get checked into an FBA warehouse and then you sell it and then you wait your two weeks and then it comes into your pocket. It's almost one that you could read about, but until you experience it it is hard to understand.
Speaker 2:And once you go through it a couple of times you realize that is a huge constraint on just cashflow in general, and I've got a couple brands that I've four and five X'd in a particular year and people would look at that on the surface and say you must feel rich, and I would say no, I've never felt more cashflow poor. And it's again like when I. There is such a thing as growing too fast to where you literally strangle yourself on cashflow or you put yourself in a position where you're desperate and need to get outside capital to keep the wheels on the bus moving, and so can you talk to that? Have you worked with clients that have a business that appears to be booming, that are strangled by cashflow?
Speaker 3:That happens all the time. Yeah, it usually happens when I have a new client, because one of the first things we want to do is to change the cash conversion cycle. What I want is AR should be ahead of AP, which means I want somebody to order and send me money on Amazon or my platform and then I get the product from wherever and deliver it and pay, so I'm getting money before I actually pay for it. There are companies that have massively grown super fast because that's what they did. They created a business model where they sold things and got the cash before they had to pay for them, and if you can do that, god bless you.
Speaker 3:I think that's harder on Amazon, but not necessarily. You can find those opportunities maybe to be able to do that, where you have that kind of leeway to do that and you just have to sit down and figure it out. So what I have said is a business that can do that, can grow as fast as it wants, other than you need systems, processes, procedures so that the machine works well. Businesses that are more like what you're talking about grow in what I call a step fashion, and what that means is you go out and you do something and you wait for the cash conversion cycle. Then you have a big chunk of money, then you take the next step. Then you sit around and you wait for the entire cash conversion cycle, then you take the next step. If you don't understand that, you will blow yourself up on growth. Growth is the number one, one of the top reasons for bankruptcy, and people don't realize that. Yeah, it doesn't matter e-com, any kind of business, it's the same principles anywhere.
Speaker 2:Yeah, that what you said about receiving cash before paying cash. I'm a huge fan of Warren Buffett and he talks about why he loves the insurance industry so much is because it's one industry where it's standard you get paid first and you deliver uh the good, uh second. And and I think there are like specifically in custom products, uh, there are in in drop shipping models. There are opportunities here for Amazon sellers, and one thing I've found personally is that, especially on products that are made, a lot of times the makers like making, they don't like selling, they don't like running an e-commerce business, they like making and they prefer to be in the woodshop or whatever that may be doing embroidery a lot more than selling, and so there are opportunities there to approach makers and look into opportunities.
Speaker 3:And so is that more of an Etsy thing versus an Amazon thing, or you know one of it, so you can do both.
Speaker 2:I would say Etsy is definitely, if you're going into custom products is definitely one that you're going to want to look at. Amazon has a program called Amazon Handmade that also does custom products, and one of the things that you need to be careful of is fulfillment time. You need to be able to turn around that order in a maximum of 14 days, or it's next to impossible to sell on the platform, and so when you you know there are a lot of makers that would be fine doing business with you, but they can't operate within a 14-day turnaround window, and that's okay. But there are people that can, and that's something that I know, I've done personally and I've had good success with. So this interview is going great and I feel like we could sit here and talk for hours about this. As a recovering CPA, it's good to talk to one of my own, but before we get to the fire round, I would like to ask you what are some actionable steps, a couple actionable steps that people listening to this can take with them and implement into their business.
Speaker 3:So, first off, do the math of your business. Figure out what it takes to drive revenue, figure out what it takes to drive profit, know your gross profit number and know what your overhead is. So that's the big thing. I think a lot of people they focus just on top line revenue, which is irrelevant. Right, we say revenue is vanity. Right, profit is sanity and cash flow is reality. So understand what is that gross profit number and then understand what it's really costing you and how much you have to run your business. Tie all your marketing back to results. So if you're going to spend on marketing, show me the results, show me the sales, show me the conversion rate, because certain things are going to work better than others. This ad works better than that ad, this platform works better than that platform. And then understand your cash conversion cycle. How long, every time I put a dollar out, does it take me to get my dollar back with profit and extra and a multiple?
Speaker 2:I like it. I like it Very good. Well, Rocky, before we end the interview, we have four questions we ask every guest at the end of the episode. It's called the fire round.
Speaker 3:Are you ready? Sure, but I might have questions.
Speaker 2:All right, that sounds great. Uh, what is your favorite book?
Speaker 3:So this is why I have a question Like is that an autobiography, a business book? Uh, you know, a fun book to read?
Speaker 2:Uh, that's open for your interpretation. Why don't we change this to the highest impact book?
Speaker 3:The highest impact book. Ooh, that's even going to be a struggle, but I'm going to go with this. The Road Less Stupid. Okay, it's Keith Cunningham. He's also a finance guy and the book is actually about that. He blew up his business because he got ahead of the cash conversion cycle, got greedy, and then it's just a whole bunch of questions to ask yourself on how to improve your business.
Speaker 2:Very nice. What are your hobbies?
Speaker 3:I like to read books.
Speaker 2:Very nice, very nice. What is one thing you do not miss about working for the man?
Speaker 3:I don't do well with stupid, and working for the man was a whole lot of stupid in every part of everything. The problem when you work for the man who happens to have a really highly profitable product, is they do a whole lot of stupid.
Speaker 2:Yeah, I've seen that firsthand. And final question what do you think sets apart successful entrepreneurs from those who give up, fail or never get started?
Speaker 3:Well, so there's two parts to that question. I mean, if you never get, get started, that's the biggest thing. Take because it's so hard to go from zero to one. One to a hundred's easy. Zero to one is really difficult, so that's one problem. I think what determines success from failure is actually sitting down and doing the third grade math and understanding the metrics of your business and how your business works. So this is the thing. Most people go into business went into business to do what they loved, and you kind of talked about that with the makers. They love to make their stuff, they don't love to run a business. If you want to be successful in business, you have to learn how to run a business, and it's a very different skill set that most people ignore.
Speaker 2:Absolutely. I like it. Rocky. This has been an outstanding podcast To our listeners. Check out Profit Answer man. I'm going to link to it in the show notes, but it's an outstanding podcast. I've really enjoyed listening to it. And, rocky, if people are interested in working with you, what's the best way?
Speaker 3:So the website is ProfitComesFirstcom. You can find all the information there and you can find the podcast and you can find the free giveaways that go into depth of what we talked about today.
Speaker 2:Okay, very nice. All right, rocky. Well, thank you so much for your time today and looking forward to staying in touch. Thanks for having me, david.
