08 Oct Bill D’Alessandro | Building a Strong Brand
Many ecommerce entrepreneurs fall into a trap, says Bill D’Alessandro, CEO of Elements Brands. They think a high Google ranking is a good gauge for the health of the business. And that if a majority of their sales come through Amazon… that’s a good thing – a sale is a sale, right?
Instead Bill looks at five other metrics that show if your brand has staying power or not… and whether it makes an attractive acquisition target if you choose to sell your business in the future for a big payday.
In this episode we discuss:
- The types of products that keep customers coming back
- Why he won’t sell food or fashion – and other product categories to avoid
- A simple calculation for determining the value of your business
- What you must do now to sell your business for maximum profit
- How to use what Bill calls your “contribution margin” to pragmatically keep track of your revenue versus your profits and to keep your team involved, informed and motivated
Mentioned in this episode:
Joris Bryon: Hey, this is Joris of the Ecommerce Excellence Podcast. And today I’m really excited to talk to Bill D’Alessandro. Bill is the CEO and founder of Elements Brands. And it’s a company that owns a portfolio of consumer products brands. And he started with a single brand in 2010 I believe and has grown the company to 10 brands now. They have over 300 products, eight figures of revenue, 37 employees. Very impressive all of that. So I’m sure this is going to be a very interesting episode. Bill, welcome to the podcast. Super happy to have you here.
Bill D’Alessandro: Yeah, thanks for having me Joris. Nice to be here.
Joris: Cool. Just to get started, I’d love for you to tell a bit about your background. And where’d you come from in your career? How did you get started in ecommerce? And how did you get to this point?
Bill’s Entrepreneurial Journey
Bill: Yeah, sure. So my background is in computer science and finance. I studied computer science in school and then built a couple apps on the side. I also have worked in investment banking Spent three two years investment banking and three years in private equity before leaving that job to start the company that became Elements Brands. So I’m a reformed investment banker, and I like sitting here and shorts and T-shirt at my desk. So I like the tie attire and entrepreneurship a lot better.
Joris: Yeah, I can imagine. And you started with one particular brand. Which one was that?
Bill: Yeah, the brand I started with is called KP Elements. And that’s why the company’s name evolved into Elements Brands. So we focus on three primary areas. KP Elements was a skincare product. And we’ve since acquired several other skincare hair care and other cosmetics products. So that’s one of the categories we focus on. We also love pet product brands. We have a brand called the Natural Dog Company. And we also do household products. So our flagship brand there is a brand called Rock and Green Laundry Detergent.
Joris: Okay, so yeah, you already mentioned that you one of your areas of expertise is buying and selling businesses. And I’m sure that a lot of the listeners who will be interested because maybe one day they’re dreaming of selling their business. And but what kind of brands or companies do you typically look for?
Bill: Yeah, so besides being in one of the three areas I mentioned, cosmetics/personal care, household goods or pet, we look for brands that have been around for at least five years. And the reason for that is we want to find a brand that’s really a brand, you know, that’s not just a flash in the pan, or that’s just essentially a search engine rank position, you know, someone’s taking advantage of a little Eddie and the Google or Amazon algorithm. We really want to see that the brand has staying power, that consumers know it, and that they keep coming back. So we have a line at five years of history for the brands we buy.
And then we also look for brands with above half a million in annual owner earnings. So that typically corresponds with revenue, kind of at the 2 million side on the low end. And then we’ll go up as high as kind of 10 million plus in sales. We look for companies that have their own brand, their own branded products. So we don’t buy folks who are essential ecommerce retailers who sell other people’s products. We look for something that some brand that makes their own product.
We also look for brands that are replenishable. So consumable. So people come back again and again. And we can create that kind of lifetime repeat purchase relationship with the customer. And then finally, we don’t buy any brands that are more than 50% of their revenue from Amazon.com. And that’s because we like to see a healthy channel mix to show that the customers are willing to come to your brand, directly and buy from you. And then you can generate traffic and demand elsewhere besides just Amazon. That to us is a real marker of a quote unquote real brand with staying power.
Joris: Yeah. Okay. Because on Amazon you’re never sure about the future, of course. And if you’re the master of your own brand and your own target audience, basically. It’s Yeah, it’s a lot more stable I can imagine. So you also mentioned like a box mover. Someone who just sells stuff other companies make, and that’s not a good match for you.
Tactful Discrimination On Business Purchases
Bill: Not a good match for us, no. Because you don’t really have anything unique in that case, right? So if you’re selling tide detergent, tons of other people, including Walmart are selling tide detergent. So it’s very hard. I mean, everybody’s read about kind of bloodbath, it is offline retail. But online retail is not any better. I mean, besides the huge brands, think kind of Walmart, name one online ecommerce retailer that succeeds.
And there’s really no not very many at all. And also, when you’re selling other people’s products the margins are not very good. Because you know, the manufacturer, the person who’s branded actually has to make a margin. So you’re probably getting just, you know, 50% gross margin at best. You also don’t control things like your product development pipeline. You’ve got again, other people selling it, you might end up with a race to the bottom on price. There’s just so much you don’t control when you don’t own the brand kind of soup to nuts.
Joris: Yeah, that makes absolute sense. There’s also a couple of markets that you avoid, right? Like technology is not really your thing, fashion is not really your thing. Is that deliberate the focus on skincare/pet products/household? Or is it also because you don’t see any potential in those or markets?
Bill: Well, I’ll answer this kind of question in two parts. For us Elements Brands personally, as I said, we focus on consumable products. And consumable products tend to fit into the three categories I mentioned earlier, cosmetics, household goods, or pet, with a few exceptions. And we there are a few things that we don’t do explicitly for very specific reasons. One of them is food and beverage, which you know, would fit our replenishable of criteria.
But the thing about food and beverage is beyond just the fact that you know, it’s perishable, and it’s heavy, it’s cheap, you know, low price points, so you end up your shipping costs more than, you know, let’s try to sell granola bar online for $2, you can’t make any money. You have to be selling 12 packs, you know, which is a big commitment for a consumer. So kind of beyond all that, even worse for food beverage is it’s really one of the last categories to come online in a major way. You know, most people most of us still buy our food and beverage offline for the most part.
And you know, some of it with an Amazon is trying to get into Amazon Now and Fresh and all that stuff. But ecommerce is already hard enough. There’s no reason to play on hard mode in a category that is not as deeply penetrated by ecommerce as anything else. It’s the worst penetrated category. So we don’t do food. We don’t do consumer technology because the customer support and return rates are really high. I’ve heard as high as 20% of units sold or returned.
Plus all the customer support, all your quality control issues, all that stuff is manufactured in Asia, which is anybody listening manufactured in Asia knows that it can be a struggle to keep your arms around the quality control. And also you deal with a kind of a lot of counterfeiting, a lot of kind of hijacking all that stuff when you do electronics. So we steer clear that and then we steer clear fashion, as you mentioned earlier because again, the price points can be a little bit lower. At high price points, it becomes very kind of image-driven marketing.
You’re doing a lot of photoshoots and fashion shoots. And it’s just a type of marketing, frankly that I’m not very good at. And also there’s a ton of inventory complexity, because if you want to offer a sweater, well, you got to offer it red, green, and blue. And you got to offer it in small, medium, large and extra-large. And once you just turned into 12 SKUs. So you end up with kind of inventory hell. Just ask any fashion retailer. And on top of that, you’re SKUs turnover four times a year, spring, fall, summer winter, right? You know, different collections and your inventory goes obsolete.
It’s a hard business model in fashion. I know some people do very well in accessories, stuff is not seasonal or sized. So if you’re going to do fashion, I’d steer clear away from the seasonal stuff, and the size stuff. And they kind of my last caveat to this is I’ve been outlining, you’ve asked me to outline my criteria, which I have. And I want to provide the big asterisk that these are our criteria. These are the things that work for us.
For Elements Brands for the way our business is set up. I do not mean this to be kind of some sort of proclamation from on high about what a good business is, you know? Good in quotes. There are lots of good businesses that do not fit our criteria. And for me, as an investor, and for anyone as an investor, it’s really about picking your spots and knowing where you’re good. So these things that I disqualify or disqualify them for us. But it does not by any stretch mean that they’re not good businesses and cannot be great businesses to own and sell to other people.
Joris: Yeah, right. And that’s a good note. I can imagine there are people listening right now and thinking about selling their ecommerce but wondering how much their ecommerce is worth. Do you have like rules of thumb? I know it’s never going to be 100% correct. But do you have rules of thumb to define the value of an ecommerce?
Bill: Yeah, let me ask you this, again, in slightly an indirect way. A business is worth what someone will pay for it. So if you are selling your business, and somebody offers you a crazy number, you should take it. And that’s what your business is worth because they are going to give you that price for it. So what I will report in order to be a little more useful in that is kind of averages and where the market is because for the most part, the prices of business that are for sale are set by the market, and the market is pretty efficient. If your business is underpriced, it will get bid up. If your business is overpriced, you’re not going to get any bids.
And the market is more efficient than it ever has been when I started in 2013 doing acquisitions, there’s some stuff that was mispriced, you know, to my benefit in some cases. But I’ve seen a lot of that get competed away as buyers get more sophisticated and more capital comes into the space, which is great for sellers. So that being said, if you own a we’ll call it kind of a typical ecommerce business with nothing wrong with it, right? You’re doing a couple hundred thousand or more in owner’s benefit. You’re selling, you know, primarily online. You know, it doesn’t really much matters for the numbers on that, quote, whether you’re mostly Amazon or mostly on your own website, your business is kind of flat up.
It’s not declining, there’s nothing broken, it’s not exploding, it’s not contracting, you know, you’re growing 10% a year 20% a year or something like that. If that is the range that you are in your business is likely in the market going to be worth between two and a half, and three and a half to four times your annual profits on a trailing 12-month basis. So if you made $100,000 last year from your business, meaning put in your pocket, if you made $100,000 last year for your business, your business is likely worth between 250,000 and $400,000.
Joris: Right. Yeah, that’s a good number to keep in mind. So let’s say one of the listeners wants to sell their store. How do you find a buyer actually? Where do you start?
Tips On Selling a Business Successfully
Bill: So hands down if you want to sell your store, the best thing you can do is hire a broker. A business broker is a lot like a real estate agent. You want to sell your house, you hire a real estate agent, you want to sell your business, you hire a business broker. There are a bunch of them out there. I’ll mention a few who I know and have worked with. The guys at Quiet Light Brokerage, the guys at Website Closers, Effie International and Website Properties are for that specialize in ecommerce businesses.
You can also go to centurica.com and I think they have a listing of several. But when you hire a broker, they maintain relationships with a bunch of buyers like me. So they know what I’m looking for. And you can either if you’re listening in your business, my criteria just call me directly and save yourself the brokerage fee. They, so they’ll know who their buyers are, they’ve got you know, hundreds or thousands of buyers and they’ll reach out to them directly and connect you. They’ll take a fee of about 10% of the transaction price.
But they are worth it because you will probably get at least 10% more for your business. Because they will show you how to position it, they’ll tell you what buyers are looking for, they help you prepare your financials. They’ll write a little book, you know, like a 20-page book, about your business, about the products about your competitors, about your industry, about your history. They’ll help you put together financials, all that stuff. So they’re worth the fee that they charge. So if you want to sell your business, I’d reach out to one of the folks that I just mentioned, and kind of interview them all and figure out who you like the best.
Joris: Okay, yeah, that’s actually really good advice. And what does that typical acquisition process look like? I can imagine it, it takes a lot longer than most of the sellers would want to have buyers maybe as well.
Bill: It does. So if you call Joe at Quiet Light Brokerage and you say hey I want to sell a business, you sign up with Joe, you will probably end up with a check-in about six months if everything goes great. It can be as long as a year. And that kind of breaks down as follows. If you sign up with your broker, they’re going to take you know, kind of as long as you take to give them all the information to write the book, the confidential information memorandum or Sim. At which point they will email it out to all their buyers, they’ll proactively call the ones they think are particularly good fits.
And they’ll set up some conference calls with you and all the buyers were in the buyers will grill you. They’ll sign NDA is first, they’ll grill you about their business, ask you some questions. And then submit indications of interest, which will be kind of a preliminary early based on assuming everything you’ve told us is true. Here’s what we offer you for your business. You’ll pick one, the best one. And remember best can be highest price, but it can also be fastest to close. Some people might need a lone, some people might have cash, some people might be your biggest competitor. Some people you might not like their face, you know, whoever it is, whatever it is, you’ll pick the best for you.
And then you’ll sign something called a letter of intent or LOI. And what the LOI does is it gives the buyer between 60 and 90 days or 30 and 90 days usually of exclusivity, meaning you agree not to talk to any other buyers. And the buyer will probably fly out to see you or at least ask you for a bunch of information. They’ll probably start spending money on lawyers to draw up the legal documents on accountants maybe to audit your numbers. That exclusivity gives the buyer comfort to start spending money on the deal, knowing that you’re not going to sell it out from underneath them at the last minute.
And that’s the time where you’re going to get you know, essentially the proctology exam of your business by the buyer to ensure that everything you told them before in the sim is actually correct. And they’ll also get a lot deeper as all be under NDA of course. And provided the buyer is satisfied that everything told before is true and they don’t find any, you know, huge turds floating in the proverbial punch bowl, they will before the end of the exclusivity period, send you a check. Send you a wire transfer for your business. Sometimes it will be the full amount upfront. Sometimes it will include some seller financing or earn-out.
And then typically most buyers will ask for roughly 30 days of transition assistance after you get the check. So if you add all that up, you know kind of as fast as four or five months if it goes warp speed. But you know, sometimes you can get under LOI. You can waste two months with a buyer and he backs out and you’re kind of back to square one with another buyer. So anywhere from kind of 4 to 5 on the short end to 12 on a longhand.
Joris: Yeah, and I can imagine it’s a nerve-wracking process because it can still go wrong in the end. When you use your own terminology when they go deeper in the proctology exam, that sounds really weird. But when they go deeper then and they find stuff. After a few months, it can still backfire. Right?
Bill: Right. And that’s, and that’s the value of a broker also because the broker will, you know, look, there’s something wrong with every business, right? Mine included, all businesses have warts, and the broker will help you to present the things that are not perfect about your business in a way that it won’t scare a buyer. And it’ll help you to frame it in the right way. So the buyer understands. And the broker will also kind of manage the buyer and say, Look, this guy’s bought two business from me already. He’s closed every time at the same price and on time, you know, this guy you can trust, you should go with him. So this is the real value a broker can bring to the process for you.
Joris: Yeah. Okay. And so what kind of advice would you give someone who’s thinking of maybe contacting a brokerage or anything that have to make sure they have, yeah, they have an order before they reach out to brokers?
Bill: So I am friends with a number of brokers and you’d be shocked. Sometimes they get basically people don’t even know their numbers. Or I knew one guy who a seller sent him a bunch of yellow legal pads, which were his financials for the past three years, on legal pads. I’ve known other folks who had to reconstruct financials from credit card statements. So if that is you know that your broker will probably hate you. But he’ll also take your business. Okay. So there’s no reason not to make a phone call if that’s you.
But if that is you, also, your broker would really appreciate it, if you took the time to compile them into, you know, well organized financial statements. Which is kind of the primary one you have to have correct is the trailing 12 months. So if you know, I would say the only thing you got to know, besides what your business is and what it does, which you obviously do already now, is how much money you made in the past 12 months. And that’s not revenue, that’s profit. If you once you know that number, you’re ready to call it broker.
Joris: Okay. Yeah. You can make it sound easy. Like that. Okay.
Bill: Well, it’s easy to pick up the phone, and then Joe, and the other guys will take you through it. Right? It gets harder from there.
Joris: Yeah, right. So once you with Elements Brands, you bought a newcomers, how do you usually scale them up?
How Elements Brands Scales Businesses
Bill: So I have a good friend who also buys businesses, and she always jokes, I don’t know if where you are Joris. But in my part of the country, they have these billboards that say, we buy ugly houses. And I always like to joke that we buy ugly websites. Because, you know, like, any business, as I said, has something wrong with it. Like, you know, the best business is something wrong with it. And there’s actually been a lot of psychological studies that prove that we are better at solving other people’s problems, then we are at solving our own problems, because we have some distance, right?
Some emotional distance from those problems. So when we buy a business kind of first thing we do is essentially repaint the house. And that doesn’t necessarily mean redo the website. But we kind of objectively look at the whole business in a way that the owner wasn’t able to just because he or she was too close to it. And we say like what is objectively broken, and we fix that thing. And sometimes it can be the website’s terrible. Sometimes it can be this business owner never sent an email marketing ever. Or this business is not on Amazon, or you know, this business has never tried Facebook ads.
You know, just the things that are glaringly obvious. And to be totally candid, sometimes that’s enough to grow the business by 50%. Just by kind of implementing the best practices playbook across the entire business. You know, we’ve as I said, we’ve done this six times now and have been doing it since 2010. So we’ve kind of got what we call our playbook of best practices across everything, you know, from ads, to web design, to shipping and fulfillment, all that stuff. And we implement our best practices kind of across the board. One by one, It Ain’t Rocket Science. It’s just a very good, regimented process.
Joris: Yeah. And then I can imagine when you’re considering buying an ecommerce, and you see those low hanging fruits just hanging there, ready to be picked, that triggers you as well to make a move and buy the ecommerce store.
Bill: Right, right. And that’s another plug for hiring a broker, a broker will help you to identify your low hanging fruit and polish them up and point them out to the buyer.
Joris: Okay, cool. So um, yeah, I mean, you have your best practices playbook. So obviously, you have a ton of experience when it comes to growing ecommerce business and but what do believe are like two or three keys to growing ecommerce business in today’s environment.
Bill: Sure. So I’ll just start with the easiest one that almost no one does enough of which I mentioned earlier, email marketing. If you are not emailing your list, at least once a week, you’re leaving money on the table, period. I have so much data to back that up. People will not unsubscribe, if you email them, the less than once in a week, they will forget who you are. And then they will unsubscribe when you do email them. So email at least once a week. We’ve gone to two or even three times a week for some of our brands, it’s just absolutely easy money.
Joris: And is that all like product or promotional emailing or is that also content, emails?
Bill: A lot of content emails. So we are really not that heavy on the promo. I mean, of course we do some We very rarely do like, you know, 20% off across the board. Like we’ll do if we’re going to do a discount we’ll do 20% off this one product or this one product line. And then we’ll segment it and like let’s say we had two products A and B.
If you had bought a well, you’re going to get 20% off product B this week. And if you bought B you’re going to get 20% off product A this week, right? To try to cross-sell and get you to try something new because we know you already liked the one you bought before and I probably want to pay full price. We use a tool called Klayvio, KLAYVIO to do that.
Joris: Yeah, I believe it is the best platform out there to do this kind of stuff. And so I can imagine you’re using cleaning here. So you’re obviously doing some flows as well in Klayvio, right?
Bill: Yes, absolutely. Lots of flows. I think we do over 10 grand a week of revenue just from flows. That’s automatic. Easy money. So yeah, email marketing, you just can’t do enough of it. This is not a paid endorsement for Klayvio, but it’s just easy money.
Joris: Yeah, and I mean, we work a lot with Klayvio as well. And it’s just an awesome platform. I’m not getting any money for saying that. But uh, it’s like a common theme. Whenever I speak to an ecommerce business owner, that is doing very well. Klayvio is always in the mix somehow.
And they’re doing a lot of email marketing, at least. And it’s almost always with Klayvio. One of the things I know that you’re also passionate about this is team building and employee incentives. You spend a lot of energy on building the right team and right culture. Can you share with us what exactly it is that you do?
What is a Contribution Margin and Why is it so Important?
Bill: Yeah, so as I mentioned, we’ve got over 30 people here in Elements Brands. And at some point, you know, if you’re listening and your business is scaling you will start to reach the point where you can’t know everything that’s going on in your business as the CEO. You have to start trusting your employees to make decisions on behalf of the business. And the only way to get people to make the right decision and good decision and have positive culture and for your employees to understand what it is you’re trying to do. And that seems obvious. Well, you know, we sell laundry detergent online.
But that’s literally what you do. But figuratively what you do is, you know, they got to understand what metrics matter, you know, should we have a sale for 20% off? If we give 20% off to everybody in our sales go up by 5% is that good? Well, no, it’s not good. And if our product sells for 20 bucks, and I have a CPI of $25 on Facebook, is that good? Well, no, that’s obviously not good. But what if my product sells for 20 bucks, and I have a CPI of $15 on Facebook?
Is that good? Well, you better be careful, because your agency tells you that’s good they don’t have your best interests at heart, because I guarantee you got more caught, you got some cost in your product, right? Revenue is not profit. So educating your employees about you know how much money the business does make, I think is really critical in order to enable them to make the right decisions. A lot of people are really squirrelly about that. A lot of business owners, which I understand you know, you don’t want you to know, your employees knowing exactly how much money the business does make.
So we use a system, and I’ll propose it as a compromise if you’re worried about kind of opening the whole Komodo, we use a metric called contribution margin. And contribution margin. I will, you put me on my soapbox, but this is the single most important metric in ecommerce and no one uses it. And I don’t understand. Let me break it down for you. So yeah, contribution margin. It put in, you know, in business school, they’ll teach it as either contribution margin or variable profit, and is the sum total of all of the direct costs that you incur every time you ship in order. So obviously, one of them is cost of goods, right, you had to manufacture the widget.
But also all of your advertising costs, your Facebook costs right? Your Google costs, etc, your Amazon ads, all of your Amazon fees, if you happen to sell on Amazon, you incur those every order, outbound shipping, whether you get free shipping or not, right? Outbound shipping is a cost. Credit card processing is a cost. All of these things, you know, the cardboard that you put the order in every little thing that you get dinged on for every order that doesn’t go away with scale, put it in your contribution margin.
So contribution margin is sort of the money that’s left over from every order that contributes to your fixed expenses. And your fixed expenses, obviously, your rent, your salaries, you know, kind of corporate overhead, all that stuff. And so what we do is we fixate the entire company on contribution margin dollars. And we set a target at the beginning of the year.
So we make so many contribution margin dollars, I know what the number below the line of fixed cost is, right? I educate the employees that this isn’t a profit number, this is contribution margin number. And I still gotta pay all your salaries and rent and everything else after this number, but I pick a number that will allow us to hit our profitability target if we make it. And then I beat the entire drum of the company to hitting that contribution margin number. And I set their bonuses based on a contribution margin number we can get into how we do bonuses also if you’d like.
Joris Yeah, yeah. I mean, that’s really interesting, to be honest, its the first time I hear that number. I’ve spoken to, I know, probably 100 ecommerce owners over the course of the last few years, but I’ve never heard that number come up. And yeah, and how do you use that for your bonus system?
Bill: Yeah, I so I’m not surprised who said that Joris. It’s crazy. No one talks about contribution margin. But it’s ultimately the only number that matters, right? Because it has Yeah, it gets huge. All of the fixed costs become de minimis, right? And your profit converges to contribution margin. It gives you a sense for every incremental order you do, how much money do you make. So totally critical. So what we do for bonuses is I really believe in incentive compensation, that if you want people to think like owners, you got incentivize them like owners.
So the way we do bonuses at Elements Brands is that every employee, every full-time employee that works here, is eligible for up to 12% of their base salary as a bonus every year. And the way we break that down, and I break it down differently every year. This year what we did is we took half of it 6% of their base salary and we tied it directly to the contribution margin dollars target. So if we hit X dollars in contribution margin, you guys will get a bonus of 6% of your annual salary. I took the other 6% and broke it up into 1% each.
And I sat with all of my leadership team, and then the leadership team set with all their employees, individual six individual goals for the year that they, you know, developmental goals to achieve. And these are wildly different, you know, for are they for marketing, or sales or customer service or whatever. So everybody gets six individual goals for the year each worth 1%. And then at the end of the year, we add up you know, you have a review with your manager, how many of these do you achieve?
So let’s say you got three of six, that would be 3%. And let’s say the company hit the target, that’s another 6%. So you get a bonus of 9% out of a possible 12. And there’s some really interesting psychology when it comes to incentive comp and bonuses. And I’ve since learned by reading why I screwed this up. But I screwed this up very badly in the early years. In the early years, I did this and I said, here’s the contribution margin dollars target. And if we get it, you all get a bonus of 12% of your salary. And then I said nothing about it for the rest of the year. And just nobody cared at all. And it came around and kind of we got the target.
And there I got it. Everybody gets I gave them all check and expect them all to be psyched. And they were like, Oh, cool. That’s that. Thanks, you know, but I couldn’t get them to care. And it turns out that human beings really suck at like long term goals like that with no regular reinforcement. So what we go to is now every month, we have an all-hands meeting, and we review contribution margin for the prior month, and then also our cumulative number for the year. And I tell people, whether we’re on track or off track how we’re tracking towards budget, you know, whether they’re going to get their bonus.
That helps keep them bought in so they know what’s going on. What I want to do for next year, that makes it even better is if you can actually pay the bonus more regularly. Because it turns out that human beings discount rewards that are in the future, right? $1. If I say us, I’ll give you $1 a year from now or $1 a day, right, you carry on a lot less about the dollar year from now. Same thing with bonuses. So what I actually want to do is pay bonuses quarterly next year. So people are like getting checks throughout the year as we do well and keeping them fired up. So they feel like they come into work. Like, let’s make some money today. You know, so think like owners.
Joris: Yeah, that makes total sense. Yeah, I’ve never thought about it this way. And yes, giving them the bonus. Also, in the short term you have motivates them a lot more than at the end of the year. Because that’s so far away from now. And then well, not this time of year maybe. But when you start out in January, and they know, meh, maybe in December I’ll have a bonus that’s not that motivating, I guess.
Bill: Yeah. And by the time you get close, right? By the time, it’s like a motivating because it’s November, you know, I got this check is coming. It’s too late. You can’t affect it anymore, right? Right. So you want to match kind of that motivation period, which is like the three months right before the goal, to the time when you can actually affect the goal. So instead of one big monolithic annual goal, you know, divided by four or do a more sophisticated quarterly projection, right? And set quarterly goals and payout quarterly. So I think we’re going to try that next year.
Joris: Yep. makes total sense. Cool. Yeah, we’re kind of running out of time here. I was going to end maybe with a question, what’s the number one piece of advice for people who want to grow their ecommerce? I’m kind of guessing it’s gonna be a contribution margin, or am I wrong?
Bill: No, you’re right. I mean, track this metric contribution margin and understand how much money you actually make. Because if you track contribution margin, you will understand exactly what your target CPA should be, you know, if you, if someone works with an agency like yours, you know, people are saying, Oh, I want to do breakeven ad spend, and they set it up one x, their average order value.
Well, guess what, you’re probably losing your shirt at if you defined breakeven ad spend as one x your revenue in order. So know your contribution margin, track your businesses that way and it will help you to actually understand how much money you’re making. And then you can make smart investments in certain places that will grow your business and know exactly how much you’re investing there as well.
Joris: Yeah, that’s great advice to end this podcast with. It has been great and learned a lot today but we’re running out of time. Just want to make sure that people know how they can find you. How they can learn a little more about you. What’s the best place for people to connect with you?
Bill: Yeah, so I’m on Twitter at Bill DA. Or if you want to learn more about Elements Brands, or if you happen to own a business might be a great fit for us. The website is elementsbrands.com. That’s Elements with an S, Brands with an s dot com.
Joris: Cool. Thanks so much for being here, Bill. It’s been awesome.
Bill: Yeah sure thing Joris. Thanks for having me.