The Biggest Margin Opportunity In Ecom Right Now — And For The Foreseeable Future transcript

There's this question I've seen floating around a little bit in e-commerce right now, and that is sort of are e-commerce brands really well positioned to capitalize on AI relative to other kinds of businesses in the space? Well, who will be disrupted the most and who will capitalize? Who are the winners and losers in AI in the e-commerce landscape? If you think about the e-commerce landscape as three kinds of players, right?

There's brands, there's agencies, or let's call them service businesses, brands, service businesses, and software companies, SaaS, okay? Those are the three. Now, as many have pointed out, there's a blending of service businesses and software companies, but let's for now call them two different things for the sake of this exercise, okay? You know, in AI, there are various upside and downside cases for software companies in e-commerce.

There's There's various upside and downside cases for software companies and service businesses that sort of present themselves to you automatically. You can really see a clear downside case for the software companies where they get obliterated, same with service businesses in lots of ways. You can also see an upside case for both, where they're the most well-positioned people to take advantage of some of these opportunities and to create margin and and some of those things and extend their services and all that.

So, I want to actually leave that aside for a second, instead focus just on e-commerce businesses around the question of how will they be winners in the AI world? And And I really mean how, like distinctly how. What things can a e-commerce companies do to take the most advantage of the AI revolution. And as they do, like will they be winners and then how do they do it? And what is the shape of the way in which that actually happens in e-commerce company?

Like, what do you have to do as a D2C operator to use AI for your advantage? And not just AI, but but other things. And the place that I want you to think about, where I think the real gigantic AI opportunity is in e-commerce most fundamentally right now. It's probably across your business, but there's there's one little section of it that I'm thinking about the most. And this This really fits my view of of sort of what makes a D2C brand great in general.

And that is in the area of OPEX. Now, what I mean by OPEX is your fixed costs in your business, okay? The fixed costs applied to your business. And And for a long time in e-commerce, one of the things I've said and and that other people have said as well is that the great margin opportunity in e-commerce is the ability to run a very low operating OPEX, right? If you think about a service business, you or a software business, both, right?

They both require a bunch of human hours and a bunch of human labor to accomplish the tasks in front of them. And so, so human costs are a very large percentage of their cost structure. In fact, they're most of it in lots of ways, okay? But But e-commerce businesses are not like that. The largest costs are the product and the ad spend. OPEX, you can actually run a very low or very high revenue per head in e-commerce.

You know, I've heard about a long time ago I had an interview with the the CEO of ButcherBox, who was at like 500 million in revenue and was running like 3 million dollars in revenue per head. And that was a while ago. That's pretty best in class. And yeah, I think it was like 150, 160 employees in the business at that time. I mean, that's that's really, really good. And if you think, you know, the benchmark that I've constantly given is that an e-commerce business ought to run, once it has the basic levels of scale, you know, past a few million dollars, okay?

An e-commerce business ought to be able to run at 15% or lower OPEX. In the earliest days of the business, of course, you just don't have enough revenue to have a low percentage of OPEX because you need some revenue against which your OPEX can be measured. that's actually going to be an important point that I'm going to come back to you later, but the more revenue you have, the easier it is to have a lower percentage percentage of that revenue eaten up in OPEX.

But 15% has been this benchmark that we've used for a while. So, everything included in that includes all your software costs, all your human costs, that includes both internal employees and agencies. It includes Those are the main ones for sure. If you have an office, that would be in there as well. Any of those fixed costs in the business that are just kind of a reality that are in the business and they do not scale up and down with the amount of stuff that you sell necessarily.

You end up, of course, getting more people typically as you grow a bigger business, but they don't have to, you know, not in the same way where like if I'm going to sell 500 widgets, I got to buy 500 widgets. And so, the variable costs associated with buying those widgets is going to go up as I buy 500 or 1,000 or 2,000. If even if there's some economy of scale there, there's a variable cost associated with each sale, and then I got to pack and ship those, etc.

So, you you get you get the idea. So, 15% has been this benchmark for a while. And I've also said for a long time that you really can get that number below 10% in some businesses, 12, you know, 10 to 12%. So, that's fantastic and that makes for a good opportunity. Great e-commerce operators are clear about that, and they make a big point of running their businesses at that kind of margin. Now, if you think about what what AI can do, and I'm actually going to add not only AI, but offshoring, the combination of AI and offshoring, two things I've believed in for a while, the great opportunity in this business in in e-commerce is to use those tools to make it so that you can take that OPEX number to a much lower percentage of your of your revenue, right?

I think I think one of the things that's going to happen in the next wave, I don't know if I quite believe in this idea that there's going to be e-commerce companies that are like one or two people running 50 million dollar businesses. A lot of times when you hear that story, what's actually happening is that they have one or two internal employees, but they got a bunch of agencies. And so, it's like quote-unquote one or two people, but all that means is that this like it's like an accounting game.

I don't I don't really care about distinction between internal employee versus agency. They are both human costs that you have to pay to run the business. So, I'm not quite buying that vision. That extreme of a vision. In part, actually, because one of the things that AI does is it makes people theoretically more productive, and that actually creates incentive to hire more people, not less. So, again, I'll come back to that more in a second.

But in any case, I do think there is a world where what AI will allow people to do is shave OPEX because they can just run a higher revenue per head because people are more productive in those ways, and that then, you know, this is again the great promise of things that like suddenly, maybe you don't need a landing page agency because you can use AI to build a landing page for you extremely quickly and easily, and you don't need a coder, you don't need any of those things, right?

There's like all of That's a very simple example, but it's one of those things. You know, your photoshoots might get cheaper. I've definitely seen some people who are generating large amounts of like studio-quality photography with AI, and I think that's hard to do. I think it's There is still cost involved, but you got to pay for the tokens, by the way. Like, there's a bunch of different ways in which it's not free to do that at all.

But there's potentially these opportunities to get to have these cost savings. You should be talking to Move Supply Chain about making your supply chain better, optimizing your supply chain. I've said it so many times, I've said it in this episode, supply chains are the most under-optimized part of the entire e-commerce landscape, and Move Supply Chain can help solve that in your business. If you want to get more margin on your product, if you want to negotiate better terms, if you want to find just better quality product, if you need backup manufacturers so you don't have a [music] a single point of failure in your business, if you you just sample new products or work on new product development, if you want to get higher MOQs or excuse me, lower MOQs.

You don't want higher MOQs. You want lower MOQs. If you want to think about payment terms, all of those things that are important to having a well-running supply chain, my friends at Move Supply Chain can help you because [music] they have a whole bunch of years building and optimizing e-commerce supply chains across a whole bunch of industries, and they can do that on your behalf for your business. And the beauty of it on top of that is that they are affordable.

So, especially if you're in that seven-figure revenue stage where you're building these things out, you don't have that kind of supply chain experience. Move Supply Chain is based in the Philippines, and that is a huge advantage to you in a lot of ways. >> [music] >> One of them, as I said, is that they are affordable. That's why I got them to work on the supply chain for my business. I just got my first samples finally.

I told you about this brand for a while a while ago. Not my first samples, excuse me, my first order of [music] sample sets, okay? Samples to customer. They're samples to customer, not samples to me. Sampled a long time ago with the manufacturers. Just got those delivered, and we're going to be going with those soon. Move has been critical [music] in helping get that set up. I mean, not only critical, like essential.

Like, we wouldn't have done it without Move Supply Chain. And they're they're just awesome. So, they have deep experience in e-commerce supply chains. They're building my supply chain, and because they're in the Philippines, they're affordable. It's actually another advantage of them being in the Philippines that they are so close to China and to Vietnam. It's very easy. It's like an hour and a half flight for people in the Philippines to get to those places.

So, they're in China, in Vietnam visiting manufacturers, visiting vendors, continuing to build supplier lists, doing all those things, going on behalf of you. And in fact, when they go to those places to to negotiate, they don't just bring your brands to them. They have other brands that they are talking that they're talking with all the time, and that creates more leverage in negotiations because they can represent more [music] business opportunity for suppliers, and so they become a more strategic contact.

There's just a lot of reasons you should be using Move Supply Chain. And at the very least, you should get on a call with them and tell them about your supply chain. Ask them the question, can you help me? If so, what does that look like? Go to movesupplychain.com, schedule a call with Laura and her team. She's awesome. You're going to like them. Do it right now. Move supplychain.com. That is there. And what I think is possible here is that this will go on.

And And the thing I want you to begin to think about here is actually this this broader scenario, which is that if it is the case that software companies and service businesses end up generating end up having huge hits to the way that they have to operate, or they can provide many more services for the same costs or the same services for cheaper because they are the ones who are the best positioned to use AI. And this is, by the way, a point that many people have made, including I've seen Taylor Holiday make this point as well, which is like, you know, he's said sort of service businesses are the best equipped businesses in the world and maybe software businesses to use AI because they do the kinds of work that AI creates particular amounts of leverage.

Well, if that's true, let's just grant him that point. If that's true, then that means that margin profile of a business like Common Thread Collective or AJF Growth, as the case may be, is going to change, and it's going to change in some way where either we can take on more clients at a lower cost per client, or we can go deeper with clients and provide better quality work, etc., for the same cost, whatever. In either of those cases, what happens is my my margin margin profile changes and the service business now creates additional leverage in what it does, either by charging less or by being more productive.

One of the two, okay? It And for the sake of this, it actually doesn't matter which one of those is the case. In either of those cases, what that means is that the margin goes in some ways away from me as the service business and it accrues to somebody else. Because again, if I can just be more productive for you know, this is obvious if I now I'm charging less per client, right? If my Imagine my billable gets cut in half per client that I'm working with.

Well, that means every client is paying me half as much than they were paying me before and that margin per client now I may maintain it cuz I get more clients, but that margin per client accrues to somebody and the somebody is the brand. The brand now pays less money for the service, which means they now get some margin back, okay? And let's just assume the quality of service is exactly the same because let's say I am I am making that possible.

Or if it's the case that I as a service provider provide more value to the client, then that client value can be quantified as revenue, okay? Or profit. In that case, revenue or profit, if I'm paid the same amount of money as I was paid before, but now I can provide more revenue or more profit to the brand, again, that creates the same thing. It's additional margin accruing to the brand because of the way the service business does this.

So, in those cases, what happens is is there's additional margin going to the brand and the brand sees that margin in a one in a particular area of their P&L and that area is your opex. That's the sort of bucket of your P&L where you see that margin happen. And again, that would look like one of two things for the brand. That would look like either at the same revenue, a lower opex cost. So, imagine you're a $10 million revenue e-commerce business, maybe your opex goes from 15% like I said down to 10%, okay?

If that happens, what that means is five points of margin like just goes away from a cost down to the bottom line for profit. That's a really good outcome, right? In the case of that business, five points of margin is what? $500,000? Yes, I did that right. Yes, $500,000 additional profit goes to goes to the e-commerce business. And critically, by the way, I don't think this is going to change the way that price will signal value to an end consumer of a of a consumer good.

And therefore, the brand gets the margin back at the level of opex and can run a leaner business, but it's not like they're going to pass along that cost savings to the customer. The customer is still going to I mean, maybe they will or something like that, you're right, but but the customer is not going to be like, "Oh, I don't know, you you made you made that landing page with AI, so shouldn't you pass some margin back to me?" I just I don't think that's the way consumers interact with products and the way price signals value to customers and those kind of things.

So, I think what can happen here is that e-commerce businesses should be able to still command the same price for their products. Now, of course, this may create competition, which may create problems in other ways and lower barrier to entry and all those things. So, I'm not not really making a bet on whether or not it's great to be an e-com brand or not in the long run, though I'm very positive towards it as usual cuz there could be some other factors here.

But what I'm saying is that could be the way this works. The other way, of course, this works for the e-commerce business is that again, if the service business or just an internal employee or whatever can do more work or can and let's let's actually not say more work cuz it's not about quantity of work. It's about can be more productive where productivity is defined as value creation in the business, okay? Can be more productive.

If that is possible, then again, maybe it's the same let's say you know, I said 10 million revenue and it was 15% opex before. So, a million and a half in opex, okay? Either that million and a half becomes a million and now 500,000 goes to the bottom line or maybe that 10 million in revenue goes to 12. And so, it's the same million and a half in opex, but now that million and a half is amortized across 12 million revenue instead of 10 million and that creates a lower percentage of your costs going into the business and and again, you know, forget all the assumptions about gross margin and all the things that would go into it.

You get the idea, right? It can either happen in the form of lowered costs or more revenue. Both are really, really big wins. In either case, the point is margin accrues to the e-commerce brand in the form of opex, in the form of lowered opex. And now, this core advantage of what e-commerce is and does and what makes it a good business, that core advantage becomes heightened all the more and it's exponential, right? It maybe not exponential in a true sense, right?

But there's this there's this way in which this core advantage becomes an even core advantage-er. Right? To to be sort of ridiculous. Like that's the idea, okay? And so, what I think great e-commerce brands are going to do right now is see this and invest in running a great business. And there is a core way that brands can take advantage of this moment now and in the future. And here's the great news about this. No matter what prophecies I just made that turn out to be wrong about how this all plays out, everything I am going to tell you right now is applicable to your e-commerce business either way.

Because these are the things that matter the most. And what I want you to see and hear most essentially is that the people who are most prime to take advantage of this opportunity are the people with the highest amount of domain expertise. It's a phrase I love, domain expertise. It's a helpful way of thinking about you know, institutional knowledge, that kind of same idea or something like that. But the people with domain expertise in e-commerce, like great operators is what I mean.

Great operators are going to be by far the most prime to take advantage of this moment just like they are really for for every moment, okay? And in this way I but but there's a particular thing with AI, which is that and with offshoring. And again, I think actually both of these are really important. You know, what's happening at AJF Growth, right? Is that we already have built a team that is heavily based in the Philippines where we have awesome employees who deliver great work.

And you know what's happening with all of them right now with AI is that we're finding ways to help them be more productive. They're very smart people already and we help them be more productive. And so now, we can build a cost structure and we can build productivity tools to make it and it doesn't work perfectly all the time yet. Like it's it's all in process like always with any business that you're working on. You're building and growing and doing all these things.

But as you're doing that, we are making it so that we think we can accomplish more work in better ways with really smart people and we can do that at a cost profile that really makes a lot of sense. The way that we actually handle this for our clients right now is that we make a promise that we don't have more than three clients per growth strategist, okay? So, so basically our pods for agencies only have three clients per pod and it fits our margin profile that we're going for in our business.

And the reason we do that is we want to go really deep with clients and we're saying we think between offshoring and AI, we can deliver an extremely high quality of service with a whole bunch of human hours dedicated to our clients' businesses in a way that's really competitive. I don't know of any other agencies that have less than five clients per growth strategist, which just means our growth strategists can go deeper with our clients than basically anybody else can, okay?

And that's because we're building with a combination of really smart, talented people built overseas where our dollars go a lot farther like I've talked about a million times on this show. Our dollars go a lot farther to hire really good quality talent and we take those people and we are building productivity tools like I've talked about a million times with Patrick on the on the on the show, my my business partner and COO who's building up who's who's taking the lead in building our AI tools.

The two of us together by doing those things are finding ways to to build this opportunity and that's the way we're sort of handling this margin opportunity. Well, what that creates, I think, is exactly the thing that I said, which is this margin opportunity for the e-commerce brand. So, we're we're getting margin as well, but of course, it's it's accruing to the brand who gets a really high quality service from us. And we're able to do that and this is the critical point, because of domain expertise.

Because we are taking all of those people, the offshored people and we're taking AI tools run by a combination of, you know, me speaking into it and Patrick leading building it. And Patrick who has built and sold an e-commerce business himself, right? Like he he's not new to this game. He understands what e-commerce businesses need, okay? You know, I've been in the game for 11 years or whatever and same thing. I have real domain expertise in this area at this point.

I've recorded hundreds of podcasts talking through the ideas. I've worked on all kinds of probably hundreds of brands at this point, right? We take those and by bringing in smart people in other ways and applying the leverage of offshoring and AI with our domain expertise, we are able to then go deliver a service that we feel great about. And here's the thing about the e-commerce brand, the DTC brand. What I think is going to happen is that the brands, the operators that can apply, can can grow their domain expertise so that they really have clarity to the model of revenue and to the way their brand can work and to the way their brand can create value for customers.

If they have a lot of clarity to those things, then what that's going to create That is the domain expertise I'm talking about. This mix of sort of financial clarity, P&L clarity and then sort of brand clarity, product clarity, customer clarity, those things. That domain expertise now, when done well, because of this moment, can be applied to their brand in a way where they are prime to take advantage of the margin opportunity I'm discussing.

And it's about, therefore, your ability if like if you want to take advantage of the AI revolution, what I'm saying is your ability to master the fundamentals of e-com is the critical thing. One thing I've seen people point out about AI that I think is is wise is that while AI speeds up the transfer of information, it doesn't necessarily speed up the time it takes or the ways in which a person understands information.

Now, in some ways, of course, it does do that. And and what I mean is like by being able to have a conversation with AI, you may be able to sort of access information faster and easier than before and therefore reinforce it in better ways, right? Sort of like a private tutor would do, right? An AI can sort of function as a private tutor in this case. But what I mean by that is is that at the same time, it still requires you would still need the same amount of private tutor hours now versus before, okay?

You know, for for equivalent level private tutor. So, maybe you get the best private tutor in the world, I don't know, but like but that's the that the same idea still. You still have to understand the ideas. And what I think is critical right now for operators is to get as clear as possible on what makes your business great. What opportunities, what advantages your business has. To find the smartest people who you can find and get them helping you see that more clearly.

Like it's it's a really good time I think to pay for coaches coaches and consultants who can help you get clear about it, who have experience in the business. Because the clearer you are about what your P&L model ought to look like, how cash ought to move through your business, how your products ought to interact with customers, how your ad spend should work, the more you are able to aim the firepower of these resources which have now become drastically more affordable um and can do a lot more, okay?

At the biggest problems in your business. And actually I still find that one of the biggest challenges with AI is that it knows almost too much and so it can go into too many places and seem expert in too many things in a way that if you don't understand where to point it, uh it it sort of can present a convincing case of something that actually isn't quite right or that isn't going to be very helpful for you. And so knowing where that is is really important.

Now of course humans can do that too, uh right? And and so it's not like this is a unique AI problem but the more that you can understand those things, the more insightful you can be about them, the better. I have a client right now who gives 20% off to new customers for their first purchase. 20% off, okay? I have a theory that that is too high. We're on a call this week and we were saying that 20% off for new customers is probably too high.

They sort of inherited this brand from some old operators and when they did that they looked at it and said like "Ooh, we got to change a lot of things." This is one of the things on their list. Should we be giving 20% off for new customers [music] or should that number be 10% or should it be a stack discount like 10% if you buy one thing, 20% if you buy two, you know, 30% if you buy three or more, whatever. Or maybe a priced version of that like 10% if you pay $50 if [music] your order is $50, you know, 20% if it's $100.

You get the idea, right? Stack discount. Maybe it should be no discount at all. Like just just don't offer a discount. Well, there's a way to answer that question and it's an important question because the discount profile plus the offer are important parts of the customer journey and theoretically what they do is create a higher conversion on each customer and you're willing to give the discount and to eat into my margin as a brand, right?

I'm willing to eat into my margins as a brand if I can get customers to convert a lot more often for the first time. But the thing is, maybe that margin trade-off isn't worth it. And with IntelliGems, we can test it. And that's what we're planning to do. We're going to institute an IntelliGems test for this brand where we where we change the offer from 20% off for new customers to 10 or even nothing. And so we can actually see which of those offers not only converts best but critically because IntelliGems can tie into the actual COGS of this [music] brand's products, we can also test whether or not it actually drives more or less profit because maybe we do get higher conversion or a better AOV or something like that with some of these offers, but it hurts our profitability.

And that's the thing that we don't want to have happen, of course, uh is is to get more conversion but actually get less profit, okay? So that's the kind of question IntelliGems can help you answer because IntelliGems is >> [music] >> split testing way beyond the basics and it's the kind of question you should be asking in your business. What about the price of your products? What about that first customer discount? What about the free shipping threshold?

What about how would you charge for shipping? All kinds of things like that IntelliGems allows you to set up quickly, set tests up for quickly without a developer, get it onto your website and be testing right away with the things that really move the needle for your customer experience. Go start testing it right now. IntelliGems.io is the place to go do it. Use the code Ferris20, f a r i s 20. Smart operators who really care about the profit they're driving their business are using IntelliGems to drive [music] their split testing because it is the most robust, best e-commerce split testing tool that gives you the information you actually need to know if your test is successful.

Go test it out right now. And so I'm going to I'm going to look at that in two ways. That domain expertise, I want to think about it in two ways. And the first is to come back to the thing I said earlier, which is OPEX opportunity, okay? I want you to be crystal clear about the OPEX opportunity in your D2C business. I really really want you to be clear about this. I want brands now to think about just how much margin opportunity there is there.

How much easier I think it is going to be to squeeze an extra three to five points of bottom line margin, okay? Out of your OPEX in the current moment than it would be to get three to five points of margin back in your supply chain. Now I actually think supply chains are hilariously under optimized in e-commerce in many cases. So there actually may be three to five points there, too. But the fastest, easiest thing to access, that's going to require some work and some expertise.

The fastest, easiest way to do this is is with your OPEX and I think really critically, do I need that cost? Could this go further with AI? Do I need to go build, you know, whatever? It's amazing to me how much absolutely blown money I still see, still on the books of e-commerce companies that can just go away and it will not affect business. Now that doesn't necessarily mean to fire everyone, by the way. It doesn't mean that at all.

It just means understanding clearly where you ought to apply spend in your OPEX and where not to. Where does your spend create the biggest leverage OPEX leverage in your business? Where are the real needle movers? I actually think many brands make the mistake of going too far here. They're or not many brands, some brands make the mistake of going too far here and just thinking sort of they can fire everybody and and save costs in all these kinds of places.

Like look, if you have a great growth people in your business, don't fire them. Like even if they're paying more than you would like them to pay, don't go try to undercut that cost. Those people are too important to your business and they they they affect the largest line item in your business and you shouldn't be shopping that on price. You really shouldn't be because your growth people, if they're doing an incredible job, uh I mean this is an area I think about a lot, right?

Because of the business that I'm in. But if they're doing an incredible job in your business, it's the last place you should be looking to cut because very likely they are actually the people who are controlling the largest line item on your P&L. And so by them being five to 10% better than the alternative, they make a whole bunch more money for your business because if your ad spend is two million bucks, okay? Five to 10% being better there is is actually an ad spend of two million dollars is is generally probably, you know, I don't know, three and a half, four million dollars in revenue.

Or if it's five million in spend, it's going to be, you know, whatever, eight to 10 million in revenue. And now five to 10% increases there is like a whole bunch of money. And so trying to save $2,000 a month on that cost or whatever it is is like a crazy idea, okay? Or even $5,000 a month is is probably not the best use of of that money and time. This can go really wrong in all kinds of ways and it's really really important.

And so I'm not saying just fire everybody. What I'm saying is be really clear about what the real needle movers are in your business. Apply leverage to those. Find the best people you possibly can. Be willing to pay good money for good people in those places and understand how to shop that. And then as you do that, think about how to empower them with tools that allow them to be even more productive for you. What is that what what is required to do that?

Build operational processes that are again powered by offshoring and AI that allow you to do these kinds of things well. That's a hard job but it's really important and if you can and if you can get clear on that OPEX opportunity, then you've got this way of growing a business well, getting a whole bunch of profit out of your business from there. So there's that. Where possible, use outsourcing and AI to power those more fully.

Get the best people you can on the most important places. The most important places are the places that affect revenue the most and the places that affect your costs the most. That means your ad spend and your product, basically, okay? That's that. Second then, therefore, master the other fundamentals in your business. And again, this is what I mean like what I'm really saying here is resist shiny object syndrome including with AI, resist distractibility.

If you can have a lean OPEX as a percentage of your revenue and at the same time you can find a way with to get serious about your supply chain optimization as especially as you grow and as you create more leverage with suppliers, okay? If you can build great products and marketing moments, so you've got a more optimized supply chain. If you can organize those marketing moments in a thoughtful, well-organized calendar.

If you can forecast clearly to give yourself a financial roadmap for success. And if you can understand cash movement in your business deeply. And if you can do that while being relentless about keeping your ad spend profitable almost certainly by leveraging manual bids on your meta spend in particular. If you can do those things, that's six things I just listed, right? Supply chain optimization, products and marketing moments, a thoughtful, well-organized marketing calendar corresponds to clear clear understanding of a financial roadmap in your business including the cash movement, that's number five, number six, keep your ad spend profitable.

If you can do those things really really well, products, moments with clarity to cash, clarity to your P&L model, hammering your supply chain or managing your ad spend tactically excellently with manual bids so that you're not wasting money. You do that in any e-commerce business, man, you can build a really really profitable business. Because what I have just described now is a cash efficient business that that works well because because if you think about it, most e-commerce businesses are running 55 well, not most but lots of very good e-commerce businesses are running 55 points plus of landed margin and really a lot of them are 60 to 65, even 70 points of landed margin to the customer.

So that means you've got, let's call it 60 points left over after you've paid for the product and shipped it to the customer in gross margin to begin with. Now if you've got ad spend that's let's call it 35% to 40% of your of your revenue and OPEX is 10% or less, it's a pretty quick path 10% or less, it's a pretty quick path to a really profitable business even as you grow. And of course, that was a very generalized version of that story that I just told.

If you get that margin to 65 points, your ad spend to 35 points and your OPEX to 10 points, now you've got 20% margins, that's really really strong. There's there's ways to look at your business that way and you do that by being smart and shaving away all of the bad costs in a lot of these places in your business like I said, using things like manual bids to make it so that you don't blow money on ads, which is just a huge there's just so much wasted money on ads still.

You're doing that kind of thing on one side, you're being smart about OPEX in the ways that I said before, uh you're thinking about those marketing moments really, really well. You've got that You've got that P&L model that allows you to do these things excellently. You start to build those things that way, and especially if you're hammering your supply chain at the same time, if you're doing all of those things really, really well, you've got a really, really profitable business.

And all of those things create more leverage only more as you grow. So, that's the way to think about this. None of those core fundamentals, this is the key idea, change with AI or offshoring. None of those do. This is what I mean by saying domain expertise. Everything I just described is something you should have already been doing in your business. Now, I say you should have already been doing it. I recognize that at certain stages of business, there's one person, you know, if you've got a million-dollar business, there's no way you can do all the things that I just said um very easily.

It's I get it. I understand. I'm not just trying to throw more stuff on you go do go do go do go do. I like I get you're going to have to prioritize different things along the way. I really get it. All of those things are the things that great e-commerce business e-commerce businesses do as they grow. They are. And now, what AI and offshoring allow you to do, especially the the combo of those things allow you to do, is apply operational leverage to all of them, to every single one of those, so that all of them get better and smarter and stronger.

And the end result of that is an incredible opportunity to build a fantastic, life-changing business that delivers incredible value for your customers, that you're proud of, uh and that grows over time and build a whole bunch of profit. And that's where I ultimately want you to get to. >> [music] >> All right, subscribe to this podcast wherever you're watching or listening. If you got through all of that and you liked it, you will like a lot of my episodes.

I'm talking about this stuff a lot. Bringing on people who can help uh speak to all the things I just talked about. You're going to learn a lot from this show. If you like that If you have comments or thoughts, I'd love to hear them. I I look at all of the comments that come on my uh YouTube videos and on my podcast channels, particularly on Spotify. So, if you're uh watching or listening on either of those channels, particularly YouTube or Spotify, I see every one of those comments.

I try to interact with all of them. It's the best, fastest way to get me to weigh in on your question if you're interested in my take on it. So, go comment in those places. And if you like this content, you should also sign up for my email list. I'm I'll send you my four free essential e-commerce resources. You'll like those. They're useful for you. I still use all of them with all of my clients, everything I sent there.

So, go check that out. You can do that by going to ajfgrowth.com. [music] You drop your email address either in the footer or the pop-up. Both of those will get you where you're going. Uh and that'll that'll get you on my email list. I do not spam you. I send pretty occasional emails at this point. Um >> [music] >> maybe joining a newsletter May- maybe adding a newsletter at some point here, but it's always been tough to stay on top of that for me.

So, um so, yeah. If you want to work with us, go to ajfgrowth.com. And uh I'd love for you to do that. Uh fill out the link, fill out the form on that website, tell me a little bit about your business, and I would uh I would love to hear from you and and understand if I can be a fit. Even if I can't be a fit, even if AJF Growth can't be a fit, then I I may know somebody who can be. So, uh so, I'm happy to make a referral when those [music] times come.

So, so tell me about your business. Let's do that. Big thanks to Move Supply Chain get them to work on your supply chain for you like I talked about in this business. They're building mine. So, [music] movesupplychain.com. And then Intelligems uh Intelligems is the place is the place to go for profit-focused split testing. intelligems.io. Use the code Ferris20, f a r r i s 20, to get 20% off your first 3 months. Big thanks to both of them for [music] supporting the show.

Thank you so much for watching and for listening. I will see you next time.