In this episode of Add To Cart, we are joined by Danny Chiha and Natalie McDermott from Kelly+Partners
Kelly + Partners Accountants is an ASX listed company with branches in Australia and expanding globally. Danny and Nat are both partners at the Northern Beaches branch in Sydney, working with around 50 ecommerce brands with turnover running from $50,000 to $50m.In this chat, Danny and Nat share what an ecommerce business baseline gross profit margin should be, the non financial KPI’s you need to be paying attention to and how much you should be spending on marketing.
“Alot of clients will tell us from the get go that they know what their GP is, but nine times out of ten it’s always wrong.”
Natalie McDermott
GPM is critical
“The number one metric that everyone should be across is their gross profit margin.
Alot of the clients that come through our door will probably tell us from the get go that they know what their GP is, but nine times out of 10, it’s always wrong unfortunately. They’ve been making all of their decisions to date based on what they thought their gross profit margin was. So getting that right is really, really important.
50% is your baseline. Anything above that is obviously a bonus. And it means that you’ve got more money to play with in terms of your marketing and your staffing and things like that.”
Other key metrics
(Natalie) “So we’re looking at how much are you spending on marketing as a percentage of your sales and how much are you spending on staffing? Once you get past all your direct costs, they’re the two biggest ones that are gonna stand out on your P&L.
It depends on the business and how much gross profit you’ve got to kind of play with. But I personally think that as a standard benchmark, you’d be spending 15 percent ish on marketing. And again, depending on whether you’re online only or you’ve got physical stores as well, between 10 and 15 percent on staffing.
(Danny) “And where you are in your journey. Obviously when you’re starting out, you can’t hit those metrics. And we’re okay with people going over those benchmarks. So we don’t sit here and go, hey here’s the benchmark. Don’t go past it. It’s more like, here’s a baseline. If we go, hey we want to speed up the growth, we’re going to invest heavier into marketing, happy days. But you’re doing it deliberately with a team pulling levers as we’re going, not just blindly.
I’ve seen a guy, he came to us and he had like a 200 grand Facebook debt for all these ads that he was running that weren’t actually at all profitable. I’m like, mate you’ve got no choice but to liquidate here, there’s actually no path away from this, but they take marketing as the pill…it’s not the solution.”
The ultimate process checklist
“From a processes and numbers point of view, you definitely need to have a good bookkeeper in place. Bookkeepers won’t necessarily solve the process issue. So you still need to solve that process issue, but having a good bookkeeper or an accountant that you engage to do your bookkeeping is critical in getting your data right. Before that comes, I would suggest that there is a process in place.
So when we’re talking Ecom, we’re talking about closing off every single month. So what that looks like is, we’re splitting out all your different sales channels, because otherwise you’re just going to have one line item that says sales and it literally tells you nothing other than a number. We’re making sure that we’re taking up your merchant fees, because merchant fees don’t happen automatically inside your Xero file. They have to be manually taken up. We are taking up your discounts, your refunds. We’re making sure your GST is being accounted for properly your GST on imports and that you’re not paying GST on your foreign sales. And a few other things to tidy up the data. A lot around timing as well. So making sure that your costs are being taken up in the right period, things like that. So that’s what a good kind of process will look like. And then you’ll need a bookkeeper or an accountant to implement that process.”
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