[Voiceover]: We could really storytell and empathize with our future customers because we knew how hard it was to be profitable in e commerce. We're not looking to solve a marketing problem, we're not looking to solve an inventory problem. We're actually looking to solve a business problem. It could be a hot meta campaign that has sold through the entire range, but then they notice that 60 or 70% of the product starts coming back because the sizing wasn't right. But the buying team's not aware of those refunds and returns and and they've just gone and purchased another whole shipment. Welcome to Add to Cart, Australia's leading e commerce podcast that express delivers all you need to know in the fast moving world of online retail. Here's your host, Bushy.
Nathan Bush: Welcome to another episode of Add to Cart. I'm Bushie and I'm joining you from the land of the Terrible people, otherwise known as Brisbane, Australia on Add to Cart. We welcome everyone to share and listen to e commerce stories. The more diverse, the better. I want to especially welcome the traditional owners and the original storytellers of the land that we are on, our indigenous and Torres Strait Islander listeners to join us in our e commerce conversations and our community. Is your business making money? You'd think that would be a really simple question to answer and one that
Nathan Bush: would be at the heart of everything
Nathan Bush: that we do in E commerce.
Nathan Bush: But as we've seen this year, it's
Nathan Bush: not always that simple. Especially when you've got a variety of sources of truth coming at you telling you very different things. I know it's something I keep hearing day in, day out lately. It is very complex. Today's guests join me to go deep into the subject of profitability and separate the layers that hide in different areas of an E commerce business. Carla Penn Khan and David Khan are the co founders of Profit Peak, a SaaS tool built to give merchants true visibility on everything that contributes to profitability, including marketing, inventory and customers all together in one place in real time. This husband and wife team started profit Peak in 2022 to help them run their own e commerce business, which they exited and it soon became very clear that this was a solution that other
Nathan Bush: founders were crying out for.
Nathan Bush: Today they work with clients such as Arms of Eve and Flora and Fauna. In this chat, Carla and David share their insights, including the key metrics for anyone within marketing, inventory and customer that contribute to profitability. We hear about their customer first approach to Profit Peak's social media presence and what Carla gained from being part of Blackbird Giants. That's the mentoring program, not a baseball team. This week I have the luxury of being on the Gold coast for most of the week starting on Tuesday. If you are going to be at Retail Fest on the Gold coast, make
Nathan Bush: sure you shoot me a message.
Nathan Bush: I'd love to catch up. I'll be around most of the sessions during the day. Shoot me a note. Nathanadocat.com I would love to catch up. All right, thanks to our partners, Shopify plus and Deliver in person. Here's our conversation with Carla Penn Kahn and David Kahn, co founders of Profit Peak.
Nathan Bush: Carla and David, welcome to ADD to cart.
[Voiceover]: Thanks for having us.
Nathan Bush: Well, here we are. High school Sweethearts, been together 20 years. Did you ever dream that it would lead to this moment?
David Kahn: That's a great question. I'll let the better half answer that.
[Voiceover]: Definitely not.
Nathan Bush: Oh guys, we are here to talk all about profit Peak today and what you're building there. We've had a few conversations about this and I'm really interested in what you're building here. I think it's of huge value to retailers. We're going to unpack that. But before we do, I'd love to just go into your backgrounds a little bit to give everyone a bit of context of where you're coming from. You've both had successful exits from e commerce businesses in the past. Can you tell us about those experiences before we get into what you're building today?
[Voiceover]: Yeah, sure. So I came out of an investment banking background and I was working with ultra high net worth families in Australia and one of the last deals I worked on was the Myer ASX listing and at that time it was really new to the Australian market that E commerce was becoming a theme and a real industry to be taken seriously. So that was when I first dipped my toe in the E commerce water and started our first E commerce store which was E Farmers Market. While it failed, it was awesome grounding and it really gave us a lot of practice on a small scale to help us build our confidence to then take the next leap and actually acquire an e commerce business that was already generating revenue.
Nathan Bush: Tell us about E Farmers Market. What was that?
[Voiceover]: So it was an artisan food business. So I was obsessed with farmers markets and I used to drive around and try all the different food and I thought, why can't this be digitalized? I was just learning about how Maya was about to go through their digital journey and I thought, hey, how do I digitalize this experience? And in hindsight, not very smart because the freight network that was available to me at the time, was not good at handling food or artisan food, which wasn't really well packaged.
Nathan Bush: You chose a tough category to start off in.
David Kahn: To her defense, I think she was also a bit ahead of her time as well.
Nathan Bush: And how do you looking at Maya today? Obviously huge investment in digital and E commerce. They've got their marketplace, they've got dedicated team. How do you look at their journey from that time where you were helping them float to where they are today as a business?
[Voiceover]: Yeah, well, look, back then they were saying, will E commerce even be a store of value to the Myer business? It was really not even yet proven as a case. And the journey has changed so much. I mean, I even remember when Myer first launched their E commerce store, they had different pricing. There wasn't even an omnichannel approach to pricing. So they have grown so much over time and their service as well has improved. I remember it was like a week to dispatch. Now you can get a Myer parcel the next day. So they've really lifted their game and they're competing in a great way.
Nathan Bush: You might be able to give us some insight here because my bashing seems to be an Australian pastime, especially at the moment. From the inside of an organization like that, what are some of the barriers that you see put up to be able to move as fast as say D2C competitors or online native brands that people might not see from the outside of an organization?
[Voiceover]: The size of Maya, it's incredibly hard. You know, you're dealing with legacy softwares, you're also dealing with legacy warehousing. So you've got a lot of change management to actually optimize the business model to take into account the modernization that's coming. So when you're a new business, even us now as a new SaaS business, we, we can set up from ground zero. So we're now making decisions without worrying about legacy software or legacy procedures or retraining staff. But when we were operating our kitchenware online stores, we were a Magento customer and we were always going, hey, should we move to Shopify? But then we always had these concerns that how will Shopify interact with all of our legacy systems on the back end side of the business? So how will our warehousing adapt to a Shopify front end? How will our customers spend service processes adapt to a Shopify front end? So I understood as well, even in our size business, which was, you know, at a 30 to 40 mil scale, it was hard to make change.
Nathan Bush: I could imagine a 30 to 40 million dollars kitchenware business is incredibly complex as well.
David Kahn: Yeah, well, especially, you know, Magento was open source and you stretch it as far as you can in terms of customization and doing things specifically for your business. So the idea of having to migrate and move towards something that is a bit more rigid and yes, in some ways a lot easier also creates a lot of challenges where you can't just suddenly pull out the plug and plug it into the new system.
Nathan Bush: Yeah, but I thought anything's possible. On Magento, it was. I shouldn't laugh, I shouldn't laugh. There's solutions for everyone. Tell me about the kitchenware business. I saw that you had a successful exit from that as well after building that up to that 30 to 40 million dollars mark.
[Voiceover]: Look, it was our real first start in the real big world of E commerce, I would say. So when we acquired the business Back in 2012, we acquired First Everton. It was turning over about 4 mil and we had about 5,000 SKUs by the time we exited. We had also acquired Kitchenware Superstore, which was a second domain in the same category. So we had two domains targeting the same customer base, selling the same product and leveraging the same infrastructure. We got it to that 30, 40 mil without any external funding. So that was bootstrapped. And I just wanted to say that bootstrapping is profitable, but you need to really know what's going on in your business because you toe a fine line at all times on how to invest capital and free cash flow. And financial management is really crucial in E commerce, not just other industries.
Nathan Bush: What were the biggest lessons that you took out of bootstrapping a business to that volume?
[Voiceover]: Yeah, taking inventory without cash inflow from, you know, a half a million dollar inventory base to a $3 million inventory base is really about capital efficiency. So you need to be tracking in real time what is going on with your inventory, how healthy is it, and toe the fine line between overstocking and getting into a cash flow problem and then understocking and getting into a lost
Nathan Bush: revenue situation and building that business together. I think I'm starting to gauge an idea of this, but tell us about how your strengths, you know, come together. Where do you guys tend to play as a business partnership?
David Kahn: The best way I can describe it is Kyla understands the numbers, I understand the green arrows. So, you know, from my end it was more about the design, the front end, the customer experience. And Kyla was everything to do with the numbers and truly understanding also the products that we were selling and so really that tied in together to sort of complement each other's strengths and avoid a lot of conflict both as husband and wife and obviously as partners working together.
Nathan Bush: When it came to the decision to sell, did you have the idea for Profit Peak already or was the plan to sell at a certain level and then work out what to do next?
[Voiceover]: You know, definitely Profit Peak was already in the works. So we got to a point coming out of COVID where we've just felt a little bit out of control. So I'm a control freak, Dave will tell you that. He's laughing. And I no longer felt in control of the numbers. Cross platform ad spend volume had increased so much our SKU count had gone up to 20,000. We were actually carrying 20,000 SKUs in our warehouse. So significant cash investment from our personal funding and we did not know what was going on. So. So January 2023, we sat down with our development team. So we had three in house developers and we said, how do we feel like we can get back in that control space? So what do we need to feel like we're in control and what do we need to show green arrows or red declining arrows to Dave, who was running the digital marketing to say, we know we're in the right direction and we know what's happening in our business. And so that's when Profit Peak was really born. So we launched it internally in June 2023 and we just started making incredible gains. And we saw a 20% gross profit uplift between June and October when we sold, which was massive. That's gross profit that feeds into the bottom line of our business. And that was purely by really understanding what was happening in real time and on a profit level rather than a revenue level. And we shared some of the results with friends in E commerce and even other founders that we knew but never had close relationships with. And they said, how do we get access? And when we realized that, we went, we built this for Magento. We now need to build for Shopify because everyone who wants access is on Shopify. And so that's when we approached our competitor, which was Kitchen Warehouse, who had expressed interest in buying us over the years. And we said, hey, waving the white flag. I know we haven't been the most friendly of competitors over the years, but we're ready, you're welcome to take us before Black Friday and see all that sales uplift.
Nathan Bush: And did it happen that quickly?
[Voiceover]: Yeah, it did. It took us about six weeks to close the deal.
Nathan Bush: That's incredible.
David Kahn: I think one of the key Themes that we found was that when we started speaking to other people about it, the common theme was that everyone felt like they were flying blind and everyone was facing this post Covid uplift in the cost of acquisition of customers. And so once we showed them what we had built internally, immediately they were just completely like this is the answer we've been looking for.
Nathan Bush: And when you're briefing your developers on that, what are you briefing to them? To create something that doesn't exist already. Why doesn't this already exist in the market?
[Voiceover]: I think it doesn't exist already in the market because a lot of people solve other people's problems when they're building software. We actually took the approach of we we're not looking to solve a marketing problem, we're not looking to solve an inventory problem. We're actually looking to solve a business problem. And so marketing, inventory and customer all forms part of that problem solve. So we mapped out not just marketing data points or inventory data points or customer data points, we mapped out the entire ecosystem of our business and how each of those touch points get us to an understanding of unit economics. And that was ultimately what we needed to know in real time to be confident to keep scaling and investing.
Nathan Bush: When you think of your last E commerce experience that went wrong, how did it go wrong? Was it because there wasn't enough product images? Was it an out of whack mobile experience? Was it that one rogue negative review? I doubt it. I bet it was because of your last mile experience and whether your product turned up on time and undamaged. That's what we remember. Delivered in full on time or dye fot for the sexy shortened version is a key metric for retailers and customers. Why? Because it's a critical indicator of reliable on time delivery and the post purchase customer experience. However, many Australian retailers are settling for 70 to 80% delivered every in full on time results. That's a lot of unhappy customers. That's why brands such as July, Samsonite and the Party People turn to deliver in person. With an average dyfot score of 99.6%, you are delivering experiences to remember. Do not settle for less. Find out more@deliverinperson.com
Nathan Bush: and so the idea is built around giving E commerce business owners full visibility of their profitability at a certain point in time.
[Voiceover]: At a certain point in time. So the data is updated hourly. So you can go crazy updating your screen every hour to see what's happening in real time. But the key is it's not just showing you the data on an advertising level, it's getting it all the way down to a product level. So you can clearly see on a product level what you have invested to advertise this product, what you have invested to get this product into your customer's hands. So physically shipping the goods to them and then make decisions about is this a product that we want to continue investing in and reinventing every season, or is this a product that perhaps we need to consider exiting and becoming more capital efficient and investing in other products?
Nathan Bush: And what were some of the key insights? I know, David, you mentioned that you love green arrows. Can't imagine that it's always green arrows. But what were some of the insights that you saw immediately when you built profit peak for your own business?
David Kahn: So I think one of the key ones for us was we had a brand that we were consistently putting a lot of marketing spend into. It was always seen as sort of a bread and butter brand, one of our top 10. And once we started looking at the Data clearly through ProfitPeek, we realized that we were actually making sense on the dollar in terms of profitability. That was, I think, one of the defining moments.
[Voiceover]: When you say Carl, yeah, definitely. We thought it was a brand that had incredible top line margin. So gross profit was great, great. We had incredibly great negotiations with the supplier. They even supported and helped fund marketing for the brand. But once we looked at delivered margin, we actually weren't making much money. So we actually stopped advertising those products and said, hey, they are an important brand. But we're going to focus on SEO efforts and we're going to redirect that ad spend into brands that are far more profitable for us. And it's funny how margin doesn't quite align with with campaign profitability. And that's because the way the algorithms of the advertising platforms work, there's different CPCs, there's different customer journeys to convert for different products. So you can't just blanket say this is the margin, this is the roas that we want to assign. You actually need to look at the gross profit and net profit output of each advertising campaign and customer journey.
Nathan Bush: Cool. So there's a lot to break down there. Right, so we're going to talk a lot about profit today. So first I want to talk about that gross profit versus net profit perspective for you. Where do you go first or do you look at them together?
[Voiceover]: I think it depends on who's using the data. So C Suite, CEO, cfo, cmo, they should be heavily focused on net profit because they have control over the full P and L so they also have control over opex, for example. So fixed costs within a business, if you're in the advertising or the buying team, it's a lot harder to look at a net profit level because they don't have any say over the OPEX of the business. So they would be looking at gross profit numbers because they do have a say in the margin and how much advertising spend is allocated to the margin of the product. So I say it really depends on the user less. So a case of the whole business should unite around a single metric.
Nathan Bush: It's a really good perspective. I hadn't heard it put that way before, but it makes a lot of sense. Right is rather than everyone do their job in looking after the right part of the margin together it'll stack up. When you break down those three areas of marketing, inventory and customer that you're looking to kind of bring together to get a view on profitability. Can we break them down a little bit in terms of the key metrics that you're looking at in each? So if we start with marketing, what are some of the key data points that you need to bring in and make sure that you have in order to get a good view of marketing spend and profitability?
[Voiceover]: Yeah, so the first thing that you really need to do is you need to make sure that you're starting with net sales. So a lot of people are sending gross sales out of Shopify into the app platforms and that's including before discounts. It's also including gst, which actually doesn't belong to the business. So you're actually inflating the outputs that you're achieving. So the first thing is you really need to start with net sales. So that's XGST after discounts, also after return. So that number does change a little bit over time. Right. When products come back. So when you look back at historical data, you've also factored in returns, which is a big cost to many E commerce businesses. You then need to look at what is the profit output of those campaigns. So for every dollar I invest in advertising, what is that? Gross profit and net profit output. And you can also look in the middle at contribution margin. So that's halfway between gross profit and net profit. So what contribution margin is, is you take your gross profit and you take away your variable expenses. So things like transaction fees, advertising, they come away in the contribution margin level and then net profit obviously takes in account the fixed costs in the business. So those three metrics are really what should be driving what determines a successful campaign and then even further on all of that, you really want to be looking at de duplicated revenue. So when you're inside Meta and you're inside Google or you're inside TikTok, if you're advertising there as well, if you sum those revenues together and then you compare it with your Shopify account, you're running a really different business, right? So you really need to be looking at your total revenue from Shopify and then allocating that back to your budget and your ad spend across all the platforms so you take into account the customer journey, not just the in platform reported.
Nathan Bush: It's a huge problem at the moment, isn't it, attribution, because all the platforms are showing different figures and everyone's putting their hand up to say, I did that. And is that one of the key selling points that you have from a marketing perspective is being able to give a clear attribution to different channels?
[Voiceover]: Yes. So I would say that attribution is not a single blanket answer. So in terms of attribution modeling, there is no one answer. It's no one size fits all either in terms of how you apply attribution to different businesses. But I do think it's really important to look on an order and a product level and actually say what ads and what was the cost in order to achieve this sale to have that product leave our warehouse? So looking at the total impact is actually one of the most important things and what makes us software really unique is that you can see the total impact on an order level and a product level, not just a campaign level. And in a campaign level, it's a lot harder to make real great change because there's products sitting behind that campaign and you don't know what those products are.
Nathan Bush: What about activities such as branded marketing or even say PR where it's not so much for a product or even for a category, but it's a much broader investment. How do you bring that into profit peak?
[Voiceover]: That's a really good question. And I would say that's looking at first click attribution. So if you're running top of funnel campaigns through Meta, for example, or top of funnel activations through TikTok, you would really want to be looking at a first click attribution model because you want to look back at a wide window as well. So typically within Meta it's only tracking seven days worth of attribution, but building top of Funnel can take 30 or 60 days. So. So our attribution window extends out to as long as that customer journey. So we don't just say we're stopping at the seven day mark, we're actually taking into account the full journey. So if the customer's first click was a meta campaign 35 days ago, if you switch to first click attribution with inside the meta view, you can actually see that tofu build.
Nathan Bush: Brilliant. And so there's native integrations into Shopify, TikTok, Meta, I'm assuming Google. Google and Klaviyo in Klaviyo Magento. Don't forget Magento.
[Voiceover]: We were loyal for 14 years.
Nathan Bush: Exactly. No, that's great. Okay. And are there further integrations on the cards or anything outside of that? Is there an API? How does that work?
David Kahn: Yep. So we're definitely working on adding more integrations as we go. And of course, having a good cohort of beta customers has really helped us understanding and knowing what to prioritize. But yeah, essentially it's loading what we've called a proprietary trail pixel on your server, which allows us to track that firsthand customer journey and extend it as far as it needs to, which obviously connects the dots in terms of that seven day meta trail. Of course we've then got meta, the Google Ads, your shipping rates, which is basically what you can submit as an Excel table, much like the annual renewals from Australia Post and your monthly pro forma list of expenses. But yeah, we've definitely got a lot more on the way as well.
Nathan Bush: Brilliant. And then if we move from marketing into inventory, what kind of data is really important to you there?
[Voiceover]: So the most important thing is, is this product actually profitable once it's been delivered to the customer? And then the second most important thing is this product coming back. So we've had a lot of customers say to us that their buying team don't realize refund rates on a lot of the products. And so they have an incredible sell through through an ad campaign. It could be a hot meta campaign that has sold through the entire range. But then they notice that 60 or 70% of the product starts coming back because the sizing wasn't right. But the buying team's not aware of those refunds and returns and they've just gone and purchased another whole shipment. So I think two really key metrics is is this product profitable once it's been advertised and delivered? And then how much of that product has come back before we buy more?
Nathan Bush: Yeah. Right. And so do you then integrate into ERPs or inventory management systems?
[Voiceover]: So for now we're bringing in inventory data through Shopify. So most of our customers have their Cost of goods sold for each product already loaded into Shopify. And then we're tracking stock on hand through Shopify as well. But in the future we definitely are going to have inventory forecasting and planning capabilities within the software. And we're already tracking things like stock out, true rate of sale, because a lot of businesses, we had the same problem. You sell out before the actual period and you really don't know what that true rate of sale is. So we calculate that for businesses. So buyers actually can say we should have ordered 48 units even though we only sold 36.
Nathan Bush: Brilliant. Okay. And then if we move lastly onto customer, what kind of customer data are you looking at?
[Voiceover]: Really important to distinguish between new and returning customers. And that is because when you're advertising to customers, if you are not looking at what's new versus returning, it's very easy to put all your advertising budget into returning customers because they convert a lot cheaper because they know your brand. But then you're not building your customer base. So it's really important to know what are my new customers, what you are, what am I spending to acquire them, how profitable are they? And hopefully they're profitable from day one. I know a lot of businesses say it's okay if they're profitable from, you know, order two or three. I really don't believe that to be the case. They need to be profitable at day one. Unless it's repeatable revenue, unless you know it's a 12 month subscription, they're paying you monthly, you want them to be profitable day one. And then with your returning customers, are we allocating too much of our marketing budget to retain customers? Are we offering them discounts that we don't actually need to offer them to retain them? And taking a look at the cohorts and saying what do different cohorts need? And then using that to form strategies to both retain and acquire customers.
Nathan Bush: Wow. And so I'm assuming Shopify Klaviyo important platforms to bring that information together.
[Voiceover]: Exactly. Very important. And also then the discount impact. Right. So we're all constantly setting up flows within Klaviyo that provide our customers with sign up discounts, retention discounts. But what does that actually mean on a customer level and how does that shape the profitability of the customer? Is the insights that we draw.
Nathan Bush: Yeah. I mean there's a lot there. Right. When you unpack those three layers of marketing, inventory and customer, I can see that it would be difficult for you at times to keep this thing on the rails because you're kind of going into customer data platform territory, you're going into inventory management platform, you're going into ERP territory, sometimes in terms of the crossover. But with your goal around giving people visibility of profitability, how do you maintain the features and the functions that Profit Peak offer?
[Voiceover]: Good question. The way we believe you do it is by having a single interface. So that's what profitpeek is creating. Instead of going into multiple interfaces to understand what's happening in your business and trying to align data that's not alignable. We actually use complex computes on a database level to align data for the businesses without the need for data warehousing pipelines, data analysts. So it's all out of the box. And what that means is that the entire team are united around a single data set rather than everyone working to different north stars and using different data sets and trying to understand what's going on. And part of our next build is actually allowing teams to communicate through Profit Peak to each other. So hey inventory planning team, this product is trending. It's hot, small and extra small is where it's at. We need more stock and actually sending that message through to the inventory planning team and so that they can secure more stock. And equally the inventory planning team looking at their inventory dashboard and going these 50 SKUs aren't moving. Are these products not getting airtime in Google or Meta? Hey advertising team, we want you to get creatives, get campaign set up so we can start generating cash flow from this inventory sitting in our warehouse. So actually bridging the gap between the different teams and uniting them within ProfitPick.
Nathan Bush: And so all your customers are using the same dashboards they are, yes. And then in terms of getting this out to other teams, is there say a merchandising dashboard or a marketing dashboard or is that what you're saying? That's what's coming.
[Voiceover]: So right now there's what we call the peak. So that's the high level overview on how your business is trading and all your key metrics. And then there's the inventory platform which is where we're finding that the inventory planners are spending most of their time in. Then there's the advertising section where the advertising team is spending most of the time in. And then there's the customer side which is being used by the advertising team as well.
Nathan Bush: Wow, okay, that makes a lot of sense. And so tell us about some of the e commerce retailers that you're working with. I know it's still early ish stages. You know, if I was you, I'd Be probably, you know, celebrating the sale of my business for a few years and then thinking about what I've done next. But you guys have just plowed straight in. So full credit to. Who have you got on board?
David Kahn: We're quite excited to be onboarding flora and Fauna. We're very hopeful and confident with the results we'll deliver with them. So hopefully Snuggle Honey, if you're listening, will follow suit. We also have Arms of Eve, an amazing jewelry brand, Minimax, what was a former competitor. And we've also got personalized favors and a lot more in the pipeline as well.
Nathan Bush: That's awesome. I mean, Julie's been on the show before and I've known Julie for a long time and I don't think you find many people who know the operations of E Commerce better than Julie. What drew her in? Like, what was her comments to you? Because she's seen, I would imagine, pretty much everything in E Commerce. What was the problem that you're solving for her? Obviously we can't go into huge amount of detail, but in terms of her realization, what was it for her?
David Kahn: Well, we haven't actually spoken to her yet, but we have been speaking to the CEO at Florin, Fauna. Yes, that's right. Healthpost.
Nathan Bush: Yeah, great. Okay.
[Voiceover]: And he's looking to understand profitability. Right. So he's saying we're rescaling up the business. We're looking at where do we invest. We don't have unlimited capital, so we want to be capital efficient and what advertising activity we need to do to drive long tail optimization. So they're a long tail retailer like we were in our kitchenware business. They have diverse margins. It's actually really complex to run a business like that where you don't have a single margin across your whole business. So they're trying to understand where they actually invest that $1, whether it's customer inventory or advertising, and where they're going to get the greatest profit output.
David Kahn: And also, you know, it's a new market for them. I mean, they're based in New Zealand, so. So having to absorb a business and try and work out what inventory, what brands were selling for them well, and how much it really was costing them to acquire those customers that are essentially new to them as well, in a different environment.
Nathan Bush: Yeah. Great. And so what's on the roadmap for you? Like what's coming up in terms of features or functionality?
[Voiceover]: One of the things I'm most excited about is our live feed that's coming. So the live feed is going to be giving people in real time the prompts that they need. So rather than data mining the key data insights being available to them in a live feed. So for example, for an inventory planner it would be these 50 SKUs are aging, they're not being advertised. This needs to be actioned. Or for an advertising team, hey, this meta campaign has these products that are about to go out of stock. It's time to consider shifting budgets so you don't get to a point of diminishing campaign returns. And hey team overall, this is how you're tracking in terms of your goals for the month. So you actually can see contribution margin dollars per day and how you're tracking for the business overall.
David Kahn: Someone that we were working with described it perfectly as not just reporting the news but actually being able to make the news from it as well.
Nathan Bush: Yeah, I like that. I like being able to turn into action. Right. Carla, I saw recently that you went through the Blackbird cohort, obviously Blackbird, great investment firm and fueling a lot of startups in Australia. Can you tell us about that experience and what you learned out of it that you were able to then apply to profit peak at this stage of life?
[Voiceover]: Yeah, sure. So I went into Blackbird Giants going I'm really confident in E commerce as an industry. Obviously done it for 14 years. I'm my own customer, I understand the problem space. But what I don't know a lot about is SaaS. Right. I've never solved a stock, I've never sold a software before. I've only ever been a consumer of software for the e commerce industry. So I wanted to really get access to great mentors, which I did, who understood software as a service and they could advise us on things like pricing, go to market, product roadmaps and all the technical skill sets that we, between Dave and I didn't have to bring to the table. And it also helped us raise our pre C round as well.
Nathan Bush: Amazing. And did you implement those changes straight away over time?
[Voiceover]: I have a notebook that's called the Blackbird Giants on the front. It's pretty funny and I keep flipping back to those different mentors that I spoke to that gave me different strategies because there are a lot of them are strategies that we can put into play, you know, 6 months, 12 months, 18 months in as we get to different levels. But what's been really cool is some of those mentors have actually come back to me and said, hey, can you mentor me? I'm thinking about starting this E commerce business. So it's been, it's been really nice to be able to also equally give back to the community.
Nathan Bush: Yeah, that's brilliant when it goes around like that. And I heard that you guys have your first round of funding secured and there are some big names attached to that as well, which is really promising.
[Voiceover]: Yeah, look, we were really lucky. The statistics aren't great for female founded businesses in Australia securing venture capital funding. We are obviously a 5050 team, Dave and I, so a female founder and a male founder. But we were really lucky in that there was a lot of interest around our deal. And I think that's because we weren't building for someone else to problem. We could really storytell and empathize with our future customers because we knew how hard it was to be profitable in e commerce. And not only did we solve it for ourselves, we had conviction in how we could solve it for other businesses.
Nathan Bush: Yeah. And were those investors. I'm kind of looping back to that, but those investors surprised that a tool like this just didn't exist before.
[Voiceover]: They were and they weren't. You know, some were very familiar with other tooling and said, you know, the marketing tech space is really crowded. You sure you want to get into marketing tech? And we said, no, no, we're not a marketing tech. Marketing tech is just one piece of the puzzle. You know, you can't build a profitable business on marketing alone. You know, doesn't matter how good your ads are. If the inventory isn't there and the unit economics aren't right, the advertising will never get to where it needs to be to drive profitable growth. So it was a bit of an exercise of us explaining, you know, you need to take a holistic business approach. And what was really interesting is once we gave them that insight, they said, wow, I understand now you're about the economic engine of an e commerce business. And so if we were going to acquire an e commerce business, we could open up profitpeek and do due diligence within profit peak. Because after we've used profitpeek, we would actually understand the economic engine of this e commerce business. And when they thought of it like that, they went, all right, we get it. Because every business we want to acquire has to give us their economic engine data.
Nathan Bush: It's the calm before the storm. And unlike George Clooney in the Perfect Storm, spoiler alert. Shopify wants retailers to come out not just alive, but thriving because it's a big deal, especially here in Australia. Last year, Australian merchants ranked third globally in Black Friday Cyber Monday sales volume. What an opportunity. So if you want to maximize your share of the peak sales this year, use this time before the storm to download and read Shopify's Peak Season playbook. They've got 10 experts, including me, to share their tips on how to maximize sales at this time. So put on your life jacket and get your hands on Shopify's free peak Season playbook. Download it at shopify.com/guides forward/peaksalesseason2023 or just follow the links in the episode show notes from the device you are on. Land ahoy for you.
Nathan Bush: That's a great flywheel. Right? Because then if you've got these investors who are already investing in other businesses, especially E commerce businesses, probably going to be a prerequisite that they have profit peak attached to it, right?
[Voiceover]: Totally. But we've been really lucky in terms of like our own customer pipeline. It's really been people reaching out to us and saying, hey, we can see you're building something. Can we get access? And that's really been, you know, very exciting to us because it's given us the conviction that the problem that we had, we knew we weren't the only ones, but we now know how deep the problem space is and how much interest there is to solve the problem.
Nathan Bush: Yeah, I mean it's no surprise that you're getting a lot of interest for the problem you're solving because I think it's such a huge problem at the moment. We've seen, you know, how shaky it is for E commerce businesses in the last couple of years and getting that visibility on profitability is key. But also you guys do such an amazing job on LinkedIn sharing content and your thoughts and your opinions and it's always interesting stuff and it's never salesy. How much effort do you put into that and what's your strategy around sharing so much that sometimes doesn't even have anything to do with profit peak?
[Voiceover]: Yeah. So I would say this goes back to our customer first approach to everything Dave and I have done in business. And we've always felt like if we build a community around our business, whether it be an E commerce brand or whether it be our SaaS business, if we provide our customers with value and insights, we're building trust. We're also building advocacy within the community and that's really important because that's the good old fashioned referral business. Right. So you don't have to even think about, you know, I've had investors say, so when are you going to turn on ads? You know, when are you going to you know, you're telling me you're building this tooling for ads, but you have no plans to turn on ads.
Nathan Bush: I was about to say, it's not very sass of you, is it?
[Voiceover]: No, totally. And I keep saying no, we're just going to keep investing in our community and sharing knowledge with the community and saying, you know, trust us, and over time, if we develop the right relationship, let's talk profit, pig. And rather than saying profit P, Profit peak, profit peak. The same way as a brand says, buy me, buy me, buy me doesn't create that community and it doesn't create brand advocacy. It's sales and customers see that and it's like waving a red flag and the customer instantly keeps scrolling.
Nathan Bush: Yes. And I could imagine even from a partnership perspective in the industry there are some other services or providers that would flock to you and I could imagine at the same time there'd be some that kind of go, oh, we'll stay away from that because we don't want visibility.
[Voiceover]: It's actually been interesting. You say that we originally thought agencies may not love us because we're taking the blinders off for a lot of customers in terms of understanding that de duplicated revenue and that total ad spend and the profitability of each campaign. But what we've actually found is agencies are saying, hey, this can actually differentiate us in the market. If we can say to our customers, you can log in and get full visibility on how your campaigns are running in real time with deduplicated revenue, taking into account full customer journey and your inventory. This is a point of difference. And so a lot of them are really interested in using it as a white label solution for their own business. And we can't really say how we're going to go in terms of strategy with how we work with agencies. Whether it is going to be a white label solution that agencies can use or it's going to be more about the customers actually choosing to use the product themselves. And then obviously there's partnership agreements in place to support that.
Nathan Bush: Yeah, that makes sense. I feel we're in such a interesting time in Australia and such an exciting time because we've got businesses like Profit Peak who are creating software solutions specifically for businesses to give them better understanding. So you've got obviously yourselves looking after profit. We've got Humi looking after the E commerce customer journey and mystery shopping that and also people like Tracksuit doing phenomenal work from a, you know, measuring brand effectiveness. Overall, it feels like we've got this little kind of tide happening in Australia at the moment around startups creating insight platforms to help decision makers.
[Voiceover]: Yeah, definitely. And what's really interesting about all three of our businesses and the founders is we've all come from the problem space. So we weren't setting out to find a problem and a solution. We actually knew the problem that we were needing to solve because we had all come from E commerce or brand backgrounds. So I think it just shows that there is a new tide in the market in Australia and New Zealand where founders now have the tools and the confidence to put themselves out there and try and solve a problem and not rely on other markets like the US or Europe to actually bring tooling to Australia.
David Kahn: So at the same time, the, you know, the values of businesses are no longer measured by what their revenue is. It's about how profitable they are, what their EBIT does. And so I think a lot of businesses are definitely seeing that they can no longer just depend on a revenue multiple in order to get, you know, the maximum value for their business.
Nathan Bush: Yeah, it feels like when you see E commerce founders bragging around revenue growth, you're like, exactly. What's the real story? Yep.
[Voiceover]: How much have you spent to get that revenue? It reminds me of when the iconic launch and I think they generated 20 million in revenue. It was like their first year, but they spent $30 million to generate the $20 million of revenue. So it's like it depends which side of the coin you want to share the story on.
Nathan Bush: That's right, exactly. And tell me from a profit peak perspective, what's the commercial model at the moment in terms of if you've got brands coming to you, wanting to implement other implementation costs, are there monthly ongoing costs? How's that? All set? Yeah.
David Kahn: So we really want to be affordable. We want the brands to really generate at least a 10 times profitable ROI. Using us ourselves again as E commerce founders and operators, we just absolutely hated the revenue price products. And so we found that it was better for us to align ourselves with the goal of E commerce brands that we work with. So we chose to purposely go for usage based plans based on the number of orders processed per month. So on a high level, after 30 days you have a free trial. You could, sorry, you can opt it to 3,000 orders track for $399, 5,000 orders tracked for 799 and then 10,000 orders track for 999. But obviously with price breaks in between. So if you're doing say 7,000 orders, you'll be paying less than the 9.99 for that 10,000 until that 10,000 order bracket is exceeded.
Nathan Bush: Gotcha. So it's like a tax bracket.
David Kahn: Exactly. But helping you grow though and earn more.
Nathan Bush: I should put a positive spin on
[Voiceover]: in terms of integration, it's about 20 minutes. So 20 minutes to connect all the APIs with a single click. And we have a brief onboarding checklist which helps you get that Proforma P and L set up ready to go. And then once your data's in, it's about half an hour before you start seeing information coming into the software and then that's updated every hour. So you start to see value within the first couple of days.
Nathan Bush: And with that value in the first couple of days, what have you noticed from your initial clients? What kind of changes do you see them kind of implement we talked about insights are no good without action behind it. What are the most common things that you see your decision makers make changes on after seeing that first bits of data flow in?
[Voiceover]: Yeah, we've had one customer who thought they were generating a lot of revenue from their meta campaigns in Platform Meta was obviously stating these great revenue on ad spend multiples and once they were running profitpeep they realized that the revenue on ad spend was not real revenue on ad spend once that revenue was deduplicated. So they ended up turning off a lot of budgets on their meta campaigns and focusing on a new meta strategy and then they shifted a lot of budget into their Google campaigns which were generating great profit and were getting them the outcomes that they wanted at that point in time. We've also seen customers getting a lot better at understanding their inventory and the profitability and that stock on hand level that they need to keep. So we've seen that people are getting less out of stocks on those best performing products and they're trying to move through at a decent margin that aging inventory so they can be more capital efficient and fund that top revenue producing products and making sure that they're in stock. So those have been the key insights we've seen so far.
Nathan Bush: I could imagine the consultant in me is thinking about all the data that you've got and some of the benchmarking that you'd be able to do across all sorts of things from how many times customers are purchasing to average lifetime values to shipping rates to everything. Right, you've got everything. Do you ever pull the data to get to that benchmark level or industry trends?
[Voiceover]: We're definitely planning to do that. So once we're out of PETA and we onboard the full waitlist so we have about 55 brands waitlisted at the moment and we've just been really careful with who we bring into the program so that we can actually deliver on our promises and make improvements from the insights that they share. But once we do bring in the full range of customers, we'll do start plans for benchmarking. But equally we also plan to do industry specific benchmarking. So you'll be able to see if you're in babying kids. For example, was there a bad meta day yesterday for everyone or was it just me who had a bad meta day? Or you know, if you're in fashion, is everyone seeing less revenue coming through Google campaigns on a fashion level, but they're seeing more revenue coming through their klaviyo flows? So we'll actually be able to give industry specific benchmarks for the Australian market being our first key market.
Nathan Bush: I could imagine that would be such a huge selling point for a lot of founders out there because I know there's a lot of founders out there who are feeling so lonely at the moment and they're seeing things up. It's down, it's all over the place, green arrows, red arrows. And just to have this next one to go, ah, it's not just me, absolutely.
David Kahn: To be able to compare with others in their, you know, in their segment rather than just saying, oh well, why are we down versus, you know, the previous Black Friday or the previous Qlik Frenzy, you know, being able to actually compare within their space. Well, you know, in some ways obviously help, but also in the same way, you know, when you exceed that, to truly see that, wow, we did a really good, strong campaign with this. This is obviously working. How can we improve it for next time?
Nathan Bush: And you mentioned there your waitlist, which is really impressive and impressive that you've got the patience to be able to go, we want to do this right, hold tight, we'll be with you. Is the ideal customer a customer that has a higher average order value given the commercial model rather than lower revenue, or does it not matter? Is that just not a consideration? How do you figure out who the ideal customer is?
[Voiceover]: Yeah, the ideal customer for us is someone firstly who has identified that they want to make changes in their business. You can't sell a software to someone who is happy with what they're doing and they don't want to make change. So that's the first thing that we're really looking for. The second is I would say that it is a turnover level and there is a level of complexity in the business for it to be the right solution for them. Not every E commerce business needs this level of data insights. So any business that's doing more than 3 or 5 million in annual revenue is starting to get to a complexity level where they are spending across multiple app platforms. They do have more than 50 or 150 inventory lines and they are trying to understand how that advertising spend is being allocated to inventory. And they're also wanting to know what they're spending on you versus returning customers. So I would say it's more about when you get to a certain complexity level. And by no means does it mean that this is a solution only for small businesses. We've seen a lot of interest even up in the enterprise space because they say, hey, yes, we do have some of this data, but we're running $150,000 a year CDPs to get half of the information that you can provide us. And then we have a data warehouse and data pipelines and a data analyst costing us $500,000 a year to pull the other insights. And hey, if you can do this for under 20 grand a year, this is very interesting. But then we as a business have said, well, we're pumping the brakes on all of that because those are also custom builds. A lot of them aren't yet on Shopify in Australia in that enterprise space and they're on, you know, custom builds and different platforms. So we're saying let's focus first on the Magento and the Shopify ecosystem and also equally be honest with customers who approach us and saying we're not sure that you're ready for this level of complexity and this level of data insights. So let's hold on and chat about it in the future. And then there's others where we say we can see we can add incredible value for your business. Let's get you in.
Nathan Bush: That's amazing because I could imagine that it would be very easy to get excitable when you have enterprise level retailers approaching you wanting to get on board. But for you to go, we're just not ready just yet.
[Voiceover]: Well, ultimately if you don't deliver right, so you've got a free trial period and if you don't deliver on the promises, they're very happy to leave. So it's really important that we pick the right design partners, I call them, who are happy to share with us what they think, their raw, honest feedback. Because ultimately we're building a product for them. They have to love it, they have to want to use it, they have to want to be in it every day. And that's the feedback that we need to give us the confidence to say, hey, we're an open market product and these 55 beta customers come jump on board.
David Kahn: That ties into our LinkedIn strategy as well. I mean, you know, sharing those pain points that we've experienced, not just sharing the wins, but the losses, the pains that you go through working in E commerce, it builds that trust with the customers. And then we're already finding, you know, when we've opened these feedback loops with our beta customers, you know, they're already ready to share so much before we even start looking at the data.
Nathan Bush: Yeah, amazing. And I think it comes back to probably what you were saying right at the start. It allows you to stay in control. Right. You're not scrambling, you're not frantic, flying blind. You know exactly what you can offer and you're confident in that offering. Last question I have for you, and this is kind of tying up all your experience and you know, such a diverse range of experiences. If you were starting an E commerce business today, what are the non negotiables that you would have in place to start that E commerce business?
[Voiceover]: Good question. But the number one thing is unit economics. I've had a few people joke with me that I say unit economics way too many times. But ultimately it's very hard to change the unit economics in a business. So whatever category that you're getting into, you need to make sure the unit economics are right. So if it's a bulky, heavy product that's only purchased every five years, for example, July luggage, to give them a shout out, you want a high average order value so that you can obviously rely on the fact that that customer LTV is not going to be a repeat purchase and that you're getting great value upfront from your customer. But also you have margin availability to invest in brand and the incredible retail immersive experiences that they're rolling out. But then if you're selling, you know, a baby product that is again, not necessarily bulky, but it's sizable and it's heavy, you also want to make sure that you have the right aov. But then if it's a fashion play and it's going in satchels, you know, you can have a lower AOV product, but you know the customer is going to purchase more frequently. So I think it's about understanding that customer purchasing cycle, that average order value and then the margin that you can achieve and balancing those factors to make a decision about what is the right category, what is the right product and then investing in brand. Because at the end of the day, brand is what really helps you take your business to the next level.
Nathan Bush: I feel there's a big swing back at the moment to starting or having a business based around product unit economics rather than customer. And I know that sounds like a bad thing to say. We always serve our customers right, we always look after our customers. But there have been a lot of D2C brands that have started appealing to a certain group of customers or a certain mindset that have gone under when times get really tough. Whereas the one with strong product unit unit economics have the ability to weather all tides.
[Voiceover]: Absolutely.
Nathan Bush: Is that fair?
[Voiceover]: Yeah, very fair. Because the free cash flow that they generate obviously can support the strong and the down market. Right. So if you don't have any free cash flow that you've generated with your brand, you can't wear the storms. You know, it's the difference between staying in business and getting out of business business.
Nathan Bush: Great advice. Thank you. Carla and David, what is next for yourselves and profit peak? What's on the radar for the next 12 months?
David Kahn: Definitely we're going to be obviously expanding out with more features and of course with that, more customers. We definitely want, you know, like I was saying before, we want to be able to not just report the news, but enabling our brands to be able to act and take the insights and actually action them within profit peak. And of course, so that way you're no longer having to flip between multiple windows. And of course, we really want to just assist the customers further, you know, finding new ways to obviously improve our system for them. Because at the end of the day, for us, it's really about solving what we thought, you know, was solving our own problem. We're solving it for many other people and being part of this, you know, this beta cohort where we're starting to see other problems that we hadn't ourselves considered.
Nathan Bush: Yeah, I love that. I love. And you know, that's what's come through. And I'm so glad we started with your own stories because we can see the genesis of this idea and how it actually solved your own problem first. I think that's a great takeout for anyone listening. If people want to get in touch. What's the best way to do that, either with you personally or to learn more about profit peak?
[Voiceover]: You're welcome to email us. That's a great way to start. Carlaprophetpeak IO Davidrophetpeak IO LinkedIn. I'm Carla Pen Kahn on LinkedIn. Feel free to message me. Connect. Love chatting. I just connected this morning with an E Commerce founder who I know is way too early in their journey to be a profit p customer and I said hey, let's just hop on a 30 minute call. Here's my calendly. Let's just chat about how my journey went and see what insights you can draw. So we're 100% open to sharing our
David Kahn: journey Retail Fest as well.
[Voiceover]: Oh yeah, I'll be at Retail Fest as well.
Nathan Bush: Yeah, brilliant. Okay, great. And the website if people want to
[Voiceover]: see that, it's profitpeak IO.
Nathan Bush: Beautiful. Carla, David, thank you so much for joining us on Add to Cart.
David Kahn: Thanks Nathan.
[Voiceover]: Pleasure.
Nathan Bush: What a story. Hey, starting out as E Commerce founders with a successful exit and then going into the SaaS model for E Commerce is such an interesting path and one that we don't hear too often. I'm very excited about what Carla and David are building here and if you want to keep up with them, I strongly suggest following them on LinkedIn. They give so much away around E Commerce operations and profitability. All right, here are the three things that I took away from that episode with Carla and David. Number one, start with net sales. Start with net sales when you are looking at marketing and profitability. So that's sales without GST and other discounts. Don't get caught in the trap of revenue including GST and and pre discount levels. If you're using gross sales to work out true profitability, you are inflating the outputs that your business is achieving. Number two, solve your own problems. Carla and David focused on fixing something for themselves when building profitpeek. As Carla said, we knew how hard it was to be profitable in E commerce. This enabled them to tell the story and empathize with their future customers. And number three, Customer first approach to social posts. Carla and David avoid salesy or self promotion and instead opt for information sharing. And they've got a lot of information which provides value and insights to the community which keeps potential customers close. Send out good vibes and you create foundations for a great long term business. Thanks for joining us today on Add to Cart to listen to all our E Commerce conversations now in the hundreds. You can head on over to addtocart.com there you can also join up to our free private Slack community to share e commerce ideas, tips and questions with other listeners. You can also subscribe to the Add to Cart weekly newsletter and browse some of the video highlights from our chats. There is a lot there that's addtocart.com and if I can ask you one thing before you go. If you enjoyed today's episode, make sure you share it with a friend or a colleague who could benefit or leave us a review. It really makes a difference. Thanks again for listening. And until next time, keep those customers adding to cartoon.
