Or, Back to the Old Drawing Board
The sales decline that began in “Unhappy Mother’s Day” got so bad this week that I thought there must be something seriously wrong. I had only two sales in seven days, plus a return that nearly canceled them out. Before two very welcome sales appeared yesterday morning, my gross income for this week stood at $12.04. That puts my paycheck at something below $2.00. Last week was my fifth worst ever, and this week is making a strong play for the second-worst of all time.
People are simply not buying. These long sales droughts happened a few times last summer. They weren’t supposed to happen at all this year, and certainly not in May.
My pay-per-click advertising is still delivering the usual 75-100 visits per day. My test transactions go through normally.
Until now, my conversion rate has hovered reliably a little over 1% – one visitor in 100 buys something. Last week it fell to more like 1:500. Why? Why? Why? Maybe poor buying decisions took my store in the wrong direction. These kitchen towels went nowhere. I haven’t sold a single rain gauge or grill thermometer yet. My new cigarette cases have the features that a couple of customers asked for, but they might be too expensive (and two weeks after I ordered them, the vendor announced a 15% off sale! Grrr….). Those items alone tied up April’s entire inventory budget. I still think they're good products, and hope they'll find their market.
If I knew that bad merchandise is to blame, I could just invest some startup cash into more new gadgets and clocks – my best categories before sales collapsed. But I can’t waste seed money on a hunch.
Since I don’t know how to end this slump, I’m using my downtime for medium- and long-range planning. Despite some stubborn structural cost problems, my business borders on solvency. There’s nothing wrong that a big infusion of sales wouldn’t cure. So, how big an infusion are we talking about?
Let’s do a flight of fantasy. My bootstrap approach – building this business up slowly from my own resources, without taking on debt – is failing; only an impossibly stellar Father’s Day season can resurrect it. Suppose I abandon bootstrapping, and go instead for a quantum leap? What expenses would that entail? How much business would it take to cover those expenses?
This thought experiment explores the Curio Metropolis Online path.
Payroll & Consulting. First, I need at least $50,000 per year to live. That’s what I used to earn as a wage slave.
Second, I’d need a contract developer to tune up and improve the website on a regular basis. My own lack of technical education is my biggest handicap; I am always off-balance when something goes wrong. Right now my budget for routine web services is $500 per year. Let’s raise that to $20,000 per year. For perspective, that’s at least double what I’ve spent on technology to date, and twice what I intended to invest this year to reach version 2.0. I expect that outlay to compensate for my own ignorance.
Third, I’d contract with a professional marketing firm to design and manage a coherent ad campaign and media blitz. Currently, my marketing budget is a percentage of gross sales – which, as we’ve seen, are in the crapper. My budget pays for my pay-per-click ads, without much left over. Let’s allot $25,000 annually for marketing talent, above and beyond the existing sales-driven ad budget.
Fourth, to cover this new sales volume, I’d need a fulltime shipper/receiver; let’s say $10 per hour for 35 hours per week, or about $20,000. Toss in $5,000 for a rudimentary benefits package for myself and my shipper, and we’re at $120,000. I’d need to gross $750,000 to cover that.
Rent. I can’t run a $750,000 operation with a fulltime employee out of my cellar. I need commercial space. Let’s say I can cram all of my inventory, a cramped office, and a shipping area into 750 sq ft. Since there is no storefront to consider in this scenario, it can be industrial space in a poor location. Let’s budget $17.50 per sq ft., which works out to about $1,100 per month.
Other. I’ve always been nervous about having no insurance on my inventory; a cellar flood (which is not at all unlikely) would be a serious setback. Let’s say that rudimentary casualty & theft insurance would cost me $200 a month. My facility will need electricity, water, a telephone line, internet access. Call it another $200 a month for “utilities”. I’d probably have to come up with taxes, association fees, janitorial service, etc. Let’s budget $100 a month for that.
Debt Service. Here’s a huge expense item. I need to prime the pump for this new sales volume. Something a little better than a wild guess says that I’d need $150,000 for:
- Additional merchandise -- $125,000;
- Shipping materials -- $2,000;
- Office supplies -- $1,000;
- Shelving, furniture, etc. -- $2,000;
- Rent down-payment -- $5,000;
- Web developer -- $5,000 up front;
- Marketer -- $10,000 up front.
In this scenario I put in my last $15,000 of personal savings. I pretend that a banker would loan me $135,000 unsecured. Assume a 5-year loan at 8%, as I saw advertised today. Simplifying the compounding, $135,000 will cost about $189,000. Divide that by 60 months and you get $3,150 per month in debt payments.
OK, the assumptions are done. Whew. To the spreadsheet!
Wonderful things happen when sales increase by orders of magnitude. The percentage needed for payroll falls considerably, for example. Eventually I arrived at a magic number: $800,000 delivers everything that I detailed above, with a tiny profit left over.
$800,000. Wow. It’s a big stretch, but I’ve managed stores that approached that level of sales. It's not astronomical. My average ticket last month was about $30. I’d need 26,666 sales like that to reach $800,000. 73 sales per day. Yoinks. 32% of LY's annual business came in December, so I’d need 8,533 sales that month alone (284 per day!!!) November accounted for another 17%; that’s 151 per day. Which leaves about 45 sales per day during the slow part of the year.
I’m not sure I can envision that. Those numbers are mind-boggling from my perspective of 3 sales so far this entire week.
Next week I’ll give this same treatment to opening a store (Curio City Offline). I have a hunch the bottom line will be comparable.