Running with the Big Dogs

This topic has been “on the hook” for a long time because I thought it was at least 3-5 years out. And then last week one completely unexpected, record-breaking sale made the future look a little bit closer. A customer who had previously placed several substantial Panther Vision cap orders almost cleaned out my stock -- you should see the spike on my tidy little sales chart. My chronic open-to-buy deficit actually turned into black ink for a few happy hours. Then I dug the hole deeper than ever in order to qualify for the best possible pricing when I replaced the stock.

Someday, I’m going to figure out how to turn comparably large orders into semi-regular events. And when that happens, I’ll need to make some changes to run with the big dogs. This post won’t delve into the obvious hurdles – third-party order fulfillment, developer support, professional marketing, employees, liability and casualty insurance, etc. – that I’ve discussed to death in the past. Instead I’ll mention more obscure things, like:

Web hosting. MochaHost’s uptime is not too bad, but their customer support is grudging and my site often loads too slowly. Being on a shared server makes me vulnerable to other sites abusing my IP address. This is probably why some of my email gets caught in spam filters. A web developer/friend once recommended Galaxy Internet Service. They’re expensive ($20 per month vs. the $75 that I now pay annually), but she said they’re well worth it. Ironically, GIS.net was my very first personal ISP back around 1994 or so.

On a closely related note, I’ll eventually need a custom-designed website. Sunshop has a professional development team behind it, at little expense to me. However, it delivers a generic-looking site with limited control over functional details. I’m sure that my big competitors don’t use an off-the-shelf technology engine. This gets into the old ongoing subject of developer support, so I’ll leave it here for now.

Most of the biggest websites subscribe to Hacker Safe. For $99 per month you can display their little seal, and they test your site for security vulnerabilities. That sounds like a good thing, but until I have regular developer support (that dependency again!), it’s actually a drawback. What would I do if my site fails their safety metric? Controlscan does the same thing for “only” $190 per year for their most basic seal. TrustGuard has a basket of seals and services costing $200-400 per year. But Hacker Safe gets top dollar because they have the best name recognition.

Are any of these really better than the free GoDaddy seal that comes with my SSL certificate? As long as I’m a tiny company, and not a big target for hackers, the perception of security is more important in driving sales than is actual security. Does the average shopper know the difference between Hacker Safe, ControlScan, TrustGuard, and GoDaddy? I doubt that a “better” seal will make enough difference in sales to justify its price. Their own salesman said that Hacker Safe increases conversions by about 14%. That’s presumably over having no security seal at all; the increase over my free GoDaddy seal would surely be smaller. Let’s arbitrarily say it’s 7%. If my sales run $2,500 per month, a 7% increase is worth $175. Is it worth paying $99 to earn an additional $175? Obviously not. By the time sales increase enough for this to make sense, I’ll be big enough to attract the attention of Bad Guys, and might actually need the security testing.

The Better Business Bureau Online is another logo that I’d like to have just for the sake of having it. Like the regular BBB, it’s a protection money racket that shields its members from customer complaints, and publishes complaints against non-members. I don’t know if a home-based business can join, although I suspect that they’ll take anyone who ponies up the money and meets these basic standards. Bizrate.com might be a more affordable alternative. The security services I mentioned in the previous paragraph all offer a “verified business” seal that does the same thing. First you have to join the local BBB ($475 per year), and then pay extra (no published rates) for these seals. It’s hard to imagine that this significant new expense will really drive many additional sales. But all the big dogs have it.

The Cavalcade of Crap known as the Boston Gift Show is bush league. If I’m ever going to be the first with the newest, I need to attend more trade shows – maybe even Toy Fair. (moan) I hate traveling. I especially hate NYC. If I leave home for more than a day or two, Curio City shuts down. But it’s one of those unpleasant chores that I’ll need to find a way to do if I ever hope to be ahead of the new merchandise curve.

SEO experts swear by WordTracker ($59 per month). It is the way to discover the most popular keywords that shoppers search for, so that you know what words to optimize your pages for and bid upon. Given my total reliance on PPC ads, this might be something I need to invest in sooner rather than later. OTOH, I’m currently trying to reduce my spend on PPC, and my ability to use the information is crippled without developer support.

The really big retailers also offer different degrees of free or subsidized shipping. I don’t know if they can keep it up in this time of ever-increasing energy costs. Once you’re big enough to quality for volume discounts (1,000 parcels per month), you have some flexibility that paying retail shipping rates does not afford. I am just starting to average about 100 boxes a month, so this one is also farther off in the future.

The big dogs also have liberal return policies. Practically speaking, I almost offer an unconditional satisfaction guarantee already – as long as I’m confident that a customer is not scamming me, I always resolve complaints to my customers’ satisfaction. Unfortunately, because some shoppers go out of their way to exploit such policies, my published policies have to be very restrictive. Once a company reaches a certain size, it simply takes scammers into account and budgets for a certain amount of fraud. Ultimately I will need to publish my de facto satisfaction policy and accept some abuse.

Long ago I looked into listing some products with shopping comparison sites. Places like Pricegrabber, NexTag, Shopzilla, Bizrate, etc. can generate a ton of business if your prices are really competitive. They also take a huge cut of referral sales (upwards of 20%, IIRC), which paradoxically makes it impossible to offer competitive prices. I’d have to do an incredible volume of sales to make a profit after giving away half of my margin. I don’t want to be a discounter, so I don’t know if these services will ever make sense for me. But they do merit further exploration.

I haven’t pursued institutional accounts since early in my bookselling days. Schools, libraries, nonprofit corporations, civic organizations, government agencies, and even churches appreciate being able to use purchase orders and receive small discounts. These tend to be high-maintenance customers with a high risk of fraud. They often order once, and then are never heard from again. They aren’t exactly the prime demographic for most of my merchandise. It can take months to get paid. But every now and then you find one that’s a reliable cash cow. Governments are especially free spenders.

Last, but not least, Curio City can pay more household bills. The company recently started reimbursing us for my cell phone ($12 per month, since it’s the second phone on my wife’s plan) and gasoline ($20 per month; I figure I use about five gallons to shuttle boxes around in my Miata). Although the amounts are small, the precedent is established. Eventually Kraken Enterprises ought to pay a portion of our Verizon land-line bill ($60 per month), since we only keep the land line to preserve FAX capability. Maybe it could even legally pay us rent and cover a fraction of our utility bills, since I’m not claiming the home office deduction (my Kraken paycheck is not self-employment income). We’re going to buy a new mini-SUV this fall; maybe, since the Miata makes a poor delivery van, Kraken could shoulder some small fraction of our car payments. As long as Curio City is a home-based business, it ought to shoulder its share of our home expenses. I assume that the tax implications of that statement are terrible to behold. Would we have to declare Kraken rent payments as income? This could get real ugly real fast.

The Monthly Wrap-Up, & More About My OTB

I have still not entirely absorbed the impact of this week’s record-breaking sale. It boosted my YTD numbers into the stratosphere: YTD total income is now up 111.7% over LY. Gross profit is up 121%. Payroll (yay me!) is up 119.7%. The bottom line profit is up 829.9%! If I can somehow sustain this growth rate, I could be earning minimum wage as early as next year. With all the doomsaying about the US economy, that would be an amazing achievement. (Lest I feel complacent, last week’s sales would have been quite average without this happy distortion. And the economic stimulus checks that have driven the last couple of months must be pretty much spent by now).

Despite all of this, last week’s dilemma about loaning the company more money persists. On one hand, I’m eager to wipe out my deficit and satisfy pent-up demand. OTOH, I’m reluctant to invest new money in merchandise during the doldrums of the retail year; I’ll want those inventory dollars when new products come out in the Fall. Back on the first hand, investing now would let my OTB climb comfortably into the black before then, and some of my vendors are offering sale pricing. Back OTOH again, despite all the red ink, the company’s cash flow is fine. Why should I loan the company more money when both of its bank accounts have comfortable – but obligated -- positive balances? Maybe I should play the float, rather than keeping money in reserve for future obligations like quarterly payroll taxes, next month’s charge bill, advertising costs, etc. Maybe I should spend more aggressively, and count on tomorrow’s sales to pay today’s new obligations. Maybe retiring my OTB deficit is as simple as resetting the running total to zero. Maybe there’s just a calculation error that I don’t understand. Maybe the problem only exists in my Excel file.

Maybe this should be its own post, since it keeps cropping up.

One thing is certain: As tedious as it is, I need to put more hours into revamping my pay-per-click ad campaigns. Prices are spiraling out of control at both Google and Yahoo. Yahoo’s recent webinars gave me some strategies for doing that on their site, but Yahoo only accounts for about 20% of my PPC traffic. Google is the 800-pound gorilla. Cutting back my primary source of traffic is a dangerous undertaking…but so is overspending my budget.

• Let Us Now Praise Famous Products
• The Zombie Store
• Legal Extortion
• Open-to-buy Is Closed

Reasons to Hate Shipping

This post was originally entitled “The Airspeed Velocity of an Unladen Swallow” but I decided it was both too cute and too obscure for a post about the arcana of accurately calculating shipping charges, a topic that I first addressed last December. I shall avoid repeating that earlier post, so I suggest that you read it for background if this subject interests you.

Last week I subtracted $225 from my open-to-buy (or more accurately, I added $225 to my OTB deficit; see the end of this post for more about that) to allow for the cost of shipping a $176 order. Imagine my surprise when the bill came in at $249.12! That’s right; four cartons from the Left Coast cost $73.12 via UPS Ground – over 40% of net! Fifteen percent of net is considered reasonable and customary for freight; lately, 20-25% has become common in our energy-inflated economy. Forty percent, though, is pure bullshit – especially since this was bargain-priced merchandise that should have delivered my benchmark 50% markup at an appealing sale price. Instead I had to price the item higher than some competitors just to achieve a dismal 39% margin. If I were to price-match the competition, my markup would drop to a money-losing 15%.

There had to be a mistake. Sure enough, two 13-pound cartons bore labels showing that they weighed 27 pounds each. When I notified the vendor that they were overpaying for shipping, I learned that UPS was charging a dimensional weight. Because those two boxes exceeded some arbitrary cutoff size, UPS charged double their actual weight. I certainly won’t be reordering this “bargain” again. I can only sell it profitably if I inflate the shipping cost to my customers – a common dishonest tactic that I have always rejected as sleazy.

I try to take in exactly as much money as I actually spend on shipping, with a tiny surplus to cover the cost of boxes and packing materials. Ideally, every order is charged a few cents more than its real shipping cost. Alas, that is virtually impossible to achieve in the real world, as I explained in the earlier post linked above. Last week I actually dropped my handling fee by a nickel, to 70 cents from its high of 85 cents, because my shipping fee collections were running a wee bit ahead of expenses. In aggregate, I do a good job of balancing income and expense. Getting there has taken a lot of time and attention, and a few items are still out of whack.

Google Checkout’s rate calculation bugs have been an ongoing hassle – check the “Reasons to Hate Google” tag to find those posts. You would think that a shipping lookup module would just take a total weight, consult some tables, and return accurate prices. Nope.

Reasons to Hate UPS: UPS charges a base rate that varies across geographical zones. Then they add a fuel surcharge that (presumably) fluctuates with actual fuel costs, but in reality only ever goes up. Then they add a residential delivery surcharge if the package is going to somebody’s home. Then they generate fictitious weights to cover the bizarre dimensional pricing that I mentioned earlier. There’s an insurance surcharge for packages worth more than $100. Even after all that is factored in, the price that I pay when I create the shipping label often differs by a few cents from what UPS ultimately charges my credit card, necessitating fiddly little corrections every time I get a credit card statement. Overall UPS rates are higher than the USPS, their service is slower, they don’t deliver on Saturdays or to PO boxes, and they often damage packages. Package tracking is the only thing I actually like about UPS.

Reasons to Hate the USPS: The post office revises their rate structure every year, requiring customers to re-develop our shipping modules. The parcel post bug about which I’ve written so often recurs so dependably that I suspect it’s a deliberate effort to reduce parcel post sales. And that’s just the beginning. USPS uses separate rate tables for “machinable” (standard) and “non-machinable” (oversized, undersized, and oddly-shaped) packages. In May, USPS introduced UPS-style dimensional premiums for priority mail over one cubic foot. The cheaper services like first class parcels and parcel post are not available online via Click-n-Ship, but priority mail receives a discounted rate when purchased online. And then there’s flat-rate pricing when you use the proper boxes. For all of that complexity, USPS does not guarantee their delivery times, or offer parcel tracking, or provide loss coverage for uninsured parcels. Presumably that’s why it’s so much cheaper than UPS.

Given the level of complexity by both carriers, it’s no wonder that so many merchants prefer fixed-rate shipping tables. Who knows? Maybe some customers really would rather pay a fixed shipping price per dollar amount – at least it’s predictable. I suspect (for no objective reason) that my customers would rather pay the real cost of shipping than a one-size-fits-all rate based on purchase price. Merchants who use flat-rate shipping tables are just dodging the issue. So I gamely struggle with the lookups, constantly fine-tuning item weights and adjusting my handling charge to approach the ideal. Until the next rate reorganization comes along and screws everything up again.

And now, as long as we’re hating companies…

Reasons to Hate Microsoft: I feel like my hatred neglects MS. That’s not a deliberate slight; they just don’t have much to do with e-commerce. But here’s something: After a Windows update a few weeks ago, MS Outlook started freezing on the first load, on both of my machines. It loads OK on the second launch, but makes me wait for a 30-second repair routine each time. I allowed Windows to report the crash to Microsoft each time in the unlikely event that somebody is collecting those. Eventually I got a link Microsoft’s solution: Upgrade from Outlook 2002, because it’s no longer supported. Thanks, Microsoft! You just moved me one step closer to migrating to web mail.

Speaking of my open-to-buy…I don’t think it’s ever going to reach zero. As much as I really want this business to put money into my pocket rather than siphon it out, I am on the verge of loaning the company enough money to wipe out my deficit, satisfy pent-up demand for reorders, and bring in one expensive new product line. It would take $3,000-4,000 to do all that. I even have that much money sitting in an ING Direct account named “Kraken Startup”. Five things keep staying my hand: (1) The aforementioned aversion to putting more money into the company; (2) a real lack of warehouse space in the cellar; (3) the certainty of earning a nice, safe 3% return by leaving it right where it is, versus potentially losing it entirely if I invest it in my business; (4) my belief that future cash infusions should only be used for technology and marketing; and (5) my suspicion that bailing out the OTB – again – merely ameliorates a long-term structural problem in either the way that I calculate my OTB, or the way that I spend it. Yeah, I could pour $4,000 into overstuffing my cellar right now…but will I be right back to low stock levels and an empty budget again when it’s time to lay in Christmas orders in a few months?

Coming Attractions:

• Running with the Big Dogs
• Let Us Now Praise Famous Products
• The Zombie Store
• Legal Extortion

Yahoo and the Royal Scam

I was too busy with personal chores again last week to do anything beyond caretaker work for Curio City. I finished painting the new porch, repainting the deck of the front porch, and painting the rocking chairs. A can of half-dried-up porch paint made the job more challenging; being cheap and stubborn, I couldn’t just throw away a $35 can of paint, so I had to painstakingly apply and smooth out the granular pasty stuff before finally caving in and buying a new gallon.

It took me four times longer to paint the porch than it took the contractor to build it. Sometimes when I contemplate the wreckage of my professional job history, I wish that I had learned a useful trade instead of wasting four years studying nothing worthwhile in college. Then I realize that I’d have failed as a tradesman, too. I am too slow and not very skilled.

Today I need to clean up after the paint project, and then hit the garden. There is a dead tomato plant to replace, a second hill of Gadzukes! zucchini to establish, bean towers to erect, and bean seeds to plant. This afternoon I have to hit my parcel drop at the UPS Store and receive some of the stuff I ordered last week, so Curio City will at least get one afternoon out of me. This weekend, I have assorted small chores to catch up on.

I did “attend” Yahoo Search Marketing’s second “webinar” yesterday. It felt good to sit and do nothing for an hour. I should get back to near-fulltime work next week.

The “Reasons to Hate” series of posts could be their own blog. There’s always so much material, and it’s always popular. Given all the painting, how did I find time to hate anybody last week? With companies like Google and Yahoo around, it’s never hard.

More Reason to Hate Yahoo: A customer used my Contact form to ask about a Steely Dan Record Purse. After some delay, the vendor sent me a short list of available Dan albums, which I sent to the customer. She liked The Royal Scam. So far, so good. I sent her instructions for ordering the purse. Silence ensued. A day or two later, I got another email pleading for unspecified assistance ordering her purse. Then I noticed: She has a Yahoo.com email address. Oh, no.

As I learned in February, Yahoo sends my email to its customers’ spam folders, and they won't white-list me. My Contact page warns customers to check their bulk items folders if they aren’t seeing my replies, but not everybody reads that or knows what a junk mail folder is. I sent the purse customer several more emails from different accounts and addresses (Kraken Enterprises at GoDaddy, rather than my Curio City addresses at MochaHost). The trail cooled as more days passed; how frustrating! This customer wants an expensive item that I can supply, and I want very much to sell it to her. She didn’t create an account or send me her phone number, so all I have is her email address. I must have gotten through at least once or she would not have known that we could supply The Royal Scam. So what was it about the message that got through?

Links. It didn’t have any hyperlinks! As a test, I sent one of the customer emails to my own Yahoo address – once with the links intact, and once with them removed. Sure enough, the “clean” email went into my Inbox and the one with hyperlinks went into my Bulk folder. Mystery solved! I immediately stripped all hyperlinks out of the email and sent it, yet again, to my customer. But by now a week had passed. I don’t know whether that email ever got through or not. I never heard from the customer again.

Well, at least I learned something: Don’t include helpful links for Yahoo customers, not even those in my signature. Thanks, Yahoo! That lesson cost me $58 and a customer.

More Reason to Hate Google (now with Sunshop bonus hatred!): Another Google Checkout shipping fiasco! A GC order for a $10 item came in with a $19 charge to send the 0.35-pound package via priority mail. When I recovered from the shock that somebody had actually paid nineteen bucks to ship less than half a pound, I refunded the overcharge and contacted Google yet again.

They determined that the USPS considers a package weighing less than 0.375 pound to be “nonmachinable”. When their rate lookup routine fails to find a valid rate, it uses a default supplied by the client software (Sunshop).

Now, the correct behavior would be for GC to consult the nonmachinable parcel post rate table and find that rate, rather than use some arbitrary default that’s buried somewhere in the bowels of Sunshop where I can’t easily change it. Google's representative agreed with that much, although whether he'll do anything about it is an open question. Priority mail is more ambiguous. I think it should have defaulted to the minimum 1-pound charge. That’s logical, and it’s how Sunshop behaves. But Google feels that using the default rate is the correct way to avoid making a rate decision better left to their customers. Since I had never heard of a minimum weight for priority mail before (that’s what first-class mail parcels are for – oh wait, Google refuses to offer first class), I don’t know whether a nonmachinable rate table for priority mail even exists, and therefore I can’t objectively tell Google what the proper behavior should be.

I tried to make clear how much business GC will lose by their serious shipping overcharges (if you’ve been reading the “Reasons to Hate” series, you know that they have a chronic problem with this). The person I’ve been working with is an engineer; I don’t know if this design flaw will be addressed, or if my complaint died when it turned out not to be a technical problem. For now, Google Checkout customers are just plain screwed if they order something weighing less than 0.375 pound.

Why hate Sunshop? Well, given that Google will not fix their design flaw, the best band-aid would be to set a minimum package weight of 0.4 pound. Sunshop does not support that. The second-best band-aid would be to set the default rate to something more reasonable, since it is never used for anything else; Sunshop does not have an interface for that. To be fair, I have not yet taken the time to write this up on the Turnkey support forum. I assume that they will deliver their standard “Not our problem” response (never put engineers in charge of design). So I'm advancing a little hatred toward Sunshop. If it turns out that there is an easy backdoor fix, I’ll eat these words.

Coming Attractions:

• The Airspeed Velocity of an Unladen Swallow
• Running with the Big Dogs
• The Zombie Store
• Legal Extortion

I'm Too Busy to Work

I was too busy with personal chores to do much work for Curio City most of last week. I laid in a lot of project supplies, then scraped the old flaking paint from the trim in back of our house and primed our new porch. Today a third consecutive day of rain postponed my plan to hoe the garden and mow the lawn. I’ve used these enforced office days to spend a lot of money on supplies and reorders, even though that deepens my open-to-buy hole further. I hope it will recharge next week.

As soon as the rain ends, I need to hoe-and-mow, plant my last few tomato plants, erect my bean towers and plant those seeds, replace the pepper plants that died, put in another hill of zucchini, paint the top coat of the porch and surrounding trim, paint the decking, paint the porch chairs, and put in a couple of new flower beds. I figure that’s a solid week’s worth of daily chores, and possibly closer to two. After today, Curio City goes back on autopilot for a week (or until it rains again!).

Reason to hate Google (a little less): Google Checkout fixed their parcel post bug again, but as of two days ago they were still undercharging for UPS. That might be fixed now; I haven’t tested it. They aren’t going to offer first-class parcel rates at all because that service is not in their implementation spec (although media mail is…go figure). About a third of my orders go out via first class, saving customers anywhere from $2 to $4 over the next cheapest method. Its omission from GC is unfathomable. Was it a simple design oversight? Or a sinister plot by USPS to sell more priority mail? I'm not even sure whom I should hate here.

Reason to hate Yahoo (a little less): Yesterday I sat in on the first of Yahoo’s three weekly “webinars” (what a stupid word) about Yahoo Search Marketing, which regular readers will recognize as the very soul of evil. If Yahoo delivers on their promise to pay me $20 in ad credits for completing a survey at the end of each webinar, I'll make $60 for roughly four hours, and pick up a helpful tip or two in the process. Given that Curio City only pays me $2 per hour, I can’t pass that up. Once I finish my personal chores and get cracking on Curio City again, I’m going to overhaul my YSM campaigns to use some of these tips. Maybe I'll even rebuild and restructure the whole thing.

Sales these past couple weeks have been very good. Thanks in large part to one very substantial Switchables night light order, I just earned my biggest paycheck so far this year – a bit over $3 per hour, based on a 40-hour week…in fact, since I only worked half-time last week, my real hourly rate approached minimum wage! Truly, the big bucks are within reach.

So far this year, shipping and handling fee collections have exceeded actual shipping expenses by about 5%. Therefore I took the bold step of cutting my handling fee by 5 cents per order. Customers won’t notice that, but it’s a symbolic move for me. Someday, when my volume grows sufficient to cover a structural postage deficit (or when I qualify for volume shipping discounts), I will drop the handling fee entirely. For now, it’s easy to justify: The $160 that I spent on boxes, mailers, and packing tape yesterday wiped out my postage surplus.

Coming Attractions:

• Running with the Big Dogs
• The Zombie Store
• Legal Extortion