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Every Friday, I post a small insight into running Curio City and/or Blue Hills Editorial Services. My most recent posts are directly below. You can also start with the first post, or use the subject labels to the right to home in on particular topics. Feel free to comment on anything that interests you.
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Friday, June 27, 2008

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

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