Big Black February Numbers

Yes, I know today’s only the 24th, and I know that this February has 29 days, and I know that I ought to add a fifth week to fiscal February instead of shifting four days into fiscal March. But a five-week February would blow my mind. March will bring the accounting calendar back into harmony with the real calendar.

February
 
Total income: +59.4%
Total COGS: +96.6%
Payroll: +8.4%
Marketing: +69%
Net Income (Profit): +60.3%

Year to Date:
 
Total income: +14.9%
Total COGS: +34.8%
Payroll: +17.9%
Marketing: +33.1%
Net Income (Profit): -23.7%

Looks like a boom to me. Two big telephone sales kicked February over the top: The Create-a-Bird kite sale at the beginning of the month, and a big Animal Print Golf Ball sale today. Excel says I’m up $700 on LY and nearly $200 over plan. Quickbooks is downright breathless (as you see above), but QB doesn’t know that an invoice that I prepared as a price quote wasn’t a sale. As far as cash flow goes, it’s not all unicorns and daisies: I had to order inventory at the usual price to supply discounted sales -- hence the scary Cost of Goods Sold increase. I sacrificed bottom-line income to pay for that extra top-line income. From another perspective: Except in Q4, I want each month’s inventory purchases to be less than or equal to the cost of what I shipped that month; this month I had to order $200 more than I shipped.

March 2011 benefited from four unusually large Panther Vision cap and Switchables sales. I’m likely to lose the ground that I gained this month unless my Facebook advertising gamble hits paydirt. I made four sales of advertised items (Panther Vision caps and Switchables) within a few hours after the campaign went live on Tuesday. Then…quiet. I’ve picked up a few new followers but my FB referral traffic has barely budged from normal and I can’t trace a single sale to FB ads. But this was a school vacation week, and that means a lot of people are stuck at home babysitting instead of at work shopping. Next week will be a better gauge. So far, though, it looks like this is going to be a short experiment.

******************

Reasons to hate Quickbooks: I mentioned an autoupdate that will deactivate QB unless I buy the 2012 version. Fine. Requiring an upgrade instead of making customers want it is a fascist business tactic, but Intuit gets away with it. What I didn’t bargain for was losing the ability to resize the “Make deposits” dialog. That’s right: I can change the height but not the width, so now I have to use the scroll bar on this screen that I use nearly every day. How lousy does a developer have to be to break such basic Windows functionality?

And Then, Nothing Happened

The week of Valentines Day is always among the worst of the year, and this year didn’t disappoint. February numbers come out next week.

The company that I hired to advertise on Facebook sent me their initial proposal. Their $100 “creative services” were…uncreative, to put it charitably. Rewriting their ads set the launch and billing dates back by another week or so, assuming that I accept their revisions. Oh, and I did finally turn down the international freight consolidator that I wrote about last week. So I guess something happened after all.

According to my tax returns, my official 2011 profit was $2,850 – almost identical to the $2,900 that I estimated in December. Cash flow turned red again after paying my CPA for tax preparation, the Secretary of the Commonwealth to accept my annual report, and the Mass. DOR to keep Kraken Enterprises alive. My biggest annual obligations are now met and I’ll be back in the black if business rebounds to normal next week.

This would be a really good time for my Facebook advertising gambit to pay off. 

I Am the Decider

I suck at making decisions. When I’m facing a choice or a problem, thoughts swirl around my brain until they come to rest in well-worn slots and I wind up right back where I started – nothing solved, no decision made. If I shake my brain like a snow globe the same thoughts take the same paths to the same slots. Sometimes I can work that out right here in my blog. But my innate aversion to risk usually paralyzes me. This is not a good trait for an entrepreneur to have.

 

Example One: A caller quizzed me about international sales – a sour topic, as I generally don’t like them. They’re a trivial fraction of my business with disproportionate hassles. Would I like to increase them while reducing the headache? His employer would take over my international shipping at no cost to me. All I had to do was implement a few lines of code, and foreign customers would be directed to his company. I would merely ship domestically to their warehouse and they would do the rest. I asked him to send me some materials to review.

After a few days he called back. I hadn’t received his email (he had the address wrong). He resent it. I started researching it, got bored, and set it aside in the hope that it might just go away. It didn’t. He called again; I put him off again. Although his company has plugin modules for several PHP shopping carts, they don’t have one for Sunshop; I’d have to do a custom implementation. He assured me that the process was simple and that their support people would hold my hand. I’m skeptical. Nothing technical ever goes smoothly and I’d very likely end up paying my developer to get me out of trouble. It would complicate future version upgrades. Customers using a ship-to address in a different country than their credit card issuer and their IP address would definitely set off my credit card fraud filter. Google didn’t have any feedback from other merchants, but I did find some customers with various complaints about their service and prices. It seems like something with low risk and a small potential payoff, but a high initial hassle factor.

My gut says that it’s more hassle than it’s worth, and that the potential benefits wouldn’t outweigh the probable drawbacks. A Cayman Islands resort placed last week’s big Create-a-Bird kite order. Would I have still made that sale if we’d had to go through this consolidator?

But caution and inertia might be behind all these rationalizations. Over the years I’ve toyed with ending international sales entirely. Wouldn’t it be better if I could farm them out instead, and possibly even increase them in the process?

See those thoughts landing in well-worn grooves? I think the salesman might have finally given up and gone away while I decided not to decide.

Example Two: A personable young lady rang me up last week to pitch her advertising agency. Ordinarily I get people like her off the phone as soon as I can politely do so…and I’ve been known to skip the politeness part when I’m in a bad mood, which is most of the time. But she happened to reach me while I was despairing over this year’s sales funk, and she persuaded me that Facebook advertising might just break down my limits. I spent several hundred dollars last year trying to tap into Facebook’s bajillion users for Valentines Day and again for Mothers Day. I wrote off Facebook advertising as overpriced and ineffective when those experiments failed. 

But what if I just wasn’t doing it right? What if somebody a lot savvier than me could turn a comparable investment into a big sales increase? This company charges about what I wasted on LY’s experiments. They will succeed or they will not – the results are easily measurable. At worst, I’d waste a few hundred more bucks that I can’t afford and ruin my chances of reining in advertising costs this year. But at least nobody dies. At best, adding a major new advertising campaign might pump my sales up enough to get some momentum going again. I could even pause my Google campaigns for a couple of weeks to cover the cost. Next week was one of the slowest of last year, so I wouldn't even forfeit very much business.

What to do? What to do? As usual, my brain tormented me for days. When my wife joined me on my morning walk one day, she let me blabber on about both of these issues at great length. She asked some good questions as the miles slipped by. I got them answered, and I made a decision: I signed up for Facebook advertising. They have my Amex number. The meter starts running when the campaign goes live next week.

About Stuff (Part Two)

Most of my stock falls somewhere between winners and losers. Some of it sells steadily but slowly, some goes in seasonal fits and starts. I’ll mention a couple of lines that fit this description while trying to be diplomatic about it. I’ve learned the hard way not to badmouth products or go into financial details where their vendors might see it, and that search engine bots are unblinking. 

Switchables probably should have made last week’s success list, but our relationship is complicated. We're getting along just fine right now, but it inevitably goes through prolonged dead patches. Switchables were a fresh, clever idea when I found them at the Boston Gift Show five or six years ago, and I enjoyed a near monopoly on online sales in those early days. Now several competitors are bidding for the same advertising keywords and pricing the best ones out of reach. I put Switchables in the mixed-success category primarily because of the cost of staying in the game. I stock almost 100 designs. Keeping just 2-3 pieces of each on hand takes up a lot of money and space, and new designs compel me to expand the line twice a year. Sure, 80% of the sales come from 20% of the stock, but one needs a large selection as a lure. Even though my biggest competitor carries everything (there must be 200+ cover designs, not to mention sidelines), I have to be selective. And that raises another minor gripe: Their lineup has always included both naturalistic/realistic and cutesy-cartoony designs. Guess which of those I’ve always preferred. Now guess which direction they’ve been leaning lately. One must go with what sells, obviously, and cuteness does sell. I just prefer a more sophisticated and cool image for Curio City.

Keyboard sticker sales are steady enough, but their price is low relative to their advertising and packaging costs, and this vendor never adds new designs. I felt a little better about them after I raised the price by a buck last week. I could probably justify raising them to their own main category; their current subcategory doesn’t fit in with my scheme very well. But the absence of new product makes me hesitate. And yes, I realize I was just whining about too much new product in the previous paragraph.

3D wooden puzzles aren’t widely available outside of museum gift shops and specialty toy stores (although one customer told me that Michael’s used to carry them, and at a discount to boot). They address a niche (children’s products) that I mostly ignore. They’re of high quality and reasonably priced. But they weigh too much. Inbound freight from California clobbers my margin, so I often run out of some models while I wait for a free shipping or extra discount offer to come along. Then there’s customer resistance to my outbound shipping fee. It’s not too bad if somebody buys multiple puzzles at once, or if they live in the Northeast. It’s a lot worse if I’m shipping a single puzzle cross-country. Last week a New Yorker got four puzzles shipped for $10.73, or 22% of the product value – on the high side, but not outrageous. A Californian paid $9.58 to receive a single puzzle, or a painful 56% of retail. That is outrageous, but it costs what it costs. You can imagine how many shoppers abandon their carts when they reach the shipping fee stage. 

Ear buds aren’t really a product line because I get them from multiple vendors, but they’re a semi-successful category. Like keyboard stickers, they might do better in their own top-level category; unlike keyboard stickers, they suffer from excessive turnover. My main supplier typically only imports each design once, and they're just gone when it sells out. Being unable to reorder successful styles is annoying. Having to order their new designs in prepackaged assortments, rather than individually, is also annoying. But at least they’re easy to ship and very lightweight, and I’ve never had a quality complaint.

These characteristics can doom otherwise-good merchandise:

Big and heavy. Customers will pay up to 20% of an order’s value for shipping. Most will abandon their cart when the fee exceeds 20%. Ten to 15 % is ideal. But it costs what it costs, so heavy and bulky items are at a disadvantage.

You have to see it. Some things just don’t display well online (such as anything that features motion or touch), or require too much explanation. Most shoppers won’t read a wall of text for a minor purchase – hell, most of them don’t seem to read descriptions at all. Video can overcome that hurdle if the initial presentation is enticing. But for the most part, if it’s not obvious at a glance, it’s not going to sell.

Bad fit. It took me years of hit or miss to learn what makes a Curio City product, and I’m still refining the definition. The more my product selection converges on my evolving standard, the more focused my customer base becomes. I’ve slowly cleared out most of the oldest products that nobody wants at any price, but sometimes I just guess wrong. Not being a consumer myself is a handicap when it comes to figuring out what people will buy. But every failure hones my intuition for what does and doesn’t fit.

Trendy. A few products rise like rockets and flame out just as quickly. Purse hooks, for example, were all the rage when I found them at the New England Gift Show a few years back. I could barely keep them in stock even at a very healthy markup. A year later they were moving slowly at a markdown. A year after that, I couldn’t even sell them at cost. Anything that uses the word “fashion”, or that’s tied to some other hot product (like iAnything), or that depends on popular culture, has an invisible expiration date.

Too much competition. This one can take three forms – too many retailers, too many producers, and too many alternatives. When shoppers can find something everywhere (too many retailers), they’re unlikely to buy it from me. Prohibitively expensive keywords freeze me out of advertising and deep-pocket competitors have flashier websites than I do. If it’s been featured in mass media and is sold in retail stores, it’s dead to me. Pursehooks didn’t die because too many retailers were offering the same original, hand-made in USA product that I did, but because cheap Chinese knockoffs flooded the market at a quarter of my price (too many producers). Finally, some items (like jewelry) come in such infinite variety that they won’t stand out from the crowd unless it comes from a truly unique concept or offers exceptional value. 

Death by discount. When a product is too successful for too long, discounters eventually move in and ruin the party for everybody (except the consumers). I was selling a case of DayClocks a week in the olden days. Sales fell off when others moved in, but there was enough business to make it a steady seller for everyone. Eventually, though, somebody put a few cases on an eBay store at $5 over cost – with free shipping! Ordinarily bottom-feeders like that disappear when their inventory is gone, but this guy held on long enough to force a price war, and soon the product was no longer worth selling. It’s the same thing Wal-mart and Barnes & Nobel do: operate at a loss long enough to drive everyone else away, and then squeak by on razor-thin markup and huge volume. 

Overpriced. I try to research competing products before I bring in something new, but when there’s no good equivalent I have to go on my gut feeling. Sometimes I’m just wrong, or sometimes the item’s quality doesn’t measure up to its price.  

Fragile and complicated. I’ve had to discontinue two otherwise-successful vendors whose mechanical or electronic toys generated unacceptable complaint rates. Whether their manufacturing standards were too lax or they didn’t stand up well to shipping, I had to refund so many that I couldn’t carry them profitably (and shoddy merchandise harms my image, too).

Sentimental. I carry a few things just because I like them. Their sales don’t justify their existence. I shouldn’t tie up valuable inventory dollars there. But in one way or another they contribute to the Curio City “brand”, and so I keep them on as long as they sell anything at all.

*****************

I’d given up on a resort hotel on Grand Cayman Island after our lengthy slow-motion correspondence went cold last week. But they unexpectedly came through with payment for 150 Create-a-Bird kites this week. That big cash infusion erased January’s large deficit, but it’s not all sunshine and lollipops. I didn’t have the birds in inventory, so I had to spend about 60% of the money to buy them. Another 20% goes to payroll (yay!), and the credit card processor takes a stiff percentage from international sales. There’s not enough cash left after that to buy me any momentum, although I can now afford tax preparation and my corporate registration/annual report. It basically brings me back up to where I expected to be.

Of course there is a dark cloud around every silver lining; those kites mask a serious lull in routine business. Apart from the huge sale, Wednesday brought only $10 out of its targeted $200. Yesterday delivered just $30. In fact, if you take away the lightning strike, this week is running $500 behind LY. The newsletter that went out on Tuesday added 40 new subscribers for 243 sends. Five bounced, three people opted out, and one filed a spam report. The bottom line was 70 opens, 25 clicks, and no sales. Most of my customers aren’t in the typical demographic for Valentines Day. But I can usually cash in on overall higher shopping traffic, and that’s not happening. I must confess that I didn’t remember to update my News page with shipping advice until last night, so some shoppers might have just assumed it's too late to buy online.
 
Google Analytics tells me that traffic fell by nearly 100 visits per day this week. My advertising also fell by $5 per day, so that much is good news. But did clicks decline because overall shopping traffic is down, or is my traffic down because clicks declined?