Another Day, Another Quarter

Q3 was just about the worst quarter I can remember in terms of year-over-year sales. Things never came back completely after my annual vacation shutdown. Perhaps they never will. Yeah, September was another crappy month.

September:

Total income: -30.4%
Total COGS: -37.7%
Payroll: -42.8%

Marketing: -35%
Net Income (Profit): +72.1%

Year to Date:

Total income: -5.7%
Total COGS: -6.9%
Payroll: -1.8%

Marketing: +3.2%
Net Income (Profit): -32,636.1%

The spin: Expenses fell a little more than sales did. The business is solvent despite tight cash flow; the only real loser is me, as my paychecks don’t even cover my weekly beer and cigar expenses anymore.

That ridiculous YTD profit number “only” represents a $1,300 difference, so it isn’t quite as bad as it looks. There’s no glossing over the fact that this was my worst September since 2008, though, and that the prospects of closing the bottom line gap are almost zero. It takes about 10 top-line dollars to produce one bottom-line dollar.

I don’t rightly know what my problem is. My meat-and-potatoes product, lighted caps, are showing some signs of life after a long dormancy. Just yesterday I decided to offer bargain-basement 2-LED caps as a special order item, in dozens only. (I won’t sell them individually because I don’t have enough room in the cellar to store a second cap line and because they would cannibalize sales of my more lucrative 4-LED caps). I usually get one or two big golf ball orders for tournaments each summer; this year, none. Bird kites  were really the only thing keeping me alive, and now kite season is over.

Oh well; Q4 is here at last and Christmas shopping has already begun. Last Christmas was no barn burner so the targets aren’t terribly intimidating. OTOH, I don’t have anything new in the pipeline. I stumbled across one new product line that would piggyback on the advertising that I’m already doing for 3D puzzles, but I doubt that it will sell dramatically and I don’t have the money to bring it in yet anyway. Payroll taxes will suck October dry of cash, and by November it’s too late to gear up for Christmas. I think my only viable Christmas strategy is to hunker down and control expenses while gift buyers liberate some of the inventory dollars that are frozen in old junk.

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I sat through the worst webinar ever this week. Sponsored by Endicia (the postage reseller), it was supposed to unveil strategies for coping in the era of free shipping. Most online retailers now offer that perk and the overwhelming majority of shoppers expect it. Needless to say, I don’t.

The first half was a plug for using USPS (which I already do) and a commercial for Endicia. The second half was a commercial for some jazzed-up shopping cart software that supposedly reduces costs by improving efficiency through integration, which is irrelevant when your labor costs nothing. 

The five minutes that they spent on actual strategies mentioned discounts for high-volume shippers (last time I checked, that meant 200,000 parcels per year, or 2,000 times more than I ship). My shipping costs run around 15% of gross sales. High-volume shippers can get a 13% discount. Mystery solved…but fat lot of good it does me. The only relevant ideas they brought up were a free shipping threshold (e.g., orders over $100 ship free), or possibly flat rate shipping ($9.99 per order).

The threshold strategy would convince some shoppers to place larger orders, but I’d have to cover the most expensive parcels out of pocket. If only those customers who are already close to the threshold add more products then the incremental sales would not cover the cost. Plus, it’s worthless if shoppers don’t know about it and Sunshop doesn’t give me any way to add banners or popups. The flat-rate strategy would completely kill the small orders that constitute at least half of my business unless I set the rate considerably lower than my actual average cost (and it’s not free shipping anyway). 

Put It In a Box

Payroll taxes are due again next month. I used to be able to play the float – I’d just keep the tax money in checking and worry about it a few weeks before the bills came due. But cash flow doesn't permit that anymore. Starting in Q4, I’m going to transfer the appropriate sum into my business savings account (interest rate: 0.5%!) every two weeks as a payroll tax lockbox. It cuts my liquidity but saves me the quarterly scramble. Blindingly obvious? Sure. Al Gore was supposedly going to do that with Social Security’s surplus receipts. But my lockbox won’t involve sleight of hand and I don’t need the Supreme Court to appoint me president.

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Well, this is unexpected. I’ve had four international sales since I turned my Product Specific bidding over to Google. I’m not sure yet whether I like that or not. On one hand, I’m in no position to turn my nose up at any business. OTOH, foreign shipments require more work for less markup (thanks to higher payment processing costs), and the risks of fraud and loss or damage are higher. If this turns into a trend I'll have to see if Google lets me restrict my advertising to North America.

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As reluctant as I was to pay for another Sunshop 4.x upgrade with version 5 coming early next year, this latest patch finally fixed the PayPal checkout loop that has afflicted my site for at least three years now. I’m quite sure that I lost sales when some would-be customers got frustrated and left. In time, this upgrade will pay for itself.

Microsoft Enters Witness Protection Program

Three weeks ago I put Microsoft adCenter on probation due to its high cost per conversion ($115 to acquire just seven sales for $16.46 apiece last month). The shame apparently drove Microsoft into the Witness Protection Program. This week they changed their name to Bing Ads, put a nice photo on their front page, and made it difficult to log in; the site still doesn’t work with Firefox, but I eventually got in with IE8 after numerous tries. What I saw was not pretty.

Here’s a snapshot of advertising results for the past 30 days, with a couple of caveats. First, not every click or conversion gets captured; users (like me) who don’t accept third-party tracking cookies are inscrutable to Analytics. Second, not all conversions are equal; some customers buy a single low-value item while others buy multiple pieces of higher price. Third, a click-through rate greater than 1% is satisfactory. A conversion rate of 2% is ideal.

Definitions:

·         Click-through rate = how many times somebody clicked for each time an ad was shown (impressions);

·         Average CPC = cost per click;

·         Conversion rate = how many of those clicks ended with a sale;

·         Cost per conversion = how much I spent to produce each sale.

From best to worst:

Product Listing ads (new)

·         Click-through rate: 3.25%

·         Average CPC: $0.16

·         Conversion rate: 2.99%

·         Cost per conversion: $5.24

Product category ads

·         Click-through rate: 0.94%

·         Average CPC: $0.18

·         Conversion rate: 1.47%

·         Cost per conversion: $12.14

Product-specific ads:

·         Click-through rate: 0.85%

·         Average CPC $0.17

·         Conversion rate: 0.68%

·         Cost per conversion: $25.54

Generic ads

·         Click-through rate: 0.61%

·         Average CPC: $0.17

·         Conversion rate: 0

·         Cost per conversion: n/a

Bing Ads (formerly Microsoft adCenter, formerly lots of other names):

·         Click-through rate: 0.45%

·         Average CPC $0.19

·         Conversion rate: 0.44%

·         Cost per conversion: $43.94

Ear buds were the biggest loser by far: $44.21 spent for zero sales of a $12 product. I have suspended that ad group. I might turn them back on when we’re closer to Christmas, since this is a popular small gift item.

Golf balls were a close second: $38.77 spent for no sales. August is ordinarily one of their strongest months.

Even though I’m only paying 10 cents a click to advertise keyboard stickers, it cost $21.63 to sell one $8.99 set. Bzzt! Suspended.

Lighted caps ran me $20.78 per conversion, but caps sell for $20 apiece and customers often buy more than one. The one keyword phrase that dragged the average way down has been paused. 

Last month’s changes brought the cost of Bing Ads down somewhat, but conversions fell from seven to two. I think Microsoft flunked its probation.

All of this pruning and tuning has an obvious downside: Business is already in the crapper, and shutting down ads risks flushing it away. I don’t know if that’s the way out of my cash flow death spiral or not, but I have to do something, and ad costs are one of the few major expenses that I can control.

To offset all of this scaling back, I increased my default Product Listing bid and I’m letting Google manage the Product-Specific bidding for a month. I figure that their algorithm can’t do much worse than I am doing, even though I know that its function is to maximize Google’s revenue. 

I’ll reevaluate all of these numbers in 30 days. If my Product-Specific results improve, I’ll automate my other two campaigns. If Bing Ads doesn’t improve, I’m going to kill it.

Curio City Endorses...

The conventions are over and, even though the debates are still ahead of us, I've seen enough to step out of my usual rut and venture a political post. Short of a dramatic development like the outbreak of war with Iran, nothing's going to change the stark choice ahead of us. 

State-based voter registration makes it harder than you’d think to find out how many US citizens are registered to vote. 150 million is a good guess. About 60% of them typically vote in a presidential election year, for 90 million likely voters. Pundits say that 5% of likely voters, or 4.5 million, are still undecided. Ten swing states, more or less, will decide the election, so let’s say that 20% of those undecideds actually count; 900,000 people out of a population of 315 million will choose the president.

This post is for them.

Let’s get two things straight: First, it’s not the economy, stupid. Historically, it takes six to eight years for the economy to de-leverage and restructure after a financial collapse. Prosperity will gradually return between 2014 and 2016 regardless of who’s in the White House, and neither party’s economic plans will affect that very much.

Second, neither party can reduce the budget deficit, although both of them claim that they will. It’s simply not possible to cut spending or raise taxes in any major way without sinking the fragile recovery, and both parties know that.

I’ll approach my endorsements with a simple version followed by a really simple version at the end. Skip down to the tl;dr (that’s “too long; didn’t read”) version if you aren’t interested in political pontificating.

The simple version 

As already explained, the economy and the federal budget are sideshows to deflect attention from two momentous struggles that are taking place: The class war and the culture war. These conflicts have been intensifying for decades and the middle class is losing. The presidential contest is about class warfare while control over Congress determines the culture war. 

If you live in a swing state, your own social class defines your best choice for president. If you are already in the top 5% or you’re trying to get there, or if you believe that prosperity trickles down from the top and that what’s good for the rich is good for America, then Mitt Romney is clearly your man. He was born into money and has devoted his life to increasing it, and his deluge of billionaire campaign money shows that he is the candidate of the oligarchs. If you’re a five percenter or a wannabe, go ahead: Vote for Romney and unleash the billionaires! In an every-man-for-himself society, you’ll do just fine.

Obama is rich, too, and as beholden to campaign money as Romney. But Obama wasn’t born with a silver spoon and he knows that most of us struggle to get by. He works to restrain the worst gluttony of the ruling class and steer some scraps to the rest of us. If you’re among the 95% who will never be wealthy and you aren’t driven by money, or if you believe that America’s strength comes from a strong middle class, or if you simply believe that government should not belong to the highest bidder, then Barack Obama is your man.

If you do NOT live in a swing state (CO, FL, IA, NH, NV, OH, VA, WI), then you have no reason to back a major-party tool of the ruling class. You have the luxury of voting your conscience. If you genuinely like either Obama or Romney, that’s cool…go ahead and support them. But if you’re planning to vote for the lesser of two evils, vote for a none-of-the-above alternative instead and be heard. A third-party vote tells the plutocrats that you’re on to them. As somebody said, when you vote for the lesser evil you're still voting for more evil.

For President, Curio City endorses Jill Stein of the Green/Rainbow Party in the expectation that she will end the current Gilded Age with a new Progressive era. Stein is the choice for liberals who feel that Obama is a weak, centrist sell-out. For disaffected conservatives, the Libertarian Party will work for the anarchic social Darwinism that you admire. Whether you’re on the left or on the right, don’t throw your vote away on a corporate candidate as you’re expected to do. Neither Jill Stein nor Gary Johnson are indebted to huge donors, as both Romney and Obama are.

The presidential contest gets most of the attention, but the makeup of Congress matters more in the culture war. We don’t have the luxury of voting third party in congressional races because there are no swing states and safe states; every seat matters. 

If you’re a social Darwinist who thinks that science is a liberal conspiracy and the government is your enemy, or if you believe any of that Muslim/socialist tinfoil hat claptrap that the birthers and tea partiers like to repeat, then the Republicans are clearly for you. 

If you’re not crazy, you can still vote Republican if you’re fortunate enough to have a congressional candidate would resist that party’s platform and lean toward the center (like Scott Brown in Massachusetts). There’s a good tactical argument for supporting moderates who might keep the extremists in check and for making sure that your state has a voice in each party.

Choose a Democrat if the Republican in your district is a tea party-backed knuckle-dragging mouth breather, or if the prospect of a Republican-controlled Senate keeps you awake at night. Yes, the Democrats have moved steadily to the right and there are very few real liberals left, but they’re still usually better than the alternative.

For Congress in Massachusetts, Curio City endorses Elizabeth Warren as a bare-knuckled culture warrior who deserves to reclaim Ted Kennedy’s seat for the liberals. Sorry, Scott Brown. I understand the value in having a voice in the “enemy party” and yours is one of the more reasonable. Ultimately, though, your rhetoric is more independent than your voting record and preventing Republican control of the Senate is more important than resisting the right-wing takeover of your party. Even though you’re one of the “good” Republicans, your party’s platform is too radical to risk. 

Finally, if all of this makes your head hurt, please don’t vote at all. Leave it to those who are paying attention.

The tl;dr version

For president: Obama homebrews beer in the White House. Romney doesn’t drink. The choice is clearly Obama if you live in one of the few contested states where your vote matters. The rest of us should vote third party to reject the status quo. Vote for Jill Stein if you’ve had enough of the failed oligarchy behind both major parties, or vote for Gary Johnson if you want to dismantle government so that only the strong survive.

For Congress: Republicans are evil and Democrats are incompetent. Did you really need me to remind you? Since the Republicans already control the House and have a real shot at taking both the Senate and the White House, we need Democrats as a counterweight. There is no good reason to vote third party in congressional races because every state is a potential swing state.

And if you think this is all too complicated or you don't really care, don't vote.