Risk and Reward

Somebody asked what kind of price I could give him on 4,500 mini-briefcase business card holders. I get inquiries about bulk orders fairly regularly; 90% of them don’t pan out. But I’ve never had one this large. My first reaction was “Scam!” My second was “our vendor will never have that many.” 

Lo and behold, the wholesaler had the stock. However, instead of giving me a genuine price break, they proposed signing me up for their “platinum” program ($175/year) to get a unit price that’s just 21 cents less than I usually pay. Now, $0.21 * 4,500 = $945, so it’s a $770 discount after their premium fee. While that’s better than nothing, the $0.17 unit price break gave me squat to pass along to the customer. I dinged my own margin to offer $0.49 below my lowest published bulk price – pretty weak for a customer who probably expected wholesale pricing. 

I was relieved that he didn’t bite. Don’t get me wrong: I like big sales, and the dearth thereof is largely to blame for this year’s poor numbers. But this one was way off the charts. Buying the merchandise would have used up all of the credit on the Mastercard that I use for inventory and nearly all of the Amex credit line that I use for operating expenses, leaving nothing to finance Christmas. Of course, I could’ve paid down those cards immediately upon receiving the customer’s $38,000 deposit. But if anything had gone wrong (“Scam!”) it would have killed the company. 

An extra $38,000 would be like adding five bonus months to the year, including an extra Christmas. A real entrepreneur probably would have pursued this opportunity for all it was worth despite the risk. I am not much of an entrepreneur. I would never bet the company on one dice roll.     

Wrestling with the Ad Beast

It’s time to reevaluate last month’s decision to automate my keyword bidding. This post shows my advertising snapshot in mid September. I made some changes to these two sections:

Product-specific ads (Aug-Sept):

·         Click-through rate: 0.85%

·         Average CPC $0.17

·         Conversion rate: 0.68%

·         Cost per conversion: $25.54

After turning Product-specific bidding over to Google’s algorithm, the numbers for the past 30 days changed to this:

Product-specific ads (Sept-Oct):

·         Click-through rate: 0.66%

·         Average CPC $0.21

·         Conversion rate: 1.43%

·         Cost per conversion: $14.86

The top-line numbers actually got worse (the higher cost per click is especially worrisome), but conversions doubled and the cost per conversion fell by almost half. Despite the ambiguous result, I’m going to continue to let Google manage this. While I was fiddling around, I also suspended my top 6 keywords for 3D puzzles because their lifetime cost per conversion had crept as high as $35. I had already stopped advertising keyboard stickers completely for the same reason. Stopping that hemorrhaging put a measurable ding in my traffic without saving me any money because Google just redeployed the budget into other keywords that were smacking into their ceiling. 

I’m doubling down and turning Product Category ads over to them, too. Here’s the current reference point for that group:

Product category ads (Sept-Oct):

·         Click-through rate: 1.61%

·         Average CPC $0.18

·         Conversion rate: 1.96%

·         Cost per conversion: $9.00

I’ll check that for improvement in mid November.

All I did in the Bing department was slay the least profitable keywords, so I didn’t expect much month-to-month difference. Here’s the reference numbers:

Bing Ads (Aug-Sept):

·         Click-through rate: 0.45%

·         Average CPC $0.19

·         Conversion rate: 0.44%

·         Cost per conversion: $43.94

And here’s the latest:

Bing Ads (Sept-Oct):

·         Click-through rate: 0.64%

·         Average CPC $0.21

·         Conversion rate: 1.28%

·         Cost per conversion: $16.53

The numbers are a lot better than the previous batch…but that’s still a long way from saying they’re good. Microsoft just barely made its probation. This time, I suspended all of my worst-performing categories – jewelry ads, 3D puzzles, and earbuds. That ought to cut my monthly Bing spend in half.

Focusing on cutting costs rather than growing business is self-defeating, as the IMF has learned from European governments’ austerity measures. But throwing good money after bad doesn’t grow business. I’ll revisit all of this in mid November and decide whether to retake manual control.

Christmas revenues might not surge enough in November and December to cover the wave of big Christmas orders that I’m placing right now. Being too cautious would become a self-fulfilling prophecy, since I can’t sell what I don’t have, so I’m torn between fear of overspending and feeling like I need stuff right now. After dropping a cool $1,900 this week alone, I need to hold back a little.

Last week I put out my first newsletter since July – yeah, I paid $54 over three months for no reason other than to keep my mailing list active. The results? 309 sent; 5 bounced; 68 opens; 17 clicks; 1 “social share”; no sales. I did get three new Facebook likes that were probably newsletter-driven. Was that worth $54? I seriously doubt it. But my next newsletter will have better stuff, so we'll see how that goes.

Superstition

I’m not the superstitious sort. Far from it; I’m slavishly logical, scientific, practical, and skeptical. I have no respect for magical thinking. I don’t believe in gods or demons or spirits. And yet, the irrational still creeps into my mind somehow. It must just be the way humans are wired.

These are my Curio City superstitions:

• It’s going to be a crappy day if I don’t have at least one sale waiting for me when I log on in the morning. Conversely, it’s going to be a good day if I wake up to two or more orders.
• I won’t get another sale until I enter the one that just came in into both Excel and Quickbooks.
• All hell will break loose if I close Outlook before my batch settles at midnight.
• “A watched pot never boils” -- Nobody will buy anything while I’m watching them in Google’s realtime Analytics.
• Making a blog post every Friday -- even one as lame as this – somehow keeps me tethered to the world, even though as few as 12 Facebook viewers ever see these autoposts.
• Telephone calls are always bad news. I guess that’s more of a truism than a superstition, since ¾ of my incoming calls really are either complaints or sales pitches. (I'm too polite. Telemarketers need to hear that "no" means "NO, never, go away" and not "try again in a few months").

Now that my Friday post has warded off the evil spirits for another week, I can get a little work done.

The Taxman Cometh

Every quarter I gripe about payroll taxes sucking the lifeblood (a.k.a. cash) out of my business. How high can those taxes be on the pittance that I pay myself? Many readers earn more in a week than I make in a quarter. In fact, your paycheck very likely exceeded Curio City’s gross sales last quarter.

“Payroll taxes” include Massachusetts DUA (unemployment), Mass. Workforce Training, Medicare (company), Social Security (company), and FUTA (federal unemployment). That money comes out of Kraken Enterprises’s pocket. Then we have Medicare (employee), Social Security (employee), Federal Withholding, and State Withholding, which come out of my personal pocket. The distinction is only technical since Kraken’s pocket and my pocket are ultimately one and the same.  

My business and personal “payroll taxes” together were a hefty 32% of payroll for Q3. The payments that I just made siphoned off 14% of this month's planned sales. Yes, I’ll probably recoup some of the federal and state withholding at the end of the year. The tax tables say that I wouldn’t need to withhold anything at all if my Curio City paychecks were our total household income. Fortunately, they are not. I suppose that a rational person would put the anticipated income tax money into a savings escrow rather than sending it to the government, but the 0.5% interest that it would earn hardly outweighs the distress of writing a big check at the end of the year.

I’m not bitching that my taxes are too high, btw. Our current historically low tax rates already can’t support the government services that we demand -- payroll taxes go to Medicare, Social Security, and unemployment insurance, which most of us are happy to have. But you can see why I decided to start the “lockbox” routine this month.