2015 By the Numbers

I realize that financials aren't exactly riveting reading so this will be my last number-driven post for awhile, even if that leaves some Fridays with no topic. I can't avoid numbers entirely, since the whole point of retail is generating statistics. So with that apology out of the way, let's dive into the end-of-year reckoning.

Excel says that December beat LY by $344, making it the best since 2013 and only the 4th worst (or 7th best) of all time. If I can rack up another $72 by the end of tomorrow it will move up one notch to become the best December since 2011. Excel further believes that 2015 finished $1,200 behind LY, for a 2.39% decline. It was the 4th consecutive year-over-year drop.

QuickBooks matches Excel pretty closely: 

December

Total income: +0.7%
Total COGS: +73.8%
Payroll: +12.8%

Marketing: +120.7%
Net Income (Profit) vs LY: -131.3% (-$4,016)

Actual Profit/Loss: -$956

Year End

Total income: -2.5%
Total COGS: +9.3%
Payroll: -1.1%

Marketing: +20%
Net Income (Profit) vs LY: -282.8% (-$4,993)

Actual Profit/Loss: -$3,227

You'd think that I somehow screwed up the Cost of Goods Sold in a major way, but that's an accounting illusion: My CPA made a mysterious inventory adjustment on last year's tax return that lowered December's COGS by $2,500 and turned 2014's loss into an unexpected profit. It's like he conjured some free merchandise out of thin air. I didn't understand that then, and I sure don't understand it now. But if you remove that weird line item, then year-over-year COGS actually improved slightly.  

The marketing overspend, OTOH, is a real and ongoing crisis. I've been trimming unprofitable keywords with a scalpel when I need to use a meat cleaver. On Monday and Tuesday I spent $94 to land one $7 sale. On Wednesday I shut down everything except Product Listing Ads, which simultaneously shrank my spend to $25 per day and tanked sales completely. If I don't buy ads I won't have any sales; if I don't have any sales, I can't afford to buy ads. I'm in stasis for the weekend but will need to grapple with this again come Monday. 

That $1,764 year-over-year advertising increase accounts for more than half of this year's actual loss, and nearly all of it came in December (which would have been profitable otherwise). Let's put it this way: More than doubling my ad spend increased revenue by just 0.7%. The $10,587 that I spent last year exceeded my $9,827 salary (which was itself $100 less than I made LY). Compare the 20% of net sales that I take in salary to the 21.3% that I spent on advertising. $8,809 of that ad money (17.7% of sales) went to Google alone. If you add the few hundred bucks that won't appear until my next Amex statement, Google came very close to out-earning me. The whole point of owning a business is supposed to be "working for oneself." If I'm going to work for Google, I ought to just get a job with them and make the big bucks. (Hah! Ten years of solitary self-employment have ruined me for the workforce.) 

After diving deep into marketing numbers, all I come up with is needing to either spend less on advertising without reducing sales or spend the same amount while increasing them. Well, duh. Maybe AdWords has just become too expensive to continue. The price of keywords creeps inexorably up as more competitors come online and those with the deepest pockets always win the bidding. Bing is no better. Is there some form of online advertising that could replace pay-per-click entirely? Two trials have shown Facebook advertising to be too expensive and ineffective. That creepy "remarketing" trick where ads follow people around the Web would surely put more money in Google's pocket; I don't know if it would line mine, too, but maybe I need to puzzle it out, even though it's stalker-ish.

There's always trying to draw more organic (unpaid) traffic, raising the unsavory prospect of ess-ee-oh. Just writing those letters here would be like throwing chum to sharks. Those companies are all a crapshoot and I obviously don't have money to gamble. Plus the technical limitations of my PHP shopping cart often prevent me from implementing even free advice.

Converting more of my existing visitors might be more feasible. Many of my product pages (see Panther Vision caps) give shoppers as much information as possible. Chatty pages work when people browse them on proper computers, but those who surf in on smartphones simply won't read more than a sentence or two. As the percentage of mobile shoppers grows, wordiness becomes a liability. "Keyword-stuffing" used to be an optimization thing, too, although I've read that it's since fallen out of favor. Stripping some of my most informative pages down to the barest bullet points might improve conversions. 
 
What else I can do to either boost the top line or trim the bottom line? 

Raising prices is nearly impossible in our low-inflation economy. Online shoppers can effortlessly compare prices for the commodities that I sell, and they always gravitate to the lowest. "Free shipping" suckers in a lot of people, but the 15-20% that I'd have to raise prices to pay for it would drive away many others. Many of my Switchables covers are priced a buck below MSRP, so I've begun raising the prices of the most popular designs. That might deliver $100 or so over the course of a year...assuming that I don't lose regular customers who appreciate my "underpricing."

How about better markups? Most Jackite dropship orders come in way below my 50% benchmark and push COGS up. I recently brought back the 5-LED Clip-On Cap Lights that I had discontinued for multiple reasons despite having sold 1,600 of them over the years at markups of 55-60%. I raised the price on this new batch by a buck; we'll see if that's sustainable. I don't want to carry a lot of cheap products from China, but there are some very good margins there if I can find a few winners that don't have quality problems.      

The only two big variable expenses are advertising and payroll. I was mulling over a pay cut until I ran those advertising numbers. There's no way I'm going to let Google earn more than I do, and I'm already limping by on less than $10,000 per year anyway. Curio City needs to pay me more, not less, and if paying me kills it...well, maybe it has no reason to live. 


Remember that losses are desirable at tax time. S Corporations pass their profit or loss through to stockholders, so that's going to be a $3,300 deduction on our personal return, assuming it survives the accountant.

Ignoring COGS and marketing, all of the other numbers are more or less in line.
I'll look at the prospects for 2016 next week.

Christmas Post-Mortem

This week (unofficially Week 8) only needed to average $132 per day. So far, it's at $154 thanks to a strong Sunday. December only needs another $201 to equal LY as far as Excel is concerned. 

Is it too early for the annual After Action Report? Nah, let's do this while it's fresh. These are mostly notes to my future self, should he deign to look back next fall.

·         I filled 437 orders in November and December with two known packing errors. There were 1,174 orders all year (with enough time left to hit a nice round 1,200). 37% of my sales came in November and December. September was 2015's low point with 53 orders. I've always thought as September as the month that fall begins, but for the past couple of years it's been the month that summer dies.

·         Panther beanies reached the point where lighted caps were five or six years ago, when they crossed over from novelty to mainstream but before competitors ate my lunch. Panther starts to run out of beanies by early November, so I need to stock up as heavily as possible as soon as the Oct. 13 credit card statement period starts. I did that this year, but not aggressively enough. I sold at least 100 black beanies alone this year.

·         The $1,833 that I invested in Metal Earth ultimately returned $2,167 before I turned off the ads and stopped counting. Disregarding the stock that I already owned, the theoretical perfect score at their average markup would have been $2,700...so that's a winner. Vehicles (especially military, and especially aircraft) outsell landmarks by at least 20:1. Next year, I should order new models first because those start disappearing by Nov. 1; then reorder my bestsellers; and then do a general fill-in if there's any money left. I should limit my initial spend to $1,500, tops, and try to squeeze in a $500 reorder in early December.  

Metal Earth is going to get its own post in the near future. I want to make it a year-round line, but regardless of what I do in terms of advertising and presentation, they don't sell until the 2nd week of November and they die right after Christmas. When other products aren't competing for advertising dollars, Metal Earth can generate 60-70 clicks a day at a cost of $30+, often without any conversions. The interest is obviously there, but I can't afford to court it unless I'm amply stocked.

·         Speaking of marketing: as few as three people ever see my Facebook posts about products and coupons. Newsletters reach 100 or so people and can bring in as many as two or three sales, but no more than that; they're only worth the time that I spend writing them because my time is worth so little. Bing ads draw a lot of clicks but don't convert often enough to justify their price; Only Google AdWords is cost-effective, and it gets more expensive every year. From Nov. 1  to Dec. 17 I spent $732 on Bing ads that landed 41 sales, or $17.85 per conversion. During the same period Google pocketed $2,550 to deliver 238 sales, or $10.72 per conversion. If you remove the "Google Shopping" part of the account and only look at my Search ads, the cost rises to $17.56...so Google's advantage over Bing owes entirely to their automated Shopping feature. Unsurprisingly, Bing is rolling out a clone next year.   

·         Ordering early and carrying a credit card balance seemed to pay off in robust November sales. Did the "extra" business justify $200 in interest charges? Hard to say, but I did learn this much: I mustn't carry more than $5,000 of debt into December, because operating expenses and payroll (yay me!) make it hard to pay off any more than that. I brought a $7,400 debt into the month this year and it took everything I had to slay it, leaving me limping into January.

·         "Gifty" stuff adds interest to my product mix but it only ever brings in minor sales, and this year it barely even managed to do that, apart from ornaments and similar Christmas tie-ins. Kitchen gadgets are dead, dead, dead. I ought to cut a couple of vendors entirely next year. I also need to refrain from restocking everything that sells out -- novelties should be one-offs, not as core stock. Take the Pizza Boss, for example. I sold 24 of them over the past two or three years so six per year looks like a safe bet. This year I sold none. Why did it suddenly die? Shoppers are fickle. Odds are that I'll wind up selling them at cost. Obsessive Chef had a very similar trajectory; after dribbling 15 of them out over the past few Christmases, the five that I'm stuck with now are likely to be with me for a long, long time.

·         I have done an excellent job of reducing my average package size. In the early years a pile of 25 orders was too big for my Miata; this year, I could fit 25 orders into my carrying tote. Bird kites are the glaring exception, and those scarcely sell during Christmas. I'd like to see people fill bigger boxes with assorted piles of random stuff, but this year very few looked at anything beyond my bestselling lines. I blame smartphones for people's unwillingness to browse.

·         I need some more expensive products. Some people want to spend big on gifts and most of my stuff tops out at $20. Also, small packages are less likely to be stolen but more likely to get lost in transit.

·         I've been wasting money buying insurance from USPS. Most actual losses are from people who claim they didn't get a package that was confirmed delivered, but insurance only covers packages that are lost before delivery or that arrive damaged. Although my stated policy emphatically disavows responsibility for theft and misdelivery, it costs me customers, and sometimes money when they threaten me with a chargeback. Signature confirmation should eliminate those losses, and it's cheaper than insurance, too. So far nobody has complained about the hassle. New policy! 

In spite of a good November and an acceptable December, the annual numbers are going to look kind of grim next week. I am beginning to wonder if my cost structure makes profit impossible. But let's leave that thought for next week's post. 

Week 7: Another Christmas In the Bag

Week 6 finally surpassed Week 5 by a wee bit and finished just a couple of percent behind LY, bringing the month-to-date deficit to about $500. Disappointing, but not deadly.

Week 7 needed to average $283 per day, or a little over half of last week's sales. The odds did not look good. It looked like Christmas died on 12/10, two days earlier than LY. Then Sunday kicked this week off with 21 orders worth over $1,000. The daily average right now stands at $406 and the week is ahead of LY by $450 (almost erasing the deficit in the previous paragraph) with a day and a half left to go. That means I will definitely overcome my first and biggest hurdle, paying off my Mastercard.

Advertising is breaking the bank now, so I've been hacking away at it as much as I dare. I keep paring the least profitable keywords on Google and nudging down my budget, but the daily spend stubbornly persists. Turning off my Panther Vision cap ads for the first time ever felt like a radical move, but with my stock so depleted it also felt like the right move. I was down to advertising only beanies, Switchables, and Metal Earth on Bing. Then a run on Switchables fixtures cleaned me out last night, so I shut down those ads, too, until I was able to reorder this morning.
  
As much as I hate to do anything that will cut revenue, I can't keep buying $100 worth of clicks per day as sales fall into the $300 range -- especially as my stock continues to deplete. Paying off all of the advertising on my bloated Amex bill is my next big hurdle; Google is the only one getting rich here...but of course we all know that that's how the game is rigged.  
    
The $1,833 that I invested in Metal Earth has now returned $1,951. Profit! Betcha didn't see that coming, did you? I've spent more than $400 advertising those in the past 30 days. Converting a sale costs an average of $11.25 for a product that sells for as little as $6. That's fine when people buy four or five models at a time, but it becomes a losing proposition when the orders dwindle to one or two pieces. Postage overcharges probably cover most of the ad expense; without getting into the nitty gritty of it, Sunshop product weights have to be at least 0.25 pound, and Sunshop doesn't know about flat rate boxes. Shipping charges for single-piece orders are accurate, but they start to diverge as people buy multiple pieces. Those unintentional overcharges can reach as much as five bucks on >4-piece orders going to the West Coast. On one hand, overcharging for postage is slimy and I don't like doing it; OTOH, I obviously need the revenue and fixing the rate lookups would require some custom programming. 

As for Week 8...well, there is no Week 8. I consider next week to be post-Christmas as sales drift back down to the high side of normal, and then to the low side of normal the week after that. I'd have to beat those targets by rather a lot, percentage-wise, to save this month from edging out last December as the "Worst December since 2007." It could happen. It probably won't.
 
So now the focus is on paying off Amex and cutting the ad spend. Then comes restocking. Then paying taxes. If I can get past those three barriers I'll be around for another year. With powercaps and Switchables both coming next week, I'll at least have something to sell after Christmas.