Turn Cash Flow Problems into Profit Opportunities with Charles Leikauf

Crystal Vilkaitis: Okay. If you know me, you know that I love money. I love talking about numbers. It’s so important for you to know your numbers. And that’s why I’m so excited to welcome today’s guest, Charles Alikoff with Ecom Profit Group, who is talking about profit and ways to make more money, ways to budget, ways to help if you’re in a challenging cashflow situation. Things that you should be forecasting and monitoring. He’s got a couple of great stories in today’s episode. One’s hilarious, but really good. You’re going to learn so much out of these two stories that he shares today.

Things that you can take immediately and start trying and testing find more profit in your store. I mean, that’s exactly what we want to be doing, right? Is we want to grow our business. And so Charles is such a good resource for that. I’m really excited for this conversation for you to listen, for you to learn, for you to laugh. You’ll see what I mean when we get to this part of the show. So let’s dive in to this episode.

Welcome to Rooted in Retail. I’m your host, Crystal Vilkaitis. Here, we have engaging and informative conversations with successful indie retailers and industry experts. Together, we learn, connect, and grow. Alright, here’s today’s episode.

Charles, welcome to Rooted in Retail. I’m thrilled you’re here.

Charles Leikauf: Hey, thanks for having me. I appreciate it.

Crystal Vilkaitis: Yes. So I just want to share how we met. Cause we met last month, we’re filming this in June. We met at a conference in Atlanta and it was a random like, you know, cocktails at the bar and it’s like, Oh, you do retail. You’re into retail, me too.

We’re kind of like the only retail people here. And it was really great that we connected because I’m really excited for what you do, what you’re going to share today. And I know our listeners are gonna get a lot of value outta this. So before we dive in, will you take a couple minutes and share more about you and your business?

Charles Leikauf: Sure. Well, it was awesome to meet you. You never know when you go to these events. Who’s going to be there? I think Natalie grabbed me and was like, you got to meet Crystal. Come over here now. And she grabbed me by the arm. So she was really, really enthusiastic. I also think it was maybe one in the morning.

Crystal Vilkaitis: Yeah, it was a little late and I just gotta give a shout out. Natalie is with Dr. Doug’s, who, if you’re in our world, you know Dr. Doug’s ’cause our sponsor of our event and I’m glad she grabbed me ’cause this was a good connection.

How Charles helps e-commerce owners figure out how to make more money with what they already have

Charles Leikauf: She’s fantastic. So a little bit about me, I am a corporate finance nerd turned entrepreneur. And so a couple years ago I was working for a really large company, a hundred billion a year in revenue, doing finance analytics. Basically my whole job was to make manufacturing facilities profitable or close them.

So kind of not the nicest subject when people hear that, but eventually became a CFO of a large ecommerce company. And I started doing some financial consulting on the side and I realized that I was enjoying the financial consulting work more than my W2 job. Like we all get to own a business cause we want to travel or grow a family or have some time or freedom or flexibility or whatever.

And I realized not only was I earning the same, but I was having a lot more fun serving the small clients and helping them grow their business. Then some large business of cool, you save them 300 million this year. But like, did you change anyone individual’s life? Like you made a bunch of shareholders and it didn’t for comfort country rich.

So be able to make an impact is how I got into that. I have been a fractional CFO since 2017. What does that mean? Usually people who are really good at doing the thing, or selling the thing are not super good at the numbers of said thing. So when it comes to cashflow or budgets or profitability, or bookkeeping or accounting.

That’s what me and my company Ecom Profit Group does. So if you want to figure out how to make more money with what you already have, you call us. Sure.

Crystal Vilkaitis: And I love that it’s fractional. You’re seeing that a lot more often now with fractional CMO, COO, CFO, because you don’t necessarily as small businesses, you don’t necessarily need a full time CFO. So it’s just such a great business model. And you specialize in these e commerce businesses who are, you know, a lot of our retailers and we’ve talked about this prepping for this interview. I would say majority have an e commerce business. Some are selling more than others. Some it’s kind of a back burner. Some just haven’t figured out the numbers and making it profitable, which after today, I think they’ll get some advice and ideas there. And some are really killing it. So this is going to be great for this group.

Charles’ tips on how to manage your cashflow when funds are tight

Crystal Vilkaitis: And I just want to start by talking about cashflow. So like I said, most of our listeners, they’re small businesses, and at some point they might face some cashflow challenges. I’m sure some listeners have been there. Maybe you’re there right now, especially after ordering inventory and you need to sell that inventory to generate your revenue. So can you share some tips on managing cashflow effectively in a cash strapped situation?

Charles Leikauf: So this is what I’m best at the world at because when I worked for the really large company and you are in a group that’s losing hundreds of millions of dollars, you have to pull every single lit lever that you possibly can. Now when you’re a large company, you got lots of levers. When you’re a small company, your number of levers kind of goes down.

And so, if you’re smaller, there’s a couple things you really need to do. I’ll give you an instance. So one of my clients we signed on, he just wrote his first $100,000 inventory check. He’s kind of nervous. Am I going to sell it? What is it? When do I sell out of it? It’s the biggest check he’s ever written in his life at this time.

And there’s a couple of things you can do to manage your cashflow better. And we’re going to go over them here. One is figure out how you can pay for your inventory as late as possible. And so I don’t know what kind of terms a lot of your clients have, but usually it’s, “Hey, I want to buy a hundred widgets and I have to pay for them a certain amount of time.”

Sometimes it’s today and you get them in two months. Sometimes, you know, you place the order today, you pay a percentage of it now, percentage of later. And the idea is you really want to stretch out your payables, which it means, if you can have IOUs to your inventory suppliers, you want that. We had a guy who would, on day zero, place an order for inventory, and on day 60, he would get it.

And he would have to pay for the whole order on day zero. So, if you think about it, he’s out two months of cash of inventory before he even gets to see it, before he even gets to sell it, much less waiting the one to three days for the merchant processor to get the money. Meanwhile, he’s got rent, he’s got employees, he’s got you know, his own salary, right?

Electric, whatever. And so we were saying, all right, you’re going to place that same order, but see if they’ll let you do half now and half on delivery. And eventually over some time, let’s do 30 percent now, 70 percent on delivery. And then later we go to, Hey, let’s pay you 30 days after we get it delivered or 60 or 90 days.

And so if you want to stretch out your payables, I’m sure your people are, some come from distributors, some come from suppliers, whatever it may be is you want to have them have a whole list of all their suppliers. And I want them to put a calendar reminder in their phone or Google or Outlook or whatever they use to manage your time.

And on that calendar, you have all of your suppliers, you have all your payment terms of them and how much money you spend with them. What I want you to do is every six months to hit up every single one of them and ask for better terms, like set it in your calendar. And so we had someone do this and their average day’s payable was like 15 days across like 30 different suppliers.

That’s it. That means they had like one or two people at like 30 and everyone else was at like zero. They stretched out, changed the percentages, pushed people out. After about six months, they had about 35 days on average to pay for their inventory. And so they were kind of large, so it was a big deal.

So it’s find a way to systematize how you can pay later and then leverage something like an Amex card. Or a credit card or something, granted, I don’t want you to get killed on interest. So push that on another 30 or 45 days. Because ultimately, if you can get the thing and sell the thing before you have to pay for it, I mean, not to, not to be exaggerated, but that’s technically free money. So

Crystal Vilkaitis: We would love free money. And I love the idea of just revisiting it every six months and checking for better terms. I feel like we get so caught up in just the this is the way that I do it. So I always do what I do and you don’t need to. You can ask and talk to your vendors.

And I feel like a lot of them are willing to work with you, especially if you’ve worked with them for a while. Awesome.

Charles Leikauf: Yeah, they may say no now and that’s fine, but it’s a lot harder to say no to me every six months for the next two years

Crystal Vilkaitis: Yeah,

Charles Leikauf: it is to say no to me now. Okay.

Crystal Vilkaitis: And really the worst thing is that they say no. So you just got to ask. Awesome. Okay. Now when I first started my business, almost 12 years ago, I got a mentor pretty early and she’s like, “what’s your budget?” And I’m like, “what do you mean?”

And she’s like, “well, how are you tracking money coming in and going out?” And I’m like “Well, I use Chase as my bank.” And so I had some things to learn. So she gave me this template of a budget for, you know, my type of business. And I modify things and I, to this day, I still use this budget template. And obviously with our retailers forecasting is just so important and I have a side project I’m working on. You shared some stuff with me for templates and which was epic. Because I love spreadsheets, but we want our retailers to really be forecasting and be using these tools to help support them.

How to use a cashflow forecast to determine how much to spend in your business

Crystal Vilkaitis: So can you walk us through what a cashflow forecast is? Forecast template looks like sure there’s a lot of components, but some of those key pieces that our retailers can get started and make sure that they’re tracking these things so they can determine how much they should be spending on various aspects of their business.

Charles Leikauf: So this is really helpful. I have everyone I work with do this and this works if you’re doing $35 million a year, this works if you’re doing $50,000 a year. So sizing doesn’t really matter. The first is to have a really good idea of the money that’s going out. Right. So yeah, you can have a fancy cashflow forecast or a good template.

There’s a million of them online, but it really starts with like, when are your payments due? And so I will look at that and I look at that on like a weekly basis. And so if there’s four weeks of the month, all right, what week is rent due? Is rent due in the first, right? Or your mortgage payment. Cool. If you pay your employees on the 1st, the 15th.

All right. The first and the second, or the end of the second week, those are going to be bigger weeks. Let’s say have aprons that need to be cleaned, right? Or materials or uniforms. When is the next inventory payment due? Right? When is, you know, your Facebook ads budget due?

What terms you on that? And just create a list of all the things that you know are going to come out of your bank account on a normal weekly basis. And so say your business here and you’ve got, 10, 000 a month that is automatically coming out, which week all those things come out and then you can start to layer around your other payments around that.

And so for my clients who are large, I go, okay. If you have someone on your payables team, it’s, you’re only allowed to spend this amount of money per week. And so you figure out how to move things around that way. I don’t have to have the business owner do that. Now, if you as the business owner are doing that, if you know that you’re going to sell a hundred thousand dollars a month, cool.

So over time, you know how much you’re going to collect it each day or each week. Make sure your payments are spread out. So that way you know, your bank account doesn’t get cut in half on the first of the month every month. So can you change some of the days that your credit cards are due? Can you change some of the days that your payments are due?

Your inventory supply or you want to keep happy, maybe you don’t push them out two weeks. Maybe you only push them out one week. So that’s like general cash management as far as having a forecast. I would have projected receivable, so projected amount of money that you have coming in.

The timing of that, because if you sell some wholesale on the side, you probably have terms set up with that. So you want to project your money coming in, you want to project your money going out, and I like to look at it over the next 13 weeks. So I know I just mentioned the first month. You take that template that first month and you drive those inputs to that calendar.

So that way, over the next quarter, when are you going to be low on cash and when you’re going to be high on cash and you never really want to be caught with being low because then that’s when people make silly decisions. They get nervous, maybe they go get some lending, like a merchant cash advance, which I don’t recommend.

And so you really just want good visibility on the money coming in, the money coming out, and you’re just projected over a period of 13 weeks, which is the next quarter. So that’s what I recommend. There’s plenty of templates online that’ll help you do that. Those are the things you need to think about. Did that make sense?

Where retailers can find quick, short-term financial help when facing cash flow issues after a big expense

Crystal Vilkaitis: Totally. And again, it comes back to asking to change dates on things and just really being aware of that. I just feel if you were to log in your bank account and you’re seeing it really low in that panic, that freak out, like you’re saying. If we can get rid of any kind of panic, like we’re good, but we just need to make sure that we’re balancing it out. What would you say would be like, what if there was a retailer listening right now who is logging in and their bank account is low. They just paid a lot. They’ve got money coming, but what would be the best way or a couple of good places for them to find some money, get some money to bridge that time until the money comes in?

Charles Leikauf: Okay. So there’s always a couple of thoughts, right? If your idea is there, if we’re not talking about like pushing out your payables or moving your dates. Then we got to change to the other side of the spectrum, which is money coming in. So a lot of people’s first thought is, “Oh, I’ll run a sale.”

Right. If you’re highly dependent upon foot traffic, that may or may not work. I know you encourage people to send emails. I’m sure it’s some text blasts. You can bump your numbers up like that. But things get kind of hard. And so first budgeting your cash is really important so you don’t get stuck like this.

The other sort of options are is like, all right, can we look towards credit? Do you have an American Express credit card? Usually they give you about 45 days to pay, right? You put on the statement day one day 30, the statements posted. After that you have to pay it. So it’s an average of 45 days across.

So there’s short term financing, long term financing, like SBA is whatever else. If you have a building, you could get a loan against the building. Granted, those are, “Oh, shoot” moments, probably not things that we want to go towards. And then there is, you know, if you have wholesale relationships, right?

You may have some money out there that haven’t paid you pick up the phone and be like, “Hey, you’re two weeks late. I need money please.” So those are a couple options. As far as to bring some cash in, there is always the option of a sale. For me, I have a lot of experience in people who buy consumables.

A lot of my clients sell consumables. So Any time you’re doing a sale, you’re bringing money that was going to come in forward. You’re bringing it to today, but it means your sales are going to take a dip in the future. And so, you’re familiar with JCPenney, right? JCPenney used to send out, when we we were younger, all the flyers in the mail were like, 50 percent off, 60 percent off, 20 percent off this, this, and this.

And it was like a drug. And they actually, a couple years ago, before they had some, a lot more troubles, said, you know what? We’re just going to lower prices two days a week. All the other days the prices are going to lower and it’s technically like the overall cost over the week is a lot lower.

But their sales actually took a massive dip. Because people got hooked on the discount drug. And so discounts are really easy ways to get money today. But that’s kind of the last lever that I would recommend you pull. And if you are going to extend discounts to certain groups, of people like segment out who you’re talking to, like your VIPs, don’t give them discounts. They’re going to buy anyhow.

Crystal Vilkaitis: Yeah, very true. And this is where, you know, we’ve talked in previous episodes a little deeper on segmentation and having those the VIP, we know who buys a lot, the people who are the sale shoppers, like if they could be categorized in our system and that’s when we’re just sending to those people.

And we know they’re not going to come for regular priced items. So if I need to make some money fast, I can really segment that list out. But I will say, I’ve heard from a lot of retailers over the years who are like, “I don’t want to do sales anymore. My customers are only coming for sales.”

Like they’ve almost trained them to wait until there’s a sale. And that, obviously is a whole nother challenge. So I’m glad that you address that.

Charles Leikauf: The sales drug is powerful. It really is. And to get out of that cycle, you gotta be really aggressive in segmentation thrown like rFM or Recency, Frequency, Monetary. Like you got to be very, very aggressive. Getting out of that can be really hard and it takes a long time. It’s not like a tomorrow thing.

So it’s really easy if we just don’t go there.

What RFM is and how retailers can use it to segment their customer base

Crystal Vilkaitis: Totally. Now you just said RFM, which I’ve never heard that before. What is that?

Charles Leikauf: So RFM is a way of segmentating people. It’s called Recency, Frequency, and Monetary. And you split your customers into buckets. And you rank them one to five. So like the top 20 percent recent buyers, the second 20%, the third 20%, the 40, the third, fourth, so on and so on. And so you give them a score one through five on recency.

So how recent they’ve bought, how often they buy and how big their ticket price is. And so someone who’s a five across all of those as your VIPs, they’ve bought the most recent, they buy the most frequently and they’ve spent the most money. Don’t give those guys discounts, right?

But maybe your people who haven’t bought often and haven’t bought a lot, right? Maybe those fit into a different category. And so it’s just a way of segmenting people based upon what type of buyer they are and how you should treat them in a mathematical way, just based upon quartiles of the quintiles of your population. And so that’s really helpful because it shows you who to discount, who not to discount.

Like your twos and threes in those. So on the bottom who don’t buy often, don’t buy a lot, like throw them discount. So they’ll never come back. That’s like a different way. It’s just a way to segment people. I’m sure you guys may be doing like top spenders or most often or whatever else, this is just like a nerdier way to do it if you have a really large data set.

Crystal Vilkaitis: Yeah, that’s awesome. And so if anybody who’s listening to this and you have that data, when’s the last time that you’ve looked at it and talked to these people? You might be sitting on some really great opportunities to drive traffic and sales. If you don’t have this information, start gathering it. Now is a great time.

I’m such a believer of segmentation. I talk about it a lot. We want to make sure that we have this information. It’s going to make you a better business owner so you can pull the lever. Like you said, the levers in the beginning, we want to be able to pull those levers in, make some money.

How Charles turned helped one retailer go from a $900,000 annual loss to a $500,000 profit in the first quarter

Crystal Vilkaitis: Speaking of making some money, you have a pretty cool success story that you shared with me. And I’d love you to share with my audience. So you helped a client who was down $900,000 and you brought them to be up $500,000 in Q1. How did you guys do this and what specific actions did you guys take to turn it around? That’s a significant turnaround.

Charles Leikauf: I mean everything . uh, So

Crystal Vilkaitis: different.

Charles Leikauf: I mean, it felt like it, but he was super willing and so that’s what made it fun. Also very like willing to be flexible, try different things. So this guy was losing about $959,520 last year. He’s pretty large. He’s doing about $15 million a year.

But when you have to pull $900,000 out of your own personal pocket, that kind of stings. Nobody likes that. And so he came on with this about January. And similar topic we hear all the time, ” my revenue is the same. My bank account balance is going down. I got a bookkeeper, but I feel like the math just isn’t working. I don’t understand what’s wrong.”

And so we had to get his books redone. It turns out, he was losing more than he thought he was losing. And so my first thought was like, all right, how do we change that? And so we were able to take him from losing $952,000 to in quarter one, which he’s really heavy sales in quarter four, like most ecommerce heavy guys are.

Black Friday, Christmas. He didn’t really sell a lot more in quarter one, but he made $568,000 in profit. And so from losing $900,000 in a whole year to profitable $568,000 in the first quarter, we had to do a lot of things. And so the first thing that we did is we looked at his shipping. He was spending way too much in on shipping.

So we went to FedEx and we negotiated all the shipping costs down. So that’s the first thing. So he spends between $2.2 to 2.4 million on shipping. We’re gonna save him about $833,000 for the year. So that’s great, right?

Crystal Vilkaitis: huge. Yeah.

Charles Leikauf: Yeah. Went really aggressive on that. The next thing is he had two businesses inside of each other and he wasn’t sure which one was profitable.

Two product lines and which one wasn’t. And so we dove into his numbers and it turns out one of his businesses actually wasn’t profitable. I mean, he was actually losing a couple hundred thousand dollars a month on that one. And the other one was subsidizing that one. And so we call that like a keep versus kill analysis.

The answer to that one was kill. It was not keep. He’s in the middle of maybe spending that off and selling it, but we immediately wound down the advertising spend on that one, wound down the shipping, move the staff over to the other one and then wound the ad spend back up on that one.

And so the combination of shipping savings, some reallocation or letting go of a couple of employees. Saving a couple of services he didn’t need, better books and better clarity as well as a little bit more direction on his like product mix. Like he has 15 to 16,000 SKUs, right? Yeah. So like some of those SKUs are winners and a lot of those SKUs are not so winners.

And so when you combine shipping savings, employee savings, getting rid of a business that’s a product line, it’s hemorrhaging money inside of it and then reallocating that spend energy and resources. With the financial clarity, that’s how we were able to take them from losing $900,000 a year to profitable, $568,000 in the first quarter, but we met with him.

We had to make a lot of changes very quickly. And most people aren’t willing to do that. Just to put it out there. Like it’s hard work. Like I could wish I could say, Oh, I wave the wand and boop. It happened. It don’t happen like that.

Crystal Vilkaitis: No, you do. You have to be willing and change is hard for most people. It’s just uncomfortable. I think too, when you’re losing money like that, that can also feel embarrassing or there’s vulnerability. Like people are getting in and looking at what’s going on. You might feel frustrated with yourself for not knowing these things or just letting it get too far. But the thing is you just have to get the help. You have to pay attention to this. I feel like so many business owners, not retail specific. I think this is a business owner thing, small business owner. They won’t pay attention to the numbers. Do you agree with me? Have you seen that?

Charles Leikauf: It’s always like, I’ll just sell more.

Crystal Vilkaitis: Yeah, exactly.

Charles Leikauf: I’ll just sell more and I’ll be okay.

Crystal Vilkaitis: And then it’s not even like, how much more do I need to sell? It’s not, I feel like it’s not even that calculated and strategic, you know? yeah.

Charles Leikauf: how, who’s going to sell it? What product is just, I’ll just sell more.

Crystal Vilkaitis: And yeah, or like, and you might be spending more to sell more and then it’s we’re just not paying attention to the numbers and I think that’s obviously why majority of small businesses fail. We’ve got to be paying attention to the numbers, but it is hard. It’s hard to change. It’s hard to ask for help.

And be willing to do it, but man, with a case study like that, I hope that inspires anybody who’s listening, who maybe is in a tough place right now that needs to have some tough conversations and make some changes. It’s worth it. You got to do it. And I feel like every time what ends up happening is you make it out on the other side and you’re like, Oh, that wasn’t that hard. Like I survived. It won’t kill you. You’ll be all right. Exactly.

Charles Leikauf: totally get it there. How do I, Oh gosh, how do I put this? They’re all a heck of a lot happier now. And usually entrepreneurs get stuck in the spot cause they’re really good at doing the thing or they’re really good at selling of said thing. And so I just think about it like this, right? Like you probably have people who are cashiers or maybe they help customer service or maybe they’re really good at demonstrating the product in there, right?

You as a business owner are probably pretty good at all those things, but usually you’re really good and really passionate about it. What about whatever you’re selling? And so usually that means the money skills and open up Microsoft Excel and staring at them until your eyes hurt, which is I love doing, you’re probably not going to do. It’s probably not even the best use of your time.

Crystal Vilkaitis: Mm

Charles Leikauf: You know, Just like you guys crush it for Facebook ads for people. Like they’re good at selling the thing. Why don’t you guys just drive more foot traffic? Instead of them learning it all, just bring on you guys. So it’s just find the expert and drop them in.

It’s a lot easier that way. I don’t have to know everything. There’s plenty of things I don’t know. The things I do know, I’m awesome at. Everything else I get someone else to do.

Crystal Vilkaitis: Exactly, yes. Who, not how? I don’t need our retailers learning Facebook ads and we don’t need them in these spreadsheets, but you have to have that support. We have to use these tools.

And in fact, I just did an interview right before this one and it was a retail store and one of my questions and resilience rounds is, if you had to start your business all over again, what’s one thing you would do? And it was. “I would invest in people. I don’t have the time to learn all this. I’m not the expert in all of this and you just got to invest some of that, those resources and get help.”

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Okay. Now, speaking of investing resources and Facebook ads. Spending on ads can be significant for our small businesses and their budgets really can vary.

What advice Charles has for retailers to get the best results from their ad spend

Crystal Vilkaitis: What advice do you have determining a good return on ad spend? ROAS is how you’ll sometimes hear that. And can you share some tips on how retailers can maximize their ad spend?

Charles Leikauf: Okay. So usually finance people when they think of ad spend, they think of it as a cost. Now, for people who make a living driving new customers, I don’t look at it as a cost. I look at it as a driver of profit. So for my clients, I sit down and I go mostly on Facebook, TikTok, YouTube, Google, whatever.

I’m like, all right, how much money do you want to make? This is going to drive how much ads we’re going to spend. So instead of Oh, if I do, a $100,000 of revenue, I guess that maybe leaves $2,000 for ads. It’s no, I want to make a hundred thousand dollars in revenue. This is what I’m going to spend in ads to get there.

So first of all, it’s like a mindset shift of ads are the driver, not like they fit in wherever you want it to go. That’s number one. The second portion behind that is a lot of people are usually afraid to spend money on ads.

Crystal Vilkaitis: Mm hmm.

Charles Leikauf: Because they don’t understand that relationship. And so when you think about a return on ad spend people are anywhere from, 1.5 to 5, 6, 7X.

I think most of my clients are around like 2.8 to 3.2. Now return on investment, that means basically I put in a dollar into Facebook and $3.20 comes out of it. Now you can determine how much you can spend on ads based upon how much your products cost you. So if I sell a thing for a hundred bucks and the cost of the goods sold or the item, the widget is $20. Well to me, that means I have up to $80 to spend out on Facebook.

You need to sell enough units to cover your fixed costs, right? Rent, electricity, salaries, whatever else. And so you think, all right, maybe I need to sell a thousand units at a hundred bucks a piece. I know a certain amount of this is cost of goods sold. I would assume everything else goes to marketing.

And so if I’m getting a customer for a hundred dollars, twenty of it goes to pay for the widget. That means I want to be spending $80 or less per customer. And if you look like that, that’s like a 1.2 ROAS like, that’s not anything great. My goal is to spend as much money on getting new customers as I possibly can.

Once you do that things open up very powerfully for you. So I’ve seen clients go from a $100,000 a month to $3 million a month in like a year and a half.

Crystal Vilkaitis: Wow.

Charles Leikauf: Granted, they have a box called Facebook and they know that they put in a dollar and three and a half dollars comes out. They get a shovel and they’re shoveling in cash and then they get a dump truck and then they get a conveyor belt.

You know what I mean? Like they’re pushing money into that furnace as fast as they can. So for them, it’s are we profitable on these ads? If yes, so that’s determining the ROAS that they need. My first thought is how can I spend more? And my next thought is how can I make those customers more valuable?

Crystal Vilkaitis: Mm

Charles Leikauf: So if I don’t make any money on the first customer, okay, do I sell consumable? Are they coming back next month? Oh, that’s free money for until I upset the customer enough that they don’t come back.

Crystal Vilkaitis: Exactly.

Charles Leikauf: And so the larger retailers, the larger ecommerce companies, think of it like that instead of, “Oh, if I want to grow, maybe I spend a thousand dollars a month on Facebook,” or maybe this it’s, “how do I spend more money to grow? Do I need to change my offers? Do I need to change, my pricing? Do I need to change, like what I sell to them after they buy the thing, right?” Like they buy the kayak. Well, here’s some carbon fiber paddles that are really better. You want these? And so that’s what, what I think of when it comes to ads is.

A, if you’re getting a ROAS above three, like you should be printing money. You should spend a lot more. If you’re not, your economics are wrong. Please fix that. That’s number one. Two is eventually you’ll reach a point with your ad spend where it doesn’t make sense anymore. Like your ROAS will go down as your ad spend goes up.

That’s when you increase your average order value or increase your lifetime value. And then you can go up again in that spectrum. Once you figure out that it’s kind of like a video game. Like it’s not super hard.

Crystal Vilkaitis: Yeah, it’s true. It’s knowing those things and then testing and trying and paying attention. And I think that the retailers who, you know, hit the boost button, that’s kind of a common thing. Cause they’re not really going in. I know they’re not really going in and setting up these ads, multiple ads, multiple audiences, testing creative, like testing the different offers, doing those things. It’s just boosting cause it’s easy.

And they don’t know ads manager. They don’t want to be in business suite, but we’re just, yeah, you’re paying to get extra eyeballs on that piece of content, but there’s really no strategy behind that. There’s so much more that you can be doing. And ultimately it’s going to help the visibility of that one post, but it’s just not going to build the business.

Like you’re wanting to build the business. You got to pay attention to the return. And you shared this story with me. I don’t know if you can share it on our show and if not, then we can just cut this. But about soaps and like how you just, how you handled, I know it’s funny. It’s funny soaps, but like

you

Charles Leikauf: allowed to tell you what the soaps do?

Crystal Vilkaitis: Yeah. I mean, you don’t have to. We could just say so.

Charles Leikauf: For those of us laughing, I once had a client who focused on soaps that brighten your nether regions and armpit regions of woman who happened to have darker pigmented skin. So about whole soap

uh,

Crystal Vilkaitis: Yup.

Charles Leikauf: So this business was owned by a guy, he was 20 cause he wasn’t allowed to drink at the time. And he started out and he was doing not a lot, maybe like $2000 to $3000 a day.

Like nothing. That sounds a lot, but hold on. Decent, but he wasn’t profitable on his Facebook ads. He was ramming his head into the wall trying creatives, like you said earlier, hit the boost button doesn’t work. You can test hundreds of creatives in a week once you get up to scale, and I’m sure you guys test a lot, so you know that. I’m preaching acquire, but he was like, oh, what if I changed what I sell slightly?

And so at first he tried one bar of butthole soap. Now he was losing like $3 per transaction. All right? What if I try $2 and I raise the price 10 bucks? Oh, now he’s losing like a $1.50 per transaction. He’s like, what if I raise the price $5 and add on like a 10 cent scrubby glove? Huh? Well, now he’s making $1 or $2 a transaction.

He’s like, all right, what if I do buy one soap, get one free. Plus free scrubby glove for the exact same price. Now he’s making $15 a transaction. So he went from $3,000 a month to $60,000 a day in the span of a month and a half.

Um,

Crystal Vilkaitis: a day.

Charles Leikauf: a day, A day. And that was, he spent in $30,000 a day on Facebook.

That was before he was 21.

Crystal Vilkaitis: Yeah. That’s nuts. Okay, and I just feel like if you can make $60,000 a day on butthole soap, like I

Charles Leikauf: the hell am I doing with my life?

Crystal Vilkaitis: there’s opportunities out there like, but they, but what I was amazed with this story in many ways, but one of my big takeaways was you got to test the offer. You got to test the price. You got to test the offer.

You’re testing the creative, what it says. It’s not just I boost something and now I make money or I set up ads and now all of a sudden I make money. There’s often this testing period and really understanding what’s resonating and working. And if you’re an established business, you might know some of that already.

So now you’re putting that in to advertising and you’re faster at seeing those results, but it just does take some of those, that time, but it’s worth it because when we’re going from $2,000 to $60,000 by tweaking the offer, I mean, it’s crazy.

Charles Leikauf: That’s probably the most egregious story that I have of this, but tweaking what you sell in ways that are almost imperceivable to you of difference can have a massive difference to other people. And the thing is I have a decent sense for marketing. I’ve just seen a lot of e commerce things.

So I’ve seen what works, what kind of doesn’t work, cause I don’t have the data points of just me. I have all my clients and all the people I’ve spoken to. And even then I’m like you should try this. Oh, and I’ll give someone an example. So I recommend test four different offers. I give an example of two and I’ll let the client come up with the other two.

Half the time my two are the wrong two, right? So whatever you think is going to happen, it’s probably wrong. So test that one crazy thing because it might be right, but it might be change your life right.

Crystal Vilkaitis: Mm hmm.

Charles Leikauf: And so work on changing up the offer. That’s way better than come up with a better headline or coming up with a better creative or like a prettier guy or girl to like do your ad.

Just change up what you sell. And it’s, you know, kayak plus free paddles plus free carbon paddles, plus free cooler with kayak, maybe the cooler is 50 bucks and you raise the price of the kayak a hundred dollars, right? Oh shoot. It comes with a free Yeti. I love that, I’m buying the kayak.

Crystal Vilkaitis: Exactly. There’s so much psychology around this and we did a webinar around price psychology. We’ll link to this because we have it available just forever through our partners at management one. And you just see. You got to test different things. You got to get in the heads. You got to understand, but that’s where we’re talking about this.

Cause this can make you more money. It can make the ads more successful and of course, that’s what we want for our retailers. I shared this with you and I just want to show this on the show. We can’t guarantee this, but for some of our clients, we’re seeing as high as 48 return on ad spend.

Charles Leikauf: If I had If an opportunity to get that, I would take out a second mortgage tomorrow and hand you a hundred thousand dollars tomorrow.

Crystal Vilkaitis: Put the money in.

Charles Leikauf: here you go.

Crystal Vilkaitis: the monster. I mean, And again, like that’s not our average, but I just want to share that with our listeners because again, the who, not how. We’re doing a lot of the testing we’re reporting back these metrics and to see our retailers grow, like our most successful retailers, they use ads. And I know that you’re passionate about ads. That’s what you’re saying is how can we leverage this to make us more money. It’s not an expense. It’s helping us grow. I mean, it’s obviously an expense, but it’s helping us grow the business and profit.

Charles Leikauf: Absolutely.

Crystal Vilkaitis: So good. Thank you for sharing that story. It’s

Charles Leikauf: you have to edit out the word butthole, feel free to.

Crystal Vilkaitis: And yeah, no, we’ll keep it in, I think it adds a nice effect to the episode.

Charles Leikauf: I was gonna say this nerdy guy talking about butts on the

Crystal Vilkaitis: Yep. Yeah, this podcast took a turn here.

Charles’ resilience round

Crystal Vilkaitis: oh my goodness. On that note, Charles, are you ready for the resilience around?

Charles Leikauf: Alright, fire away.

Best business book

Crystal Vilkaitis: All right. Best business book.

Charles Leikauf: Mmm, Never split the difference.

Crystal Vilkaitis: Ooh, I have not read that one yet, but I’ve heard really good things about it.

Charles Leikauf: I’ve read it three times. Do it, absolutely.

Best retail technology

Crystal Vilkaitis: Okay, awesome. Best retail technology, like an app or software.

Charles Leikauf: I’m going to cheat here. Quickbooks.

How do you keep up with the ever changing retail landscape?

Crystal Vilkaitis: That’s a good one. How do you keep up with the ever changing retail landscape?

Charles Leikauf: I like to figure out what’s working today and not yesterday. So I talked to everyone and every time I get off a call, I’ll go what’s working for you now and what’s not working for you. And that way I can have data points from everyone who’s actually doing it. So that my biggest kind of tip is ask everyone what’s working.

What’s a foundational best practice when it comes to retail budgeting?

Crystal Vilkaitis: Love it. To help retailers be stronger, more rooted in success, what’s a foundational best practice when it comes to budgeting?

Charles Leikauf: First of all, if you can’t measure it, you can’t manage it. So get your books done and then get someone who’s an expert to look at them. It could be someone like me. It could be not someone like me. It could be a trusted partner. Someone that you know, or even you yourself because you can guide them. Measure it so you can manage it.

If you had to start your business all over again, what’s something you’d do differently?

Crystal Vilkaitis: Mm hmm. So good. If you had to start your business all over again, what’s something you’d do different?

Charles Leikauf: I would go a lot harder, a lot bigger, a lot earlier. And I would find someone who’s done it before and just attach myself to them. And I would have gotten like mentorship and community way earlier.

What do you think the future of independent retail looks like?

Crystal Vilkaitis: Mm hmm. Mm hmm. I agree. What do you think the future of independent retail looks like?

Charles Leikauf: So I think independent retail and you can tell me if you disagree, but I think people don’t trust companies anymore. They trust individuals. And so when I walk into a retail store, I’m looking to be guided. I don’t want to find 70,000 different options of things. I want you to be like Charles.

Like I walked into an REI a while ago. And I was like, I need a hiking backpack. Guy looks at me, sees how tall I am. He goes, he’s my strength. He’s my wellness. He’s my budget. He goes, this is the perfect bag for you. Here’s why I’m going to get it set up. Then I’ll walk it over to the cash register. I spent 400 bucks not even blinking.

Crystal Vilkaitis: Yep.

Charles Leikauf: And I knew it was going to be the best thing possible for me. And I could just turn off my brain. So I think “custom curated showcase” instead of “Costco: I can buy everything out there possible.”

Crystal Vilkaitis: I am so that person too, I think the majority of people are, they want help make it easy on me. We are making so many decisions every single day now more than ever. I feel like, especially because technology is so much faster and information’s coming in. So if you can make my life so much easier on shopping and not give me a ton of options and segment curate for me. That sounds great, I’m in.

Charles Leikauf: Love that.

Crystal Vilkaitis: Oh, so I agree with you, Charles. Where can people find more about you and connect with you?

Charles Leikauf: Sure. So you can always find me at Charles Leikauf on Instagram. If you’re interested in having us take a look at some of your books or whatever else, the name of our company is Ecom Profit Group. It says for e commerce people, go book a call. We can talk. If it’s a good fit. Cool. If it’s not, I can point you in a better direction to get to where you want to go.

So Instagram and our website would be the best place. Ecomprofitgroup.

Crystal Vilkaitis: we’ll link to all this, but the website web address is?

Charles Leikauf: Ecomprofitgroup.Com.

Crystal Vilkaitis: perfect. Awesome. Charles, thank you so much for sharing your wisdom nerdiness on the show today. I appreciate it.

Charles Leikauf: Hey, thank you so much for having me.

Crystal Vilkaitis: Awesome. Everyone remember that I’m rooting for your success. Have a great week ahead. Bye. Thank you so much for being here. It means the world to me. Don’t forget to join the rise and shine newsletter, which is social media news. You need to know sent via email every Monday morning, go to crystal media, co. com slash rise to join and don’t miss the newest episode of Rooted in Retail, which drops every Sunday morning.