300 stores. $3.5B. Everything you thought was wrong.
"Succeeding with paid was not about how good your ROAS was. What the paid experts did so well was they had built a business model structurally that allowed them to put as much money as they possible into that paid engine."
Andrew Youderian surveyed 300 store owners representing $3.5 billion in revenue for the sixth annual eComFuel Trends Report, and the data broke four things Shopify merchants have been told were true. AI adoption is at 72% and producing zero financial edge. Non-AI adopters are growing profits faster than adopters. Amazon's share of revenue is back to 2017 levels while more brands than ever are selling on it. Gross margins hit an all-time high the same year net margins hit an all-time low.
In this episode we dig into the paid traffic reversal that changed Andrew's own mind, why 97% of stores now run paid ads, the P&L math that separates winners from losers, and the financial literacy stat that moves net margins by 50%.
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The Unofficial Shopify Podcast is hosted by Kurt Elster and explores the stories behind successful Shopify stores. Get actionable insights, practical strategies, and proven tactics from entrepreneurs who've built thriving ecommerce businesses.
Kurt Elster • 00:00.001
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Andrew Youderian • 01:11.619
Mechanically rock solid and if it you know if it's got a few warts here and there you know all the better for for chilling out so
Kurt Elster • 01:19.200
I like that plan. Alright, joining us again on the show is Andrew Darien from e-commerce fuel, e-comm Fuel. It's a podcast. It's an event series. It's a community. I like it a lot. I'm a member and I've attended the event. I enjoy it. And every year, Mr. Eudarian surveys store owners. who represent three and a half billion in revenue collectively, which, you know, that's nothing to sneeze at. And then he releases that report The findings in it, of course, are always fascinating to me. They will be to you too, because you know, everyone wants to know, like, hey, am I am I crazy? You know, are are we all experiencing this? This is one way to find out. Probably one of the most product provocative things in there. We're leading with this because my jaw dropped. 72% of stores adopted AI and it produced zero financial edge. This is self-reported, right? And then the brands spending hardest on paid ads are growing three to four X faster with better margins, not worse. But then like the big problem we're all facing is customer acquisition costs. All right, so already I've hit you with like three interesting facts. just from skimming through this thing. So this is a you know, this is a well, is this a what's hot in 2026 episode or is this a what happened in 2025 episode?
Andrew Youderian • 02:35.799
I think this this is definitely a, man, how do we make sense of the crazy year of 2025 and a little bit, you know, the the the subsequent two and three before? But yeah, 2025 data. And thanks for having me on again, Kurt. This is gonna be fun.
Kurt Elster • 02:47.180
Oh, yeah, no, absolutely, of course. And I've got I've got my report printed in front of me so I can go through this. Um, but yeah, all right. The when you saw those AI numbers, what did you think?
Andrew Youderian • 02:59.280
I I was very surprised when I first saw them. I th I had two reactions. At first I looked at them and I was like, whoa, this can't be right. So I went through and like redid the numbers again and re-crunched things. And then when I started thinking about it and I started thinking about how we have used AI in our own business, I was like, huh. Yeah, we I guess I guess it's done a few cool things, but we also hired that really expensive developer who's been spending nine months building something we thought was going to take three months and hasn't moved the needle on anything. Uh, we're still in the middle, like, and so I started thinking about my own business. Uh, and I was like, okay, I I can see how maybe this is the case. So surprising, but once I thought through it and looked at life experience, I was like, okay, uh, this makes sense.
Kurt Elster • 03:42.780
So it's a majority of people are using AI tools, but a majority of them are saying, hey, it it's not made a material difference in my bottom line. Not that it's not useful, not that they don't like it, but that they're like, it's not There there is no return on investment necessarily.
Andrew Youderian • 03:59.040
Yes. And so the way we looked at this uh was we asked people, did you adopt AI meaningfully or not? And people kind of self-selected in those two categories. Three quarters did, a quarter did not. And then we didn't ask them if it actually produced a result uh financially. Because I think a lot of people would probably say like, oh yeah, this made great, made us a ton of money. But what we did instead was we looked at in a different section of the report, people reported their revenue growth, their income growth, their margins, et cetera, et cetera. And we looked at those, and that's where we said, huh, there's not really a a difference between how they're doing. And in fact, if I had to give the edge to one, I would probably give the non-adopters of AI uh the edge. Like if you look at a lot of the numbers are really similar. It's probably the biggest delta between those two groups is in their net income growth. The AI adopters are growing at about 33% and the non-adopters are growing at Growing like 55%. So I I think that's a good idea. What's going on there? Like, do you have a theory? Yeah, I think like uh I think that so think about if you're really going heavy on AI, and and I will say this is a I think this is something that is on average happening. Are there people that are just crushing it with AI and are making gobs of money with their, you know, army of claw bots that are doing? Yes, those people are dialed in, great judgment, great tech. In general, what we're looking at here. I mean, it takes a ton of time to stay up on trends. Uh it takes a lot to understand, to understand new skills, Claude Code, you know. uh to play around with it to understand how it actually works then then to integrate it into your systems. If you build out your own proprietary tech, uh you know that takes a while for that to it takes a while to build. Even with claw claw uh with clawed code, it still takes a while to build something. meaningful. Not nearly as long as it used to, but you know, it's not like a 30-minute thing to get a material custom app up. Anyway, so I think people are starting that there, I think these returns will come. I think the learning curve and the investments, though, have not have been more substantial than the returns up to through 2025. And I think also you look at like 2026. Kurt, think about how much has advanced in the last three months we're recording this, you know. Oh, it's crazy. It's crazy, right?
Kurt Elster • 06:06.620
So I was just thinking it's like by the when you would have started doing the survey. I was not I probably was not using clawed code daily yet. Right. And today my entire team uses clawed code daily. It just I mean like the thing just absolutely took off at the end of last year. And so when uh when would people have filled out the survey?
Andrew Youderian • 06:30.740
A January like mid January. So about two ish two ish plus months ago. So yeah, very early.
Kurt Elster • 06:35.540
Okay. It'll be interesting to see like, all right, what's it look like next year?
Andrew Youderian • 06:40.540
Yeah, agreed. I think that's gonna be and I think you're gonna start seeing it pull away year over year. But yeah, I think it will come, but it just we, you know, the first two, three years. I don't know, I always consider the release of Chat GPT being like the dawn of real AI. And I just think, you know, uh up until then it's been fun. It's definitely provided some value. But but uh yeah, I agree. I think next year's results will be very telling.
Kurt Elster • 07:01.860
For sure. The okay. The other one, uh, surprised by, tell me about Amazon, right? Like obviously we're very Shopify focused here, primarily. But you know you can't you if you're selling online with Shopify direct to consumer, you are on other marketplaces, you are considering it, or if you're not, you have a good reason for it. What tell me about uh marketplaces as you know, the landscape of marketplaces in our survey.
Andrew Youderian • 07:29.280
Yeah. And and the big one here is like you've got direct to consumer, which is which is Shopify, I mean, by and large, right? Like Yeah. Man, you talk about a good I I I I own Shopify Soccer. Kurt, I'm guessing you do give the name of your podcast, right? Like, you know, yeah, no surprise. Uh I feel like they have one of the better monopolies in the business space, you know, in terms of alternatives. So we have Shopify, DDC, got Amazon, maybe a few other ones like wholesales, a channel, you know, Walmart, et cetera. But those are the two big ones. And the big trend there, we've been doing this report for almost a decade. Going back to 2017, Uh about 20% of the aggregate revenue that stores reported came from Amazon. And then it spiked up over the subsequent couple of years. It peaked at about 28%. And it has gradually come back down to almost exactly the same place it was s uh nine years ago in terms of The market, uh, the amount of revenue it's generating for stores as a percentage of the total revenue. And the crazy thing uh beyond even just that is that more people than ever are selling on Amazon. So if more people selling there, it's generating less revenue. So to me, what that says, we can get into some of the other numbers here, is that uh brands are looking at it less as a growth channel, as a must-have channel. and more as a supplemental auxiliary channel and also a channel where they're just trying to capture existing demand. If you look at the sentiment, right, we ask people like, hey, how do you feel about selling on these different channels? And your own website, you know, store his own website, 92% of people liked it. Uh, Amazon, 17% of people liked it.
Kurt Elster • 08:59.920
Uh but they threw up the like data versus are doing it.
Andrew Youderian • 09:04.480
Yes.
Kurt Elster • 09:05.360
Amazon's such an interesting thing because for years People are like, oh yeah, I'm on Amazon. But then when they talk about it, it's like they're in an abusive relationship. They're looking they're like, all right, how do I get out of this? I know this is not good. How do I end this, right? And I've been making that joke for years, but it has the situation has not improved.
Andrew Youderian • 09:21.720
Well, I mean, even this week, like I don't know if you noticed, but I think there was a fresh hike of like a fresh round of uh Amazon hike, you know, fee hikes and uh And additional expenses.
Kurt Elster • 09:31.860
Because I'm not like as plugged into Amazon, but I was like, hey, are is this there's the reduced revenue from Amazon as a marketplace? Is that because fees ate into it? Yeah, or is that because it it you know there are more competition or less sales?
Andrew Youderian • 09:46.399
I think it's I think it's a lot of things. I think fees is definitely one. I mean, if you look at the economics, uh, so we broke it down by the if you look at like someone's PL as a percentage of revenue, so all the percentage numbers I'm gonna reference are as a percentage of your top line. revenue. If you're on D to C, you spend about 47% on your COGS, right? So that includes your product, also your fulfillment, any fees with the platform, etc. Uh for Amazon, that's 58%, right? Like meaningfully higher uh just to sell on the platform. Um and so I mean the fees undoubtedly are more expensive. But I think it's also like, I can't remember where I saw this. Uh I think it was someone, maybe it was on Twitter, maybe it was someone who's part of an Amazon group. But they said, I hang out with a bunch of Amazon sellers, like a hundred or two hundred Amazon Amazon sellers. Amazon runs our business. We all love e-commerce and we all hate Amazon. Like, why stress? You yeah, you saw maybe you saw this too. Um, so I think it's yeah, I think it's fees. I also think it's just Amazon's approach to sellers. They've been really customer-centric, which has been awesome. And for a long time, they had such strong monopoly power and and marketplace power that I think they could get away with just being like, hey, sorry, uh we don't like you. We're gonna suspend you and you can talk to somebody, you know, at a call center overseas. And, you know, yeah, good luck. Good luck. But I think that's starting to catch up with them.
Kurt Elster • 11:05.220
Yeah, where people are like, hey, I'm just getting abused by friendly fraud here and you guys tell me it's my problem.
Andrew Youderian • 11:13.020
Yeah, yeah, exactly. It's just and I don't think I think Amazon, I think I think we're a couple years into this, and this is something I uh have also kind of been on the bandwagon for for a couple years as well. But I don't know about you, Kurt. I I I respect Amazon. I think the long ball game that they played was an impressive one in terms of infrastructure build out and taking a multi-decade approach to building the remote. But it when I shop on Amazon today, I shop for one of two things: either really cheap products I don't care about, or very established brands that I just need to get quickly and for whatever reason don't want to buy through their own website. I d I do zero discovery of kind of in the middle interesting niche boutique products on Amazon. I don't shop there for it. Zero. So is that that is that kind of the way you shop or a little different?
Kurt Elster • 11:58.839
You know, I dumped my Amazon Prime subscription. No. And I did. And I don't regret it. Initially I did it. I'm like, I'm just gonna look for other channels. Um, and then I discovered like, oh, when you select the free shipping option that you get anyway with Amazon, often it shows up next day or two days anyway. Um, so I'm like playing a little bit of a gamble there, but no, I've my Amazon shopping, I still do it even without the Prime subscription, but It is as you described. Like I'm really looking more for, you know, commodity s or cheaper goods. I'm like, hey, I just want to buy some cables quickly. Even then I'd probably go direct to buy it for mono price. Um but yeah, it similar to what you described.
Andrew Youderian • 12:39.880
Yeah, anything consumable. I don't buy anything consumable on Amazon. Uh zero. Um Um because yeah, I'm just I'm worried about it being for better or for you know, valid or not, worried about the quality and the purity and what it is if I'm putting something to eat or put in my body. So it's another thing that I think contribute
Kurt Elster • 12:57.459
If you have the gambling on Amazon returned items, you'd be like used, like new. And often they're significantly cheaper and appear to be unopened. Like I've yet to have that one blow up in my face. I'm sure I'll get there. But yeah, I got like like his luggage, you know.
Andrew Youderian • 13:12.620
Toddler Sippy Cups, 80% off on Amazon.
Kurt Elster • 13:15.339
Yeah, no. That one I'll skip.
Andrew Youderian • 13:19.100
Um one other one other note uh on Amazon uh before we go, it's it's interesting seeing that not only are more and more people kind of moving away from Amazon. But the stores that are just selling on Amazon versus excuse me, stores that do not sell on Amazon are actually doing on a lot of metrics better than the stores that that do sell on Amazon. So like the ones that don't sell on Amazon at all, their their revenue growth is higher. Their margin is higher. Their gross margin is higher. Their net income growth is a little bit lower, but pretty close. But in general, I would say they are healthier and doing better than the Amazon sellers.
Kurt Elster • 13:56.100
So interesting. Okay. The well tell me traditionally how you felt about paid traffic. This is such a a loaded thing.
Andrew Youderian • 14:06.460
Paid traffic. You want to talk about abusive relationships, Kurt.
Kurt Elster • 14:12.140
Z Zuckerberg, stop calling me.
Andrew Youderian • 14:13.820
Yeah. Um so I have I I come came into this and I mentioned this in the report too. I I have been, you know, doing e-com for for far longer than I want to admit, or at least been the online e-com and and digital space. And I've, you know, kind of came up through the ranks like old school organic marketer, a lot of SEO, a lot of organic traffic, um, you know, kind of guerrilla marketing in senses. And I always had a a a bit of a stigma against paid traffic. Um so that was my long term, I'm happy to, I'm gonna let you kind of go where you want here for this, but that was my long-term bias, and this report kind of changed that. So
Kurt Elster • 14:44.040
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Andrew Youderian • 15:45.579
Well, I just kinda I just kinda ruined it my little guessing game for the listeners. 97% of the 300 store owners that we surveyed use paid traffic. Nine out of 300 are running a business without paid traffic. That blew my mind. I I thought like, if you would ask me to guess, I'd I would have guessed the majority for sure. Probably like the high majority, maybe 70, maybe 75%, but 97%. So this just made my head explode. Does that seem high, rel like would you have guessed that high?
Kurt Elster • 16:14.779
I would no, I would not have I would have been like, yeah, it's high. And then I would have been like 87, you know, like 90 would have been my cap.
Andrew Youderian • 16:22.200
Yeah, not anyway, this blew me away. And so so a couple things it made me realize. One, like effectively you have to use paid traffic to generate an e-commerce uh to to build an e-commerce business today. Maybe, you know, assume you are not the three percent of people that can make it work, right? Um So that was one thing. But then when I looked into so so one of the going back to my stigma and the you know abuse relationship of traffic, long-term paid traffic I think the problem I always had with it was was one, you're kind of paying a toll. Uh and two, it's kind of you're building on a, you're building all of putting all of your eggs in one basket. You can't diversify your inbound traffic risk. Um, and it's gonna crush your margins too, right? Um but one thing that is the biggest thing that from this report that surprised me was we I looked at I looked at three cohorts. I looked at people who described themselves as paid traffic experts. They said this was their competitive advantage. Some people are maybe customer service, maybe some people have a proprietary product. These people said we're paid experts. I looked at a second cohort, which said that were brands that generated 60% of their traffic from pay or the revenue from paid traffic. And then I looked at everyone else. And what I found that was shocking was that I expected to see the margins, the profit margins for the people who spend a lot on paid. to be substantially lower, right? Like that's just conventional wisdom. Not the case. In fact, everyone else had lower profit margins. And my head kind of exploded until I started diving into this. And what I found, kind of the the too long didn't read version of this, is that paid, succeeding with paid was not about how good your ROAS was. Like the actual performance metrics for paid for both of the the two cohorts that focus on it were actually worse than people who, you know, were not focused on paid traffic. But what the paid experts did so well was they had built a business model. structurally that allowed them to put as much money as they possible into that paid engine. So you look at their their cost of goods sold significantly less, you know, in the 40% range versus the 55% range versus everyone who wasn't focused on paid. If you looked at their overhead, their overhead was significantly lower. It was about, you know, probably 17. 5% versus 22% for everyone else. And that is what made the difference to allow them to have a business that had effectively better profit margins while still investing insane amounts and paid.
Kurt Elster • 18:45.899
So they were they were baking that ex that cost of our performance at our our our CAC or customer acquisition cost. through in essential meta ads most likely um into cost of doing business and as a result we're looking you know we're we're spending less on everything else but then performing better overall
Andrew Youderian • 19:08.919
Yes, they are realizing it costs a lot of money to get attention today. That money's got to come from somewhere. We're going to intentionally be super lean and have really high margin products. And that's going to allow us to compete in today's environment. That's what they did. I mean that's smart. It it is. But I was just I was shocked at they were able to do it in such a way that they were able to beat everyone else, right? Like th that's that I think that's what surprised me. The power of the business model uh allowing you to do that. Uh I I didn't realize it would be it would be able to allow you to build that strong of a of a business model compared to people not doing it. So anyway, it it changed my opinion a little bit about paid traffic. Like a like are are people making less money now than they used to because of paid traffic extracting their pound of flesh? Undoubtedly. But I think the silver lining is you can still operate today in a way where you can still build a meaningful e-commerce business with a decent to maybe even above average profit margin if you do it right.
Kurt Elster • 20:06.820
If I had to pick a single painter problem merchants face at 2026, based on what I hear, it's customer acquisition cost. And then like number two is just hand wringing about not using AI, which turns out is probably less important than we think for now. Um but number one, for sure, they're like, Oh my god This ad cost is brutal. And so nice to hear that, like, okay, for sure, it is possible to make it work still, but also, yes, it is more expensive for everybody currently. Um so it seems more like paid traffic is a a bit of a a PL problem to solve than like purely, hey, let's fight with you know Facebook business manager, meta business manager.
Andrew Youderian • 20:47.600
Agreed, 100%
Kurt Elster • 20:49.380
Let's see. Okay. Do you have I know the answer? Do you have manufacturing thoughts, right? We've got uh well last year we've always had you know some f some level of tariffs, but last year we have uh quite a bit more tariff action occurring. Was this in your survey?
Andrew Youderian • 21:10.640
Yeah, so so just to clarify, are you wondering about kind of business model shifts to and from manufacturing, or are you wanting to dive more into tariff like thoughts on tariffs?
Kurt Elster • 21:18.440
You know, I jump from one to the other. I think it's let's start with tariffs overall, like impact or feelings, and then from there yeah, impact of tariffs overall, and then hey, maybe we that leads us into manufacturing.
Andrew Youderian • 21:32.840
Got it. Perfect. So tariffs, yeah. Bigger for tariffs. Uh, not in a great way for most sellers. Um, and I think like so so the two things that I thought were interesting, these are the two biggest takeaways on the tariffs front. You know how everyone was like tariffs were coming, you know, tariffs hit and people were freaking out, inflation wasn't moving, everyone was like, man, why isn't inflation going up higher? Like it is in some sense, but you expect it to go higher. And what I found was that of of the brands who were impacted by tariffs, i. e. , their category was hit, they were gonna have to pay more for their products. They absorbed 58% of those COGS costs versus passing them on to customers. So your product You know, you have an additional $10 in costs instead of raising your prices by $10, uh, you raised your prices by four and eight six of it. So that I thought was just like kind of a brutal gut punch. And that also ties into uh maybe we we'll talk about it a little bit later, the m the different the interesting story with margins and net margins going down. But then, you know, you think about tariffs and like why You know, the the the the kind of the reason presented for tariffs was, hey, we want to bring more manufacturing back to America. And if you look at was this actually effective in doing that? So I looked at all the American brands. Uh And I asked them, hey, you know, are you are tariffs going to make you bring your onshore your supply chain? 4%, 4. 3% said they're actively moving their supply chains. to the U. S. about 10% worth consider giving it serious consideration, but not as much as you might think. So from the tariff side, those are the two things I found most interesting.
Kurt Elster • 23:06.840
It I wonder what their what the thinking is. It is like if we ask the same question next year Do more people go, oh, we don't think these are going like uh for me it would be the it's a gamble on do you think these tariffs are going away? And then you know, I think the un the unfair part about the tariffs is Tariffs are enacted and just, hey, this is it. But onshoring manufacturing when you're current not already doing it, not a thing you do overnight. But the tariffs seemingly were Right. And so it just frustrating. But if like we're still stuck with them in 2027, all right, do more people then start Start attempting to onshore.
Andrew Youderian • 23:48.039
The tariff thing is going to be, I mean, I feel like Kurt, maybe you have a better feel on this. I I study this for a living. I talk to these, you know, store owners every day. just spend a month of my life crawling into a cave and writing a report and, you know, coming out of a shell of my former self for a couple days. Uh yeah I still have a hard time under understanding what's going on with terrorists right like one you have all these different categories. They change on a weekly basis, or at least they used to. It's been a little calm. The US Supreme Court said they were unconstitutional, so maybe there's refunds, but then there's more different so it's just such a cluster, right? Um Yeah, I I agree with you. And I think that uh Uh I I wish it would have been so good. I I think bringing some manufacturing back to America is a noble cause in some cases. Not all manufacturing. I think bringing some back is, I mean, we want to be able to produce physical things, at least in some certain categories. But the way to do it is to say, hey, we want to move this, we want to do this over five years, like 10 years, right? Like, you know, and here's where we're going. Here's a gradual, you know, tariff rollout. So you have time to adjust. That would have been I feel like the the best way if you wanted to accomplish that goal to roll this out.
Kurt Elster • 24:51.560
So Yeah, but even so, you like you st even if you onshore your manufacturing, you still get affected by your inputs. Right. Like someone like Montana Knife Company, who manu manufactures knives in Montana. But where do they get the steel? Right. Now they're still getting hit by the tariff because they gotta pay for the steel and it's imported.
Andrew Youderian • 25:10.360
Yeah. Are you a Montana Knife uh company fan?
Kurt Elster • 25:13.799
I built that website.
Andrew Youderian • 25:15.159
Oh, that's right. I forgot about that. Okay. Yeah, they're a super cool company.
Kurt Elster • 25:19.080
We're doing some work for them uh right now. Yeah, no, they're they're great dudes. I love love the MKC story. That's I was and I knew you had had you had Brandon Herojo on your uh on your podcast, right?
Andrew Youderian • 25:30.460
Uh I believe so, yes. Yeah.
Kurt Elster • 25:32.140
Yeah. No, he's a good dude.
Andrew Youderian • 25:33.820
Yeah. Yeah. Very cool. I forgot about that connection.
Kurt Elster • 25:37.220
Tell me about well, all right, we're talking about tariffs and it's at you it people tended to try to eat m the cost and then some pass it on because it's you know you gotta split it. Like look we're both gonna feel the pain here. I saw that too. You know, most of our brands tried to eat the cost until they couldn't and then passed some but not all of it on through price increases. What in here you s you did survey people on on margins, on profitability. What impact Has it had? What is what's 2025 look like for uh my wallet if I'm a business owner?
Andrew Youderian • 26:12.420
Yeah, it's uh I kind of call it this tail of two margins. And again, this is helpful where having done this for almost a decade and having this data is able to let's just kind of paint a longer term story. So if you look at gross margins, gross margins are, uh I'm sure most people know, but like that's how much uh the percentage you pay toward your product in fulfillment. right those used to be about 40 percent uh they've risen to 50 which means you're making people are making more money they're making more marginal which is great Uh and has fueled been fueled a big part by this massive shift to manufacturing. Like we looked at the number of people, the number of people that moved uh so from 2022 to 2025 in a three-year period. The number of people who are manufacturing their own product increased 50%. And almost every other category, reselling, dropshipping, hybrid a private label either stayed the same or shrunk, right? Like so manufacturing is just eating the ecom world. And it makes it makes sense, right? Like people see, hey, we gotta pay for traffic, things get more expensive. We need that margin. We're gonna go vertical. If you look at the net margins, so this is, you know, the net margin is what you make, what percentage of your revenue you actually make in profit. That has dropped from about 17. 5%. you know, a decade ago to about 10 and a half percent today, which is weird because you think like usually if you're making more on the top in gross profit, that's gonna trickle down through and all things equal, you'll make more. But you're not, and I think what is happening though, there's a lot of things. Um paid acquisition, like we talked about, like you can still make it work today, but you're in you're paying more your pound of flesh to Google and Meta. Um, the complexity of running an e-commerce business, uh, think like sales tax compliance, right? Like some of those pains that are that have have come in over the years. Um, you know, think about just in general, every market margins compress over time. Right. It's just a rule of economics and of business. I think that's happening. The one silver lining here, and I gotta give credit to Andrew Ferris, who kind of brought this up when we were talking about this recently, is if you look at the aggregate amount of profit made by store owners. That has actually gone up over time. So the margins are smaller, but if you look at net income growth since 2017, it's actually been outpacing the contraction in margin. So that that's the one silver lining there is I think on average as an ecosystem, people are making more money because they have bigger businesses and their profits are growing faster. Um but yeah, it's kind of unfortunate seeing those margins diverge.
Kurt Elster • 28:38.820
How much how much do we think this is influencing or is influenced by your sample Like, could is it Andrew Eudarian's community that is helping these people thrive? I know that's like su such a softball, but like it a sample size of 300, and it's people in your community. And all right, that sounded pretty good.
Andrew Youderian • 29:00.700
Yeah, it's uh you know, total fair point. Uh our community is focused on independent merchants, definitely uh, you know, two-thirds of them sell on Amazon, so it's not non-Amazon sellers. But it's a lot of people who run their own independent e-com. We had about a hundred members come uh participate in the survey that were outside the community So definitely, you know, mostly e-com fuel members, but a good chunk of that are not. So uh yeah, I think I think there's definitely some of that at play too in terms of the type of members that we have and that we attract. So
Kurt Elster • 29:31.040
And it as long as we're we're discussing your members, you've got a very personal stat on them, their paychecks. What are e-com owners paying themselves?
Andrew Youderian • 29:43.100
Oh, this is interesting. Yeah. So if you look at uh how much I actually this is something I need to add next year. I did not ask them the salary they are paying themselves. This was an oversight on my my side. Um when you when you're asking people to ask Answer 50 questions. You know, you gotta start cutting somewhere, otherwise, you know, people never get through the survey. But what I did find was that most owners Are not seeing meaningful financial rewards in terms of being able to not just take a salary, but extract money from their business, extract capital, until the mid to upper seven figures. And the sweet spot for that was uh, you know, really the sweet spot for taking dividends and also kind of balancing that with Optimism for the future, you know, kind of profitability, things like that, was brands that had reached the mid to upper seven figures in revenue and had slowed their growth. to the 10 to 20% side. So because if you think about it like on the two barbell sides, if you're just started or you're under a million dollars, you're almost certainly putting everything back into the business. And and you should, like you shouldn't be pulling out dividends when you're a You know, 12 months in and trying to bootstrap and get up and going. Um, on the other side, like if you're growing 50, 60, 70% per year, you just by nature, even with good financing, like are pouring everything back into inventory and like to be able to finance that machine, right? Because e-com eats cash at a crazy rate. But the sweet spot uh seemed to be, you know, If you're mid to upper seven figures, you've got enough uh kind of stability, enough systems, enough gravity as a business, but also slowed down to 10, 20% growth that it makes sense to make money. So that was I threw it a lot at you there, and I don't even know if I answered your question, Kurt.
Kurt Elster • 31:24.140
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Andrew Youderian • 32:56.700
'Cause I made a bunch of dumb mistakes throughout the Well that helps. Yeah. That helps a lot. Um No, I've yeah, studied finance in school, uh started out my career in investment banking, um ran a a small very small e-commerce investment syndicate. it for a while. So yeah, have a background and feel comfortable with with finance, which is which is helpful.
Kurt Elster • 33:16.660
So in your survey you have uh you have notes about financial literacy and its impact. Tell me, like how did you how do we measure that? Yeah. So what does it mean for folks?
Andrew Youderian • 33:28.220
This is uh this was probab I mean, we talked about the paid traffic thing being the most action, you know, most most um impressive were surprising stat, maybe the AI one from the report. I think this is the most uh actionable and kind of hard-hitting stat in terms of what people can do. So we asked Everyone who participated in the survey to give themselves a rating from one to five stars out of five stars about how how you know their financial knowledge and expertise. And what we found, like, you know, people one, two, three stars, as you're going to expect, uh, you know, probably not gonna be just killing it on the on the business side. But what what I found shocking was the difference in performance between People who rated themselves a four out of five and a five out of five wasn't just a little, right? It wasn't that 20% difference. It was, it was staggering. Like The average net margin for people who rated themselves four out of five was about 9. 7. And for 5 out of 5, it jumped 50% almost to 14. 3%. Um, if you looked at the uh and this was controlled for for business size too, right? Like a lot of times you'll think, hey, okay, well, if you don't control for business size, then people have been doing it longer, they just built up more experience. But this is even controlled for business size, which is a rough proxy for you know time in the game. So yeah, I'll stop there and we can dig into more numbers if you want. But the takeaway was becoming truly deeply fluent in in your finances uh is something that pays wildly outsized dividends.
Kurt Elster • 34:57.980
The way I interpreted this is Like when I saw that, I would rate myself four out of five because I know enough to know what I don't know. If I was If I knew everything, right, then I'd give myself five out of five. And so I think, you know, the people that that five out of five represents the combination of knowledge and confidence. Right. It's like I've got the experience. You know, for me, it's like, okay, academically, I understand this and so I know what I'm missing. Ah, so I'm four out of five. And that's I think why where that big jump comes from in a self-reported number
Andrew Youderian • 35:41.880
Yeah, no, it totally makes sense.
Kurt Elster • 35:43.640
That's my theory. That's my completely made up theory.
Andrew Youderian • 35:45.880
Yeah. Well, I I think I think part of the theory too is on my side when I was thinking about this was I apart from deeply understanding your customer base and your market, uh, I don't think there's probably anything that is going to serve you better and is more important to the health of your business than understanding your the finances, finances in general, but the finances of your business. And because So many decisions are based around that. Can we actually hire someone, you know, or can we not? Like how much should we put into inventory? If we, you know, that's like the one of the hardest things, right? Like,
Kurt Elster • 36:15.480
You know, that cash flow conversion cycle for e-commerce it like makes or breaks you.
Andrew Youderian • 36:20.359
It's insane, right? Like, are we gonna run out of cash? You run out of cash, you could have a great business on paper. You're uh found you know The business model is super solid. You made some bad cash allocation decisions and all of a sudden your business is you're you're done. Game over, right? So I think having the confidence, deep confidence to make some of those bigger bets, if you understand the numbers and kind of the distributions and kind of the fringe cases helps a lot. Yeah, but it would surprise me the uh the the delta there. And one thing we have, we mentioned this in report too, uh put together uh a financial literacy class. It's called a kind of financial mastery for e-comm store owners. So it's a eight part series. We built a framework about kind of going through from just if you're getting started to all the way through becoming completely financially independent. Um and it ties in personal finances with your e-comm business finances. So that's something we offer just, you know, as a as a as a free free guide for anyone. So econ e commercefuel. com forward slash mastery if you want to check that out. But yeah, it makes a huge difference. Man, I should go through that. Like that sounds useful. You should go through it and roast me on it and be like, hey man, this part was great. These parts were terrible. So if you go through it, I would I would love to hear your your feedback on it.
Kurt Elster • 37:31.960
Alright, I'll go through it, but I I'll tell you what I'll I'll tell you what surprised me. I'm willing to bet there's stuff in there that I'm like, oh, I guess I was messing that up and didn't know. That's always the best when you're like really confident about something and then talk to someone who knows 10% more than you and you're like, oh, I had that wrong. But then it becomes like this, you know, this big unlock. Or like you that know where you're stuck. Yeah, no, for sure. I'm going through it. Okay. Looking forward, this is funny. We go and we opened with AI and like people are like, yeah, we're all using AI, but we're not getting the investment out of it. The number one priority for owners in 2026. Is AI investment. AI, baby. Yeah. Let's just double down. Um I So we're I mean it's funny. AI is such a okay. AI su I just did a talk about AI. And the the crux of it was like This NBC news poll that they did in February, 51% of people self-reported go, I use AI daily. 25% of people said I approve of AI usage. As one out of two use it, one out of four like it. And it's just a similar thing happening here. They're like, yeah, we're all using it. Not actually making enough money. We're really excited to keep spending time and money on it. And I feel the same way about it.
Andrew Youderian • 38:50.740
Yeah. I mean how Talk about that just a little bit more. Like you're using it so much, but why do you have such why do you have such mixed feelings about about its use?
Kurt Elster • 39:00.720
When you use it daily, like it just it vacillates between impressing you where you're like, wow, I can't this is the future. I I told a computer in just the laziest possible way to complete a task, then it planned it out, executed it, validated it, and did it. And so when it works, you're like, that is just amazing. I need to go learn to weld 'cause I'm gonna be out of a job in eighteen months. Right? I didn't think welding would be I I would enjoy welding. Um the But then other times like you'll ha ask it to do something and it just makes the absolute most boneheaded mistakes that a person would not make. And then that's where you go, Oh, yeah, this this is not gonna replace people because it can never be autonomous, because it needs a human in the loop. Yeah, but the like there's just a lot of repetitive tasks it can do for me. And it is really phenomenal at coding, truly. Like that seems to be a strong suit. But like the amount of time I spend responding to emails. If your job is writing emails all day, then you probably love AI. But you know, when I think about it, it's like, oh yeah, no, I I produce a much better quality of email. But I'm spent it takes me more time to screw around with the AI and have it do it. Right. You know, so it's like I think it's one of those things where like we f you can see the writing on the wall, so you feel compelled. I have to use it. Then there's shiny toy, everybody's talking about it But it turns out there's like some with social media, it's a bit performative. You know, there's people who are like, look what I built, it did this, but they're not telling you all the times it like completely, you know, just threw up on its own shoes. Um, and it's a fascinating thing. I really enjoy it, but I love this the dichotomy that it's created where people are like, it works great, it doesn't work, I need to learn more, maybe it doesn't work. It's yeah.
Andrew Youderian • 40:47.940
It reminds me a little bit of people you're yeah, I mean you this you'll I don't know if you'll uh you'll either really like this or really hate this. Uh people who own Teslas and put the huge stickers on the back of their Teslas that say like, I bought this before Elon Musk went crazy, you know, and like I which uh I I have a little bit of a problem with this. Not it has nothing to do with Elon Musk, right? It's like either sell the Tesla or don't have the sticker, but don't be in the middle.
Kurt Elster • 41:08.780
Yeah, that's how I feel too. I have two Teslas. My wife cannot stand Elon Musk. Uh he doesn't thrill me. I have him blocked on Twitter because like would not leave me alone. Um You would not leave He would not leave you alone? Well he's he's just always in your timeline even if you don't follow him
Andrew Youderian • 41:25.080
I I thought you meant like you and him were having like flame war back and forths on Twitter. And I was like, dude, I could be so fine. No. Um but I I think you're I I think one of the things that's interesting with AI is a priority for 2026. is like humans are not always rational, but in general they're they're you know depends on if you're talking up to a PhD in economics here, uh often, you know, largely rational. And I I think it would be w I think a lot of people realize the findings at kind of a low level, like, hey, I've been putting it onto AI, I know it's not working, but the fact that they're still planning on doing it for 2026. I think it says something about what they see the potential of, that they recognize the increase in capability, that they know it just needs a little more time. So I think that's kind of interesting. That yes, I I think I guess what I'm trying to say in a very long-winded way. Is that this gives me more hope that next year we'll see a divergence of brands making more money with AI because this is a priority and people are still, you know, based on their plans for 2026, see potential there.
Kurt Elster • 42:28.320
All right, there's a really there was a fascinating stat I noticed in here about the age of a business owner and whether or not they adopt AI. And when I was at a conference recently, uh that's like quite anecdotal, but And I gave a talk on AI. A lot of people approached me about their AI usage. And my experience matched your numbers on age. Tell me about the age of business owners adopting AI.
Andrew Youderian • 42:55.820
Yeah, and I'm super curious to hear your your thoughts on why this is. So if you look at who is actually using AI, the business owners that are adopting it, as under 30, you know, in the 20s, as you'd suspect, just like people flocking, no problem, you know. know young people tend to adopt new tech pretty quickly 90% plus adoption but then it gets very interesting when you look at the 30 people in their 30s they are adopting AI at lower rates than people forty to fifty-four. Uh the actual, you know, next to the twenties, people f age fifty to fifty-four adopted at the highest at four out of five. And so I thought this was fascinating. And I don't have a couple theories why, but it also mirrors some of my anecdotal experience. Like in our forums, in the ecom fuel community forums. You know, we've seen so many fascinating case studies and experience shares of people saying, like, hey, I locked myself in a room. Three days later, I came out with like this mini ERP or this inventory forecasting customized for my business. And a lot of times those people are right in that age group, 40 to 55 ish, right? Like so um, yeah, I thought this was fascinating. Do you have any theories on on why this is?
Kurt Elster • 44:01.600
I don't know. I just I noticed it personally before I even saw your report. I was at this this conference and people were like Yeah, I set up OpenClaw and I've got it running in Discord and like it's managing operations, you know, between and they were using these really clever ways. But the people were doing like the really advanced stuff, like it ought, you know, autonomous agentic work. were all older than me and were, you know, I'm forty-three. And so like no one was everybody was like forty-five, fifty-five I that I took notice of. I didn't have an explanation for it, but I also, you know, I appreciate anything that like throws ageism on its head. I'm like, oh, you're 55, you don't know how to work an iPad. And then meanwhile, the guy's like making an ingenic employee with AI. I haven't done that. You know, that's really cool. But I don't have an explanation for it.
Andrew Youderian • 44:53.820
I I wonder if the theory I have is maybe one of two things. You probably have a larger likelihood of the incentives. Two two things. First one would be incentive. You're gonna have The cohort that's going to have built meaningfully sized businesses, they're going to have the largest ROI potential from AI potentially are probably going to be in their 40s and 50s, right? Like they've built something. The more you can automate and streamline and replace labor, et cetera, et cetera, the higher your financial reward, the higher the incentive. That's one potential uh explanation. The other one is that If you're using just Claude basically, that's you know not too complex. But if you want to get and use Cloud Code and set up your own Git server and and be on the you know the the command line and be able to push stuff and have it, you know, all these kind of things maybe have files that don't get overwritten when you push because they have variables that you want to apply to your all of these things. If you haven't been part of the old guard that did that manually and deeply understands it, it's much more intimidating. Maybe Claude can walk you through it, but still you gotta have the patience for it. And so I think for those really advanced, you know, pushing AI to the limits, AI can do a lot of stuff, but it you gotta be a little bit of a tech geek. And it's harder to, you know, turn those wrenches, know what bolt to turn if you didn't come up through it the old school way.
Kurt Elster • 46:06.080
If I'm 45 plus, my first computer experiences involved a command line.
Andrew Youderian • 46:10.720
I booted into a DOS prompt and I had to type. That's awesome. I was a I was a IBM PC junior, my my parents. Probably in one of the most trans you know uh the most predictive things uh that they did in my life. Like they bought this computer a garage sale, old admin PC Jr. , plopped it down in my room, bunch of discs, like a DOS manual, a basic manual, and they said have fun and like It just bl opened up the universe for me. I'm super thankful they did that.
Kurt Elster • 46:36.540
The yeah. No, I used I remember blowing hours every evening just like And it you know, it would crash and things would break, and then I'm like, well, I got you you then have an option, like you're gonna figure this out on your own through trial and error.
Andrew Youderian • 46:46.840
But yeah, you're right.
Kurt Elster • 46:48.280
Like there's a a line I've heard, you know, that like Gen Z doesn't understand file systems because they don't have to mess with it, versus, you know, we had to mess with it because you wanted to get your computer to work. Like you think at a choice. And so you're right. There may be inherent tech skills that we're using with AI tools that we're comfortable with and just don't realize it. Oh yeah, that's really good. Yeah, I subscribe to your theory.
Andrew Youderian • 47:12.460
I'll take it. And you know, maybe that changes, right? Like AI is probably going to get good enough at some point where you don't have to know all those things and it'll figure it out. But in the in-between period, it's a super useful uh meta skill to have, I think.
Kurt Elster • 47:26.340
Okay, overall vibe check. Are people Well, all right. The I think the the number the watchword that described 2025 and going into 2026 was uncertainty. Right. You don't know. We're not quite sure what's gonna happen. It's like tougher to predict. Right. Just current events are more chaotic than in the past. What happened here? What's our what's the vibe check?
Andrew Youderian • 47:56.240
I I think the vibe check is I would have to say very, very cautiously optimistic. Uh for a couple of reasons.
Kurt Elster • 48:04.640
My favorite kind of optimism.
Andrew Youderian • 48:06.080
Oh yeah. Like it as cautious as you can get out of it, you know, because it's there's the I mean There's a lot of hard things in e-commerce right now, right? Like it's it's a maturing industry. We talked about a lot of them. Um but I do think a few things like you get a little bit of uh moderation on tariffs potentially. Um, this isn't this isn't an absolute advantage for e-comm, but I think AI actually like compare the benefits of AI between software and between e-commerce. And e-commerce actually is positioned to to benefit from them in a way that software, software is almost all just fear, right? Like, oh no, this is coming to eat our lunch. AI or e-commerce is like, we sell physical things AI is not gonna replace until the robots come in mass in high competent ways. you know, we have a physical real world component that we can use AI to help streamline. Um, so I think that's uh that's a benefit. Um I think things are changing, obviously. Like, you know, kind of the model and the blueprint for what works is changing. I I asked, like, we we broke down who was optimistic and who was pessimistic and what were some of the big changes. And Some of the big differences between the optimistic owners had higher conversion rates. They turned their inventory more about, you know, 30% more per year. They had less inventory as a percent of revenue. Surprisingly, they leased their warehouse much more than owned their warehouse. Um their fixed overhead. Significantly, yeah. Um, that's another thing. I don't know if we'd have time to get into that, but the difference in in the correlation between warehouse ownership and growth was staggering. Like owning a warehouse kind of just It's like an anchor around your neck in terms of growth. And that's just a question, big question about between correlation and causation there, but still interesting stat. Anyway, uh To answer your question, I think there are uh reasons to be more optimistic than the last two or three years. And not that we're out of the woods, but but yeah, uh I think reasons to not not be not be all doom and gloom.
Kurt Elster • 50:01.400
Okay. No, I'm I'm I'm happy to hear it. I agree with you. You know, there's that a little there's there's a little bit of fear, but there's optimism. It's like, you know, things keep going. Things continue on. I mean, since 2020, we've been like, are the re there there's a lot of people banging the drum going, Oh recession's gonna happen. All right, well it's been six years and it has happened. Um so yeah, I think cautiously optimistic. I like it.
Andrew Youderian • 50:23.799
So if people want to get access to the full report, which goes into way more depth, a bunch of things we didn't talk about here, and also includes these deep benchmarking tables. where you can compare your store to other stores in your revenue range across like a dozen different metrics. It's really helpful. Best place to get that is ecommercefuel. com. forward slash blueprint. You can download everything there. And also we do a weekly, I do a weekly podcast, the Ecom Fuel Podcast. Every Friday for those uh listening on the on the podcast front, uh talking about e you know, e-commerce businesses, what's happening in the space, entrepreneurial finance, investing. Uh and just building a rich, rich life. Uh so that is the Ecom Fuel Podcast wherever you grab your podcasts.
Kurt Elster • 51:05.980
Get the PDF report, ecommercefuel. com. I'll put the link in the show notes. I really enjoyed going through it. It was obviously fun to talk through with him. I hope you enjoyed it. Thanks for listening. Hey, before you go, I was hoping you would check out our new app, Promo Party Pro. It is what I want to be the single best, easiest way to run a free gift with purchase promo on Shopify. We just put it live in the App Store. We've got less than 50 users. We want your feedback. So if you need to run a free gift with purchase promo in the near future, install it, try it. There's a live chat. I check that all the time. And so if you have any issues at all, you know, or any suggestions on how we can make it even easier to use, let us know. We're happy to help. If you want to try it, search promo party in the app store.
Kurt Elster • 51:54.720
Promo PartyPro is the app. Give it a shot. It's got a free trial, thanks