w/ Matt Putra, EightX
"The financially sound & successful e-commerce businesses are lean as long as they can be. They keep costs down and are just careful." – Matt Putra
Unlock the secrets to a more secure financial future with guidance from fractional CFO Matt Putra, whose expertise in cash flow management is a lifeline for e-commerce businesses swimming in unpredictable waters. Together with Matt, we dissect the strategies that can help you avoid cash emergencies and achieve sustainable growth. From negotiating with suppliers like a seasoned diplomat to harnessing the power of financing, we've got your back on the voyage to fiscal stability.
Kurt Elster (00:00):
Heads up friends. The unofficial Shopify podcast is made by indie entrepreneurs or indie entrepreneurs, and may contain material not suitable for all audiences. Like swearing or economics. Listener discretion is advised. This episode is brought to you in part by Growth Collective, the Creative First agency specializing in Shopify stores with rising costs in e-commerce, higher goods prices, increasing shipping rates, and soaring ad expenses. It could be tough to profit. Today I want you to meet Growth Collective, a creative first agency that has an enviable track record with brands like BombTech Golf, hush Blankets, cross net fire belly tea and more by focusing on crafting beautiful ads that resonate with your customer, they not only manage to make advertising profitable for their clients, but actually scale them too. Here's the best part. Growth Collective is extending an exclusive offer to you. Our listeners get an in-depth audit of your ad account absolutely free. They'll help you uncover new account structures to give you more consistency in your account, and they'll not only study your brand, but your competitors as well to give you dozens of new creative ideas that'll actually drive your customer acquisition costs down, helping you scale. So if you're feeling stuck with your current team visit, we are growth.co and mention unofficial Shopify for unlocking your true store's potential.
(01:40):
Today on the unofficial Shopify podcast, we are talking about a scary pain point that I think every business goes into, and that's cashflow. What man? What are the tricks to managing cashflow without messing it up? Sometimes you feel like you've got it under control, you know what you're doing and then things go sideways on you. So what do you do? I started my first business 2009, my first proper business, and I've got, I took the accounting classes, I read the books, I've been through management school, and yet this is still such a scary, painful thing where I had to screw it up so many times. I had to mess up my cashflow, I had to mess up my taxes. I ended up owing back taxes to the errors more than once. Also, they're not as scary to deal with as you would think. They want to work things out with you, and so I want to save you from that same pain. And so we've talked in the past about bookkeeping, accounting, cashflow. I don't think there's ever a bad time to revisit this topic. And so today is the day we're joined today by guest Matt Pra, who is a fractional CFO with a lot of e-commerce experience and topics I'm hoping we're going to hit today is managing your cashflow, negotiating with suppliers. Maybe we'll touch on financing. And of course the man has plenty of business acumen. We'll see what else we can pick his brain on. Matt, thank you so much for joining us.
Matt Putra (03:14):
It's so wonderful to be here. Thank you so much
Kurt Elster (03:16):
Established for us why we should listen to you. What's your experience? How did you get here?
Matt Putra (03:20):
Sure, yeah, yeah. So I mean one of the big ones is I was actually A CFO before I started a fractional CFO business. So what you find these days is as the sort industry has grown, you do have people that were chartered accountants or bookkeepers or controllers, and those people are talented. Do not get me wrong. However, when you're looking at big thorny issues, sometimes you want somebody that was a CFO. I was appointed by a board to be CFO of a corporate group. So it's just a different thing. But I worked for a private equity group. We had, I dunno, seven,
Kurt Elster (03:56):
Five, I love PE firms.
Matt Putra (03:57):
Yeah, it was super, it was amazing. Best job ever. We managed, it was small, but we managed like 80 million in assets. We did deals with project costs ranging from like a hundred to $500 million of project costs. Our investments were 10 to 20% of those projects. And then I'm managing those portfolios and figuring out what was going on in the investee when I'm quite far removed and trying to figure out is there risk, is the risk emerging? Can I do anything about it? So had a lot of experience managing big things and then of course managed throughout covid and a lot of scary changes. And so during Covid, I had some friends reach out and say, Hey, I'm struggling. Can you help me with something for my e-commerce business? And I was like, I would love to help. I loved it. And so then I decided to do this more often and then eventually full-time. And so now I've probably worked with 40 e-comm businesses over the course of the past four years and we get quite good results and pretty consistently.
Kurt Elster (04:56):
Alright, given that experience, when a brand reaches out to you, when someone reaches out to you, what's the pain point? What's their concern? There's going to be a thing that triggered why they're like, Hey, we got to go talk to Matt, the fractional CFO.
Matt Putra (05:11):
I would say typically it's one of two things. One could be, hey, we're in a jam and we don't know how to get out of it. And that's very common for us. The other is we want to grow really fast and we want to grow really consistently and we don't want to fuck it up. Can you help us? And those two things are why people call. And of course underlying that is, well, we need help with cashflow. How do we manage our cashflow? How do I know I have this much cash today, but what am I going to need in nine months from now if I keep going? Well, we can answer those questions actually and prepare for whatever the answer is going to be.
Kurt Elster (05:48):
One is planning and preparedness preemptive. One is, Hey, we already messed this up. Help.
Matt Putra (05:54):
Yeah, basically, yep.
Kurt Elster (05:55):
Is there a third one in there?
Matt Putra (05:57):
I mean we are starting to get interest from venture backed companies and they're saying, look, we have a board, it's a lot. Can you help us professionalize? Can you help us do all the reporting? Obviously board wants to get a return, I want to get a return as a founder, can you help us figure that that out? So we're getting a bit of that now too.
Kurt Elster (06:16):
Let's talk cashflow, given your experience and give me the common mistakes. What's the stuff that you see these e-com businesses make over and over with their cashflow?
Matt Putra (06:27):
There's a few. One poor bookkeeping. So the bookkeeping is done too late, not every month. Then people don't look at it. That's one of the biggest ones because it's like, I mean you've all heard the cliche, it's like you're driving blind, your window is, or you're seeing, imagine trying to drive with a lag in your view. A video game where the things are lagging, you're trying to play but you can't. It's impossible to fucking play or drive. So we see that time and time again, it's one of the first things we'll fix every single time we do bookkeeping, but we can also help your bookkeeper fix theirs, whatever. The second one is adding fixed costs to early too fast, fixed cost being rent, staff agencies, so on so forth. The general rule for eCom business is that a dollar of fixed costs requires four to $6 of revenue to cover it.
(07:25):
So imagine if you add a thousand dollars person a month, which they don't exist unless you're hiring for offshore, you have to bring in an extra five grand revenue just to pay for that person, let alone to put money in your own pocket. So we see people adding fixed costs way too fast, way too often, and the next would be inventory. This is a newer one. People are buying too much and they're sitting on skews that don't turn and so they're taking bags of money and they're putting them on a shelf and they're leaving them there when they could be using them for growth or whatever, what have you. So those are the three really big ones.
Kurt Elster (07:59):
And within those, now flipping a little, what are the key factors I should be keeping an eye on? What are the KPIs, the metrics? I dunno, what should I to be able to do this, I have to first have decent bookkeeping. A decent bookkeeping being within 30 days of a transaction occurring. I have categorized it, meaning we know it's like this is a business expense and this is what it was, and so we could figure out then based on that, now we have a profit and loss statement that's monthly, a balance sheet that's monthly. So that's like table stakes. I got to start with that. If I've done that, then what am I looking for within it?
Matt Putra (08:41):
Yeah, and I will add too, that 30 days is a good number, but what we want to see is that your books, so let's say January is almost the 31st, so your January books are complete by February 15th. If you wait much longer than that, the information is too old and it's hard to make decisions. But anyway, so other than that, it goes, what else can we look at? Big one. Big one, we on low Taylor holiday talks about this too is contribution margin. So contribution margin being revenue, and you remove every single variable expense. So the materials, inbound shipping, outbound shipping, payment, processing, CAC, the spend to acquire a customer. Influencer commissions, variable sharing of revenue with whatever influencers, affiliates remove all the variable expenses. What should be left over is for a general e-comm business, 20 to 30% of revenue. So that means of a hundred bucks after all the variables are taken away, you have 20 or $30 left which go into either paying you, paying for more inventory, paying for your staff, so on so forth. And that's a big one. You are.
Kurt Elster (09:47):
So we want to be to track country, well all number one, we need, our books need to be up to date and within 15 days of the close of the month, then we want to make sure we're tracking contribution margin as a KPI. So we know on this order, this was the real value to us.
Matt Putra (10:05):
And I would say the other thing, and one of the things I didn't say about the three mistakes is that is people are mismanaging the marketing spend. We don't see that as much as we used to. Agencies and clients have professionalized in a way that was not true even two years ago. That was the first thing we always fixed and we made tons of money for people because of it, but people are doing a lot better with that these days. So that's why it wasn't one of those things. But of course you want to have your daily weekly reporting for those things as well and contribution margins part of that. So contribution margin. The other thing you want to look at is your CAC payback period. So ideally three months or less, if you have a very strong subscription business, it could be six, anything beyond that, you better have a very strong balance sheet or venture money or something, but you can make
Kurt Elster (10:54):
It work. cac, customer acquisition cost,
Matt Putra (10:56):
Customer acquisition cost. So if you pay a hundred bucks to acquire a customer, they should be paying that all the way back to you within three months mode. Most businesses, if you're not subscription should aim to be first purchase profitable, meaning you're paying, let's say you're paying $80 to acquire a customer and their contribution margin is 80 or 81 or something like that on the first order ideally, right? The next thing in terms of cashflow you want to look at is your net or EBITDA or net profit margin. That will fluctuate a lot for a lot of e-commerce businesses, but for an average for a year under 10% is very hard to manage a business. So your net profit should be over 10% ideally every month, but at least in any given three to six month window it should be 10%, 20%. We would imagine just being more profitable is easier of course, because what happens is as you grow, your revenue keeps growing and to keep buying more inventory for that future revenue, but that sucks up all your profit. So if your profit's high enough, you can counterbalance
Kurt Elster (12:09):
That, that turns into just horrible never ending cycle.
Matt Putra (12:11):
Well exactly. And if you're not careful, what then you do is you go and you get way flyer or Shopify or Clearco or one of these financing providers and not only is your profit getting sucked into inventory, it's getting sucked into paying these debts back too. So it gets into this crazy cycle. So net profit, 10 to 20% is ideal. Then inventory turns. This is tough because some people have to order from China, but ideally on your balance sheet you wouldn't have more than three months worth of inventory. Now there's a calculation for this. If someone googles it, it's called days sales in inventory, you can Google it. Investopedia will have a really easy calculation use that three months would be the best case. Anything less than that is of course ideal way better. If you could have only a month, I mean unbelievably better, but that's one days sales inventory, 90 days or less. And then gross margin, I used to say that you could be pretty happy at 50 to 60% gross margin in e-commerce. I don't think that's the case anymore. If you want to be a happy owner, 70 percent's probably your target. If you can't find a product to sell for 70, it's going to be a grind. But if you can get velocity then it can be okay, you can get to your break even quite quickly. But I mean I would say 60 is like your minimum these days. It used to be 50.
Kurt Elster (13:40):
So 60% contribution margin,
Matt Putra (13:43):
Gross margin, contribution margin, okay, yeah, gross margin. So after your product costs, contribution margin, I like to target 20 to 30%. That to me is a scalable contribution margin. If it's less can be okay, but you better be well-funded, 20 to 30% is ideal.
Kurt Elster (14:03):
Surely you've got experience with clients using Shopify. Are there apps or tools that are your Go-to that you recommend?
Matt Putra (14:12):
We love life timely over here. We also love Triple Whale. In fact, a lot of our clients, we pay for the base Triple whale included in our fees for them because you get a level of get of reporting that's quite nice because you get that daily, weekly ad span, revenue contribution margin. You can load your rent and all the stuff into triple wheel for them and it can actually give you a p and l every day almost. So we love that you could see how your net profit looks estimated each day and of course then those that believe in attribution can turn on that side of things or not, but we at least get something that we can log in every day and check out how clients are doing. So we like that. Those are the two big ones. I would say lifetime lead, triple Whale, I don't use any other ones than that.
Kurt Elster (15:03):
What about for bookkeeping?
Matt Putra (15:05):
Oh yeah, of course. Sorry. QuickBooks Zero are the two really big easy ones. NetSuite be careful with, but it is a good platform if you have people that can run it. Most businesses I've worked with don't use anything other than those main three
Kurt Elster (15:24):
You'd mentioned is one of the mistakes is inventory just like inventory is cash sitting on the shelf. What role does inventory management play in this healthy cash flow? How do we manage that?
Matt Putra (15:36):
Oh man, it's huge, right? So there's slow turning. SKUs is a big problem because imagine if you put a bag of money on the shelf, you take it off in five days versus you get to take it off in 90. Well obviously you want to do only the five days one. And so I see people fairly consistently, they have cart builders or they're looking for a OV bumps or they're looking for another product they can sell to somebody. And so then they invest in these other products but they don't turn very quickly and their customers for whatever reason, don't buy them at any sort of velocity. You have money just sunk into these low turning SKUs where what I would do is don't have them or test occasionally, but if it doesn't work, don't continue to have them and put that money back into more acquisition or what have you.
(16:32):
The other thing that I would say is people generally want to buy should buy less inventory at a time. This is actually something I'm seeing getting better too, but people tend to, I don't want to sell it, I don't want to sell out so they buy too much. Well, I think it makes sense to allow yourself to sell out occasionally. Not if you're an Amazon seller, but if you're a Shopify seller, it's okay to sell out here and there. I think there's a exclusivity sort of viewpoint customers can have when something looks sold out, sometimes obviously counterbalancing with lost sales, but for me, I see much more issue with buying too much inventory in the day-to-day of clients that we have than buying less. So buy less. The other thing you can do is, and we might talk about this when you're ready, is negotiating with your suppliers. That's a big part of inventory management and we can talk about that when it makes sense.
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Matt Putra (18:30):
Yeah, anything. The
Kurt Elster (18:31):
Very first Shopify store we built was a bike shop. Amling Cycle was like the recumbent bike shop in Chicago and a bike bike shop, very seasonal business, put it in Chicago now it's an extremely seasonal business. Any tips or advice on handling fluctuating cashflow during a seasonal business like peaking off season?
Matt Putra (18:55):
So I would imagine bikes in Chicago is very, very seasonal, as in you're not doing a lot in the winter right at all.
Kurt Elster (19:02):
Yeah, only it's like you have the 1% of the best customers who know, alright, I'm going to build next season's bike in January. But other than that, you're really not doing much.
Matt Putra (19:12):
I actually worked with a bike store this past year and it was similar in Vancouver, Canada, so it gets not as cold but cold. I would suggest going on pre-order or deposit in the winter, and this is a pretty conservative view of things, which sometimes you should expect from a bean counter like me. But I would suggest if you can do pre-order or deposit, do that rather than holding way too much inventory that doesn't move. Because imagine having stacks of bikes there and your staff need to get paid, but the money's in the stacks of bikes you can't do anything with and they're not going to move for three months. So would you rather miss one or two sales or pay the guy that's your key mechanic or whatever. I mean let one or two sales go and keep the money and make sure your staff are happy and that you have growth capital and that you as an owner are not.
(20:07):
Because what happens when you run out of cash or getting close to that line is you think suboptimally. So it's not just that you're tight and you got to figure out how to pay people, but it's that you then as an owner begin to think more short term, you begin to freak out and you make some multiple decisions and you don't sleep and there's all these things that happen. And so if you can just lose a few sails by not having the bikes there, can you then think better through the winter? I mean I think that's worth it in some cases.
Kurt Elster (20:39):
I think so I think that's also an important thing to note is when you're not in that abundance period and suddenly you have that scarcity mindset and you're worried, you're right. If you're not really interrogating your own thinking, you can make some support decisions unintentionally that after the fact are obvious to you like, oh, that's why I did that. I should.
Matt Putra (21:05):
And what we would do for somebody and what we did for this other bike company was obviously we're just forecasting. So we're going to look at what do your typical winter sales look like on a good case sort of average and worst case. And somewhere between those cases is reality and we are going to look at what if we sell X versus Y versus Z, and then what happens to cash in each of those scenarios? And we're going to kind of pick a lane that optimizes for missing some sales but not losing too much cash. That's what we would actually do for somebody. And so that's what I would suggest people do is kind of pick three scenarios of sales, then you can figure out how much inventory you should have, then you can figure out how much cashflow you need and then pick a lane and live with it. Pick a conservative lane as though what I would say,
Kurt Elster (21:51):
Let's talk something a little more fun negotiating with suppliers. Hold on. I can negotiate with these people.
Matt Putra (21:58):
Absolutely, yes,
Kurt Elster (22:00):
It give me the strategy. What do I need to do to effectively negotiate with suppliers?
Matt Putra (22:06):
So the biggest concept here, we call them nibbles, and this is something I learned from a very good friend of mine named Kevin Nibbles are small requests that are easy for a supplier to say yes to. So if you're in a situation where you order from China and you have to pay a 50% deposit or a 70% deposit or whatever, what have you, and then you pay the rest before they ship, your first question to them is not, can I not pay zero deposit? It is, can I pay 40% instead of 50? It's very easy for someone to say yes to, especially if you've paid on time for the past three months and you're likely to get a yes, that's your first nibble. Now execute that, pay it on time, do what they say in two or three months. Go, look, I know that we usually pay the balances on shipping.
(22:54):
Can I pay one week after shipping while it's still in the water? Great. Pretty easy to say yes to. Cool, execute that. Do what you said two, three months again, come back and go, Hey, you know what can I pay when it lands at the port? Now, great done. Small nibble, easy to say yes to. Now can I pay a 30% deposit? And so what you're doing is you're trying to figure out in a relationship with your supplier, what are these things they will likely say yes to Ask for little things at a time and then build up the relationship and do what you say you're going to do. We have a client who at this point now has 60 day terms when they need it from someone in Asia and that supplier is now keeping excess stock for them at no cost just in case there's spikes and bumps.
(23:45):
And the reason why this is happening is this client of ours went over there, has gone over there once a year. Every year they'll do karaoke, they'll get fucking hammered, they'll have fun, they'll do all the stuff, they'll have a relationship, they know their kids' names and they do what they say they're going to do and they pay on time. And if they can't pay on time, they send a message weeks in a advance saying, look, I got a bit of a jam here. I'm going to pay you in five days after I said I would. And so you build the relationship and you ask for the nibbles and it's awesome. The other thing you can do is forecast for them. But yeah,
Kurt Elster (24:18):
So I think the cornerstone here is long-term relationship building. It is hundred
Matt Putra (24:25):
Percent
Kurt Elster (24:27):
You're not out the gate with a new supplier being, all right, we'll pay in 60 days. It is not going to work. They don't know you yet. You don't know each other, you don't have that relationship. And so you're really by making small reasonable requests after you've already proven that you will act in good faith and then you're able to build that relationship over time. That's the magic here is being a good partner.
Matt Putra (24:52):
Absolutely. And like I said about the forecasting piece, we got the last set of new terms when we started giving them forecasts. So we said, look, the year is going to look like we think it's going to like this. We're going to grow by, I mean in this case it's 30% or more, but we gave them, look, this is what we want in units from you, so the materials that we're going to need and the units from you are going to look like this over the next six months. And Chicago goes, oh cool. Well interesting. Could you do any better? We're like, well actually, if we paid a little bit late, I can put that 30 days of money back into growth and sell this much. And spa goes, oh, interesting. Okay, well that makes sense for me too. But it is all about relationship communication, transparency and visiting them in person is a superpower that we've sort of lost, especially with younger folks. I mean I think you said you're 40, but I'm 38, and so meeting people in person is still something that's really, really powerful.
Kurt Elster (25:47):
It makes a big difference. The people you've hung out with in person, they're more real right there. There's a stronger impression and feeling in your mind about those folks. And I do, I cherish a lot of the time I've spent in person with people within e-commerce within this space. Nothing against the people I hang out with on Zoom or via text, but there's just like there's a bonus emotional connection factor that happens when you hang out face-to-face within negotiating is there. I love the advice. Is there anything else in there? Any other tips or techniques?
Matt Putra (26:30):
Yeah, if your business is a bit more mature, there are some financial tools you can use. So if you're an e-comm brand and you have a supplier in Asia e-comm brand goes to their bank and they say, bank, I want what's called a letter of credit. What that means is the bank goes to the supplier and agent and says, look, if eCom brand doesn't pay, we'll cover it. And so then the supplier has comfort that they can send their stuff across the ocean. And if eComm brand goes bankrupt for some reason, the bank's going to pay. So they're fine. It's called the letter of credit. The next thing you can do sometimes is pay a bond. And again, you have to be a bit more financially healthy, but you as e-com brands sign your supplier 50 K and they just keep that 50 K always as a guarantee of future payment. And I've seen that work quite well for someone in the UK with a Chinese supplier, they had like a 50 K bond and they had 30 day terms with their Chinese supplier, so they'd send stuff across the water, no problem. But it's again, trust, right? What can you do to increase the trust? And like I said, there are some financial tools to do that. Letters of credit bonds.
(27:35):
Sometimes brokers can be really good because a broker will have relationships and they will sort of cultivate relationships on your behalf. I think that could be hard to find. But there are brokers that I know that have done really good work on that, especially if it's a bigger broker. Actually I have two clients that have brokers that are really, really effective, one in India, one in Cambodia, and they've been awesome.
Kurt Elster (28:01):
We've heard on the show before that brokers could really be quite beneficial, especially when you're new to it and finding a supplier can be intimidating or fraught with peril potentially. You haven't done it before
Matt Putra (28:18):
A hundred percent, but this is where I wouldn't know how to look and find for a good broker. I know that I've worked with two or three right now, but there's a guy in India that we work with and we've got into a factory that we would never get into this factory normally, but this relationship with this broker and he believes in where we're going and he got us into the factory so they can be really fantastic.
Kurt Elster (28:44):
So maybe this is a silly fear, but if I'm negotiating with my supplier and we're looking at cost savings here, is there any fear that suddenly bill the quality on what they produce will go down?
Matt Putra (28:57):
I mean, yeah, you mentioned cost savings. I didn't actually say that, but you should obviously always be looking at cost engineering your stuff down a little bit, but you need to find that inflection point where the quality stays where your customers want it and your costs can be moved around a little bit. You have to be very clear with your supplier that look, and again, I'm not a purchasing expert necessarily, but you want to be clear that you need your quality to be such and such and you want to have sort of quality hurdles typically. So defect rates and certain types of materials and all that. If you just willy-nilly push too hard and say, cut the cost by 10%, I don't give a fuck what you have to do. Well, yeah, what do you think is going to happen? Right? Someone's going to cut corners somewhere. But I think again, if you have the relationship and you're clear about what you really want, which is I want good product in my hands of customers who are going to come back and buy from me again and I want quality and I also want to see what I can do about cost savings, then I think your supplier will be okay. Sometimes you need to look for an alternate supplier if they won't play ball. And we have someone in that process too, but that's really hard as well. Can be very hard.
Kurt Elster (30:06):
So we've got, well, alright, so once we've got our cashflow sorted out, we have a good grip on that and we've secured our supplier and we're building that relationship, there's still pretty big cash outlays I have to make to get the product and then the product is on my shelf as an asset, but it's still my cash is tied up in it and then I sell it and I get the cash back. But not all at once, right? Unless I'm doing B2B, I'm getting it a little bit at a time and potentially I'm in a seasonal business too, so there's slow periods. At some point it almost becomes necessity that I take on debt that I have financing. And so that could be scary. Talk me through financing strategy. Your financing strategy.
Matt Putra (30:55):
Okay, so let me give you the ideal and most people won't do the ideal and so I won't spend a ton of time on it. The ideal is that you look at your average inventory throughout the course of the year and what you'll find is there's a floor value to what you're going to carry. We'll call that your working capital base, that floor value, you should finance with a term loan of like five years. So SB, A or if you can get it from a bank. Now most people won't do that because personal guarantees are required, but that's literally the ideal why? Because you're going to get a five-year term loan and it's going to cover your absolute minimum amount of inventory you need to have, and it's going to cost you not that much right now would be eight to 10%. The payments will be, I dunno, quite low.
(31:37):
And so that's a great first step. The second step, you're going to get a line of credit and that will help you finance those peaks and valleys in your purchasing patterns. And then obviously you always have Shopify and Clearco for big spikes and big peaks in absence of the term loan, which most people don't want. I would suggest Sellers FI is a good company. They have 15 month term loans and kick further also has stuff where you get capital from them and you can start your payback in six months and pay down over 10 months or whatever. So that's helpful. And the principle throughout what I'm saying is more important and that is that when you take financing, match it, the length of payback on the financing with the length of return of the purpose, meaning if you're going to go get money for inventory, don't go get clearco, you pay that back in four months, you can't sell through all the inventory in four months, so it doesn't make sense.
(32:43):
Go get a loan from sellers buy because you can pay the sellers buy back over 15 months and you sell all your inventory in 15 months and it gives you a chance to get out of the cycle. You can use clearco or you should use clearco in some cases to scale effective ad spend. Why? Well, if you acquire a customer today, they're typically going to come back or let's say you have a dollar you spend today on ads will come back in 30 approximately. Or if you know your CSC payback is three months, clearco is three to four months. So it makes sense to get clear code to buy more customers. You see how I'm matching how fast I have to pay back the capital with how fast I'm going to get a return from the activities for which I'm using it for? That is the principle. So in as much as possible follow that principle and you'll be relatively happy as an owner, but don't follow the principle and you're fucked because what I've seen before is no seriously, man, I've seen people get clearco and they're paying clearco in four months and the inventory's not even arrived yet. And so taking another clearco to pay for the first clearco and it's a nightmare, but that's because the payback timeline of the financing didn't match the return of the activity they're using it for.
Kurt Elster (33:57):
Okay. So yeah, when you phrase it like that, it's like, all right, the type of loan, the terms of the loan, whether or not you take the loan really need to be based on what I'm using it for. So in this case, it's like our debt, our debt dollars that every one of those dollars has a job. What is that doing and how are we going to turn that into an ROI to pay it back?
Matt Putra (34:20):
I like the way you said that. Yes,
Kurt Elster (34:23):
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(35:55):
Well, have you ever played with the Shopify has financial services like Shopify Capital, Shopify Lending now?
Matt Putra (36:02):
Yeah, for sure. Yeah. Yeah, absolutely. Yeah. Well, we analyze that all the time. I mean, to be frank, I mean, it's been a tough couple of years, and so most people I know have used Shopify Capital at least a few times in the last few years. And typically the payback is four months, and the typical actual interest rate is like 30%. And they may tell you that you're going to get 200 grand with an 8% interest charge, but when you look at how interest works, it's actually 30% interest.
Kurt Elster (36:29):
So you really got to double check like, okay, these are the terms, and then let's calculate what my A PR is.
Matt Putra (36:36):
Exactly. Exactly, yes. A PR
Kurt Elster (36:38):
30%,
Matt Putra (36:40):
That's the minimum I've seen from Shopify 40.
Kurt Elster (36:44):
Credit card is less than that.
Matt Putra (36:46):
Well, this is the crazy thing. I looked at a loan from, who was it? I forget the name, but Oh, kick further can be 50% A PR, but the payment terms are so good that sometimes it's worth it, right? Because what you want, I mean, again, you're matching the payback timeline. The debt is doing its job in the timeline it's supposed to. So sometimes you eat a very high interest rate so that you have payback terms that help you. So with kick further, I've seen 50% before, but they got six months of zero payments, meaning that they sold their inventory and the gross margin was paying the loan, which means they can actually get out of the cycle. But if you're taking a loan to pay back another loan, you're stuck in a cycle. So 50% does make sense sometimes.
Kurt Elster (37:35):
Okay. So I like the approach here. I like the mindset and the thinking about it. Anything but inherently taking on debt is risky. Is there anything else we could do to manage that risk?
Matt Putra (37:51):
Yes. So there's a guy named Rob Fraser who owns Endure Apparel and the socks guy, the Custom socks, the way he did, he grew his business was bootstrapped until it wasn't, but he grew from zero to 10 million without O outside capital by just selling stuff that he could afford to buy. And then when he sold it, buying more shit that he could afford to buy. And so he grew slower, but he's doing awesome. I think he would do it the exact same way again. And he talks about this on his LinkedIn and stuff, and he's probably been on some podcasts, so Google, Google that story. He literally started, I could afford a hundred socks with my savings, buy a hundred socks, sell the a hundred socks, buy what? Now? What do you have your savings? And buy what you can afford to buy. So growing slow outweigh socks, sometimes
Kurt Elster (38:40):
Out socks. I'm wearing outweigh socks right now.
Matt Putra (38:43):
Sorry, sorry, sorry. And Rob, if you hear this, I'm very sorry it was endure. Now it's outweigh my bad.
Kurt Elster (38:50):
I was like, Rob Frazier socks. That's really familiar. And I Googled it. It's outweigh socks.
Matt Putra (38:55):
You might need to, but anyway, it's fine. But yeah, no outweigh. So follow him. Listen to that story. I'm sure he sold it a handful of times on podcasts and whatnot, but that's one of the only example, well, actually no. Yeah, someone else did that too in the uk, someone I worked with and they just bought what they could afford to buy and then rolled that into new stuff and they were very, very conservative. So this is the thing, you can do it that way, but you have to be conservative with fixed costs, conservative with inventory buys, conservative with forecasting, conservative with agencies, conservative with live on a shoestring until you can afford the bigger rent for your bigger apartment. I can be very, very, very careful. But if you do that, you can do it this way. And these people are happy because they don't have the same stress that others do. And to be frank, that's not the way I run my business. I run it faster than I should, and I use some debt too, but that's because I like the growth and it's fun, and my wife and I can handle the stress.
Kurt Elster (39:53):
Yeah, part of it's just what are you personally? A hundred
Matt Putra (39:57):
Percent.
Kurt Elster (40:00):
What's your personal risk tolerance?
Matt Putra (40:02):
A hundred percent. And my wife and I are prepared to move to Columbia or Bali or somewhere. If we need a year that we don't have enough money to live in Canada, we'll move somewhere else for a year
Kurt Elster (40:12):
To
Matt Putra (40:13):
Yeah, that's what I mean. Yeah, I know a guy there right now, but if that's your risk tolerance, then fucking go for it. But just be aware that you're playing a game and there's some winners and some losers.
Kurt Elster (40:24):
Yeah, that risk is always there no matter what. Even if you're bootstrapped, the risk is still there.
Matt Putra (40:28):
True. That's true. Yes.
Kurt Elster (40:30):
So okay, let's zoom out here. Based on your experience, what are some commonalities, some traits of the financially sounded successful? E-comm businesses?
Matt Putra (40:45):
The big one that I've seen and I've never changed is they're lean as long as they can be lean. So they keep costs down. They're just careful as long as they can be. And those people, by and large, have been the least stressed having the most money owners, and there are outliers. And I know a guy that went really hard and then it all worked out and he sold his business. But from what I can tell today, just be cautious, be conservative, and those people are the least stressed people I work with. It does work out the other way though too. But
Kurt Elster (41:26):
Yeah, the more aggressive you get, often the more debt you have to take on, the more chances you have to take. And every one of those things is you are adding additional risk exposure to your life and business.
Matt Putra (41:36):
But I work with someone today. That's a
Kurt Elster (41:38):
Big bet too. High risk reward. This
Matt Putra (41:40):
Is the thing. So you make a good point. So I'll say that I work with someone, oh, you know what? The other one is a great product. Sorry, I shouldn't forget to mention that.
Kurt Elster (41:49):
Oh yeah. We're like, well, that's just obvious.
Matt Putra (41:52):
Yeah, I guess so. But a really fantastic product. So I know a guy who lost high six figures two years in a row now is making high six figures because their product just resonated with their customers. Their customers love it. And they could sell on pre-order for six fucking months and people would just keep buying it at a ROAS of four or five. So if you have a good product, sometimes you can afford to be nuts with how you run the business.
Kurt Elster (42:20):
I like that advice. We talked successful traits. Give me the single most challenging thing about being financially literate with your eCom business.
Matt Putra (42:32):
It's the amount of information you need to be able to digest regularly and make decisions. That's the hardest thing about it. And that's why people have fractional CFOs and there's fractional CFOs that have courses like Jason, Andrew from SBO Financial Media course for emerging e-com owners to help understand, and I think it literally is just the amount of shit you have to manage staff and not just financially. You have to do all the operations too. So to me, I think it's you have an MBA, so you're probably set up in some ways more than others, but there's just so much information and how do you know what are the right things to focus on? Even that's a big one. There's so much data these days, what's the right number for you to look at? So I think that's the toughest. There's a lot to know.
Kurt Elster (43:20):
You could very easily just be drinking from the fire hose, get overwhelmed, and absolutely have the right info in front of you and totally miss it.
Matt Putra (43:27):
A hundred percent, yeah.
Kurt Elster (43:29):
What's the one piece of financial advice you want people to walk away from this episode with?
Matt Putra (43:36):
Stay lean, be conservative. By and large, there's more people that do that and are less stressed than the other way around.
Kurt Elster (43:46):
Avoid shiny toy syndrome and getting it over your head. As a result.
Matt Putra (43:51):
When you find a leverage point, leverage it. But until you find it, don't, don't just fuck around and spend money.
Kurt Elster (43:58):
I like the advice, and you made this practical and accessible and not jargon filled. This was a good episode. I appreciate it. Where can we learn more about you?
Matt Putra (44:07):
Sure. Yeah. So LinkedIn, you could look me up, Matt Ra. My website is eight x.co, EIGH tx.co. Either of those places. Yeah, come join me by me on LinkedIn. Let's chat.
Kurt Elster (44:22):
Beautiful. Matt, thank you so much. This has been well informative and fun. I enjoyed it.
Matt Putra (44:28):
Thank you, Kurt. I really appreciate it.
Kurt Elster (44:31):
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