POD: Calling all CFOs: Want to Automate the Reconciliation of Your Accounts? Learn How!
July 19, 2022
May 10, 2023
min read

POD: Calling all CFOs: Want to Automate the Reconciliation of Your Accounts? Learn How!

The Profit Forecast: The eComm CEO's Podcast

Episode #3: Lyndsey Bunting of Blue Onion Labs

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Ben Tregoe: [00:00:00] Well, Lindsay, it's great seeing you. Thanks for joining us.

Lyndsey Bunting: Yeah. Ben, thank you so much for having me. I'm super excited. 

Ben Tregoe: Good. Well, I thought, you know, a good way to start would be just to learn a little bit more about your background and then what you're doing at, at blue onion, cuz you're blue onion is so directly tied to your experience.

Ben Tregoe: I think that's really fascinating. So if you don't mind, why don't you give a little bit of your background and then talk about blue. .

Lyndsey Bunting: Yeah, so I come from the finance and accounting side of the world. So I was at a company called Birchbox several years ago. So one of the OGs in, in the subscription business which was super exciting.

Lyndsey Bunting: So I was there for, for five years. I joined actually as a financial analyst reporting to the CFO. And by the end of the five years, so I was running finance and accounting globally. So it was an amazing opportunity at a startup. But along with that, there were obviously tons of challenges, which I'm sure, you know, your audience knows well about just in terms of scaling especially from the finance and operation side of the business.

Lyndsey Bunting: So we grew really quickly we're operating in multiple countries, had a brick and mortar store and then, you know, all that time we were on QuickBooks and then we were trying to move on to one of these very legacy E R P systems. And so that was such a nightmare, that whole process at the time, and I thought, you know, this can't be, it.

Lyndsey Bunting: It can't just be QuickBooks. And then I have to pay a million dollars. And spend, you know, 12 to 18 months of my life, you know, working on this project. And so that was really, you know, how I began to think a little bit about blue onion and so ended up leaving Birchbox several years ago actually, and ended up consulting for a lot of different D TOC brands in New York.

Lyndsey Bunting: And just kept seeing the same types of problems where, you know, at a high. Financial data lives across a company. It lives in all these different systems and accounting and finance teams. We're still having to go into each of these systems, you know, download CSV or Excel files and try and stitch all of it together just to close the books.

Lyndsey Bunting: And I thought, you know, this was crazy. And so decided to, to start blue onion labs. And so really what we're building and what we built is essentially you. A system for e-commerce accounting teams to help them automate a lot of those manual processes around collecting sales data and accounts receivable data so that they can close the books faster and more accurately.

Lyndsey Bunting: And so, you know, for a lot of our companies and I'm sure, you know, with companies you've worked with as well. as the business grows, the accounting piece just becomes more and more complex. Right? Right. You wanna sell in a new marketplace, you want to open up a second Shopify store. You wanna add all these different payment processors or a return service or a loyalty program or gift card.

Lyndsey Bunting: So all of these things, which are so awesome and exciting for the marketing team but then everyone's like, oh yeah, accounting, you know, at the, at the end of it. And it's a little bit of an afterthought and. What we've really built is, you know, a tool to help accounting teams sort of keep pace with marketing so that, you know, you are able to go and do all of these things on the marketing side and the revenue generating side and not need to go hire, you know, a million accountants to, to try and deal with all of that.

Ben Tregoe: Right. Well, that, that's awesome. And you raised a bunch of questions and I just wanted to go sort of back to the beginning of like, Explain, like maybe in more detail, what is the, you know, where, where is all this data living? Right. Because it's, it's inside payment processors, it's inside marketplaces. It's inside Shopify.

Ben Tregoe: What is the problem? Cause I think, you know, in our experience sometimes, you know, CEOs or leaders are like, oh yeah, you. Whatever, and then they farm it out to like a, a, you know, sort of a pretty cheap bookkeeper. And then you get this like really weird combination of financial statements as a result. So what, what is the kind of specific problem of the data being in all these different places and what is the benefit of getting a better handle on it?

Lyndsey Bunting: Yeah, it's a, it's a great question. And so maybe even, you know, if we think about even like a simple brick and mortar transaction, right? Like you go into a store, maybe you buy something for $20, you hand them $20 in cash and you get to walk out with that item. Right. Fine. Super easy. But now if we think even to, you know, a simple eCommerce transaction, So Ben, maybe you buy a $20 item from your favorite e-commerce store.

Lyndsey Bunting: Maybe they offer you a $2 discount. Maybe you have to pay $3 in shipping. Maybe you partially pay for that with a gift card or loyalty points, right. And then maybe you pay for it with PayPal or Stripe the remaining balance. And then ultimately when they see that money in the bank [00:05:00] account, it doesn't say here's, you know, that amount from Ben, it just is a lump sum of cash.

Lyndsey Bunting: Right. And so already you have so many interesting data points around that type of that transaction. But it's really difficult to, to essentially extract all of that. And especially if. You know, if you have a part-time bookkeeper, who's just trying to, you know, close the book. So, you know, how do we take all of that?

Lyndsey Bunting: That information and put it in a format in a way that's organized and you to understand for accounting teams. Right? And so what we're doing is we've built all these integrations into, you know, whether it's Shopify, Amazon seller, about 20 different payment processors. And then we go all the way to the bank account.

Lyndsey Bunting: And that's in addition to some of these like third party apps around return services gift card services, things like that. And so that people are, you know, the question I usually get. You know, why didn't something like this already exist. And I think the really interesting part is, you know, when I was at Birch box, it couldn't exist yet because everybody was on all these custom systems.

Lyndsey Bunting: And so now with the rise of Shopify, Amazon seller the ability to extract data in a standardized way through different APIs, specifically within the payment processors just gives you so much more ability to pull in that data. Right? But the one thing I'll say is that it's not just enough to take data from one place as you know right.

Lyndsey Bunting: And like dump it into a different system or QuickBooks or something like that. Cuz that's only half the battle. Right? The hardest part is really around the cleaning of the data. And that's really the part that we're focused on automating because we go all the way to the bank account. And so, you know, the accounting term of reconciliation comes to mind.

Lyndsey Bunting: Where it's, we are cleaning that data. And when you see that order in the order system, the refund, we tell you exactly how and when it gets settled into your bank account. And if it doesn't cause that really is the thing that helps identify where things might be missing, they're going wrong. I mean, we've seen, we've seen a ton of different cases of things where they weren't lining up.

Lyndsey Bunting: And so to be able to help and flag that for companies can be really helpful.

Ben Tregoe: so is okay. So there's a problem sometimes where it's not being done properly and you're, you're missing money that you should be getting. And then maybe there's a, it sounds like there's also a problem of like you're getting to cash or an accurate prediction of cash, cuz.

Ben Tregoe: You have to all these different delays, like, so I sold something on Shopify today, but you know, I guess I don't get it for three days. And, but let's say I had to close the books in the meantime, or a new month happened. You now have these like weird cash balances. Right. Which makes things can make things scary if you, especially, if you're operating in this environment with low profits and cash.

Lyndsey Bunting: Exactly. Yeah. And that's the other thing that it was, you know, we've worked with some companies that thought they were gonna get, let's just say a million dollars this week, but then they only got $900,000. Right. like, and then they're like, what happened? And so it's not as simple, unfortunately, as you know, I sold this thing for a hundred dollars.

Lyndsey Bunting: I'm gonna get a hundred dollars in the bank account is, you know, there's a ton of different steps in between there, whether it's payment, processors, whether it's returns and refunds, whether. You know, non cash payment methods being used, like gift cards or exchange credits. And so to be able to have a grasp and really understand, you know, what is the breakdown of my fees and what actually is the true cash that I can expect this week can be so helpful to your point, especially as we get into this new, I'll call it new operating environment for eCommerce companies where cash is so important.

Lyndsey Bunting: And you know, you're looking for every little thing you can on the margin. and

Ben Tregoe: have you, you have seen discrepancies that large where people miss by a hundred K.

Lyndsey Bunting: Yeah. And part of it, sometimes it's just, you know, I'll give maybe two examples. So one is, you know, sometimes for some of these companies, They're moving really quickly.

Lyndsey Bunting: Like we've seen companies go instead of new payment processors and not necessarily tele accounting. Right. yeah. And so maybe there's PayPal balance sitting somewhere, right? Maybe there's a balance in Amazon pay where nobody really knows. Right? Like the accounting team doesn't know they're missing this money.

Lyndsey Bunting: They don't have access to it so that they can sweep it into the main bank account. So. Sort of just like a process piece. Then on the other side of that, what we've also seen is, you know, in some instances, you know, a lot of times it has to do with how customer service is processing some of these refunds or issuing different credits.

Lyndsey Bunting: And so, you know, if you, if they're doing it at the payment processor level, but the accounting team teams using, you know, the order, let's say Shopify to pull in the refund amount and they're missing a bunch of refunds, you know, that's very jarring for the team to find out you. when they're like, where is all this cash?

Lyndsey Bunting: And that's usually what we see and that's sort of the initial or the early indicator is that you have this balance sheet amount. Of, you know, whether it's cash in transit [00:10:00] or undeposited funds or whatever you wanna call it, that just keeps growing every month. And nobody's quite sure why. And so that's usually a really good time for us to come in because there probably means something's happening.

Lyndsey Bunting: That's not being accounted for either correctly in the financial statements or there's some sort of process mismatch happening somewhere. Wow.

Ben Tregoe: That's interesting. As you were speaking, I was also thinking about the, the problem of loan covenant. where, you know, you often have to maintain certain levels of cash or ratios, and depending on what measure the lender's using, you know, like for example, if they were looking at your bank balances, you would actually have far more cash, you know, it's just a couple, 2, 3, 4 days a week out, then they see, and you could inadvertently trip a covenant because you weren't sort of properly allocating words with your system.

Ben Tregoe: You could say no, no, Let's use, you know, the full accounting it's gonna come in. It's just two or three days behind, you know?

Lyndsey Bunting: Yeah, exactly. And I mean, that's it, some of the other things that we're seeing too is, you know, there are some of these loan facilities where you have to deposit into that loan provider's bank account.

Lyndsey Bunting: Yeah. And so really there's a, like a lack of visibility. Yeah. In terms of like, what cash am I getting? Where is it coming from? If I can only see the. You know, into my main bank account, like a week later or however many days later. So it's really about that visibility, having a really good grasp on, you know, cash.

Lyndsey Bunting: And the other thing too, I'll say, especially as we think about this new economic, you know, operating environment. Like gift cards is another thing too, right. Where it's like, did I already sell all these gift cards, maybe around holiday and I've already collected that cash and now they're coming up for redemption.

Lyndsey Bunting: Right. In which case I'm gonna get no cash for a lot of these orders or maybe on a more positive spin side. Right? Like I'm gonna sell all these gift cards and gonna get a lot of cash up front. And so just wanna make sure I fully understand what that means for my cash flow forecast.

Ben Tregoe: Boy. That's interesting problem.

Ben Tregoe: Right? I can. So everybody does that. I'm sure. Well, do you guys do that? Do you have sort of gift card redemption predictions

Lyndsey Bunting: in your system? Yeah, so we, we show all of that. So we show all your gift cards sold. We show gift cards. This is the other fun thing we've seen a lot is complimentary gift cards that are issued, whether it's for like a marketing program or.

Lyndsey Bunting: Influencers or something like that. So being able to understand and really see that liability that's, you know, outstanding, right. That maybe it's a little bit hidden and sometimes hard to find. Right.

Ben Tregoe: And what are the outputs of, of brew onion then? .

Lyndsey Bunting: Yeah. And so the, the biggest thing is if you think about it, we're taking all of your order system data, all of the payment processor data, and then going all the way to the bank account.

Lyndsey Bunting: And so, and then we're cleaning all of that data because we go all the way to the bank account. So now we have this really clean set of transactional level data. And we have a couple different outputs, so we try and present it in a way that's very helpful for finance and accounting teams, cuz that's really what the product.

Lyndsey Bunting: Built on my experience. , you know, all the experiences of, you know, the 150 e-commerce companies that we work with today and really having a tool for finance and accounting teams. Cuz that was the thing is that I always felt like marketing had a tool. The engineers had a tool and it was, you know, what can I see in a way that's really helpful for me and for my process on the, the finance and accounting side.

Lyndsey Bunting: And so with that clean data set, we can do a lot of interesting things. So we automate journal entries and we suggest different journal entries. Based on the accrual methods. So, you know, in and out of deferred revenue, revenue recognition things like in Shopify that can be challenging to pull out order tags.

Lyndsey Bunting: You're able to group your transaction data in lots of different ways. Information around refunds, deferred revenue, waterfall schedules, gift card balances. And then we also have what we call, you know, like a bank rec essentially, which is here's my deposit. You know, in the bank account, I can see $123,000 and 52 cents.

Lyndsey Bunting: You can click into that and see every single transaction, every single fee. That makes up that. So like, as you're thinking about like an audit process, right. It makes it a little lot easier than needing to go and try and do that whole revenue sample and tracing it to the bank account. So we try and automate all of those things so that your monthly closed process, or we have companies that do weekly closed processes, you know, are really easy and fast.

Ben Tregoe: Interesting. And I, I, I would imagine you could handle things like mixed order carts, right? Where. You're shipping at different times and things like that, that becomes a ultimately a journal entry in an.

Lyndsey Bunting: You. Yeah, exactly. And that's really around the presentation of what we have around deferred revenue.

Lyndsey Bunting: Mm-hmm so you'll be able to see everything that's sold and then as it gets fulfilled, we will show you [00:15:00] recognized revenue. And so whether you have split shipments, or let's say it's black Friday, cyber Monday, and you sell a bunch of things in November and you don't ship them until December. Yeah. We'll be able to show you all of that information.

Lyndsey Bunting: And also things that have been lingering for a while too. Like, let's say you sold some stuff, you know, March and for whatever reason, it still hasn't shipped. We'll show you that unfulfilled balance so that you can look at your balance sheet and say, okay, does all of this, you know, line up? And the other thing I'll say is where it's been particularly helpful.

Lyndsey Bunting: I think with some of the supply chain issues that companies have been having is if they're doing presales. For example, and they already collect that cash and they've taken the order. What's still open and outstanding and to be fulfilled again so that they can have a really good grasp on, you know, cash flow, what that looks like I've already collected this cash, but I still have to fulfill these items and ship them.

Lyndsey Bunting: And, you know, again, I think it's gonna, it'll be a really interesting environment for companies to operate in soon. Yeah.

Ben Tregoe: Yeah. That's for sure. Where, where does blue onion stop? I mean, you you're, it. A big product and you're doing a lot of really cool things. Like where, where do you sort of like draw the line?

Ben Tregoe: You know, like we're not tackling inventory or we're not doing. ,

Lyndsey Bunting: you know? Yeah, it's really interesting. I would say, you know, I, this idea of reconciliation can be applied to, I think, a lot of pieces of the income statement and the balance sheet, which is when we think about it, it's I have this transaction and it hits multiple systems.

Lyndsey Bunting: So how can I trace that transaction across those systems and then generate the data I need. For my accounting and finance processes. And so, you know, for us inventory is definitely something that we hear a lot about and is, you know, not for this year, but certainly, you know, on the roadmap for us. But we are, I'll say where we stop is really around the forecast side.

Lyndsey Bunting: So that is really, I think there are, you know, There are a lot of other tools and things like that out there. I think for us, we were really focused on how can you get the most information out of, you know, this historical data and how can we help you close your books faster?

Ben Tregoe: Yeah, yeah. And Lindsey who, who makes who's a good customer?

Ben Tregoe: Like what indicates somebody's like ready for you or the, of the size where it makes. .

Lyndsey Bunting: Yeah, definitely. I'll say we have sort of two, what I'll hold two sets of customers. So we think about if you were an e-commerce business and you're about 10 million till it's called like 150 million, that's sort of our sweet spot, our bread and butter.

Lyndsey Bunting: And you have somebody in house on the finance and accounting team. And so that's usually who we're working with. And I'll say that's sort of like our one, our one group of customers we're actually working on a NetSuite integration. So that may even eventually you. The revenue number, I think will eventually get higher as we see more companies as they grow right.

Lyndsey Bunting: Move on to an ER P system. But then I'll say that like one to 10 million. So we thought, right, like if I'm a business owner, I have less than a $10 million business. I have lots, I have a million other things I'm focused on right. Then like closing the books on an accrual basis. But what we've seen and where.

Lyndsey Bunting: Can be really helpful is a lot of those companies use fractional finance and accounting companies or bookkeepers. And so, you know, we work with a lot of different, you know, fractional firms that maybe are helping close the books for these companies and they're doing it like 10, 20, 30 times a month.

Lyndsey Bunting: And so some of our clients actually are these fractional finance and accounting

Ben Tregoe: teams. That's interesting. Wow. Okay. and I, I'm sure everybody's listening would want to know like, well, you know, what's this gonna cost me? Or, you know, can you sort of share roughly what the, you know, how the pricing works?

Lyndsey Bunting: Yeah, totally. And so pricing is based off of basically your revenue. So that was the, you know, because this is a tool, essentially, if you know're 1 million all the way up to 150 million that we really believe can be helpful for your business. And so wanted to make sure that it's affordable for. You know, operating at a $1 million budget versus, you know, $150 million budget.

Lyndsey Bunting: And so, you know, because a lot of what we're doing is a around transaction volume. We thought the easiest way to price, it would be, you know, based on revenue. Right. And so it can range from $500 a month up to, you know, four or $5,000 a month.

Ben Tregoe: Well, that seems like, so I'm sure that the customers look at this as like headcount replacement, right?

Ben Tregoe: I mean like what other choices they have besides hiring people to do this for them.

Lyndsey Bunting: Yeah. And that's really, and the, the funny thing that we've seen though, is that it's, nobody is like super excited to hire that like third, fourth, fifth accountant. Right. And also, right. And so, and, and actually a lot of what we see, which is not that surprising.

Lyndsey Bunting: We see really lean accounting teams where you have one or two people that are [00:20:00] doing everything and they're tired. and I don't blame them. That's a ton of work for the complexity of accounting for an e-commerce business. And so the way that we've seen it and the way we like to talk about it too, is like, how can we empower them?

Lyndsey Bunting: So that they don't have to do this process at month end and download all these things and try and put it together in Excel worksheet, cuz there's a million other things they, they have to do and would rather be doing honestly than this like reconciliation process.

Ben Tregoe: Yeah. Uh, Let me just like switch gears, like sort of briefly, like I know one of the benefits is faster, close to books.

Ben Tregoe: I don't think a lot of CEOs or leaders of D TOC brands appreciate. Why that's important. So why is that important? .

Lyndsey Bunting: Yeah, it's a great question. And maybe I can, maybe I'll talk a little bit more about like, when it goes wrong. Right. So I think there is, you know, there's a couple different things. So from like a purely process perspective, right?

Lyndsey Bunting: Best practices, best in class finance and accounting team to make sure when you wanna do that debt raise, when you wanna do that equity. When you need to get through that audit, it is not the worst process of your life, right? Like it is best practice. And then I think the other thing too, is where we try and come in is, you know, you wanna try this new thing.

Lyndsey Bunting: Marketing wants to try this new thing to generate more revenue. You wanna try and sell on Amazon seller, you know, UK, for example, and open up the Shopify wholesale. So we can help with that. And so eliminate a lot of that additional work that you would, you know, knowingly or maybe unknowingly take on the accounting side of it.

Lyndsey Bunting: And so, you know, we wanna make sure that those things are always easy for you. So you guys can move at that same speed that marketing's moving at. Yeah.

Ben Tregoe: But we, I'm gonna press a little on the time to close because, you know, we. We've run into some customers, you know, where it's like, it's not just like, oh, it's 27 days later, you know, it's like 90 days later, it can be really long.

Ben Tregoe: Right. And like, what are the, you know, I think the customers sort of like, well, look, I can see my cash. I can see the cash in the bank. I kind of have a rough idea. I have, I have, you know, your model the Banbridge model, like I'm, you know, I'm not gonna press that hard or I'm not gonna really spend the money to speed it.

Ben Tregoe: so, but there is real dangers there, but what, what are those dangers like if you were , you know, advising that, not blue onion, but you were advising that CEO, like what would the dangers be? You're just like, you could really miss badly and get yourself in trouble and not even know it, or,

Lyndsey Bunting: yeah. I mean, I think that for sure, right?

Lyndsey Bunting: Like again, the, what, what you learned from an accrual basis is very different from what you see just on a cash basis from like, A finance and accounting perspective. And so, you know, and again, having clean books I think is, you know, it can identify where things are going wrong. So let's say you wait 90 days.

Lyndsey Bunting: And let's say there is something wrong with refunds where you're double refunding customers accidentally in certain things, or you're not collecting the sales tax that you thought like those things can result in real cash outflows in real cash losses that you've now waited 90 days to, to be able to even see, let alone.

Lyndsey Bunting: And so by having those things and doing this process is an sometimes annoying as it is of reconciliation and verifying all of your transactions are, you know, happening in the bank account and everything sort of flowing as I would expect it to you're able to identify any discrepancies. A lot faster.

Lyndsey Bunting: Right. And then the other thing I'll say too, you know, as companies grow was, it was always one team's reporting this revenue number another, team's reporting this revenue number. Somebody else is a different number in mind. And sometimes those differences can be really meaningful. Yeah. And so if you're trying to plan around those things, I think that, you know, that you also get a risk, right?

Lyndsey Bunting: Maybe inventory. You know, planning against a different revenue number than accounting and finance are seeing like, if so, why, why is that happening? Why are people using different numbers? Right. And then, you know, anytime you wanna provide any financials or look at a forecast, if you have even, you know, stakeholders where you're like, I'm gonna hit this revenue number for, you know, this fiscal period, you know, and then you wait so long and you don't realize, right.

Lyndsey Bunting: Like, oh, that actually wasn't my revenue number. I. All these discounts or I had, you know, a huge number of refunds or whatever it is. Right. And now it's a little bit too late,

Ben Tregoe: right. Is what we've seen. Right. What's the, when do you see people moving off of cash to accrual and like, what's your recommendation there?

Ben Tregoe: You know, I know this is not your typical customer base, but you know, there's a tendency, I think when you're just getting started, like everything's cash. Accruing. Yeah. [00:25:00]

Lyndsey Bunting: Yeah. And I'll say maybe depending on sort of the type of company. So if we see like a venture backed company and maybe they're just starting off in terms of the revenue side, but they're like, okay, I know I'm gonna have to move here.

Lyndsey Bunting: And then they have somebody on the finance and accounting team. They're like, they're already there. Right. They're, they're already moving to, to a crawl basis versus I'll say, if you are, you know if I have my own sort of business, Just personally. And I'm like, oh, like, this is mostly for me. Cash basis is fine.

Lyndsey Bunting: Also. Usually that's probably fine up until about 10 million. And so I think it's really, oh, I. . I mean, sometimes

Ben Tregoe: I was like shy. I thought like 500,000. I was like, whoa.

Lyndsey Bunting: Yeah, it depends. It really depends on sort of like what the, who your key stakeholders are. Yeah. And some, and I think the personal comfort level, if you, as the owner provider are like, I fully grasp this and I don't necessarily need to see those things.

Lyndsey Bunting: And I, you know, I'm a one person show and I, you know, this is more for my personal. Then you're probably fine to, to wait long. So I think it, it just depends. We've seen, we've seen companies just starting out that are like, we need this right away. We've seen companies that wait until, you know, they're $10 million and they're like, okay, now, now I only need to get my books in order for many reasons.

Lyndsey Bunting: So it, it really just, each company is a little bit different.

Ben Tregoe: I'm gonna totally switch gears. So given your experience and. In this really unique position, you said 150 customers, I think, right? Yep. What everybody is worried about this environment, the new operating environment that you're calling it.

Ben Tregoe: And one of the things that Banbridge is totally focused on and talking to all, all of our customers and prospects about is like profitability. How do you get to profitability? What are some of the things that you've seen, you know, that companies can do and how should they think about the process?

Lyndsey Bunting: Yeah.

Lyndsey Bunting: And I'll, I'll speak maybe more from my my consulting slash Birchbox experience work. For this one. And so it always makes me laugh a little bit when it's like, okay, now we need to be profitable. Everything's changed. Right? Like, like from a again, maybe just from the finance perspective, I'm like, that should always have been, you know, the goal.

Lyndsey Bunting: That's what we had easiest for. Right. Right. And so you always wanna make sure no matter what the environment is that you're building towards a sustainable business, I think, and I think that's even more true for, you know, e-commerce companies, the, what I've seen in terms of, you know, I'll say one of the guardrails that we've seen.

Lyndsey Bunting: Or where companies maybe sometimes go wrong. So sometimes what we'll see is, you know, in this, in my past, you know, two years as a company, I have a repeat rate with customers of this. So I can reasonably assume that the next two years are going to be same as the last two years. Right. And so that then determines, okay, here's my expected LTV, you know, so I feel really comfortable, you know, going up to this.

Lyndsey Bunting: Right. And that can be really dangerous, right? Like if something meaningful shifts in the customer behavior mm-hmm . And so, and then again, with all of the changes to, to Facebook and Google and everything else that's happening right now, I think, you know, one of the, the guardrails that I used to put in place, at least for newer companies where they maybe didn't even have that retention information because they were so young would be, are you making money on every order?

Lyndsey Bunting: Right. Like, you should never be in a position where you're losing money on every transaction. And so, you know, part of that is really understanding, okay, what is my gross profit on, you know, this order? Do I have a really good handle on my costs of good sold? What is my return rate? And then how do I compare that to like this cost of customer acquisition?

Lyndsey Bunting: And when I look at it and I'm gonna assume that I'm never gonna see this customer again, and hopefully you will. Right, right. But I'll make the assumption that I'm never gonna see them. Am I still making money on this order. Right. So I, so, and been curious to hear about your, your experience and advice.

Ben Tregoe: Well, I'm like, obviously like thinking of the exceptions or, you know, but like what about a, a subscription business?

Lyndsey Bunting: yeah, it's true. I mean, for, for certain cohorts or for certain types of business. Yes. But even then I would, I would, you know, at Birch box, I would not argue against it, but I would still be very cautious in that approach.

Lyndsey Bunting: Got it. Making the assumption that even churn rates, right. Are still gonna hold because I sell this thing monthly. Right. And depending on, you know, whether it's, you know, a change in product or the operating environment or competitive environ, , you know, things are changing and can change pretty quickly.

Lyndsey Bunting: And so just making sure or at least sensitivity testing, I think those assumptions around retention, even for subscription companies is super, super important.

Ben Tregoe: Yeah. We [00:30:00] I mean, we're hu we're huge believers in understanding the repeat purchase rate and. Then so much flows out of that. And what the mistakes, it was really interesting and gratifying to hear you say, because when you, if you start with, okay, what are my re current customers gonna do for me into the future?

Ben Tregoe: And you overestimate that, you know, then to hit your goals, you have underestimated your ad spend, right? Yeah. Cause you're gonna spend more money to make up new customers, but you're probably gonna buy too much inventory. yeah. You know, predict, you know, thinking those things, then if you get it the other way, which you know, is probably more true a year or so ago.

Ben Tregoe: And you underestimate it, then you don't buy enough inventory and get stockouts and you miss out on all that revenue. And what we've we'll see people do is, you know, that, like you said, like, oh, a repeat purchase rate is 5%, you know, so therefore it's 5% into the future. Which isn't really true, right?

Ben Tregoe: It's like cohort by cohort month, you know, that doesn't impact all these things. And then. You know, even that doesn't factor in changes in the product mix or discounting strategies or, you know, and, you know, your promotion environment or your ad environment, you know, so people are like, oh, I had, you know, like if you change your product mix dramatically, you know, all of a sudden like that retention rate.

Ben Tregoe: So how would you do that? You'd just run sensitivity, analyses to, to say I'm gonna decay. the, the retention rate faster and see what happens or something like that.

Lyndsey Bunting: Yeah. And, but I'm sure, I mean, I'm sure you guys are probably doing this with your clients too. It's just like, know what's my low case. What's my high case.

Lyndsey Bunting: Yeah. What's my base case. And continuing to evaluate that on a regular basis of, you know, so you're able to identify if there is, you know, certain things that are not looking as good as those projections, so you can really move as quickly as possible. On on there. And then the other thing that you said that actually resonates a lot is really on the inventory planning side.

Lyndsey Bunting: So, you know, where we see or where I've seen companies, you know, put the most money and resources, right. It's really around inventory costs of good sold marketing expense. And then payroll. Those are like the three buckets. And I used to tell my companies, like if you get these three things, you will be in a great place.

Lyndsey Bunting: you will have a great business. Yeah. If you have sustainable revenue, strong unit economics, and you know, an LTV to C, that makes sense. And you manage your working capital you're you're there that's the easy part is saying it, the hard part is actually doing it, but I will say that, you know, thinking about.

Lyndsey Bunting: Again, again, in not in a new environment, but maybe being more aggressive in terms of, you know, what are my payment terms with my manufacturers or my suppliers, right? Like how can I try and, you know, get that revenue as close to when I have to pay the cost for that inventory, for example, right. so are there things that I can do there?

Lyndsey Bunting: Gift cards are something that I always recommend to companies as well, just from like a working capital perspective. Can gift cards are essentially, you know, a loan from your customers and interest free loan. So can you get that cash up front? But really on the, the inventory of the supplier side, can you rethink those terms?

Lyndsey Bunting: Yeah. Less deposit, upfront, more, you know, net 30 net, 60, whatever those payment terms are. Can you negotiate those out further? And then to your point, like really being thoughtful about the inventory mix, right? What is evergreen? Versus what is seasonal? How quickly am I turning that inventory? How long is that inventory in transit?

Lyndsey Bunting: So I think that was one of the things that, you know, for a growing company that I wish that we had invested in earlier was really hiring on the inventory planning side. Interesting. Given how large that, you know, that bucket of spend is, and we always made hires on the marketing side. Right. Cause that was so important, but sometimes people forget like so much money is going into the inventory planning side.

Ben Tregoe: Yeah. And it's, it's so hard. I mean, you know, there's platforms that do it, but you still need good people cuz you're making. Yeah. I mean we think about like our apparel customers and I'm like, oh I don't envy that job, you know? Oh my gosh. And all that,

Lyndsey Bunting: that is, I know that's the one thing with returns and returns in transit.

Lyndsey Bunting: What's the buy all the sizes. Yeah. It is, it is not easy. And then on top of that, right, it's not just enough to just plop it into a spreadsheet or a tool and roll everything forward. Right. Cause then you have to account for, you know, what's seasonal and what are the tastes and what if this sells and what if that doesn't.

Lyndsey Bunting: And so there's just so much complexity or around, you know, planning for inventory. And that's why I usually say like, if you can afford to hire somebody earlier, rather than later in that key function, It can unlock a lot of additional cash for,

Ben Tregoe: yeah. So, okay. So there [00:35:00] were, I think I heard four things there.

Ben Tregoe: There's number one is making sure you get your retention rate. Correct. And you stress test it, you know, particularly on the downside. And number two was inventory being really good about planning and not over. Well, I guess being good about planning. So what the issue is just not over buying and tying up too much capital.

Lyndsey Bunting: Yeah, I think it's, you know, thinking about the working capital implications. Right. But it's also buying enough yeah. To support that revenue number too, which I've seen also happen where it's like, you know, those two things were so disconnected the person making the POS versus, you know, the finance team.

Lyndsey Bunting: So making sure, sort of all of that is working together. Yeah. And I think that goes back to making sure everybody's using the same set of numbers, right. Is usually a good place to start. Right.

Ben Tregoe: then three was, was profitable customer acquisition, or really understanding your payback periods and your, your fully loaded tax and, and LTVs.

Ben Tregoe: And then four was payroll. Is that those okay? Yeah. Head count. Yeah. Why is it that I think, you know, maybe this is like a function of kind of VC funded or companies that you, you often see this more in like New York and San Francisco and the kind of hot, you know, or the what used to be hot VC funded DDC markets.

Ben Tregoe: But man, they would hire like crazy is yeah, just like too much money on, on hand or what, what was that? Yeah, ,

Lyndsey Bunting: I think it's too much money for sure. And I think it's also those revenue expectations. Once you it's too much money. And then once you take that money at that valuation, there are, you know, very specific high sometimes maybe unreachably high revenue targets that you need to get.

Lyndsey Bunting: And so, you know, thinking really deeply about like, is my business. Doesn't need to be VC backed. Right. And if so, why? You know, or, you know, and, and that's not to say that you can't build a large, amazing, you know, e-commerce company without VC money. You definitely can. Yeah. I think it's, you know, just being thoughtful about is that the right type of money for me to take.

Lyndsey Bunting: And if so, you know, where's the scale coming in later? Cause I would say that's something else that, that I've seen and I've made the mistake myself is, you know, When we're this much in revenue, I'm gonna get these economies of scale. Right. Which, you know, maybe, you know, Birch box are selling a $10 box. So maybe that was a few pennies.

Lyndsey Bunting: Right. But what I didn't account for was shipping increasing every year by 10%. So like, like thinking in, I would say being too optimistic about what that means and what you think you can leverage. Right. And, and given it in inflationary environment, I. It'd be really caution against that because we were like, okay, well, I'm gonna acquire all of these customers so I can get scale so I can save 'em on the cogs.

Lyndsey Bunting: And then my margins are going to make sense. I would just say proceed with caution there. yeah. Get to see that out.

Ben Tregoe: right. You, you, you mentioned the inflationary environment and you know, one of the things that I think this is probably a drum that I'd beat more than officially at Bainbridge, but. I have this feeling that a lot of founders are, are too hesitant to raise prices and, you know it's too bad, right?

Ben Tregoe: Because like, I mean, I get the, the, the fear, but on the other hand, like if you're built, like, you know, air Mays with a bien bag goes ahead and raises prices, you know, 200% a year, whatever, like, you know, so if you have a real brand. you can, you can do that, right. Or you should at least try it because it just like, it's the biggest shot in the arm to your EBITDA that you could possibly do.

Ben Tregoe: And you can do it tomorrow, you know, as opposed to like, oh, let me rework my fulfillment system, you know, which is like an 18 month project. Why? I mean, do you, first of all, do I guess, do you agree that people are maybe too hesitant to raise prices and, and or what do you think people should think about in terms of.

Lyndsey Bunting: Yeah, it's a really good question. And yes, I think it's incredibly scary to, to raise prices. And again, especially when you're like, okay, I need to hit this revenue target. Am I gonna lose? You know, or am I gonna have a lot of angry and upset customers? You know, because of this price change. And so I think, you know, part of it too, like BCH box, it was really challenging because everyone knew it was a $10 box, right.

Lyndsey Bunting: Every month. And so changing that was like a very big change and it required a lot of teams and customer service and everybody sort of to, to get involved. But at some point you can either be, I think, proactive about. And say, okay, I'm gonna get ahead of this. My shipping costs have, you know, gone from X to Y and this margin no longer makes sense.

Lyndsey Bunting: And right. If that margin doesn't make sense, then your CAC probably doesn't make sense either. So like [00:40:00] really thinking about like, they're all so interconnected. So I'd say not to be afraid of, you know, increasing those prices or trying to figure out, like, what are the products that maybe would have you.

Lyndsey Bunting: outrage, isn't the right word, but where customers would just be like, oh, or maybe not notice. Right, right. And sort of what that price increase.

Ben Tregoe: Right. It's yeah, I'm gonna butcher the quote, but there's that like great, like Warren buffet quote about raising prices and the companies he likes to invest in are the ones that, you know, can raise prices.

Ben Tregoe: The ones he avoids are, where they have to have a prayer session just to raise prices like 10%. You know, not everybody has that luxury. I mean, if you're more commodity or, or you have this like known for $10 a box, but you know, a lot of the DTC brands, like you're building a brand and there should be more to your brand than simply the price.

Ben Tregoe: Right. And I, I don't know. I just haven't found a good way. Like, I mean, maybe we just have to model it out for people and like, oh, okay. That really could help 8% price increase would make a big difference in this business.

Lyndsey Bunting: Yeah. We should do that. and how it flows through everything too, right? Like it's yeah. It's crazy. If you can, if you can raise prices. Yeah. I think, you know, I think it's at least worth testing and again, especially in this environment,

Ben Tregoe: Well, the other thing that it, you know, around that is like the problem with inflation is that it impacts your, your P and L at every line item.

Ben Tregoe: Yeah. So it's not just like, oh, you know, inflation's at 8%. It's like, no, I've got, you know, more expensive to get it out of, you know, to do it in China to get it over here, to get it through the poors. You're, you're cross country shipping your three P you're shipping, you know, it's like just your people costs are going.

Ben Tregoe: and I don't think, like, I think, you know, it's hard for people to sort of wrap their heads around that, but there's this like multiplier effect inside of your P and L that that is, you know, if you don't do something about you, you can't just sit there and crunch your margins down. I mean, we're, we're in the business of supporting customers that are in challenging, you know, margin structures, right?

Ben Tregoe: Yeah.

Lyndsey Bunting: Definitely. I mean, the, the, sorry, go. Yeah. I mean, the other thing that sometimes I'll I'll encourage teams to do, and again, easier said than done, which is something I always appreciate from the, you know, coming from the finance side. But, you know, is there a way to meaningfully increase the average order value?

Lyndsey Bunting: So, yeah. You know, and is there like a bundle that we could offer? Is there, you know, something we could do and again, looking at the analysis and saying, okay, you know, this costs me. But maybe I can offer it for a discounted price if it's purchased with Y mm-hmm and so thinking about right, like, cuz then that will help offset, you know, maybe the shipping and fulfillment side of things.

Lyndsey Bunting: So thinking of like breaking down those orders and then thinking through like, is there either a merchandising or marketing strategy in there? Mm-hmm where I could maybe like still increase the margin on, you know, an average order.

Ben Tregoe: well, certainly reducing discounts is, is really interesting. You just mentioned that.

Ben Tregoe: And I mean, you know, we've all seen it just in the past year. Like you, you know, used to go on sites and be like 20% off, 25% off, but now it's like, you know, 10% and it's like, you know, is the standard. And I have you seen good ways of people doing analyses around discounting? Cause I think so many times people are like, oh, we're behind let's, you know, run a discount.

Ben Tregoe: Which you know, can be a slippery slope,

Lyndsey Bunting: right? Yeah. And I would say the part of the danger there too, is like only measuring yourself at your gross revenue, as opposed to that revenue. Like, don't do that. yeah. I was holding targets for the team. Right. Because I, once I once had this marketer that I absolutely love and she's like, you know what, let's just do a 40% off discount.

Lyndsey Bunting: She was like, I'll hit my gross revenue numbers that way. And I was like, yes, but. All those orders are just gonna be unprofitable yeah. Like, do we really wanna do that? Yeah. So yeah, be, yeah. I think that looking and understanding, you know, and understanding with marketing and merchandising too, what is the, I'm gonna say, like right.

Lyndsey Bunting: Discount strategy. What is the right cadence? Is it only on certain holidays? Yeah. Is it, you know, it's. And to your point, right. I think that we've seen a lot less discounting happening. Yeah. Just given the, the environment, but being really thoughtful and creative about, you know, how you are using discounts.

Lyndsey Bunting: And the other thing is part of that too, is, you know, thinking about who are your best customers, maybe who are your worst customers? Yeah. There might be some customers where, you know, they buy, you know, one thing and they always return it and they. Heavy discount and thinking about like how some of those promotions maybe encourage those bad behaviors or bad types of customers.

Lyndsey Bunting: Yeah. And maybe you don't [00:45:00] need and would be more profitable without even if right. Like your top line takes a hit, maybe from a profitability perspective. It makes more sense.

Ben Tregoe: Yeah. Absolutely. I mean, we have a tool that allows you to segment your customer base by any attribute, and then look at the, that segment on a contribution profit basis.

Ben Tregoe: And then you can go like, go gimme the top decile down to the bottom decile. And our argument to customers is like, look, if you wanna get more profitable, one thing you should do is figure out who your most profitable customers are, how you attract more of them and encourage more of. But let's figure out who your worst customers are and get rid of 'em and stop doing those things, right?

Ben Tregoe: Yeah. Cause we're killing you. And I mean, not that, you know, look, there might be a value of the, the person that only comes to the site and buys on sale, you know, fine. You can unload your inventory to that person. You don't want to get rid of 'em, but to your point, you know, like encouraging that the discount plus returns plus, you know it'll kill you.

Lyndsey Bunting: Yeah. Yeah. And I think the other thing too, is just like really thinking deeply, depending on the business, like the types of returns that you are getting mm-hmm are there things that can mitigate, you know, that higher return rate, right? Like if you it's, obviously, especially with clothing, but like. Are how can you better communicate, you know, the sizing for example, or the material, or, you know, and really thinking, are there levers there?

Lyndsey Bunting: Cuz I think that's a little bit of a, not a hidden cost per se, but it's something that can be really expensive depending on, you know, the vertical that a company is operating in. Yeah. Interesting.

Ben Tregoe: I'm gonna go totally trendy on you. So have, have anybody asked you how to model and think about NFT?

Lyndsey Bunting: oh, gosh, not yet.

Lyndsey Bunting: No. We have had one company ask us if we could help reconcile their crypto payments. And so I think, you know, I, I don't think it's too far away. We're not there quite yet, but I think that we are looking, you know, to, into that space from like a payments reconciliation piece, again, of like, if customers wanna pay this way, then companies wanna accept it.

Lyndsey Bunting: And. You know, how can we best support our finance and accounting teams? Yeah. But no, not, not the NFTs yet,

Ben Tregoe: but it's, it's, I mean, it's sort of I'm sure somebody's got this problem, but you know, if the idea behind the NFT is like, oh, it's a kind of a loyalty program, then that's a really interesting and hard accounting problem.

Ben Tregoe: I mean, I remember the days when the airlines, you know, building these huge, you know, everybody started doing their mileage programs and then you'd read, you know, their earnings reports and it would be like, I can't even remember the sta, but I remember one from like United airlines, like 15 years ago was like, you know, if everybody redeemed their miles, we'd be flying people for free for like 24 months.

Ben Tregoe: It was like a massive liability and I don't think anybody, like, you know, people are like, oh, loyalty programs. This is cool. But I don't think people realize that around, like, it's sort of like gift cards on steroids. Right. Like how do you think people are gonna have to deal with it? Like you promise your, what do you think they're gonna do?

Ben Tregoe: Or do you think they're just gonna do it and then deal with the consequences?

Lyndsey Bunting: Honestly, the way we see it is that they'll do it and then they'll deal with the consequences later and hope that there's like a relatively highish expiration or that it's attached to like a high order value. Yeah. But I mean, yeah.

Lyndsey Bunting: Loyalty points at Birch box too are really, really expensive, really, you know, because yeah, cuz we were at one point giving out points for, you know, if you reviewed your subscription box and we gave you more points, if you, you know, reviewed a product that you bought I think there were even points for referrals.

Lyndsey Bunting: Like anything that we wanted to do to encourage really good behavior, but then looking more deeply at the program was like a deeply UN profit. Program that, you know, to the earlier conversation, like a lot of customers that were the least profitable customers were, you know, really using. And again, every company is different.

Lyndsey Bunting: So it's not to say that like every loyalty program, you know, generates, you know, the worst types of behavior, I don't think that's true. I think you just have to be really cognizant of, you know, how we're using that loyalty program. What is the cost of that? And I. You know, in this new, you know, Shopify ecosystem, like you don't have to go and necessarily like build, right.

Lyndsey Bunting: Like your own custom loyalty point program. Right. You can, there's all these different third party apps. Right. And so you just wanna make sure that you are accounting for those things correctly, because to your point, right, if you end up in the, the airline situ. You might have a real cash problem. You know, if everybody decides like, oh, I wanna go redeem these in the next, you know, several months.

Lyndsey Bunting: Right.

Ben Tregoe: And they're not redeeming 'em on your [00:50:00] divorce stuff. They're redeeming

Lyndsey Bunting: stuff. that's great. That's alright.

Ben Tregoe: You're like, oh, that profit went away. Well, thanks Lindsey. This has been awesome.

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