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How to build an 8-figure brand: The 50/30/20 e-commerce finance rule explained

In today’s world, it’s not easy to stand out from the crowd – especially when you consider how easily distracted, we’ve become. While the seven and eight-figure marks tend to represent significant milestones in measuring a startup’s success, they also tend to reveal immense changes that are needed for both strategy and processes to sustain success and continue growing. 

This is something that Paul Waddy, e-commerce author, coach, investor and advisor to some of the country’s biggest brands, has experienced first-hand.

While there is economic turbulence unfolding around us – coupled with the cost of living crisis – according to Waddy, e-commerce benefited from inflation, not just in Australia, but in many parts of the world, including Europe – so despite the troubling outlook, some brands may have, there is still opportunity to grow and scale. In e-commerce specifically, it’s fallen back to where it was pre-pandemic, accounting for only about 20% of total retail. This means that online storefronts are still very much in their infancy, providing an abundance of opportunity for brands to take a chunk of that sales pie. It all comes down to finding a way to innovate, display value and solve a problem with your product.

Here are Paul’s tips for building an 8 figure brand:

Understanding The Numbers

The most important metric in e-commerce is gross profit, and if you can’t tell me your gross profit margin, then you don’t know how much to safely spend on marketing, which means you won’t be in control of your growth. One reason that I see online retailers fail is that creative types often want great brands – but they neglect the fact that they also need to have great businesses. I always say we need to be known for being as good a business as we are a brand. 

The 50/30/20 E-commerce Finance Rule

For e-commerce businesses, you’ve got to be aiming for a 50% gross margin, spending 30 per cent or less in running the business, which will leave you with a 20 per cent net profit. This is a good benchmark for e-commerce businesses – big and small – to aim for. If you’re finding that you need to spend more than that, you’re probably not getting the cut-through in your product. There are so many businesses I’ve seen – ranging from start-ups to $50M a year – who are operating on 40 per cent margins in the hope that scale will fix their numbers. However, the scale never fixes the margin. I would always say go back to the drawing board and delay your start until you get your margin where it should be.

The Product

One of the most important things to understand as a business owner is that the game is won or lost on the backend. It’s not just about selling that one product; it’s about repeat purchases and average order value. If you’re going to scale to 8 figures, then you need to increase your repeat purchase rate, and the best way to do that is to expand your product line, and offer upsells and cross-sells. 

However, it’s important to make sure that your product(s) is in demand, or trending, as the best online businesses are always driven by incredible products – followed by well-thought-out operations, great people and effective marketing. I strongly advise against diving head-first into a product that you think is going to work; instead, focus on a product you know is going to work. A favourite saying of mine is to fish where the fish are. In other words, dangle your products in front of the people you know want them rather than trying to convert cold leads that aren’t really that interested in what you’re selling.

Build For Mobile

Businesses do not focus enough on optimising for mobile usage – why are we still designing in desktop view? In my data, more than 50 per cent (closer to 75 per cent) of sessions come from Mobile over Desktop. Apps are also under-utilised. Businesses with apps can convert at up to 20 per cent higher than on desktop or mobile. Apps also require less marketing spend due to the use of push notifications, while paying with mobile is so much easier, i.e. Apple Pay, so it makes sense that you focus more on this. To give you an idea of growth, mobile commerce sales were $360 billion in 2021, up 15% from the previous year in the USA alone.

The key to progressing as a business owner is to be aware of emerging trends. You need to be fast to be first, and the sooner you get in on new segments of your market, the faster you grow. You face fewer roadblocks when you’re the first to infiltrate a new market. Your path to establishing a foothold or a dominant industry position is a straightforward shot without being hindered by the costly prospect of positioning your company in an already overcrowded industry.

Collecting The Right Big Data

Applied knowledge is power. Gathering data about your customers is essential to engaging them and optimising performance. You can continue to communicate with each website visitor over time, proving your company is trustworthy and here to stay. This may be the most powerful and high ROI of your advertising budget outside of a specific referral-generating strategy for your customers. The most important thing to remember when designing strategy and communications is that a customer is never more excited than when they first visit your website. Retargeting allows you to keep their excitement high as you reveal new information to them over time. 

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Paul Waddy

Paul Waddy

Paul Waddy is an e-commerce advisor to businesses ranging from $5m in annual sales to $150m, and currently has over $500m in annual e-commerce sales under advisory through his clients. Paul also has a coaching program for startups, and is the author of Shopify for Dummies and Selling Online for Dummies, with both books being sold globally. Paul started his first e-commerce business in 2007, selling men's shoes and accessories online, and then went on to become the Head of Operations at Showpo, the CEO of The Horse, and now the Founder of Paul Waddy Ecommerce, and The Co-Founder Ecom Nation, a digital marketing agency.

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