The Ecom Profit Blueprint: Mastering Unit Economics for Success | #212 Thomas Gleeson

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Claus Lauter: Hello and welcome to another episode of the e commerce coffee break. Today we want to talk about Your data, your dashboards, and every merchant out there has plenty of dashboards, and that becomes a problem. So you have a dashboard in Shopify, you have Google Analytics, you have a meter at dashboard, and so on and so forth.

How do we really find out what's working [00:01:00] in your business and which data you can actually use to find out are you profitable or not? So going deeper into this topic, I have Thomas Gleason with me. He's the founder of Store hero.ai. He's an Irish entrepreneur, a co-founder of Store Hero, a game-changing platform, revolutionizing e-commerce profitability, leveraging three and a half years at Shopify itself as a merchant success manager and his upbringing in his 20 year family D T C business.

He's in a unique position to bridge the gap between marketing and finance, and he will tell us the story and the background about this just now. Hi, Thomas. How are you today? 

Thomas Gleeson: Hey, cla, how are you? , pleasure is all mine. , really excited to be on the show today. I've listened to the pods for quite some time now, so really excited to get on, have a chat and, , I suppose tell our story.

Claus Lauter: let's start with the story. So basically you are in DTCs environment for a very, very long time. How did that happen? ? 

Thomas Gleeson: Yeah. Really, really, really interesting story, my mother has had a, an e-commerce business called where we dot, ie. That has been in operation since 2004, so that's the house [00:02:00] I grew up in.

It's obviously quite a while, over the years we would have grown up really understanding the pain points of things like a broken checkout. If the checkout was broken in our house as children, we all would have known about it. Obviously it was panic stations and that kind of thing. As kids, as teenagers, instead of doing simple household chores, it would have been doing SEO on her website and that kind of things to really help drive the business.

So I think over the years, we just were immersed in the e commerce landscape from such a young age. I think from there, I suppose I naturally then moved on and saw I wanted to start maybe my own e commerce ventures and I had a couple of small e commerce businesses myself. I started my first e commerce business at 19 selling personalized children's books and I had a number of other small Shopify stores.

Later on, from there I actually moved into Shopify. , I was really immersed in the landscape, loved the company, , and I originally saw a job come up as a supports advisor within Shopify. , everybody looks up to Shopify. It's really The go to platform for e commerce today, and I thought what better way to learn about the platform to go and actually [00:03:00] work there and understand the inner workings of the company.

Had a phenomenal experience there, absolutely loved every second at the company., I started initially in core support, moved my way into Shopify plus support, so I started to deal with bigger clients. , the last two years that Shopify were actually spent as a merchant success manager. So I was working with brands in predominantly the UK, but some in Europe as well.

Really advising on e commerce and marketing strategy. And I suppose the whole Shopify roadmap as a whole. I mentioned I had a family business at home. During that time, what I was trying to do was to really... Now, this was really manual. On a Monday evening, pull everything together on an Excel spreadsheet.

 All of the core Shopify KPIs. What were our sales? What were our add to cart rates? Conversion rates? Average order values? Sessions? All that kind of stuff. And then also pair in some of the Google Analytics data. What was our bounce rates? Page views? And then also bring in the Facebook ads data, Google ads data.

And then also try and bring in the operational expenses and variable costs that went along with running the business. And really what I was trying to do was to get a [00:04:00] sense as to what was actually moving the needle in terms of profitability. Like a lot of businesses, over COVID, everyone saw a boom.

If you were set up for e commerce and you were ready to go, everyone had really, really good results over those couple of years. And I suppose that was really reflected in higher ROAS for a lot of businesses. And I suppose I saw this at home. And also with the clients I was working at with Shopify.

During that time, and the ROAS being so strong, I was basically saying to my parents that we need to increase these ad budgets. Our ROAS is really strong. Now, the problem I suppose I ran into in my house is that my mom runs the business. She's more of the marketing person and the business operator.

But my dad on the other side of that is actually an accountant. And accountants by their nature are often quite skeptical of marketing and its efficiency, and really its cause and effect on the business in terms of profitability. So I was going to him with dad, the ROAS is really strong. We need to increase these budgets.

, he would basically come back and counter me and say, what is ROAS? So I suppose what it forced me to do is understand what ROAS was and what it wasn't. [00:05:00] And I suppose when I really dug into the nuts and bolts of it, particularly in Europe, we have our sales tax is included in the product price. So if you spend one Euro on Facebook ads.

And that generates five euro in sales, you then have to strip out your VAT. So even though you have a 5X ROAS, it's actually not a 5X ROAS because you need to strip your VAT back out. I didn't know that before. , then I actually also had to fuse in all of the product costs and operation expenses and variable costs.

And that really forced me, to understand what our break even point ROAS was on a product level. And then as a result of that, being able to figure out, okay, what is the break even point of the business from a marketing perspective? Like how much can we afford to spend on marketing in terms of ROAS or in terms of MER before we would actually lose money As a business.

Now, I had been knocking around the industry for quite a while and this took me quite a long time to figure out and really it might sound quite technical for people who aren't aware of some of these metrics, but fundamentally what you're trying to understand is. How much money can I spend before I lose money?

[00:06:00] And that is, that's quite fundamental. Every business should be aware of that. And I suppose from my side, that opened my eyes to a wider industry issue that I saw firsthand at home, but also with a lot of Shopify merchants where most e commerce operators were, and still are there, they are taking their financial advice from.

a bookkeeper or a CFO, but like a lot of the time that person isn't specifically an e commerce accountant or an e commerce bookkeeper or CFO. And why does that matter? You might ask. Well, e commerce, no matter what way you try and spin it is predicated on marketing metrics. And most accountants I speak to, unless they're really in the weeds with e commerce, they almost get scared by these marketing metrics.

So fundamentally, what they're actually doing is taking their Business and financial advice from somebody who doesn't really understand their business. And I think that could have been allowed to fly in the last number of years when ROAS and CAC was much better and much more efficient for businesses.

But I suppose as a result of iOS 14 and ads just inherently getting more expensive, being coupled with [00:07:00] inflation over the last couple of years that these ads have just got much more expensive margins have just got thinner. And I think what we're really trying to do with Store Hero is bring marketers in line with the financial goals of the business.

And bring financial people that are advising these businesses in line with the marketing metrics of the business and really helping both parties aligned to profitability for the business as a whole. 

Claus Lauter: I think you did a very good job on summarizing what I also have experienced. A lot of merchants, are overwhelmed by their KPIs and they have no idea if they're really profitable or not because there's so many data all over the place and bringing them all together is a huge problem.

Now one might say, but I have Google analytics. I have my Shopify dashboard. Isn't that good enough? Apparently it's not. Tell me why. 

Thomas Gleeson: Your Shopify, your Google Analytics dashboard. They're phenomenal tools, obviously, but they're not telling the full picture you're not going to be able to tell how profitable you are from your business, looking at your Shopify or your Google Analytics.

Why? Well, for instance, your product costs are not the only cost, unfortunately, that you need to run your business. You have to fuse in all of your marketing spend. And then on [00:08:00] top of that, you have all of your labor costs, rent costs, 3PL costs, shipping costs, as opposed to shipping sales. , and I suppose all of those other variable costs and operation expenses that are not accounted for in either platform.

Claus Lauter: No, it makes absolutely sense. Specifically when we're talking about Facebook ads, , it might be misleading if you say, okay there is a return on ad spend on Facebook ads and it looks good, but it's not. Now with Store Hero, obviously you have developed a solution that takes you away from spreadsheets, which obviously are very time consuming and very easy to make mistakes in there.

From what kind of sources do you pull all the data together into 

Thomas Gleeson: store hero? my co founder carl and I would have started working on this maybe about 10 10 months ago Carl's previous background was in the agency. He was building looker studio dashboards and different kinds of dashboards for his clients on a regular basis and I suppose saw the problems with they were Consistently breaking and just that's just the nature of using some of these dashboards out there at the moment.

So I suppose what we have tried to do is build a really simple onboarding tool and have the platform as rigorous as possible to [00:09:00] ensure all of the data is collected as efficiently as possible. So what tools do we integrate with? So we're integrated with your e commerce platform. Then we also have all of your Google Analytics data, your Google Search Console for your SEO, your Facebook Ads data, your Google Ads data, TikTok your Klaviyo for your email marketing.

And then you can also overload overlay that with all of your operational expense data. So you can enter your labor costs, rent, light, heat. 3PL costs shipping costs, transaction fees and so on and so forth. So you can enter those costs on the platform manually via CSV import or export and also through our new Zapier integration that we have launched just recently.

So you can actually hook that in directly with your accounting platform and have those operation expenses zapped directly into Store Hero and map exactly back so you have a real time P& L on a business level and on an order level as well. 

Claus Lauter: Now I have all this data in one place on a daily basis.

What are the kinds of results or KPIs that I need to look at? 

Thomas Gleeson: Yeah. And I suppose this fundamentally goes back to [00:10:00] everyone's fascination with ROAS and my, why it might not need to be the be all and end all metric that you might see online all of the time. Obviously attribution has caused a hell of a lot of issues in the last number of years.

So a couple of metrics that I suppose we're really looking to help businesses understand is their marketing efficiency ratio. So first of all, what is that? So it takes into account all of your net sales divided by your total marketing costs. Some businesses will just use their ad spend or advertising costs.

Some will decide to include their agency fees or their clavia subscriptions in that cost. How you do that is up to yourself. You can make those distinctions within store here, respectively. So within store here, you can see your me R but because we have all of your variable cost and operational expense data, we can only give you your me r but we can also give you your breakeven point, me R for the business, which is really, really important.

What we've also done is given a breakeven point ROAS on a product level. Assuming a single product order, so we're going to say, okay, you so you have, this is your sale price for the product. This is your [00:11:00] product cost. Now, assuming a single product order, what is the VAT cost on that product? What is your transaction fees, your 3PL fees, your shipping cost, all of your variable costs.

So if we give you a blended COGS figure on a product level. And because we have that figure and because we have all of your VAT rates, we can actually give you a break even point ROAS on a product level as well. Now, I think there's obviously a lot of businesses out there today that are probably overspending on their ads, but I still genuinely think that there is an awful lot more that are underspending on their ads.

And why are they underspending? Largely due to a misunderstanding or an inability to actually calculate what those unit economics on a product or on a business level look like. So we're really hoping, helping businesses to solve the unit economics on a product and a business level as well. Some other interesting pieces that we have factored into the platform is, as I mentioned, we can see All of your operation expense data, including your labor costs and your staff costs.

So every day, week, month, whatever kind of cadence you prefer [00:12:00] to look at, you can actually see your staff costs as a percentage of net sales. This again, all feeds back into profitability and something I have been doing for my parents business for a number of years. How is that useful? So I suppose our business at home, it's personalized gifts.

So baby gifts, wedding gifts, Christmas gifts is our big one for the year. So naturally. Our staff costs as a percentage of net sales typically, and for most e commerce businesses, would usually be most efficient Black Friday week so you might say that your staff costs as a percentage of net sales might get sub 10% around Black Friday week.

But then when you get to January or February, which are typically slower months for most e commerce businesses, what does that staff rate as a percentage of net sales actually look like? And enabling you to see that will allow you to make better hiring decisions and maybe when it makes sense to outsource your fulfillment with 3PL, maybe when you don't need as many staff on it.

And all of this stuff, really funnels back into the key priority that we're trying to solve is the profitability of the business as a whole. And I suppose one other piece that I think is quite [00:13:00] interesting, and we're seeing a lot of businesses really get a lot of use out of is the order level profitability.

 Unfortunately, if you sell a product, if you buy a product for X and sell it for Y, your product, your sale price minus your product cost is not your profit, unfortunately. Now, at the moment in e commerce, everything is quite fragmented. You're working with so many different platforms and it's really tough to pull them all together.

So, what we have done at StoreHero is enable you to pop in what, your shipping cost is on an order. So, irrespective of whether the customer has paid for shipping. Now, every website you go onto today has some kind of free shipping, , free shipping threshold. Thank you. One issue I have with that, with the current setup on Shopify is that unless your customers have entered a free shipping promo code, you've no idea how much free shipping you've given away as a business, because it's just set up as the shipping setting, spend X, get free shipping.

So with store here, you can pop in what your default shipping cost is. You can set that up by country. And then you could, if that is still isn't good enough for you, you can actually map directly with our Zapier connection into your shipping [00:14:00] carrier and exactly map those order shipping costs directly back to the order level.

So once we get to the order level of P& L, we can say, okay, you sold the product for this. You bought it for that. That was your VAT cost. This was your shipping cost, irrespective of whether the customer paid for it or not. This was your 3PL cost, your transaction fee cost. And really what you have is a gross profit on an order level.

One thing I suppose a bit of pushback we get from this is why would I need to see my order level of profitability? I have thousands of orders going through my site every month. You're not going to want to look at this every day or every hour, but maybe you might. But popping in at the end of every week or every month and filtering those orders by, okay.

These are the top 10 margin making orders and trying to understand, the genetic makeup of those orders. Why are these guys the most profitable products and how profitable orders, sorry. And how can we replicate this as much as possible? That's obviously fundamentally really, really important, but I actually think the opposite is more important for businesses.

They typically know the makeup of these really profitable [00:15:00] orders because they're the ones they want to look at all the time, but Understanding the genetic makeup of the orders that are making you very little margin or that are actually losing you money. And this is, this all again is prior to your ad costs coming into the equation at all.

If I don't understand the genetic makeup of those really poor margin making orders is probably even more important in my opinion. And I suppose what are the hallmarks of a typically low margin or loss making order? Well, it could be that you have straight off the bat, you might just have really poor margins on a product.

You might have even worse margins when you actually factor in your shipping costs, your 3PL fee and your transaction fee. And then you've got combined with a lot of discounting that goes on in e commerce today. So understanding your gross profits in terms of the highest margin making orders and the lowest margin making orders is incredibly important because really, once you have a handle on that.

Your whole e commerce strategy, if your focus is around first order profitability, can work backwards from that. How can we do more of this and less of this, and really fundamentally look at the strategy as a [00:16:00] whole from those key points? 

Claus Lauter: No, I think that's a very, very important feature in there.

And listeners know that I'm a big fan of the Pareto principle, the 80 20 rule. And that helps you to find the 20% that performs extremely well and the 80% that's underperforming. And that might have a huge impact in your business if you can really focus on that on the order level. So that's a very nice feature.

I like that. Now, we were talking on different aspects of business, and I want to know what kind of users or user scenarios do you have for Store Hero? Obviously, you have the marketing guy, , but there might be other positions within the organization that are also working with Store Hero. Who is 

Thomas Gleeson: that?

Initially, we thought the product would be adopted by marketers, , That has probably evolved in the last couple of months, and I think it's probably due to the hallmarks of the industry as a whole, where margins just are getting a lot tighter. , we have the marketers using the platform, there's a lot of them using it, but , we actually tend to see the product is falling more into the hands of founders and CFOs, fractional CFOs of the e commerce brand, or people who are more in the financial weeds of the company.

[00:17:00] Truly determine the impact of profitability on various aspects of the business. So, yes, it is being used by marketers, but probably more so by founders and CFOs within the business. Like, another piece we do have in the platform there as well is the real time P& L dashboard. So you can look at your, you have a real time P& L fusing all of your operational expenses in there and your variable costs.

So you can get a true picture of what your contribution margin is down to your net profit level, along with all of your core e commerce and marketing KPIs in the one line. So for the first time, I suppose what we're actually seeing businesses. use it for, and which is really encouraging from our side is it's being used in the weekly meeting with the founder, the marketer, and the finance person to really look at Store Hero as almost their single source of truth to really analyze the business in terms of profitability.

 It's being used by financial people in the business, founders, and really, I suppose, profit KPI's, e commerce managers or marketers which is really interesting and really great so far, to be honest. 

Claus Lauter: Yeah. And I can totally rely to that in the past, in my [00:18:00] work life, I had to do spreadsheets to convince marketers, salespeople and accountants, and it was not an easy task.

So if you have something that can do this automatically, that's a huge win. Tell me a little bit about the features. What kind of reporting features does the system offer? 

Thomas Gleeson: we have the real time PNL dashboard. You can export that through CSV, import or export. Every morning, you will get a PNL of the pre every morning, each week, and every month, you will get a PNL of the previous time period.

 As you go through the platform, you can pin any of the metrics that mean the most to you, and they will also appear on, the morning email. So a lot of people are actually getting a lot of use from the platform without even logging into it, which is great. They just get their, they just get their email report in the morning with the P& L along with the metrics that mean the most to, mean the most to them.

So I suppose, what are some of those metrics that we typically see business owners really look for, on a regular basis? Staff costs as a percentage of net sales is typically one. Operational expenses as a percentage of net sales is another. You have your typical ones like blended ROAS, Facebook ROAS, ad [00:19:00] spend, conversion rates obviously net profit is the one everybody really wants to see at the end of the day.

When we talk about attribution tools, it's a murky. Time in the e commerce industry to really talk about attribution, but I suppose the best attribution tool out there is looking at your net profit at the end of the day, because that's really what matters we obviously have all in there as well, our LTV to CAC ratios and all of the core, a real retention piece on the platform as a whole.

So looking into a deep analysis on your LTV to CAC. One piece I suppose I'd like to highlight on this podcast because I think it's really important is the LTV2CAC and I suppose how we look to calculate it. I hear different calculations for this all of the time and particularly the value piece. What is the value component of LTV2CAC?

Whether I'm right or whether I'm wrong, I'll probably give my own two cents in it. I personally don't think it's just complete revenue. Your revenue over your time period is not the real value of the customer because they might need to be generating. profitable orders on that basis as well. RLTV to CAC ratio is that the value piece in particular is done on basically your contribution margin too, [00:20:00] which essentially is your product costs minus your VAT and all your variable product costs, to get that order out the door.

So really what the true gross margin on that order is. divided by your full customer acquisition cost over time, which I think really speaks to our true focus on profitability as well. We have the ability to see LTV to CAC in a number of different, number of different views. Obviously you can look at your customer lifetime revenue compared to CAC as well.

But thesis on customer lifetime value is that contribution margin to divide it by CAC over time. 

Claus Lauter: Tell me a little bit about the onboarding process. How much training is involved? How long does it take to get everything implemented? 

Thomas Gleeson: that was one piece that we really wanted to double down on to make sure it was as easy as possible.

And I'm pretty confident we have done that to be honest with you. So typically the onboarding process. It comes in two stages. The first stage is single sign on to your Shopify store, , through all of your Google search console, Google analytics, Facebook ads, Google ads, TikTok ads, , all of the marketing data is available for you [00:21:00] immediately.

Typically, depending on the size of your Shopify store, the data sync will take anywhere from 12 to probably 48 hours, depending on the level of data that has gone through the store. What happens then is once all of the Shopify data has been synced in, all of your product costs, all of your products, orders, , all that kind of data, we will jump on another call then with the customer to give them a much deeper run through the platform.

Just make sure all of our variable costs and operational expenses are piped in correctly. , and then you're ready to go. We are at the moment offering a Kind of monthly console for the first two or three months, along with the store hero subscription, just to make sure business owners are getting the most value out of the platform that we know is there.

, so that's typically the onboarding process we have 

Claus Lauter: at the moment. tell me a little bit about the pricing plans. How does that work? 

Thomas Gleeson: at the moment, we're, the pricing plan is based on a tiered basis in terms of the revenue the store is generating. So, that typically starts at 1.

99 for stores around the million mark, and then that scales up to our top pricing would be for stores in the 20 million plus bracket around the 13. 99 per month, we don't have [00:22:00] any contract tie in, so it's a monthly rolling contract and you can opt out at any time. We do have a free 14 day trial that's active for anyone to jump on and have a look as well.

Claus Lauter: Okay, perfect. But can people find out more about StoreHero? 

Thomas Gleeson: Yeah, they can pop over to our website, which is storehero. ai. They can find us on LinkedIn or on Instagram as well. 

Claus Lauter: I'll put the links in the show notes as always. Then you just one click away. Thomas, I think you have amazing product there.

It makes life so much easier for a I merchant and I definitely will look into it, to be honest for my own store . I can highly recommend that for every merchant to check it out and it might be the right fit to make just your life a little bit easier on a day-to-day basis. Thanks so much for 

Thomas Gleeson: your time today.

Thank you very much guys. 

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