I had the privilege of sitting down with Andrew Faris, CEO of AJF Growth and host of the Andrew Faris Podcast, to break down the critical elements of P&L design that separate ecomm brands that are dead on arrival vs. those who thrive. Andrew shares his hard-won insights from holding nearly every seat in the e-commerce ecosystem, including his experience running an aggregator "into the ground" and the valuable lessons learned along the way.

Key Takeaways

• The Four-Quarter P&L Framework: Learn the essential buckets every e-commerce brand needs to track - cost of delivery, CAC, OpEx, and profit - plus the specific percentage benchmarks that define a healthy business
• Why 95% of E-commerce Brands May Be Worth Nothing: Andrew explains the harsh reality of current brand valuations and why proper financial forecasting is the difference between building a sellable asset vs. a lifestyle business
• The Hidden Goldmine in Supply Chain Optimization: Discover why supply chains are the most under-optimized part of e-commerce businesses, with real examples of brands cutting product costs by 60% without any customer complaints
• Cohort-Based Forecasting That Actually Works: Move beyond "hope-based" projections to build reliable revenue forecasts using historical customer behavior and LTV modeling (plus Andrew shares his free spreadsheet resource)
• Why E-commerce OpEx Should Be Under 15%: Learn how successful brands leverage AI, offshore talent, and operational efficiency to maintain lean overhead while scaling revenue - including the brand doing $5-6M in revenue per employee

Chapters

(00:00) Join Us in NYC at Our Exclusive YouTube Event!

(01:08) Introducing Andrew Faris & His eCommerce Journey

(07:06) The Current State of eCommerce

(13:16) The Influence of Moneyball by Michael Lewis in Marketing

(19:29) Understanding P&L in eCommerce Success

(23:34) Understanding Your Profit Goals & OMG Commerce’s Case

(29:35) How to Structure Your P&L as an eCommerce Brand

(34:48) Optimizing Operational Expenses

(34:56) CAC and Cost of Delivery

(39:33) Channel Strategy and Product Margin Fit

(42:51) Forecasting and Adjusting Business Strategy

(49:50) Resources & Closing Thoughts

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Brett Curry:

Well, hello and welcome to another edition of the E-Commerce Evolution podcast. I'm your host, Brett Curry, CEO of OMG Commerce. And today, man, am I pumped about my guest. I have the one, the only Andrew j Faris host of the Andrew Faris podcast, CEO, founder of AJF Growth, and just had the privilege of being on his podcast a couple of weeks ago talking about YouTube. We hit it off. I wanted to have him on the podcast to talk about p and l design and forecasting, and also why e-commerce brand owners should back off from the ledge if you find yourself there because of all the craziness going on with tariffs and whatnot, and so pumped to get into your story, Andrew, but then also deliver some value for our guests. So welcome to the show, man, and thanks for taking the time.

Andrew Faris:

Yeah, thanks, Brett. You asked me how I like to be introduced, and I think the one the only is good. That's all I

Brett Curry:

Need. Just the one, the only, that's all we need.

Andrew Faris:

Yeah, yeah, that's right. So that was good. Thanks.

Brett Curry:

It's so funny, one time I was traveling with my team, three team members, and I was not in first class, but it was just sitting in front of the plane. They were in the back of the plane and they all separately walked by and they touched me on the shoulder and they're like, are you the Brett Curry? And the people sitting around were like, who is this guy? Should we know this guy? The name doesn't ring a bell, but who is this guy? And I'm like, it's my team. It's just being nuts. So anyway, huge deal. Fun times. Yeah, yeah, yeah, right, exactly. So dude pumped about this, but for those that don't know you give us a little background. I believe you told me you've held every seat in e-comm, just about. And so talk us through that and then what are you doing now?

Andrew Faris:

Yeah, well, what I just try to tell people is that in the e-commerce ecosystem, at least on the marketing side, I have been in just about every kind of organization in most of the seats. So I started off working at klo, selling silicone wedding rings on the internet as a media buyer. I was trained, working directly, closely. I was Taylor Holiday who had been a friend for a while at that point. And so Taylor and I became good friends and crossed, crossed paths over that time. Well, we were already friends, but crossed paths or continued to work together in a bunch of different ways. So I was working with Common Thread collective from there as a growth strategist, and then eventually the head of growth there led strategy at CTC for a while. At some point, CTC spun off its own brands into an aggregator called Four Rifle, 400, and I led growth there and then became the CEO promptly ran that into the ground. I always try to clarify this. It sounds like when you tell a story like this, it's like, wow, look at my great career advancement where I'm only ever successful and it's just not true.

Brett Curry:

I learned a lot. Never happens that way.

Andrew Faris:

Never happens that way. We did some good things, 4, 400, 1 of those brands still is going Bamboo Earth and Bamboo Earth. Yeah, it's profitable, but sold off all of 'em, but won. And I ended up leaving. And I would just add, I learned, especially the longer I've reflected on the experience, I've learned a lot from my mistakes there. From there, now, I've been running AJF Growth, which is a boutique agency where we service right now four brands, and I've got a team of a few of us in the US and seven or eight more in the Philippines and work together to do a great job as good of a job as we can do servicing brands, really meta adss focused, but we end up functioning sort of almost like an outsourced mix of CMO CFO kind of deal. CFO is too strong of a word. We're not forecasting somebody's cashflow, but we do actually take on the forecasting of the full business in terms of DTC cohort forecasting, that kind of stuff. And then we ladder our media plan to that and then end up being in a lot of conversations around marketing efforts and stuff like that,

Brett Curry:

Which is super, super interesting. Yeah, I love that. And I've always been a believer, I've always, always been a fan of infomercials and marketing that drives results, and I've always believed that marketing should build your bottom line in addition to your top line. But now the trend is you're putting real legs behind that where as a marketer, you're helping run the forecast and you're helping manage the p and l, not from a gap accounting perspective, but from a practical, helpful, let's hit these profit targets lens and you're doing it and doing it well. And so it's super, super exciting. And also, man, I really appreciate you sharing, hey, not everything in business goes well, right? And there's one of these things I heard Alex Hormoz say recently where it's like, Hey, you expect for entrepreneurship running a business to be hard, but then you're discouraged because it's even way harder than you think, right? You go in thinking this is hard is, but it's really, really hard. And so you have to be ready for that. Yeah, yeah, that's right.

Andrew Faris:

Yeah, I think some people, sometimes when I hear people, you talk about people being talked off the ledge. I actually think one of the things that happens in conversations about the ledge in e-commerce is that sometimes people's expectation is just that it's going to be easy the whole time or that

Brett Curry:

Or

Andrew Faris:

That you should always grow prospect lifestyle each

Brett Curry:

Stage up to the right.

Andrew Faris:

Yeah. I think if you thought that somebody was going to hand you millions of dollars on the bottom line, that's not an e-commerce problem. Just so anyway, I think there is a real thing there where people need to expect that there's going to be challenges along the way, and not every outcome is what you expect,

Brett Curry:

Dude, totally. I know you're a family man, I'm as well. But it's almost one of those things where pre-kids, you see a family from a distance and you see a kid acting out and you're like, my kid will never do that. My family's never going to be like that. And then you're like, you have no idea what you're talking about, everything you want to avoid or not have happen. It'll humble you for sure, but business is the same way. It's really, really hard, but it's also rewarding and fun and exciting at the same time. So let's talk about that a little bit. You hosted a podcast or delivered a podcast recently where you said, Hey, I'm still bullish on e-comm, and so we don't want to fully unpack that, right? People just need to go listen that episode. But why did you say that? And I agree with you by the way, I've got a couple of things I want to add to this, but why are you still bullish on?

Andrew Faris:

Well, there's a lot of reasons, but at the end of the day, I think there's more intelligence about how to operate an e-commerce business now for a larger market of customers than there have ever been for e-commerce. And I think most of the headwinds are more short term. Most of the tailwinds are more long term. So tariffs being the biggest headwind. And I just should clarify really quickly, if your brand is existentially threatened by Chinese tariffs, I understand. I'm not trying to make light, that sucks. I'm not trying to say it's

Brett Curry:

A big, big

Andrew Faris:

Deal and no, obviously

Brett Curry:

Even taring are currently they were super high and now they're low, and who knows what they'll be with when this is recorded, but still volatile.

Andrew Faris:

Exactly. Yeah, and I just think so anyway, so having said that, there's a carve out there, but yeah, I just think that the tools are also getting amazing. This is something people will sit here and talk about how AI is producing all of this value to make it so that the ad platforms are performing better and delivering business results better. And they're doing that in all kinds of ways, and also creative is getting cheap to make at endless scale and all this stuff. And then they won't take the next step and say, oh, who does that accrue value to? It accrues values to meta it, accrues values to Google it accrues values to chat GPT, who's going to charge you to do it and all that stuff. But it also cruises values to brands, values to brands who reduce their opex meaningfully. So if that's the future you believe in to where the distribution of your ad creative is getting much, much cheaper, the labor involved with things like customer service and all these things is getting much, much cheaper. And then at the same time, the production of your ad creative and of other creative assets in your business, including copy on your website and social media and all those things, that's all getting cheaper as well, drastically, phenomenally, ridiculously cheaper. If that's all happening, then that means you can run your business more efficiently at every level,

And that means it accrues value to you. So you can't, it's just really hard to say both those things at the same time that now the counter argument to that is that the barrier to entry is getting so low that all of these people will do it, and there will be very few winners, and I don't know quite what to make of that. I think if there's still more winners ultimately, and if it's very cheap to test the idea, then yeah, there are going to be some losers, but, but anyway, so the combination of all those things makes me still bullish and I just try to tell people as far as putting my money where my mouth is here, I'm starting a brand right now. I just got another sample, the sample yesterday. Love it. So just like

Brett Curry:

When will this brand be released? Will it be launched

Andrew Faris:

T by October? Hopefully

Brett Curry:

That

Andrew Faris:

Would be, but that means for sure later than that because that's how this kind of thing goes. So

Brett Curry:

Yeah, I fully agree with you. I've invested in some retail and DTC brands even over the last year. Yes, there headwinds. We have an Amazon practice at OMG. Amazon is challenging. There are always challenges there. The game is always shifting a little bit there, but people are going to buy in the future more online, not less online. I'm very, very confident in that. I do believe we're in a world where great products and great marketers will win. And so it's difficult. It's challenging, yes, if you're getting hammered by tariffs, sympathy to you, empathy, all of those things. But there are still big opportunities in this space. And I was listening to the operators podcast recently, Mike Beckham, co-founder of Simple Modern, and he imports everything from China, or maybe he's actively working to not do that, but Currently's

Andrew Faris:

The case. Yeah, they stood up a manufacturing facility in Oklahoma City. I've been there and it's really, really cool and awesome, but when you hear them talk about it, it's a tremendous pain. So it's really

Brett Curry:

Difficult. Exactly. But he talked about on a recent episode, he is like, Hey, this is chaotic, but there's more surface area right now for me to make changes and pivots and shake things up. And I'm confident this is going to be going to create windfalls for our business. And so I think if we remind ourselves that during every time of uncertainty, every economic downturn, fortunes are made and people transform their business in a powerful way, it's just a good mental reset.

Andrew Faris:

That's right. Because

Brett Curry:

Sometimes being an entrepreneur is lonely and we get down and discouraged and I got to give myself a pep talk on occasion. And so I'm glad you did that. Thanks for posting that episode. Everybody should go check that out.

Andrew Faris:

Well, maybe I need to have you back on again, Brett, because Taylor is one of the biggest critics of my e-commerce is a good business mentality, and he said, you need to bring somebody on who agrees with you. Yeah, yeah,

Brett Curry:

Yeah, I know he is. Yeah. Well, because you tweeted recently with your friend fan, I think that 50% of e-comm brands are worth nothing. And Taylor tweeted back that it's like 95%,

Andrew Faris:

95%. And that is a good clarification because fans sample is brands that are trying to exit, and so

Brett Curry:

That

Andrew Faris:

Skews disproportionately towards brands that have some

Brett Curry:

Value, a little bit, little bit of cherry pick there.

Andrew Faris:

And I didn't mean, I just didn't think about that when I proposed that I wasn't trying to be click fatty or whatever, but it's a fair point. But yeah, anyway, it's

Brett Curry:

Still money to be made still success to be had.

Road's not easy, but still there. So I want to talk about this. We're going to get to p and Ls. I want to talk about how to design it, and again, not from an accounting perspective, but how to look at it as a marketer, as a business owner to drive profits, drive real business and finance outcomes. But we were talking about something really interesting prior to hitting record. You're a big baseball guy. I'm more of a basketball football guy, but I love baseball too. We love the same movie, and you were inspired more by the book, but tell us about the book that maybe shaped you as a marketer that will, I think, surprise people, but talk about it and why.

Andrew Faris:

Yeah, Moneyball. Moneyball I think shaped a lot of people in a lot of ways actually. I think it did. It did. Reach was well beyond baseball fans

Brett Curry:

For sure,

Andrew Faris:

Because in my experience, so I grew up playing baseball as a huge baseball fan, and when I heard about analytics in baseball and the early stage, I had the same reaction as a lot of people, which is like, this is soulless and these nerds are, they don't understand how baseball really works. And then I read the book and was totally convinced that I was wrong about that

Brett Curry:

A hundred percent

Andrew Faris:

Percent. But what ended up happening is that that book exposed to me, not so much just a statistical paradigm for baseball, but it taught me how smart, analytically minded people think about everything about the world. So I'm a big Dodgers fan of wearing my Dodgers hat right now. The guy who runs the Dodgers, the president of baseball operations, his name is Andrew Friedman, he came from Wall Street. He was a traitor. And so he had an ability to think about statistical probabilities and some of those things and how you use data to inform better quality decision making, and to think about the world as a matter of bets that you place and things like that. Working with him for a long time, a guy who eventually ran the Giants eventually got fired and is now back as a specialist of the Dodgers. His name is Dr.

Farhan Idi, who has a PhD from MIT and has never played serious baseball. And there's teams that have various levels of those kinds of guys. Some former players now are those kinds of guys or whatever. So it's not only that, but the point is those guys were not thinking about baseball first when they developed those muscles, they just took a set of muscles and applied them to baseball. And what I did was the opposite direction. Moneyball for me was the way that I learned how to think about how to look at a set of numbers and think about what they mean and how to interpret them and what they don't mean, which crucially, and I mean Brett, I'll just tell you, I think I actually just tweeted about this today. I think that people's inability to have a baseline understanding of then the concept of probabilistic thinking about outcomes and of the difference between signal and noise and how to make a distinction between those two things is a gigantic hole in their thinking, especially media buyers. Media buyers are terrible at this hundred percent, and they overreact to tiny samples. And just for the record, I am media buyer. I am the person that we're talking about.

So all of my thinking about how best to optimize a lot of media buying approaches is like, how do I get the machine to make the decisions for me because I am so bias prone in all of my thinking. So anyway, Moneyball, for me, the book really helped me to start working out those muscles and those muscles then became transferable to other things eventually. Also listening to the Freakonomics podcast helped me a lot with this. Listening to the Planet Money podcast helped me a lot with this. Really, Freakonomics I think was especially helpful as well because very similar thing, right? You've got guys who are sort of exploring the world through the lens of data and what data can and can't tell you, and sort looking under the surface, little taglines, exploring the hidden side of everything. And the hidden side is how data creates incentives and some of that.

So they have all kinds of really fun things, outcomes of like, oh, look at that. If you look at the numbers underneath this, you see patterns and behaviors emerging. Yeah, I just think a lot of people would do really well to, if you like baseball, you have the best world for this because it's the place where a lot of this stuff is the most publicly digestible. But if you're a basketball fan, Brett, surely over the last bunch of years, the thing you've noticed the most is the rise of the three pointer. It is a simple calculation, which is a three pointer is worth more than 50% of a two point. It's worth 50%. It's worth 50%, right? More.

Brett Curry:

Yeah,

Andrew Faris:

Sorry. It was worth more, which is 50% more than a two pointer, and therefore there's a massive incentive unless you make it essentially your shot doesn't have, you can be a fairly amount less efficient at the level of the shot and still be a more efficient use of your shot in that case. And

Brett Curry:

So

Andrew Faris:

That kind of little tradeoff, it's like, oh, once you see that, that's good. And by the way, if anybody ever goes and plays pickup basketball and you're playing with ones and twos as instead of twos and threes,

Brett Curry:

That's even crazier. It's not twice as much. You should shoot a two every time, every time. If you're a drive to the bucket type of player,

Andrew Faris:

You're doing

Brett Curry:

It wrong. You can't play in a game, that's one versus two. It's like you've got to develop that three point shot, which I don't have. I grew up in an era where I was a post player, we just pounded down low to take a close shot. That's all we did. But I'm so glad you brought this up and we will talk p and l, we will talk about e-commerce.

Andrew Faris:

Yeah, whatever. We can talk whatever you want.

Brett Curry:

But I love that we got into this because people are not failing right now in e-commerce or in any business for lack of data. That's not an issue right now. It's not lack of data. It's understanding what does the data mean, but more importantly, what does the data not mean? And then based on what it means, where am I going to place bets and why? And can I confidently say this, why I'm going to place bets in this place and not in that place? And yeah, dude, it is just so good. I love the movie Moneyball, so many quotable things in that movie. And

Andrew Faris:

As it happens, I'm also a big Aaron Sorkin fan. So once Moneyball became both Moneyball book and also written by Aaron Sorkin

Brett Curry:

Was in,

Andrew Faris:

He's

Brett Curry:

One of the best, wait, what are some of the other Aaron Sorkin movies?

Andrew Faris:

Well, there's a lot. I mean, he wrote Charlie Chicago Seven is one that people liked a lot. I think that won some.

Brett Curry:

Did he write Molly's game? The poker? He did, yeah. Just so good.

Andrew Faris:

But the West Wing is maybe his still most famous thing in some ways because the West Wings a lot of people and West Wing I love too. Yeah. So

Brett Curry:

You'll be a better media buyer, better business operator, better Econ Pro. If you watch or read Moneyball, go check it out. That's awesome, man. So let's break down. P and Ls mentioned to you, I actually love math. I excelled at math in schools. It was just fun for me. I hated accounting class in college, slept through it, hated it.

Andrew Faris:

I've never taken one, so that's fine.

Brett Curry:

Okay, I regretted it once I started a business. I was like, oh shoot, I should have paid closer attention. So I've had to get better there. There's some differences. There's gap accounting principles which are useful and there's a reason for that and there's a world for that. But then there's p and ls that are useful for marketers and business owners. And so talk to me about how you think about p and ls, why it's important, and what function does that serve for you as a marketer?

Andrew Faris:

So at the baseline level, what I really think here is that many brands are dead on arrival and don't realize it. And the reason they don't realize it is that they have never done the work of forecasting every part of their p and l, the whole thing, at least in large chunks. So I am not saying you have to forecast your Shopify bill six months out or your Klaviyo bill six months out or whatever, down to those details, but maybe you should, but I'll tell you this, there are worse things to do with your time in e-commerce than to get that detail in your forecast

Brett Curry:

For sure.

Andrew Faris:

But I think a lot of brands just don't have a viable business or it's going to be really hard or they have filed business, but they are strategically so turned around and don't know it because they just haven't done the work of having a goal. And then forecasting to that goal in a way that says, here is what is actually likely or if they do the forecast is rooted in hope. And that's not a forecast. Hope is not a forecast, it's not a plan, but to have some reason for why they believe the future will be a certain way and then to forecast their whole business through that lens. And I think that basically the tool to do that with is a cohort-based forecast for e-commerce brands where you're actually forecasting new and returning customer revenue differently. And then depending on if you're omnichannel, how you work those channels in as well, this gets more complex.

But basically having that kind of thing, it sounds like ridiculous advice to say to people, you need to forecast your business. Like duh, everybody knows that. But I am telling you, I just see over and over that people do this again, either they don't do it with any seriousness or they do it or they do it with no or no connection to reality in terms of what's happened, or they do it, like I said, the Hope vibes forecast kind of thing where it's like, here, we're just going to increase spend for forever every month, and it's always going to be at the same roas and it's going to just be great, or we're going to have all this revenue and there's no separation with no understanding. It says return customers, new customers, whatever. So that's the basic principle, because if you can do this exercise well and disciplined and clearly, and if you need help, there are a lot of people who help you with this by the way. But if you could do it well, then what you end up with is a map and compass to the outcome that to the treasure that you want.

And that is the key step for so many brands to do because if you do the exercise and you get really realistic about it and the outcome of that exercise is not some profit number and some growth number that is satisfying to you, then that gets shoved back in your face and you now have to deal with the reality of, oh, this is not going to actually, I actually don't have a business that works. And then you could start trying to solve the problem. And maybe I can break down at some point, I'll pause here in a second, but break down what kinds of problem surfaces and what makes a good and bad E-commerce p and l. But that basic thing, I think a lot of people have not done the hard work of just doing that in a disciplined and careful way.

Brett Curry:

Yeah, it's so good because I think there's a lot of businesses that are in a scenario where you can't get there from here where it's not just, I'm going to work harder, I'm going to do more of this, but you are doing the wrong things and the basis of your business is flawed. The ratios in your business are flawed. You are never going to get to those profit numbers that you want to hit based on the way you're operating right now. And yeah, no amount of wishful thinking, positivity, new creatives on meta are going to get you there because it's fundamentally broken. And I remember as an agency several years ago, and we've always been profit actually every year we've been profitable. We've had some struggles and we've gone through some issues and had to do layoffs a little over a year ago and some other things.

But I remember when we started talking to some PE groups and they started talking to others and they explained the way they look at agencies, the way they look at businesses, I was like, oh wait, we've been kind of lazy in a couple of areas financially. And it just forced me to think about the business in a totally different way. And even though we never sold to PE and actually we're looking at acquiring agencies right now, that function of thinking about how would an outside finance person look at my business, change the way I ran the business, not in terms of personality, the way I care for people or anything like that, but just the way I look at the numbers and the way I look at the ratios shifted when I took that perspective. And I think really every business, every e-comm business needs to look at that. How am I looking at my p and l? How am I looking at my forecast and can I get there from here doing what I'm doing now? So

Andrew Faris:

Really good stuff when you do that, Brett, for the agency, the same exercise for an agency as it is for an e-commerce business. It's just a question of the ratios are different, right? Service business, it's about marked up time and the cost of goods is people basically, right? So do you have a framework through which you're trying to view how at MG Commerce how much margin you have per client or per head or something like that, as a percentage? I'm just curious. I think you do this if you talk through how you think about the agency, then the same principle applies across to e-commerce.

Brett Curry:

Yeah, I think it's going to be really similar. So the way we look at a good agency should be in the 20 to 25% EBITDA margin range, maybe a little bit higher. And I think as AI becomes more prevalent, there are other ways you could look at making that margin higher, but that's a pretty good range. So to get there, what does that mean? And I think if you look at the big buckets in an agency, delivery is the biggest, right? So these are the team members that deliver the service. So what should that ratio be? You've got ops, so that's SG and a basically. Actually not S, but anyways, like the general operating opex and stuff like that. And then you've got growth. And so growth, we put marketing and sales together. That's just the way we do it to look at growth. And so those ratios have to line up in a way that then gets you to that 20 to 25%, or maybe it is aggressive, you're looking at 30% EBITDA margins or whatever.

So how are you getting there? And so then you start forecasting, okay, these are my team members in these departments and this is what we're investing and I'm projected to get 8% margin. So then you begin to look at, okay, where am I out of whack? How do we fix this? Do we grow our way out of this because maybe we have a lot of bandwidth and we can grow into it. Do we make cuts? Do we get more efficient? There's a number of things to look at. So those are the areas we look at. And then we break it. So we break it down in big buckets like that. We look at a p and L on of course a monthly basis. We update it all the time, multiple times a week, but then we also break down into each department kind of p and l and look at how that rolls up, and then what does each department need to contribute to then get us to the overall ratios that we need. And so yeah, we're planning things out annually based on that. We also factor in things like, okay, what is our pipeline? What percentage of deals are we're going to close? What's our average deal value? So that's layered in. We also factor in churn because even though we think we're great, we've won awards and people love us and things like that, churn still

Andrew Faris:

Happens.

Brett Curry:

It happens more when tariffs are going on, stuff like that. So then how do we factor in churn and look at that because you're never going to keep all your clients. And so we spilled that model and it's like you're constantly adjusting, you're constantly tweaking. We do a weekly flash, the finance report that looks at, okay, what changed this week? How are we looking at the rest of this month? So that's kind of the base of breakdown,

Andrew Faris:

And I think that exercise reflects there's a target profit number that you're trying to get to. You just said 20 to 25%. That could change depending on all kinds of things. It could have changed depending on the way that businesses in your sector are valued. It could change depending on your goals, depending on the cash intensivity of the business, the cost of capital, there's all kinds of things that could affect that. It could change just because of what you want in life. And that's fine. Totally. When I talk about this, to me, it's not about me saying necessarily what I think good is in this case because it's just going to change for different people depending on goals. I could tell you what I think how these brands are valued in the m and a market. I have thoughts about that, but then even how much you care about that is your own question and when you want to sell and all those things.

So there's all of these other factors that do that, but then you just kind of work back from there. Here's the profit number we're trying to hit to. Maybe you have for yourself some kind of a revenue goal that ladders down to a profit goal that ladders down to your take home that you want or a valuation that you want or something like that. So you say, okay, I need to hit this profit number, which means I need to get to this revenue number. And then from there, you just add in your costs. And this is the thing for e-commerce brands, you have to play that exact same game. And I'll say for most of them, that EBITDA number probably ought to be at least 10 to 20%.

Now, again, with the caveat of everything I just said, which is in some ways it's up to you, but for it to be valued highly, if that's what you're aiming at, if enterprise value is your goal, probably somewhere around there while the business is growing, and then now you've got to think about how you break down your costs, very similar to what you just did, Brett, for the agency. So I don't know if you want me to go sort of section by section and talk about what I think the costs ought to be, then we could talk about it. But this is where it varies a lot in

Brett Curry:

Categories. I love that, and I did skip a very important step. It's like, okay, we have very specific goals about what do we want our total profits to be for this year, and as we grow and as we do some acquisitions, what do we want the overall OMG platform to look at? So you do start there and top line goals, and then you back into all those get all percentages. But yeah, let's break it down. So what should this look like for an e-commerce brand? How am I structuring my p and l?

Andrew Faris:

Yeah, so the starting point for this conversation is if you think about the notion, Taylor Holiday four quarter accounting is a helpful way of framing this. There are four sections after revenue on your p and l. So it's cost of delivery, CAC and opex, and then profit. Those are the four sections of your p and l, okay? Cost of delivery includes every variable cost associated with getting your product to a customer. CAC is every ad dollar or marketing dollar that gets deployed. OPEX is every fixed cost in your business, which is mostly people and an e-commerce business. And then profit is left leftover. So let's work backwards. Okay, so profit obviously the number you're trying to aim at. So one of the things that should be happening in e-commerce business, basically no matter your sector, and I think this is the thing that is the most true across every category, is that your opex is a percentage of your revenue should be pretty low. And it is amazing to me how high this number still is. But one of the fundamental advantages of e-commerce is that it scales really well relative the number of heads you have and even cost of those heads

Brett Curry:

Opposite of agencies. But yes, it's very true for e-commerce

Andrew Faris:

Opposite of agencies. So as a simple heuristic here, your total fixed costs is the percentage of your revenue as you grow in particular ought to be less than 15%. So essentially that means if you have a million dollars in revenue, your total cost of all opex including salaries ought to be $150,000 or less. Now at a million dollars, it's pretty hard to hit that number because you have not actually scaled yet. But the more you scale, the more you obviously that percentage come down because, and the simple reality that happens in every part of an e-commerce business, the illustration I use all the time is that it costs basically, well, it costs the exact same amount of money to design an email that you send to a thousand people versus that you send to a million people. The design costs are literally dollar for dollar the same. You got to pay Klaviyo a little more money between those two, but otherwise, all of the other costs are pretty much exactly the same. And so that means that the percentage of your cost of people goes down a whole bunch. If you add in the ability with AI now and with offshoring, which I'm a huge believer and proponent in my team, I mentioned there's seven or eight of us in the Philippines, they're incredible contributors to my team. I don't think of them as separate or something like that.

Brett Curry:

Totally. They're pure team members

Andrew Faris:

And they are killers, and I can get access very high quality talent in the Philippines for much less money than I can access that talent in the US equivalent talent because of the differences in the economies and some of those things. It's a win-win. So if you add those two things together, now you have talked about shrinking your opex even more, and you can be really best in class here and get that number under 10% and maybe even lower. I've heard about, I think Zach Stocks has talked about publicly somewhere that, or maybe that maybe I heard Marketing

Brett Curry:

Operators, what brand does he run?

Andrew Faris:

Hollo socks, Zach, some people know him and he had started Homestead agency, some other

Brett Curry:

Brands as well. Great agency. Yeah,

Andrew Faris:

So Zach was talking, I think on marketing operators that his brand is like five or 6 million in revenue per head, which is crazy. That's wild. That is a very, very lean opex. So that is the number one thing. And I think a lot of brands actually are still sucking. They're just paying too much money for people. I recently had Ben Perkins on from Ann Call on my podcast. He was at $15 million in revenue and was drowning in debt. He had taken some inventory based loans, was paying $65,000 a week in loan repayments and trying to figure out how to stay afloat. He had $3 million in debt against 10 million in revenue at one point, which is not really workable in a lot of e-commerce brands. So he started smashing all of the costs that he could in his business. He ended up cutting half of his labor and discovered something which was that the business did not change,

Brett Curry:

Nothing happened, right?

Andrew Faris:

If anything, it got smoother. And Ben is clear and gracious to say that's not necessarily because those people were either bad or not working hard. Part of it's because managing people is very hard and he

Brett Curry:

Wasn't

Andrew Faris:

Great at managing them hundred percent. And so he had made bad hires, he had not managed them well, all those things. But he found that by being leaner, and I just think so many brands can be leaner. So that's number's number one's.

Brett Curry:

Also software of analogy on this that I think it hits. It's like is meta or YouTube incremental for your business? Well, it should be, but you could be screwing it up and if you're screwing it up, it might not be incremental at all.

Andrew Faris:

That's right. That's

Brett Curry:

Right. I think it's the same with people. They're not bad people. Maybe they're working really hard, maybe they care, maybe all those things, but maybe you've just got the structure incorrect or you're managing 'em incorrectly or you just don't need 'em. And so they're busting their tails, but actually it's not writing incremental value to you. And so yeah, Ben talked about that.

Andrew Faris:

His solution to the problem was to create a personal p and l for every one of his

Brett Curry:

Employees.

Andrew Faris:

So basically to answer this question, is this person generating incremental value in the business and here's how we're going to measure it. And he said some of them did not want to partake in the exercise, so he offered them a gracious severance and they left. And then the other ones who were willing to participate, it turns out they were driving a whole bunch of value as measured on a p and l, so he did the exact thing he

Brett Curry:

Just said. Interesting.

Andrew Faris:

Yeah, I thought it was brilliant.

Brett Curry:

So we're driving down our opex. Can't underscore that enough, especially in e-commerce. Drive down that opex, okay, what's

Andrew Faris:

Next? It's so fundamental to what makes make an e-commerce business work and people need to be really clear about that. Software bloat is the other thing to watch out for. There

Brett Curry:

Typically

Andrew Faris:

Not as expensive as people, but it can get expensive. People just have too many things to the chasing shiny object syndrome. You don't need to do that for a while. So opex should be shrinking as a percentage of revenue. Again, in a forecast you should see as my revenue now. So if you forecast up 1 million to 5 million to 10 million in revenue, whatever that growth rate is, you should be seeing that you're hiring is not going linearly with that, but that people are now able to create, again, have operating leverage in their people, which is to say they generate additional value, not just the same amount of value as before. And so you got to keep hiring them. Again, very different than an agency to service the revenue. You have to keep hiring. Okay, exactly. So that's the starting point. Okay. Then you get into CAC and cost of delivery. Now this is where you're going to have more variation across different industries. So apparel businesses are going to function in both of these regards really differently than supplement businesses, than beauty businesses, than food and Bev. All of these things are going to have just home goods, whatever. And so this is where you get to all kinds of different setups. What I will say about this is more that, so if you want to say best in class, let you just want a heuristic here. If you say 15% opex or lower, 30% CAC or lower in your business, so your total spend is 30%.

Brett Curry:

So I'm spending a third of my revenue basically on marketing or on customer acquisition,

Andrew Faris:

Correct? On

Brett Curry:

Marketing,

Andrew Faris:

30% in cost of goods, okay, cost of delivery, totally delivered to the customer. Right? Now you've got,

Brett Curry:

That's cogs, that's shipping, that's cost of fulfillment

Andrew Faris:

Costs, merchant account fees,

Brett Curry:

Refunds, all

Andrew Faris:

Those things. The 3% you have to pay Shopify and credit card companies, everything in there. The dollar 50 or three PL is going to charge you for fulfillment costs per order, plus any pick and pack. There's all of these little things that come up. The cost of ordering the product, getting it from essentially from your manufacturer to the customer. That whole journey represents all these costs. If you can get that to 30% as well, now you've got 30% COD, cost of delivery, 30% cac, that's 60% of our money is going out there, 15% opex, and now you have 15% leftover. Did I do that right now? Now you have 25% leftover, you did 5% leftover. That would be super best in class, be amazing, 25% left. The reality is most businesses do not have that much margin at 30% total, and they're not running their CAC at 30%, but if you want to know why there are so many supplement businesses in because they can do both of those things, they uniquely are able to do this.

Their CAC shrinks as a percentage of their revenue over time because customers come back so much that returning customers make up a larger and larger percentage of their revenue pool. By the way, there's some similar dynamics in skincare. The product beauty, the cost of creating the product is very cheap. The cost of shipping the product is cheap. All of those things come together and you can charge a good amount of money and get AOVs to 70 or a hundred dollars or whatever it is, which can be helpful as well. You put all that together and you can run a really high margin business. The truth is for most brands, they're going to actually be spending more somewhere. And the question is where, so for a lot of brands, if you can get even two 60 points, or if you add 10 more points of cost to your cost of delivery, 30% to 40%, that's probably more realistic for where a lot of brands end up in a lot of cases. And now you've got 15% profit margin and that's still a really healthy business, something like that.

Brett Curry:

Still a great business. Or you have someone like Sean from the Ridge who I think he said he spends about 40% on cac, right? So then this

Andrew Faris:

I going to points

Brett Curry:

To

Andrew Faris:

That side. This is another way to do it, which is I have a brand that does something very similar, which is they have extremely high margin and they want to grow. So what do they do? They turn around and they plow money into ads and they're like,

We are just going to push our growth really hard on ads, and by doing that, we're going to be really profitable and by staying lean at the same time with our team, we're going to be really, really profitable. So now, yeah, they run like 40% cac, 30% or less cost of delivery and yeah, 15% or less opex, and they're running it like a 15% margin as well. If everything goes awesome, still a great business. If everything is awesome, then there's some places where they can find some help on all of those. They're hammering away out their cost of delivery all the time. In any of those cases, you can have a strategy. Now, there's exceptions to those rules too. We mentioned simple, modern earlier as an example of this, and simple, modern did not start off first of all to DTC brand. They started off as an Amazon brand.

Brett Curry:

Amazon brand, and that's important. We've seen so many of those, by the way, so many born on Amazon brands, and when they try to make that transition to DTC, it's so hard because the math is all different. Amazon is a demand capture platform and it's razor thin margins, but all the traffic is there and that sets what you're capitalizing on. It's not really demand gen proposition there. And so it makes it very

Andrew Faris:

Difficult and in competitive categories on Amazon, being able to be priced cheaper is a really big advantage.

Brett Curry:

That's basically a marketing play, right? There is usually

Andrew Faris:

Price. So the simple modern guys tested five different products when they launched on Amazon, all within trends that they thought were taking off. It is super genius when you listen to what they started with. They're brilliant dudes. Brian Porter alongside Mike Beckham. Brian is there,

Brett Curry:

I know Brian well, and you admire Mike. Yeah, he's great.

Andrew Faris:

Yeah, both fantastic people and just killers and the softest, gentlest, kindest killers met. Yes, gentle killers. But Brian, he talks about the early days and it's really helpful to think about this through a p and l lens because what they did was they said like, okay, we're going to price cheaper with drinkware, with stainless insulated drinkware than other people are, and we're going to create more variant options than what is currently available. Because if you think about the legacy players in that space, the Yeti Hydro flask, they built for mass retail, and so their business was tuned for mass retail first, and that meant pricing strategy, product skew strategy. All these things were built for that

Brett Curry:

Black, white and blue and maybe red. That's all I can afford to do. I got to send that everywhere in retail,

Andrew Faris:

Right? And so they said, we can create more options. People like to accessorize with their water bottles, and so I can create more options at a lower price and a really great product. The net result of that, and this is the p and l implication that I think is helpful to think about is that they have, and they've been public about this, but I don't mind saying it like 30% margin. So at a DTC level, it's like 60 to 70%, I think closer to 70% of their revenue immediately goes out the door. Maybe 65% of their revenue immediately goes out the door to product costs and cost of delivery, getting it to the customer. So they only have 35 points of margin leftover, which blows up the entire paradigm I just told you about, right?

Brett Curry:

Right.

Andrew Faris:

Yeah. But it's because it was a channel strategy, which was to start Amazon first and then DTC came in after that. And this is why, like you said, some brands really struggle to go the other way, and this is where sometimes there is an issue here with product channel or product business model fit,

Where you have the right idea, but you're just in the wrong channel for it, and you need to change the whole business model to match the channel that you are in. And I think this is actually a problem. I operated a business like the SE four 400 where we just needed to be a mass retail business because the math didn't work very well for us. We had low LTV, it was very expensive to ship, and it was just really hard for us to make the math work as a DTC brand. Now, eventually, simple modern of course now has a really good DTC business as well because they're really big. And so they've been able to generate so much awareness and all those things that they can make it work, but it wasn't their lead channel. And I just think it's helpful to understand that there's reasons for that.

And when they went and launched a hydration pack brand, they're doing that DTC first with a potential mass retail output eventually because that product makes way more sense on the channel in all of the things that I just laid out before. And so brands need to get really serious about, wait a minute, if I have low margin, let's say I end up with 50% margin leftover after my cost of delivery or 45% my cost of delivery, gosh, DTC is going to be an uphill slog. There better be a reason that I think I can do it. And there may be, may be because you have some pricing strategy that gives you some unique advantage of, I don't know. But there would be ways to do it. But yeah, I think that's the thing that people need to get really clear about is how is their approach to their margin profile fitting with the channel? And if so, because my friend Kelsey Lyric and I have debated about this, but I think it changes the whole model of the business. The business model, if you don't have product channel fit in quite that way and you have to think it very differently about nearly all of it. The moment you go to mass retail, the amount of heads you have and the amount your shipping works, all that stuff changes. So sales commissions and all these different kinds of things,

Brett Curry:

Your margin profile has to fit your core channel or channels. That's really important. I think that's something that not a lot of people think about in the early days especially, but it's something you need to think about as you're grown, as you scale. So let's do this, Andrew. Let's talk about how are we projecting, how are we predicting, how are we pivoting along the way as we go? So we've kind of talked about these numbers. Obviously if we're out of whack, there better be a reason for it. We'll be able to make that work on our channels. If not, we're going to need to start making some adjustments, some cuts, things like that. And you may have another note there before we talk about projections. Yeah. Okay, cool. So then how are we looking at projections? And again, to use the Moneyball example, how are we taking data, this p and l that we're looking at and using it to make decisions and operate our business so that we actually hit those profit targets?

Andrew Faris:

So what ends up happening, if you do this exercise, if you forecast all of the parts of the p and l that I just said over a period of months or years or whatever it is, something will happen, which is that the numbers will be thrown in your face in a way that will tell you if you are somewhere or not. And then their question is if you are close or if you're somewhere, let's say you get that and you're like, Ooh, we're at 5%, and if things go wrong, 5% profit, and if that goes wrong, that takes us down to zero, that takes us down to whatever. Then you have to start thinking about what is the solution to this problem? Do I need to just grow faster so that my opex becomes lower as percentage of revenue? Do I need to fire people? Do I need to go negotiate my manufacturing? I have a little theory right now, which is the supply chains are the most underoptimized part of e-commerce businesses.

Brett Curry:

Totally agree. Nobody got to in the past, didn't need to, didn't feel like we needed

Andrew Faris:

To. And it's a lot to do. It's hard.

Brett Curry:

There's a lot to do.

Andrew Faris:

Exactly. Somebody like me gets on a podcast like this and tells you another thing to think about and listen, there's 70 podcasts like this that are new. There's probably way more than that. There's probably 500 podcasts like this, all of 'em with people telling you what to do, it becomes really challenging to stay on top of all of it. And so anyway, we went through I think the marketing revolution in e-commerce where people got really early on, that was a big part of the thing. Finance revolution has been happening. More and more brands recognize they need to be profitable. They can't just try to blitz scale. They recognize their business is worthless, it's not profitable. They're listening to the finance operators and following mates have and Drew and Taylor Holiday and people like that on X, and they're getting their feet wet with how to think about forecasting their business and some of the things I'm talking about.

But there's another step next, which is like now, okay, how do you actually go negotiate a supply chain and build your supply chain out and do those things in a way that is actually good for the business? And I do think there's a lot of bigger wins there than people realize just by talking to more manufacturers, negotiating with your three pl, there's just a lot there. I have brands who've done this, shout out to my friends at Move Supply Chain, who they've worked with on this where it was like, wait a minute. We had this product that was costing us $5 per unit to make. Now we got it down to two. And no customer has ever said a word about it being different. It's still good product. They just did a bunch of stuff to go work somewhere else in the world and

Brett Curry:

Make 60% reduction in cogs. Huge

Andrew Faris:

Gigantic impact on the business. Massive. And so there's a bunch of stories like that. So yeah, I just think that could be where it is, where you go like, oh, we have to go manufacture something different. I'll tell you from my brand, my brand is in a category where the packaging is more expensive than the product, than the actual

Brett Curry:

Product. Interesting, interesting.

Andrew Faris:

And so we are going to launch with prices that we think are pretty decent at the level of cost of delivery, but right away, I'm right away thinking, shopping. Additional manufacturers that actually worked with that same company might move supply chain. They started with 60, so a 60 on product and 20 on packaging. So we already are somewhere on that. We looked at a lot of manufacturers. But immediately I'm thinking about, okay, at what level do I get a price break by ordering more of these? Do I need to go actually redesign the packaging, the most expensive part of it? If I could shave two bucks off of this, it's probably worth doing. There's a lot of questions like that that come in because I know that everything in the business will get smoother if I have more Martian. It's just a superpower. Totally. And so anyway, so you can play that out in your business wherever it is.

What are those giant costs that are just killing you? They're somewhere in your business probably. And you just start by saying, okay, what is the place that I try to go to next? Look at it with somebody smart, got a coach. If you need some input, somebody can probably look at that with you and say, if you've been in your business for four years and you're like, I have had ideas, then you can do those things. But people will have ways to go and say, Hey, have you looked into this? Have you considered that? Have you thought about, Hey, your air shipping stuff all the time? Stop doing that because your forecasting is bad. You're behind. You need to get back to ocean freight. That's a big whatever, whatever. There's all kinds of things like that in every business because it's hard. And so you could start kind of hammering away doing that forecasting exercise. We'll start to surface those things for you.

Brett Curry:

I love it. And it's one of those things too that with all the tariff madness that's going on right now at the time of recording, it's forcing people to look at different locations for manufacturing, different factories, different ways of getting the product here. And I think in that process, even though that's painful and not something any of us want to be doing, you're going to find opportunities in there and you maybe going to shave off, you're going to find five or 10 points or 20 points or something like that.

Andrew Faris:

That would

Brett Curry:

Be, it could be a game changer for your business or maybe you're not. Maybe it's going to be a terrible experience, but you work towards that for sure.

Andrew Faris:

I have a theory really fast, Brett, that the upside of this whole thing is that tariffs will be a forcing function for better supply chain creation for people because they're just going to have to, and that it'll be, and that win for some brands, not all brands. Totally. For some way,

Brett Curry:

Yeah, it sort of relates. But if you look at the iOS 14 and just all the madness that happened there, it forced us to be better markers. We had to. And so I think it's going to do something similar here with supply chain. And I want to be mindful of time, so you lemme know if we need to wrap up, but I want to look at cohorts and LTV and composition of new customers and returning customers and how you forecast that and how that informs this process. So do I have time to get into that or do we

Andrew Faris:

Wrap up? Yeah, this is good. This's going to be the last question. So that's, there's a lot there. Best, best, yeah. I'll tell you what to do, honestly, go to my website, put your email address in the email popup or in the footer. Either one will work. You get my four free essential e-commerce resources. It's going to sign you up for my newsletter as well. I don't spam you, I promise. AJF growth.com. Go there, sign up for my newsletter. One of the things I will send you is from some lovely venture capitalists at Lightspeed Venture Partners put together a whole prebuilt like custom spreadsheet that helps you and walks you through how to forecast returning customer cohorts off customer data. It's hard work. Another recommendation I say to people is Dave Ook, CXL class. So the CXL course, he talks you through how heat forecast businesses.

He's a really smart guy. I worked with him really closely for a long time. At four 400, he still runs Bamboo Earth, but if you do that, it will give you a whole prebuilt spreadsheet for how to do it. And I basically had at one point common thread collective took the Lightspeed model and built it a little bit for themselves. I've since tweaked it a little bit for myself and I will send you mine for free so you can do that. And that's probably I think the way to do it. But if you can just see historical returning customer behavior over months after purchasing and then put that into a spreadsheet that will tell you, okay, what does that mean for the customers that acquired today in six months? How much are they worth? You can pile all those cores on top of each other. You can get a really good revenue forecast. That's surprisingly reliable. They're more reliable than people think.

Brett Curry:

And then you can look at, okay, my new customer acquisition activities are underperforming or overperforming, and what does that do to my projections? That's right. And then you can understand, okay, I need to make some pivots now because this is going to have a real material impact to my business in 2, 3, 4, 5 months, things like that. So awesome resource, a big job,

Andrew Faris:

But if you commit to it, it's a big job. You can do it in a day. It's not that of a job, but if you commit to it, then I always say my best clients live and die by that spreadsheet.

Brett Curry:

Yep. And it's one of those things that once you start down this path, it will transform the way you run your business and things will never be the same. And you can unlock a different level of performance and profitability that will never happen for you if you're not looking at your business this way. So I agree. Andrew, this is fantastic. I know you got a jet. What's your website one more time? So we want to check

Andrew Faris:

Out that resource. Yeah, AJF, like my initials, AJF growth.com.

Brett Curry:

And if people can find you on

Andrew Faris:

Everything there, podcast there, everything. Yep. X at Andrew j Faris.

Brett Curry:

Yep. And Andrew Faris podcast. Check it out. Andrew, this has been fantastic, man. Super, super fun. Look forward to the next go round and thanks for taking the time, man.

Andrew Faris:

Thanks Brett.

Brett Curry:

And thank you for tuning in. So we'd love to hear from you. What would you like to hear more of on the podcast? Let us know. And with that, until next time, thank you for listening.

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