E124: Under the Hood with Rob Hampton Part 2 – Tips to Efficiently Scale Your Business

On Monday’s episode, Rob and I discussed how to effectively manage Filipino VAs and foster a long-lasting working relationship with them. Now that we’ve got that covered, we move on to the second part of Rob’s problem: scaling his business.

This is a topic we are well-versed in for two reasons: we managed to double our revenue last year, and we are actively trying to replicate that growth this year. We’ve revamped our systems and put simpler processes in place to try and achieve that growth.

In this episode Rob and I talk about how he can do the same for his business. Some conversation points:

• Systems and processes he needs to put in place for himself and his team
• Product launch process put together by Jacqueline, our Director of eCommerce
• Why a “minimum viable product launch” is a bad idea
• Perfecting product photography
• Maximizing visuals for customers who don’t read
• More efficient returns process
• Supplier agreements and warranty claims
• Other things to pay attention to when scaling

We’d like to thank Rob for joining us in this episode, and I definitely had a blast talking to him. If you want to be featured on your own episode and get free business advice from us, sign up to be an Under the Hood guest here.

Resources mentioned:

EcomCrew courses
Under the Hood
Our product launch process (PDF)
Product launch process worksheet (Excel)

Thanks for listening to this episode. Until next week, happy selling!

Full Audio Transcript

Mike: This is Mike, and welcome to the 124th edition of the EcomCrew Podcast. You can go to EcomCrew.com/124 to get to the show notes for this episode. And today we're back with part two of our Under the Hood segment. And I want to remind you guys, you can also try to get on the Under the Hood segment by going to EcomCrew.com/UndertheHood. We’d love to have you on here.

This has become one of my favorite things to do with the EcomCrew Podcast. You get one hour or an hour and a half of free coaching time from Dave or myself or both of us if we get lucky to get both of us on at the same time. Once Dave is back from China, we'll be able to do that more often. But go to EcomCrew.com/UndertheHood to sign up today. We'd love to have you on a future episode of the EcomCrew Podcast. So for today, again part two with Rob Hampton of Under the Hood. We're going to get right back into it on the other side of this break, talk to you then.

Mike: So what would be the next question then?

Rob: Next question, I think we're hoping to scale. I've realized in addition to needing to surround myself with a good team, I need much better systems and processes both for the team and for myself. So, one thing in particular that I'm thinking through is product launches, and what sort of system do I have designed around the product launch where I can kind of rinse and repeat. This is what we always do. You know, obviously you always need pictures; you always need copy written, all of that.

What I've realized as I've launched about half a dozen products over the course of the past three years is I've ended up repeating a lot of the work where, for example, it took — you take pictures of a product, and had everything sized at 2000 by 2000 for my Amazon listings. But then, six months later I'm approved for enhanced brand content, and I realize, oh crud, I need all different sizes now and I just had the photographer send me 2000 by 2000 images.

And now I need, whatever different size for the particular template you use with EBC. So I'm trying to figure out what would be a good system for everything so I'm not repeating work, repeating design assets, and all of that. What are your thoughts there?

Mike: I mean, this is something that even we struggle with, and that's something that we're putting a lot of time into here as Q1 of 2018 comes around, because our goal is to get to a point where we're launching a product a week in 2018, basically 50 products next year or so. This is like on the forefront of our minds. And so we've written out a launch process. We have Jacqueline, our new director of e-commerce that wrote this out. And that definitely helped. It was — I forget the exact number of steps, but maybe we can even share that in the show notes.

I'll share that in PDF; we’ll make it like a PDF, make that into a PDF and share it out. But there's just a ton of steps, and it's crazy like when you think through all the things that have to happen from packaging to inserts to the product itself and also like getting the listing up and running as efficiently as possible, early reviews, enhanced brand content, all the imagery. I mean the list really goes on and on. And I mean our, our goal is to systematize that as much as possible this year. We've done a really good job like getting better at that over the last few months.

So when we launch a new promo, like specifically what you're talking about, like we have all these different size images exactly what you're talking about. We have a Facebook size, we have an Instagram size. There's a size for our website, there's a size for Amazon, and a size for entering content. So we're thinking about all that like upfront and getting all that done from day one. And yeah, I mean it's just a matter of being able to execute on that at a very high level and consistently. And that's a big part of what we're hoping to do next year because one of the things I was just talking about — we just recorded an episode about struggles for 2017 and this was one of them.

It was just, we got to a point as we got bigger, being able to like rinse and repeat, as you just Kind of said, efficiently. We just got to the point where we couldn't watch any more new products. We just didn't have the manpower to do it. We were getting products in and they weren't getting up in an efficient manner. And what I've learned over this year is just like how important the launch process on Amazon is. I used to take that for granted. I used to just throw something up like with a minimal viable product kind of attitude of, oh, it's okay that there's only one image there and the title is not perfect yet. At least it's there, and it's on Amazon and we'll make it better over time.

And what I've realized is that like, that's like one of the worst things you can do because Amazon is looking at like a moving average. And if you establish a low sales velocity over a relatively long period of time of like three to six weeks, it's very difficult to get out of that funk. So our goal is as we launch products in 2018 to really do with a bang and have everything perfect as we possibly can the day that we launch.

Rob: Cool. How are you generally doing photography? Do you have a local photographer? Do you have somebody in the Philippines or using one of the many different services out there?

Mike: So we have a combination of a local photographer and two full time graphics people in the Philippines. And we do both for kind of a few different reasons. There's usually — sometimes there's some time sensitivity. So like we want to have things done here sometimes just because of time sensitivity. Some products are larger than others, so like shipping them to the Philippines can get costly.

And again, it does take time to get the stuff over there, sometimes as much as two weeks just by the time it gets through customs and gets to the office over there. And that can make or break getting a listing. I don't want to delay a listing by two weeks just because of shipping times. We're trying to improve that as well. Another reason, quite frankly, is that we're looking for like Western type people in these models in a lot of the photography.

One of these things that drives me absolutely mad is that this is even an issue. But unfortunately western buyers have a negative connotation sometimes with darker skin, which again, just really piss me off to my core. But we also have a business to run and even though the stuff is like subconscious and people make buying decisions based on that. We have to keep it in mind. It's unfortunate, but it is one of the things we have to think about. And again, hopefully, 50 or 100 years from now or even sooner like the world will be a better place.

So I think about this type of stuff, but it is a consideration. So that's why we use photographers in both spots, and models in both spots and try to just vary skin tones in images. Especially like our baby photography, we’ll try to have multiple ethnicities represented in the photography. It helps with sales. This has just been proven, there's lots of studies about this. It helps with your conversion rates, and it’s just something you have to kind of keep in mind. So yeah, we have people in both spots working on this stuff full time.

Rob: Cool. So you mentioned models, so you are doing a fair amount of lifestyle photography as well?

Mike: Yes, it makes a massive difference. Actually we were just talking about this again this morning because we've initiated our internal project to go back, and put all of our photography on steroids and redo it all. And we were just talking about one SKU in particular that we've worked on. It was like the first SKU that we worked on with this new photography. And we like literally doubled our sales by improving the photography. And the photography was already good.

This was already photography where we hired a professional photographer and a model and had pretty good photography on the listing. But we've taken it to another level now where we're using what we call mini infographics. So we have a lot of — it's not just the photography, but there's like little infographics on the listing. And then also like call-outs of features on the product and also like little badges and all these like little type of enhancements to the imagery, and it's made a massive difference. So now it's just a matter of going back and doing that across a couple of hundred SKUs, which I can say in 30 seconds but it takes longer to actually implement.

Rob: Yeah, I've been doing similar with — now I've started more than just product on white background. I've been having kind of info graphic elements to it as well. I haven't done as much with lifestyle. What I've done is really just photoshop the images into lifestyle shots as you might have seen in the listings that you looked at.

Mike: Yeah.

Rob: Which is not as good as I want it to be obviously. But with limited resources I've felt like it's better than nothing.

Mike: Yeah, I mean your photography, like I'm looking at it again here. It's like definitely way above average, which is good. But there's definitely some things I think you could do to improve upon it with more infographic type call-out stuff. It really is crazy how much of a difference it can make. And what it really comes down to like in a nutshell is that people don't read, like just plain simply like they do not read the description, they don't read the title.

And the more you can communicate whatever it is you're trying to communicate in photography makes a big difference. And they'll actually read some words on a picture. So you have a couple of words with a call-out, they'll read that. But they're not going to go through and read all the stuff that's in your title and description. Like we've proven this just by seeing the reviews that we get, people complaining about stuff that is clearly in the title, in the big bold title part, not even in the bullets or description.

So they just don't read. And it's really frustrating. So I mean getting that stuff in the photography makes a big difference. And I think it also helps you stand apart on Amazon because like just so many people kind of just so many people just do with the old 2012 way or whatever. Having like this really enhanced like beautiful photography and infographics and stuff I think just gives people subconsciously like a better feeling about your product and listing.

It adds a level of professionalism to it that the average person isn't willing to do. And in our opinion, everything on Amazon is incremental. It's not — you don't have to completely reinvent the wheel or the world. You can just incrementally make it better than the next guy and that; a lot of times makes a massive difference.

Rob: Yeah. One of the things I have been doing lately is actually the majority of my images aren't photography. I originally did this not because I was really thinking ahead as much as I was behind. And so I've done a lot of 3D modeling. Have you done any of that? What is your thought on using a 3D rendering in lieu of photography?

Mike: Yeah, I mean I think that those are good for one or two of the images. But I would definitely side more on having like the real actual image versus a 3D render.

Rob: Do you guys do any 3D rendering at all?

Mike: We haven't. I don't know that it's really as applicable to our products in general. I'm looking at like your product here; I think it makes a lot more sense on this electronic kind of piece of equipment versus a set of gel pens. I don't know that it makes as much sense there or like a footy for a baby, like a onesie, like organic piece of baby clothing. I don't know that this makes as much sense for that as it would for what you're doing. I can see like maybe some kitchen products that would make a lot of sense for 3D rendering and things like that. I’m just trying to think of where it's more applicable.

And I think it definitely is applicable here, but I think it's less applicable for what we're doing. I can see like doing this for like some of our Tactical products for instance, like we're going to come up with a flashlight, let's say for instance, something like that makes sense because it's actually electronic piece of equipment even though it's just the battery. So yeah, I think it just depends on the product. But for you, I think that there's definitely a place for it, but I think what's missing here for you is just more lifestyle and more infographic type stuff. And I'll share with you one of our listings after we record this just to give you some basis for some things that we've been doing.

Rob: Cool, all right. Well, I think the next question that I have related to scaling as I'm thinking through systems for returns. Unfortunately with being electronics products, things do go bad. And one of the things that I do kind of regret about the niche that I'm in as much as there's some nice parts about selling one to $200 products, it's not as easy to just say, oh, that broke, here, let me just send you a replacement free of charge, I won't worry about it. Have you guys had much experience with products where you do actually need to have the customer send it back and you check it out, and how do you scale that? How do you automate that, et cetera.

Mike: Yeah. Returns are a big pain in the rear end. We do have things that we have to inspect especially like a shoulder ice wrap. Let's say as a for instance, when it comes back, we've got to make sure that the thing wasn't won or doesn't have hair all over it or whatever. But the reality is like, even then, you're in a pretty much a position of weakness because you sold it through Amazon.

And Amazon is going to side with the buyer no matter what and want you to give a refund just about no matter what condition the thing comes back in. So we pretty much just blanket a give a refund and don't really ask a lot of questions because we know we're going to lose in the end and it's just not worth the extra hassle. What return rate are we talking about here, have you had a return rate to the point where Amazon has actually shut your listing down? Or is it…

Rob: So I should clarify. I'm less thinking about returns and more thinking about warranties. So, six months later I get an email from a customer saying, hey, this product is battery powered. The battery just died, and it has a one year warranty.

Mike: I mean, I think you just got to ship them a new one. In that case that would be — I look at the cost of getting them to ship it back to you, you shipping them another one, like the customer support that's involved with all that in between. Our policy internally for any of that stuff is just send them another one, make them happy and move on.

Rob: Yeah. That has been my approach. I'm just wondering if that's really going to be wise and scalable if I'm getting say one of these a week right now. And it's probably not that. It's probably closer to two a month. But, if I 10X next year, like I'm hoping to, all of a sudden, I've got four or five warranty issues that I need to give a free replacement for every single week. It could very easily both be taken advantage of as well as just not be financially feasible. But at the same time, I definitely want to offer great customer service and take care of people.

Mike: Yeah. This is something we struggle with all the time because like, you're right, it can be taken advantage of. I mean, the reality is it can be taken advantage of just as much today as it can if you were 10 times the size. So to me, like that's completely, remove that from the equation. Like the scale part of it doesn't make a difference, because it'd be — the percentage should remain the same whether you're selling as many as you are now or 10 times as many. And there's just as much opportunity for someone to take advantage of you right now as if you sold 10 times more.

I mean, there's a couple of ways to approach. You could say like you need to ship this thing back to me and then we'll ship you another one on our dime. That's certainly an acceptable way to handle it, but it just depends on like what level of service you want to provide somebody. And do you have the capability of even receiving that return, and what is it actually gaining you. I mean these are all the variables that we plug in. And your margins are obviously very healthy. I mean if you're making 30% net margin on this $100 item, I mean I'm guessing your costs on the actual product is more like $20. And so is it really worth fighting over 20 bucks when you could be doing something else with your time?

Rob: Yeah, okay cool. It’s been helpful to get your thoughts on that.

Mike: And the other thing here is that you have a five star product and which is a very high bar to adhere to on Amazon. And to me it's just like an insurance policy of anything else. Like, I mean, even if you're getting ripped off a couple of times, you’re getting people to continue to leave five star reviews or more importantly keeping them from leaving a one star review because they say like six months later this thing broke and they made me return it, and it cost me $10 in shipping to get it back.

Even though it's still amazing customer service, you still can get a negative review because of that. And that is way more detrimental than any amount you'll pay. As long as you're still looking up order numbers and making sure people like really did order from you, which I think is important. You don't want to just send someone something because they said that they bought it from you and you don't verify they really did because this happens to us all the time.

We get people that do try to scam us. Be Like, oh, I got a set of gel pens and they were all dried out, I need a new set. Okay, well what's your order number? Oh no, I got them as a gift, like somebody gave it to me as a gift. I’m like okay, well like you've got to prove to us that you bought them, come on, like you're saying something that isn't really possible. Like it doesn't make any sense, so we pushed back on that. So like, I mean we do have a line in the sand, but if you look up someone's order, and they like legitimately ordered and they want a replacement and that your cost is 20 bucks or maybe 25 or $30 with the shipping and everything to do that, I would just replace it.

I think to me it's a cost of doing business, like period. That's just the way that we look at it especially on Amazon. Like this is not a battle that you're going to win. The only thing that can happen to you is bad things not good things by being cheap I guess is like the frugal way is probably the better way to put it, but it only ends bad.

Rob: Yeah, so that's what I've been doing. I think part of what I'm trying to figure out for the futures is how do I scale part of that process as far as, right now I get an email from a customer and they say, hey, the battery died on this. It's six months old, is it within warranty? And I say, hey, can you send me your order number? And I just use the order number as proof of whether, whether it's within the warranty period, but it's very manual, right?

There's two to four emails that have to go back and forth between me and the customer. Then I have to go into Amazon and look up that order. If I could have some sort of, not necessarily fully automated, but at least something that can cut out some of those steps. Have you set up anything like that or have any thoughts on just how to simplify that process and make it more efficient?

Mike: Yeah, so I mean for us it’s just our Filipinos. They handle all those types of requests for us. And I don't really know any way to — like you can automate that on Shopify. In your own store, there is a returns manager app, which probably isn't worth doing until you get to a certain volume where you can self service a return, print a return label and everything. But yeah, I mean we just do that. We have a procedure that we have for doing that within the Philippines. They look up the order number. If it's good, they put a — we use Skubana as our backend. So they create a replacement order and it just ships them another one.

Rob: Okay. So I'll look up the order generally. Generally it's coming from Amazon and then I'll create an order in Shopify and just put it at a 100% discount and put a note that it was a warranty replacement. On a smaller scale, is that basically what you're saying you do through Skubana as well?

Mike: Yeah. The difference for us is that we're using Amazon FBA to do all of our fulfillment.

Rob: Only because I ran out of inventory and just had more arrive like three days ago.

Mike: Got you okay, which is fine. So I mean, you can just do that right through Amazon. You can just create a fulfillment order and ship somebody something right through Amazon's back end without having to take the extra route of putting into Shopify.

Rob: To me the Shopify piece was kind of a tracking of warranty replacements so I can look back and see, okay, yeah, we had to replace 75 units this year. That's how. And this is how it effects margins and all of that.

Mike: Yeah, that makes perfect sense. Yeah, I mean, that makes perfect sense to me. And we’re just using Skubana for that component. But yeah, I mean I agree that makes perfect sense to be able to track it at that level.

Rob: All right. Um, I think, uh, let's see another thing I’m trying to figure out with scaling is manufacturer agreements. And this actually goes along well I think with the warranty conversation is I've heard of some people having agreements with their manufacturers. And actually I have one manufacturer in the US and we do have this agreement where it's a one year warranty through them. So if anything is broken, they'll actually cover the costs. Have you had any experience with that or have any thoughts with that with dealing with Chinese factories and asking them to honor any sort of warranty period?

Mike: Yeah, we don't just because of the types of products that we have, again, kind of just indicative of not doing that. It's, you're not going to get them to warranty a gel pen or a piece of clothing. But yeah, I mean if you just like knowing what you have here, you have electronic pieces, I think if you can get them to agree to that, then more power to you. I think it makes a lot of sense.

And the reality is anything is negotiable, and we talk about this in our courses and also like when I speak, like people get fixated a lot on the actual sales price, like what they're buying the product for the cost of goods. But there's a lot of other things you can negotiate and this is certainly one of them, a warranty. Like saying every time I place an order I'm going to keep track of all the warranty claims I had that were under a year old and I want you to like take that off my next order or put that many extra units and in my shipment. That's certainly something that you can negotiate for.

You can negotiate terms; you can negotiate storage with them. There's lots of things you can negotiate. Having them label the products for you or packaging or all these different types of things are things that you can negotiate with your manufacturer other than just the price that's being sold at because they're also looking at that as well. I mean, they have some margin targets that they're looking at and might not extrapolate that out through their PNL. And you can take advantage of that a little bit by negotiating that, and the warranty is certainly one of those things.

And then also for them, I think the way they would look at that it also increases the likelihood that you're going to order from them again. So they look at, okay, this is on my next order and I get to throw in 12 extra widgets because you had some warranty claims on a $10,000 order. I'm sure they're not going to balk at that, and especially if you're willing to ship the product.

Rob: When negotiating those sorts of things, do you think it's good enough just to do everything in English, have a really simple contract written up in English that they sign? Or would you get it translated into Chinese?

Mike: We do it in English and we put it on the purchase order. So something like this would be a part of the purchase order?

Rob: Just at the bottom of the PL.

Mike: And get to get them to sign that with the — yeah and you just get them to sign the terms on the bottom of the PO and then stamp it with their company's stamp. I'm mean, there has to be some level of trust and understanding with manufacturer.

At the end of the day, if they want to screw you, they're going to screw you. And are you really going to go to court over $100 worth of electronic stuff? So like I mean at some point — but when you get bigger, then the answer is yes, right? I mean at some point the answer to that question is yes. This is enough money that I would go to court for it. That's when you want to get even more sophisticated with it.

But I think for the size of order you're talking about here, just having it on the purchase order, getting them to agree and signing and stamping it is official enough. And you're about to place and another $20,000 order and you're coming back and saying, I had 24 widgets that I got back in warranty claims. I need you guys to send me 24 more free. They're not going to say no. They want that next order.

Rob: Cool. What other sorts of agreements do you tend to put on those POs? Another one I was considering is a ship day agreement, because I had numerous times where it's been, yeah, we'll ship within 30 days and then we're at 45 days later and it throws everything off.

Mike: Yeah. So we try to get 1% per week penalties on there. We can't always get them to agree to that. It's something that we're going to try to institute even more in 2018 because it's becoming a bigger and bigger factor for us. As we get bigger and there's more money flying around, we're going to be trying to run things a little bit leaner in 2018.

So it’s just going to mean like having less inventory and ordering more frequently and being screwed way more if somebody takes an extra week or two to ship. So, just trying to align our interests with them. The other is having them pay for re-inspection fees. So we pay the first inspection, but if it fails they have to pay to get it re-inspected. That's something else we're going to be pushing for in 2018.

And then the last one would be terms. We're just trying to get better terms with all of our manufacturers, especially ones that we've ordered from before. So the standard kind of terms are 30, 70, but I mean I know people, including Dave who does the podcast with me, who get 100% upon landing. In US terms are net 30 upon landing terms, which is crazy compared to what we're doing.

That can completely revolutionize your business to the point where you already have it in stock and it's up for sale and you've gotten some money back before you're having to pay them versus paying 45 or 60 days before the thing hits your store. It can be a huge windfall. So yeah, we're working on terms with the companies as well.

Rob: All right, well I think that's all the bullet points that I had written down to pick your brain on.

Mike: Awesome.

Rob: Is there any random things that as I've talked to you, you felt like maybe I should be paying more attention to or less attention to as I'm thinking about scaling?

Mike: I always like to come up with something, but man, I think you're doing a great job. I mean, I just looking at the product here, like we were talking a few minutes before we hit record. I mean you've got a differentiated type product with really good margin, a higher selling price points. You're already doing good photography and a bunch of other things. I mean, I think that you're in the right spot.

I mean, I would only caution against, like you're talking about more than 10X next year and I think that that's going to be tough. So may I just want to temper your expectations a little bit? It definitely can be done for sure. Especially, I mean it's easier to 10X when you're going from like 100k to a million, that can definitely be done. Going from like where were you are, going from 5,000,000 to 50,000,000 in a year? Just absolutely lunacy, and even with like unlimited amounts of cash, it's tough. But yeah, I mean I would be focusing on just making sure that your product launches are ultra tight. We talked about that launch process.

I'll definitely share our launch process with you when we hang up here and try to include that in the show notes. I could have put a lot of thought into it. But it's a lot harder than it seems. You would think that having a list of 50 things all written out, it's very easy to check off and get them all done perfectly. But as you scale it gets harder and harder every time, as more people get into process and you're trying to be doing more and more things, it seems to be tough. So I would just focus on getting that good foundation from day one, which we didn't do.

It was very much kind of just flying by the seat of pants when we got started. And even through a lot of this year with certain things, even though we've cleaned up a lot of things and systematized certain things, other things have just been kind of willy-nilly, which is typical of a growing business, right? I mean, you're just only can do so many things at once. So I mean, I think you're on the right track. I think you have great product, great margin, and little bit jealous.

Rob: Well I really, really appreciate it and appreciate everything you and Dave do.

Mike: Of course, man. No problem. And definitely catch back up with us in six or 12 months, and let us know how much this has helped.

Rob: Absolutely will do.

Mike: Awesome. Thank you.

That's a wrap folks. I hope you guys enjoyed this episode of the EcomCrew Podcast. Just as a reminder, you can go to EcomCrew.com/124 to get to the show notes. And if you want to be on your very own episode of Under the Hood, just go to EcomCrew.com/UndertheHood, fill out the form.

Abby will get in touch with you. We'll get you scheduled. It's that simple. You get one to one and a half hours of free coaching from either Dave or myself or both of us once Dave gets back from China. We'll be doing these together a lot more often. We can't wait to have you on a future episode of the EcomCrew Podcast. And until the next episode, everybody happy selling and we'll talk to you then.