What keeps me up at night pt 2

TLDR:

The #2 Shopify Plus App?
What keeps me up at night pt 2.
Tool: Finaloop

We’re growing!!!! Appreciate the 904 of you who keep showing up. Really awesome to see the community we’re growing. Keeping this short today since we’ve got a lot to cover.

As always. If you know someone who would get value send their way.

Who’s #2?

Last week, I posted about the Top 100 Shopify Plus Apps/Tech analysis I’m working on and Klaviyo’s stunning 60% penetration. We had a good amount of fun with people guessing who’s #2 in the comments. Shoutout to the 60 people who guessed. Strong list of great apps in there, but unfortunately no one got it.

When you take a step back to think about it more it makes sense. Shopify Plus stores are usually doing $1m+/yr. At that stage investing in site development becomes a core cost and Hotjar’s screen recordings are a default tool. It’s actually one of my secret weapons to better understand customers and what they want.

More is coming on the Top 100 Plus Tech Stack Analysis. I’ll be sharing first look here in a couple of weeks when we release it.

That was the fun. Now let’s get into the meat of it today.

What keeps me up at night pt 2.

Inflation has pushed most Americans into too much credit card debt with too little savings. Now with higher interest rates stack on another area their money is being sucked up by. They’re being squeezed from all sides, making it harder to continue to buy as many products as they have been.

If you haven’t read my previous newsletter on the pending consumer credit bubble, I’d highly recommend checking it out first then coming back. I’ll reference the info/charts in that one a couple of times here.

That number is astonishing, scary, sobering, and also feels like a good data point to summarize what a lot of people have been feeling for the past year.

The alarming part to me about the report is that people are making 6-figures/year and still living paycheck to paycheck. That means someone is making $100k+/yr and is at risk of personal financial trouble.

Inflation put a squeeze on everyone with household items going through the roof. Add in higher interest rates which means their loans are more expensive and a higher % of their income is going to be tied up in debt repayments. Those costs come first and it’s hard to turn off a certain lifestyle once you’ve gotten used to it.

I'll be releasing my personal P&L template and how I use it so my family is financially healthy. More on that coming soon. For early access I’ll send it to the 10 people who reply first to this email with P&L.

So what does this all mean?

It’s time to get a better understanding of your customer's finances. Are they okay with personal runway to buy more? Or are they hurting and may not buy for a while?

Understanding how and when your customers are ready to buy is what I’m going to refer to as the ‘Demand Curve’. I’m going to adapt it for this post to mean what can customers afford to buy from you given their financial situation.

Knowing across your customer base how much money they actually have, and can spend, matters more. A lot more. Knowing this cold should determine your inventory plan.

Credit card delinquency rates are still in good shape. Q4 they were 2.25%. For context, after the GFC they peaked at 6.77% in 2009, so we’re still in good shape on that front. That being said, projections for later this year have credit card delinquencies surging to the highest rate since 2010.

Tool that needs to be on your radar: Finaloop

One of the most painful pieces of running a brand is waiting 15 days after the month for the Finance team to close your books to understand how you actually did from a P&L perspective. You need to make more decision faster this year that time lapse can be a killer.

You need a real-time P&L without waiting for your bookkeepers and accountants. When I was talk about this with Ron Shah over at Obvi, he connected me with the team at Finaloop. They build real-time P&Ls for you by plugging into your Shopify, Amazon, ads platforms, credit cards, lenders to build. No Bookkeepers or accountants. Just software giving you real time visibility into how you’re doing.

They’ll also build your first P&L in under 24 hours. Not bad considering there’s a 14 day free trial.

I’m trying to be optimistic about all of this and as long as employment stays strong (there are still more job openings than people looking for work), this is an avoidable issue. People will continue to work, buy stuff, and pay off their credit card bills.

That being said, we’re seeing layoffs roll through the tech industry which means it’s probably coming for other industries as well. If multiple dominos fall, I expect consumers will aggressively pull back their spending.

Customers who bought on 8-week cadences might need to switch to 6. Or only be making 2 purchases this year instead of 4. It’s better to know this now and plan accordingly vs. loading up on inventory only to be stuck with most of your cash tied up in inventory that isn’t moving.

So what can you do about this?

Stay as lean on inventory as possible now. Missed sales hurt, but too much cash tied up in unmovable inventory is the kiss of death for an eCom business. With supply chain issues it’s hard to run Just In Time inventory (JIT), but it’s still a must.

I know that’s painful advice after the past 2 years and recent advice of stock up on as much as possible and prep for supply chain issues, but it feels like the pendulum is swinging back in the other direction. There’s no clear guidance here and a lot is in flux. Today your focus should be on staying prepared for what comes next and reading the signs to navigate through this storm.

My 3-step plan to stay ahead of this:

1) Customer Surveys

The least sexy strategy but incredibly effective. When was the last time you sent customers a survey asking them the basic demographic info? Now is a great time. Gender, Age, Household Income, What industry they work in. You could even ask how are people feeling about their job. Capture that info now and see how it’s trending across your customer base to see if they are in good shape or not.

In that survey also ask them what products they’ve bought. How long they’ve been a customer. How many items they own. It’s never 100% perfect, but if you pair that with Step 3 you’ll have a great gauge on their buying cycles and what segments appear.

2) 3rd party audience analysis

Pre-Cambridge Analytica my superpower was the Facebook Audience insights feature. It would tell you all the key Demo/Psycho-graphic data about your audience. You could even upload customer CSVs. It was insane how targeted you could get. Unfortunately for us (probably better for the world) those reports aren’t accessible anymore.

Now, we have to plug in a free tool like Quantcast Measure to get better audience insights. Dive deep into the demo data for who’s on your website. Are your customers in the mega-wealthy, getting buy, no doing so well category? You will have to share your sites data to use it, but if you want a shortcut to realtime demo data on your customers this will be the fastest way.

3) Analyze Sell through like a hawk

One of the best things we did when I was the eCommerce Manager at LuMee was a weekly call with my Ops team where we’d review:

• Sell through by SKU (How many units did we sell and have left)

• Incoming Inventory

• Upcoming Marketing Campaigns + Promotions

• Upcoming POs Decisions

If you aren’t doing something like this now with your team (even if it’s a team of 1) put a half hour on the books this week. Seriously open your calendar right now and block off at least a half hour.

The Marketing/eCom leader needs to bring the forecast what’s going out the door (Sales). The Ops leader needs to bring the forecast for what’s coming in (Inventory and POs). This is crucial for your business to navigate what’s coming.

There are BI tools that help you calculate sell through and weeks of inventory on hand, or you can do it in excel. However you want, just make sure you do it weekly. It’s also a great way to figure out what needs to go on promo.

🧠 The Takeaway

 64% of Americans are living paycheck-to-paycheck and have never been in more credit card debt.

1. For now US consumers are still spending and taking on more debt.

2. You need to understand how you customers spending habits are changing.

3. Staying super lean on inventory this year is going to make or break most brands.

👷 What can you do about this?

1. Survey customers to learn more about them.

2. Plug in tools like Quantcast to get more global numbers on your customer base.

3. Analyze Sell through weekly and adjust POs accordingly.

As always. Stay confident, connect with your customers, and keep crushing it.

Jeremy Horowitz

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