Why Your Ecommerce Metrics Don't Match the Top Performers

Welcome to the Ecommerce Finance Podcast. I'm Stephen Brown, COO with LedgerGurus, co-owner of DTC brand Solé Toscana. Today I have with me Stacy Walker, Director of Growth here at LedgerGurus, and we're going to talk about a new benchmark report that we put together.

Stacy, welcome to the show again.

0:36 Stacy Walker

Thanks for having me, Stephen.

0:38 Stephen Brown

Stacy, tell us, what is the name of this report? And maybe let's get into some high level details about it.

0:45 Stacy Walker

Yeah, this is the 2025 Ecommerce Key Performance Indicators Report. We're excited about some things that we found out and can't wait to dive into it today.

0:56 Stephen Brown

And before we get into it too far, people will be able to download a copy of this data. Where will they be able to find that?

1:04 Stacy Walker

They'll be able to find it on our website, ledgergurus.com. There'll be a banner at the top, just click it and you'll be set.

1:10 Stephen Brown

Or they can search for it by the 2025 Key Performance Indicators Report.

1:16 Stacy Walker

Exactly.

1:17 Stephen Brown

Now, before we get into the details, let's talk a little bit about what we measured, and some of the issues around benchmarks.

We wanted to do this for ourselves. We've seen other benchmarks. There are things like in QuickBooks Online, you can pull up some benchmark data. But we struggle with that data, because a lot of the measurements we're doing are only as good as the accounting behind those measurements.

So we didn't even measure all of our customers. We only measured the ones for which we're doing monthly accounting, is that correct?

1:49 Stacy Walker

Yep, exactly. Only the ones that we were doing the full monthly accounting package on were measured in this benchmark.

1:56 Stephen Brown

And that's because we have seen over the years that when a customer comes to us, a lot of times their financial data is inaccurate, has many issues. And so it's hard to trust in a benchmark report.

2:05 Stacy Walker

Yeah, exactly. We needed the data to be clean, and we felt confident that our financials for our clients were clean. And the ones that have us doing additional services, not the full accounting package, we just decided weren't the best fit for this benchmark.

2:23 Stephen Brown

And so my concern as I see other benchmarks out there is, how good is the data behind it? Because there are many pitfalls to ecommerce accounting. We've talked about them on the show. But we only analyzed and anonymized data sets that we were comfortable with.

2:42 The four quadrants

Stephen Brown

Now, I think one of the interesting things that we ended up doing was breaking down customers into four quadrants. Let's talk about the quadrants that we broke them down into.

2:53 Stacy Walker

Yeah. So we decided to go with four different quadrants, two that highlighted profitability and two that didn't.

Companies that were growing and profitable, companies that weren't growing but were still profitable, those were the profitable ones. On the other side, we did ones that were not having any growth and were not profitable at all, as well as some that had some growth but were not profitable.

3:21 Stephen Brown

And as we've done that, we found some interesting insights. First off, what was the distribution that we saw of the 2025 data set across those? What percentage were growing and profitable?

3:33 Stacy Walker

Yeah. Growing and profitable, about 44% were growing and profitable. We had about 22% that were not growing but were still profitable. And then on the flip side, we had about 20% that were growing but were not profitable. And about 15% that were not growing and were not profitable.

3:58 Stephen Brown

And to be honest, that latter category is the only one that I worry about.

Because some businesses may have a no profit strategy, they're in a growth phase. Or the inverse, where they're not growing but they're still profitable, that may be a deliberate decision. It's only that latter category. And I am pleasantly surprised to see that it was 15%. I wish it was smaller, but that's a tough category to be in. There's usually no good business strategy behind those dynamics.

4:28 Stacy Walker

Yeah, I definitely agree. Stephen, you've seen the whole report. What was your biggest surprise from the report?

4:36 Gross margins and net margins

Stephen Brown

There were a couple. Maybe let's start with the average gross margin. And let's define this before we talk through what we saw.

So gross margin. This is again one of the things where we had to normalize data. A lot of people, and we've talked about this in the past, a lot of people will throw non-landed product costs into their cost of goods sold. They'll throw in merchant fees, they'll throw in fulfillment costs.

And so this measurement that we're about to discuss is gross margin being revenue minus landed product costs.

5:10 Stephen Brown

Let's just quickly go through that number, and then I'll tell you why I was a little bit surprised about this. So what were the gross margins for the four quadrants here?

5:22 Stacy Walker

So the growth and profitable, their gross margin was 66%. Growth and not profitable, their gross margin was 58.7%. No growth and profitable, theirs was 65.1%. And then the last group was the no growth and not profitable, theirs was 60.8%.

5:53 Stephen Brown

Yeah. So my surprise here.

Okay, what I'm not surprised at, the profitable businesses have higher gross margins. That's kind of a no duh. I thought that the gross margins would be a little bit higher for these higher performing profitable brands. But again, this is an aggregate number, an average, and gross margins can vary by product category.

6:20 Stephen Brown

I was expecting them to be, at least the top one, above 70%. But it shows you that gross margin isn't everything. And I think a lot of it is product category.

What I'm not surprised at is lower gross margins. Also, there's a correlation between less profitability, because there are fewer dollars after the cost of the goods to drive costs of sales and operating expenses. So I was a little surprised at the level being a little bit lower than I thought it would be. I thought it would be a little bit above 70%. But again, it's still in a good range.

6:59 Stacy Walker

Yeah, I was surprised there wasn't a bigger difference between that top tier, the growth and profitable, and that bottom quartile, the no growth and not profitable. There isn't a huge difference. I mean, 66% to 60%. It's not ginormous. You'd think it would be bigger.

7:18 Stephen Brown

Yeah. But in retail, where margins are tight, six points of gross margin could roll down to six points of net margin. You'd think the spread is bigger, but that's still a pretty big profit indicator.

Maybe let's jump to the bottom lines, what we saw in these four quadrants in terms of their net margins. And we measured medians, right?

7:49 Stacy Walker

Yeah, we did. We went with medians.

7:51 Stephen Brown

And medians, for those who don't remember statistics, unlike average where you take all the numbers and divide by the count of the sample, I think it looks for the midpoint of the data set. I don't remember the math on it, but it's trying to normalize towards where the middle of the data set is.

So what were the median net margins? Because I think this will be an indicator as we look at some of these middle metrics.

8:24 Stacy Walker

Yeah, so our median net margins. For growth and profitable, 6.9%. Growth but not profitable was negative 7%. No growth and profitable was 5.7%. And no growth and not profitable was negative 13.9%.

8:47 Stephen Brown

Yeah. So this is really interesting.

And I think 2025 was yet another year of profit squeeze. And maybe my surprise on gross margins really shouldn't be that big a surprise, because tariffs really took a bite out of the profit apple at the gross margins level.

9:10 Stephen Brown

It is interesting that the profit levels, the median, they're not huge. I would say a really healthy ecommerce business is between 10 and 20% margin, but that's really hard to achieve. And you can see that even in these two profit categories, the median was still solid single digits, but it wasn't double digits.

9:35 Stephen Brown

Now, a little background on our sample. We work primarily with seven and eight figure sellers, which is an interesting phase of a business. And they're high seven figures, we're usually engaging with people when they're multiple millions of revenue.

And it's a tough phase. There's a lot of growing up, there are a lot of changes. Even at the eight figures that we continue to work with them, there are still a lot of things you're trying to figure out. We don't typically work with nine figure sellers, but even at that stage it's a different ballgame.

10:10 Stephen Brown

And so I would say we're dealing with a growth maturation stage of these brands. They've got traction, they've got customers, they're trying to continue to grow. They're trying to develop their processes, trying to dial in some of their best practices, expand their product lines, expand their channels. The phase that we are measuring in this benchmark is a very interesting phase of these businesses' life cycles.

10:43 Stephen Brown

So let's see if we can tease out the profit differences between these four quadrants.

We saw some spread. The 6.9% of our growth and profitable is almost that spread of gross margin between the not growing and not profitable. So it starts with gross margin.

11:04 Ad spend and channel mix

Stephen Brown

If you can't get good dollars out of the cost of your sale, it's going to be hard going forward.

The other area that I think was a little bit surprising to me was the ad spend. Tell us a little bit about how much they're spending as a percentage of revenue.

11:19 Stacy Walker

Yeah. So our growing and most profitable clients are spending about seven and a half percent of revenue on ad spend.

And just on the reverse side of that, the ones that are not growing and are not profitable are spending about 10.6% on their ad spend. And then the others, your growth but not profitable, they're spending even more, 13.7%. And your no growth but profitable are spending about 8.8%.

So I think the assumption that if you spend more on your ad spend you're going to get more, it doesn't show in the numbers that we looked at.

12:02 Stephen Brown

Now this absolutely shocked me. I was expecting much higher double digit ad spend percentages.

Part of the reason I think this number is lower is one of the correlations we found around their sales channels. So what did we find about where they're selling?

12:18 Stacy Walker

Yeah, that's what I was going to say.

So our most profitable sellers have definitely distributed their selling. And I don't mean like they're selling on Shopify and Amazon and eBay, but they're in multiple markets. 61% of our sellers are selling wholesale, and all of those top quartile sellers have a wholesale piece to their business.

12:50 Stacy Walker

And that's going to directly affect their ad spend. There is an ad spend associated with that wholesale business, but they're getting the revenue without having to pay out any of that spend to get it. As opposed to some of those smaller sellers who are only focused on Shopify and they're having to buy all of their business, essentially.

13:15 Stacy Walker

Besides just wholesale, about 29% have a brick and mortar presence. So they have a storefront, or they have like a kiosk in a mall or something to that effect. And that definitely is affecting it.

But the indicator to me seems to be this diversification of channels. Some wholesale, some brick and mortar, Shopify, Amazon, and maybe not even Amazon, like Walmart, other marketplaces besides just their Shopify. Essentially all their eggs aren't in one basket. If Amazon shuts them down, they're fine, because they've got four other ways that they're making money.

13:51 Stephen Brown

So the wholesale would explain a number of my surprises.

The lower gross margins is to be expected in wholesale, because you tend to have to give a bigger discount. And by correlation, you have less to spend on advertising.

14:10 Stephen Brown

Now, I personally don't believe advertising doesn't affect wholesale. It's just not your primary customer acquisition. There's still a halo effect of advertising. For example, how often do we see products in stores being advertised? The customer has to have some level of awareness. It's not just they're going to walk along and be like, look at this cool product. Sometimes that's the case, but brand recognition matters.

14:40 Stephen Brown

And so that is a little bit surprising, how much of our customers are wholesaling. And I don't know if that is a factor of, we are good at complex accounting and so we attract complex accounting customers, versus a state of the industry.

We would love to make this a benchmark outside of our customer base, and at some point I think we will. But the challenge, like I said at the beginning, is we've got to have a level of confidence in the underlying data to be able to create a good benchmark. Revenue benchmarking isn't too difficult, I wouldn't say it's easy because of the complexities of ecommerce, but profit benchmarking is very difficult, because there are a lot of areas that it can go wrong.

15:41 Stephen Brown

So I think the amount of wholesaling was somewhat surprising. I'm wondering how much of this is a state of the industry for these maturing businesses, versus the state of who likes to work with us here at LedgerGurus.

You talk to brands all the time, some of which work with us, some of which don't. Do you feel like the trends in this report are indicative of what you're seeing in the industry as a whole?

15:57 Stacy Walker

Yes, absolutely. It's rare to talk to a seller anymore that isn't doing something, some wholesale somewhere, or getting ready to launch into wholesale for sure.

16:13 Stephen Brown

And do you think that's just who we attract? Because usually we're filtering out a lot of smaller sellers.

16:21 Stacy Walker

Yeah, we're filtering out a lot of smaller sellers. I don't think it's who we attract. I mean, yes, we are experts at that complex accounting, and wholesale definitely brings in a complexity. But I think more and more online sellers are trying to pull in that wholesale piece.

16:53 Cash on hand, and growth rates

Stephen Brown

All right, what else did we see in these quadrant reports? Maybe give me another example of a spend area that was interesting.

16:53 Stacy Walker

Yeah. Let's talk about cash on hand. Did that surprise you?

16:57 Stephen Brown

It did not, but let's talk about what we saw.

16:59 Stacy Walker

Okay. So our growth and profitable quartile, their average bank balance was about 411,000. And then your no growth and not profitable, their average bank balance was about 87,000.

Now one could argue that maybe they're smaller sellers and so they don't have the same amount of capital as maybe a larger seller. But I look at those other numbers and it makes me wonder, is it the decisions that they're making that are keeping that bank balance low, or is it just that they aren't selling as much? What are your thoughts?

17:41 Stephen Brown

Well, if you're not profitable, you're going to be burning down your cash. So that doesn't surprise me.

The interesting thing that we saw was the bank balance for the growth businesses was a bit larger than the no growth profitable businesses. Growth usually chews up capital. So that was a little bit of a surprise.

But I think on the whole, that number didn't surprise me. If you're profitable, you tend to have more cash in the bank.

18:13 Stacy Walker

So how do you think the cash constraints of those smaller sellers are shaping the decisions that they're making?

18:21 Stephen Brown

In my experience working with customers, I see some grasping, some pursuit of how do we get there.

Unfortunately, I think too many people focus on growth. And to them, profitability is, do I have cash in the bank? What we've learned is you can have really great profit margins but no cash if you're growing quickly, because it gets chewed up in working capital for inventory.

19:00 Stephen Brown

This number didn't surprise me. It's one of those things where I'm becoming a huge advocate of profitability in businesses, because profitability usually helps with sustainability.

And then with these product-based businesses, profitability is important. And just right up there is the right cash flow capabilities, that usually comes through a cash conversion cycle. That's not something we measured in this benchmark, because it's very time intensive and for this first version we're not going to do that. The cash conversion cycle is, how long does cash get tied up in inventory and payouts from your wholesalers, et cetera.

19:38 Stacy Walker

So if an ecommerce brand is profitable but maybe cash poor, what's broken? Or is it just part of the beast?

19:55 Stephen Brown

There is a natural limit to how fast you can grow off of your profits. This is something we're going to be talking about in future episodes and release some tools. I just did a webinar on it.

So actually, oftentimes the faster you grow, the smaller the cash balance is, because you've got to put all your cash in.

20:26 Stephen Brown

That is an interesting metric. Did we capture the year over year growth on these growing businesses?

20:24 Stacy Walker

Yeah, we did.

20:26 Stephen Brown

So how fast were the profitable growth businesses and the growing non-profitable businesses? What's the comparison there?

20:36 Stacy Walker

Yeah. Growing and profitable, their year over year growth was about 47%. Growth and not profitable, their year over year growth was about 29%.

20:42 Stephen Brown

That's incredible.

And that makes sense, right? Because if you don't have profits, you've got to find cash from other resources. Investment, or you're putting your own personal capital in. You can kind of get away with using lines of credit to grow if you're not profitable, but eventually it's going to catch up with you.

So 47% is a really healthy growth rate for those. That was a little bit surprising, how fast they're growing.

21:20 Stacy Walker

Yep, definitely. So do you think there are risks to brands that are growing too quickly?

21:31 Stephen Brown

Absolutely.

21:33 Stacy Walker

So let's talk about that quartile that's growing and not profitable. I think there's this misnomer that we're growing so we're fine. And then maybe they don't even realize how not profitable they are. How do they fix that?

21:49 Stephen Brown

Yeah. We've seen things shift over the last few years. Four or five years ago it was grow, grow, grow, it was all that mattered, just growth. And as we've had more cost constraints, I think there's an increased focus on profitability.

But I still think we can have more of a profit mindset. And when will we get back to that growth first economy? I don't know, I'm not seeing that in the near future, in the mid future.

22:20 Stephen Brown

There are so many challenges in the macro economy as well as just the ecommerce economy, that personally I feel like the most important things that brands can do is get a profit mindset first. Dial in your unit economics, dial in your cost of goods sold, dial in your cost of sale. And make sure you're not spending too much on operating expenses before you go after growth.

22:50 Stephen Brown

I mean, there is a point. One of the challenges you have is there's kind of a minimum fixed operating expense you need for a brand. It's really hard to operate until you can dilute that fixed expense.

Because I think you and I talked about this when we talked about the four margins a couple of episodes ago, that the same dollars you spend on creating an ad could fuel a million dollars of sales and potentially could fuel $10 million of sales.

23:20 Stephen Brown

So one of the most difficult phases, and we usually see them when they're starting to come out of this phase, is when you're small you have this fixed expense that's dragging you down. And the best way out of it is to grow the revenue while not growing that fixed expense.

23:39 Stacy Walker

Yeah, I like that.

Tell me what you think about this quartile where they had no growth but they were profitable. And the economy right now. Do you think that's wise? A little part of me thinks they've focused on their profitability more than they've focused on growth right now. And what's the downside to that? Is there a downside?

24:03 Stephen Brown

Of the three non-ideal quadrants, that's the one I would prefer to be in. No growth and profitable. Because you can survive when you have profitability. It's hard to survive when you don't, there's a ticking time bomb.

24:30 Stephen Brown

I've worked with some companies, it's not as many, that can get investment capital, and that can give them the ability to get to scale and then flip to profitability. But it's like a ticking time bomb. And I don't see very many brands that get investments these days. If they do, they're angel investors, they're friends and family, they're pulling from their personal bank accounts. And so I feel like when you're not in a profit state, it's a little bit of a ticking time bomb.

25:00 Stephen Brown

If you're stuck on growth, you can mess around and figure out what you need to do to unlock that, because profitability gives you time. And eventually you do need to unlock that.

But if your profitability is decent, somebody will consider buying your business. Obviously there are more considerations in a brand's value beyond profitability, but fundamentally, if there are profits, there's value in the business. And if there's not, the value can be much more difficult to articulate.

25:33 Where the profit unlocks are

Stacy Walker

So what about those brands that aren't profitable right now, and they're thinking, man, I've got to focus on profitability? What are some common mistakes you see? Or on the reverse side, what would you tell them to focus on to get there?

25:50 Stephen Brown

You and I got into this a little bit with the four margins conversation we had, but there are a couple of key areas.

Gross margin. I was hoping to see one of these quadrants above 70%. I know there are brands there. Some of it has to do with your product dynamics, some products can command higher pricing, higher markup. We've done a little bit of product categorization, which you can go get, we're not going to get into the details here, but you can see that in the report.

26:30 Stephen Brown

But there are other benchmarks out there that will talk about gross margins by product type. And I would want to say, first off, how do my gross margins compare to industry standards?

Second thing I'd want to look at is ad efficiency. We had a shocking amount of ad efficiency. I think if we were to isolate, which we did not in this report, but if we were to isolate the direct-to-consumer-only brands, that ad number would probably be a lot higher. What we've seen with the way we broke down this data is that those that have diversified into wholesale tend to have better ad efficiency, because they have greater distribution.

27:15 Stephen Brown

The third key area of profitability I would say is your fixed expenses. And coming back to what I said just a minute ago, sometimes the only way to dilute those fixed expenses, or to reduce them as a percentage of income, is to grow the top line.

Where it becomes difficult is if you're struggling to grow that top line, therefore what?

27:40 Stephen Brown

Well, we're in an age of really interesting dynamics where technologies and tools can do what people are doing from a knowledge worker perspective. Technology is not packing a box. We're seeing in highly automated warehouses that they're getting higher throughput, the picking process is highly automated. You see like an Amazon, they've got those robots that will go get the shelves and bring them to the packers.

28:08 Stephen Brown

I've got a friend who's got a warehouse, it's kind of the same thing, but he's got these forklift robots that will go and pick the bins and bring the bins to the packing station so that they can just pull the inventory and put it in.

But when you think about things like creative, I think there is an opportunity to compress costs there. I think product development, around ideation and testing, there could be opportunities to compress costs.

28:50 Stephen Brown

The other thing I think about is, you don't need a warehouse. A lot of people are doing their own fulfillment. Did we measure how many people are doing their own fulfillment versus not?

29:01 Stacy Walker

We did not in this iteration.

29:03 Stephen Brown

We did not in this iteration.

I struggle a little bit when I see people self-fulfilling, especially when it's a really basic product. There are challenges of self-fulfillment from a cost perspective. You have a lot of fixed costs and sometimes they're very large fixed costs, like a warehouse, either you've got to lease or buy. And then the other thing you run into is cash issues.

29:30 Stephen Brown

And so when I see somebody self-fulfilling, I really like to tease out what are the costs, and could you do that better with a 3PL?

Now sometimes people have a product that has some unique qualities that needs very custom handling. In those cases it can make a lot of sense to do your own fulfillment. But apparel, for example, I have a hard time when I see people doing self fulfillment on apparel, because I'm like, that's a really easy category for 3PLs to fulfill against.

29:58 Stacy Walker

Yeah, for sure. And what other operating expenses do you think people are spending too much on? What are some quick cuts that people could make?

30:12 Stephen Brown

I feel like people are a lot better than they were a few years ago, but you can see there's a lot of squeezing, a lot of compression on the margins.

Quick cuts. On the marketing front, I see a lot of people that don't scrutinize, or they delegate, their marketing spend. There are oftentimes campaigns that can be turned off that just aren't performing.

30:50 Stephen Brown

The other thing that's kind of buried in these top line metrics is underperforming SKUs. You might have SKUs that are having to be discounted. And that's hard to break down into a benchmark report, you have to do that at a brand level. But we see some brands that have thousands of SKUs, and you know that there are some duds in there.

31:20 Stephen Brown

So being able to scrutinize your SKUs for profitability, for contribution margin. Not just, hey, are they profitable from a gross margins standpoint. Maybe you have a low profit SKU but it generates a lot of volume dollars, and maybe that's okay. That's another area you can look at.

So I think the profit unlocks are in those three areas. Your cost of goods sold, your ad efficiency, and your overhead. That's usually where I see it. Occasionally I'll see somebody with fulfillment costs that are too high. But usually it's in one of those three areas: ad efficiency, cost of goods, or fixed overhead expenses.

31:50 Stacy Walker

And if anybody's listening to this and they know where they fall, and they're thinking, well, all this time all I'm doing is tracking my performance, I'm not actually putting forth any effort to move from one quartile to another. Then that's your advice. Look at your COGS, look at your ad spend efficiency, and look at your OpEx, and see where you can make changes.

32:13 Which quadrant should you be in, and where to start

Stephen Brown

Well, other than the no growth, not profitable quadrant, there can be valid business strategies behind the other three.

I think everybody wants to be growth and profitable. Although some are, I want to be growth and not profitable. They're like, hey, we're just going to get really big. It's the tech mindset, growth, don't do profits. And I think that's bled over into the general business space, this is the way you run a business.

32:50 Stephen Brown

Well, the best business can be growth and profitable. And there are many good businesses that are no growth and profitable. Maybe better would be low growth and profitable versus high growth. But each quadrant can have a valid strategy.

It's just that pulling off high growth without profits is a really hard path. It works in tech because you can usually get venture capital, but even then the survival rate is really low. And so when you're trying to run that strategic playbook, you just need to understand that your odds of success are low. Whereas if you can get something profitable, you already have some level of success. It's just a question of how much.

33:36 Stacy Walker

Yeah, I like that. So if you're a founder listening to the podcast today and you're just overwhelmed by the gaps that you see in your own organization, what would you tell them for where to start? What's the one thing that you would say, look at this first and fix this first?

33:58 Stephen Brown

Well, based on what you and I have seen, the first thing is you need to have an understanding of your profit level. A lot of brands don't, because their accounting's garbage.

And it's usually garbage in a couple of areas. The revenue accounting can be off, but over a longer period of time what you see in Shopify or Amazon or your accounting software, QuickBooks or Xero, in terms of invoicing, is going to be relatively accurate.

34:30 Stephen Brown

The profits measurement is where we start to see big issues. Most of our customers are doing a really poor job of cost of goods sold and inventory accounting. And even when we work with them, we see a lot of struggles, because we can't fix bad inventory operations. And good inventory and cost of goods sold accounting is based on good inventory operations.

So one of the first places you've got to figure out is, which quadrant am I in? And I would say that a lot of people don't have a good sense for their profitability. So that's step number one, where's my profit level? They usually have a sense of whether they're growing or not, that's not hard to tease out.

35:20 Stephen Brown

Once I figure out where I'm at, then I have to decide, is this what I wanted? I think some people are deliberate about a growth not profitable strategy, but I think a lot of people are not.

They are fixated on one parameter, and it's usually growth. It's the easiest one to get obsessed with. How much are we growing? Nobody brags about how profitable they are, but they should. I think that's a bigger brag than how fast you grow. But everybody wants to talk about growth. Or in the tech space, which I spent a long time in, everybody wants to brag about how much funding they raised. Well, who cares?

35:54 Stephen Brown

Once you understand where you are, your quadrant, and you're good with that, then you have to decide, am I running the right strategy?

And if I don't like the quadrant, say I'm in the growth, not profitable, and I'm like, ooh, I don't want to be there, I don't have the ability to fuel this business long-term. Then you probably need to either slow down and get more profitable, or you can get profitable while not growing. Although it's easier to work on one of the two. Improving growth and profitability at the same time can be very difficult.

36:31 Stacy Walker

What do you think's the hardest thing to fix? You do a lot of our CFO advisory and you talk to a lot of the brands that we work with. Which lever do you think is the hardest in practice to fix for our sellers?

36:48 Stephen Brown

They're both hard, but there is a thesis.

I've talked about Profit First on this podcast, and the thesis is that as you focus on profitability, you oftentimes will unlock growth. And that's what we found out with Solé Toscana, the business I co-own. We were obsessed with growth initially after buying that business and we were just burning up cash. And we're like, okay, let's get back to a profit focus. And we actually unlocked growth at the same time.

37:25 Stephen Brown

Because I think when you focus on profitability, you're like, this isn't important, this isn't important.

We were really obsessed with marketing, because that's where we were losing money. But as you're bigger, there are other areas that it can bleed. That's a skincare business, and skincare is notoriously high gross margin, so that wasn't a big issue for us. And we were, and still are, only on Shopify, so we don't have the lower margin channels yet.

37:50 Stephen Brown

But I do believe in that philosophy. If you can get your profits dialed in, it's easier to unlock growth. Because what you'll find is you'll start stripping away the spending that isn't performing, whether it's marketing, whether it's your product SKUs. And that allows you to put more focus on the things that are working. And then you're like, let's increase, let's do more of this.

38:30 Stephen Brown

Now, sometimes more of certain types of advertising doesn't scale. Sometimes you struggle to sell more of a certain product. But it's a good place to start, to narrow your focus on what's working, see if you can scale that. And oftentimes you'll find, yes, I can scale this thing.

And then when you hit a roadblock, like the no growth profitable, then you have some decisions to make. That's an opportunity to be entrepreneurial again and say, do we test new channels? Do we test new SKUs? What do we do to unlock more growth?

But I would say, I don't know what's easier or harder, but if I had to pick where to start, I'd say focus on profit first.

39:08 Stephen Brown

What's in this report that we didn't go into today?

39:12 Stacy Walker

I think we've touched on almost everything in the report. We didn't spend too much time on year over year growth, but people can find that in the report online at ledgergurus.com.

39:24 Stephen Brown

And we've done some product breakdowns in the report too.

39:27 Stacy Walker

Yeah, there's a product breakdown so you can see which industries, at least the industries that we work with, which product categories are most profitable.

39:33 Stephen Brown

Okay. And again, they can find this report on ledgergurus.com. We'll also have the link in the description if you're watching on YouTube, or look in the description on the podcast feeds.

Thanks for doing this, Stacy. And we hope you get some good insights from reading this report. Look for us to do this again in the future.

39:51 Stacy Walker

Yeah, exactly. And it's exciting. Thanks, Stephen.

40:05 Stephen Brown

See you later.