Importance of Sales Channel Diversity for Your E-Commerce Company

/ Podcast Episodes / December 20, 2022

Episode 39

In today’s episode, David and I discuss why sales channel diversity is crucial in your eCommerce business.  We share some recent stories from our own businesses, some good and some horrible. We also dive into how having the right sales channel diversity can actually make you over 200K if you plan on selling your eCommerce business.

Let’s dive right into this episode and be sure to stay tuned for a strategy.

[00:01 – 13:29] The Downside of Having Only One Sales Channel 

  • Can Amazon shut down your business with one stroke of a key?
  • Ken shares an analogy that explains the risk of having only one sales channel 
  • David shares his experience of being shut down on Groupon
  • Any success story has a pile of trial-and-error stories behind it
  • Ken shares an interesting story
    • He was shut down from his entire Etsy Shop
  • David shares his bad experience with Amazon Zero 

[13:30- 22:39] The Importance of Sales Channel Diversity for Your E-Commerce Company

  • The benefit of having a plan B if one channel gets shut down
    • Send us an email to get the template (See links below)
  • We talked about the upsides of having sales channel diversity
  • “Historical marker” eCommerce multipliers generally bring around 3X
    •  Before Tax and broker shares, you potentially get $600,000 exit
  • 5 diverse sales channels which reduce the risk for the buyer and increase the value
  • Opted for a 4X multiplier because it had less risk than the previous business
    •  the upside would be SDE of 200,000 x 4 = 800,000 exit 
    •  the total upside of 200K 
  • What determines that multiplier?
    • Diversification, Email list, Other brand assets, Intellectual-property 
  • What can you do to mitigate this risk?  Add more sales channels, diversify your sales channels, and mitigate the risk.

[22:40 – 29:35] Things to consider before adding a new sales channel

  • Complexity
  • Automation 
  • Upside (sales)
  • Liability 
  • Sales tax complexity
  • Cost commission%
  • Are your customers on that sales channel?
  • List of Sales channels:
    • See links below 
  • David talks about the things that separate your own website from some of these other third-party
  • Final words

Resources Mentioned:

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Ken 0:00
Digging into our journey, you know, you and I, you know, both started our business on Amazon. And then after a while, realize, you know, this is single threaded, this is not good, because you have one sales channel and it gets shut off, you stand to lose everything. So this is just hypothetical. Let’s just say for example, Nike, one of the biggest brands in the world, right? They only sold on one channel, and let’s just say that channels target. And let’s just say the CEO of target, decides, oh, I’m going to take a political stand, or I’m gonna speak out on this cause that I believe in and let’s say, you know, 50% of target shoppers boycott them. Well, Nike, who sells on that only channel loses half of their sales, nothing in there, you know, not even in their control, right?

David 0:55
What are the upsides of having sales channel diversity,

Ken 0:59
one of them that I can think of, and impacts me directly is like, you sleep better at night, you know, it is when you get a sales channel that completely goes down. Or if you’re relying completely, you know, your livelihoods on one single channel, and you’ve ever had it go down, like you have that in the back of your mind, like, Oh, shit, like, what would I do? If this happens, you might lose sleep. So having diversity, you’re gonna you know, you’re gonna sleep better at night.

David 1:26
One thing that you’ve really encouraged me to do, which I’m glad, is to really take ownership of my own website. And one thing that, you know, I think separates your own website from some of these other third party marketplaces is that you are likely not going to get kicked off. You’re the boss there.

Intro 1:48
Welcome, everyone, to the firing the man podcast, a show for anyone who wants to be their own boss. If you sit in a cubicle every day, and to know you were capable of more than join us, this show will help you build a business and grow your passive income stream in just a few short hours per day. And now your host serial entrepreneurs, David Schomer, and Ken Wilson.

Ken 2:11
Welcome everyone to the firing the man podcast. Today’s episode, David and I are going to discuss why sales channel diversity is crucial in your ecom business. We’re going to share some recent stories from our own businesses, some good some really bad, we also dive into how having the right sales channel diversity can actually make you over $200,000 if you plan on selling your ecom business. David, welcome to the show.

David 2:37
Thank you. Good to be here. Good to be here in Kent. I’m really excited for this episode. You know, there’s a common saying don’t put all of your eggs in one basket. And boy, Does that ring true?

Ken 2:47
Yeah, absolutely. Question for you. Can Amazon shut down your business with one stroke of a key?

David 2:53
Oh, yes, yes. And it has happened. It’s a, I am lucky knock on wood, that that has never happened to me. But I have been in several masterminds in several Facebook groups where I’ve heard examples of this. And the unfortunate part about this is the people that got shut down, were not acting in a malicious way. They may have done something against the terms of service, that they you know, unknowingly violated the terms of service, but, but at the end of the day, their account was shut down. And some of them got them reactivated. And some of them didn’t. And that’s, that’s scary. That is scary.

Ken 3:31
Yeah, absolutely. So, you know, kind of digging into our journey, you know, you and I, you know, both started, started our business, you know, three, four years ago, and started on Amazon, you know, like, like, we discussed native Amazon brand, right? start a business, build a brand on Amazon. And then after a while, realize, you know, this is single threaded, this is not good, because if you have one sales channel, and it gets shut off, you know, you’re, you know, you’ll lose, you stand to lose everything. So, you know, one example, and I just kind of want to, this is just hypothetical, just kind of bring awareness to it. Let’s just say for example, Nike, one of the biggest brands in the world, right? Let’s just say Nike, they only sold on one channel. And let’s just say that channels target. Now, these are hypothetical. I don’t even know if Nike sells and target. But let’s just say that that’s the case. And let’s just say the CEO of target, decides, oh, I’m going to take a political stand, or I’m going to speak out on this cause that I believe in and let’s say, you know, 50% of target shoppers boycott them. Well, Nike who sells on that only channel loses half of their sales, nothing in their, you know, not even in their control. Right. Another example, let’s say, you know, Target has a data breach, and they lose customer trust. They lose money. 90% of their sales, you know, guess what? Nike, they only use target for that sales channel and they just lost 90% of their sales. So the point is, it was no fault of Nike, right? The only fault that they had they had one sales channel. So they were single threaded for the sales channel. Yeah, not good. Often in the e commerce space, we always hear about all the good stuff that happens within, oh, you know, hey, you know, selling on Amazon doing this doing that, and, and you never hear, you know, the bad stuff. So today, we’re talking about some of the bad stuff, right? So for me personally, it was about two months ago, you know, I got an email from my VA said, Hey, you know, this sales channel has had zero sales, and it’s noon, like something’s going on. So I went and logged into this amazon seller account. And sure enough, I had the little red flag under the, you know, the red flag for the performance. And I clicked on it, and it said something about, you know, I was missing a form some kind of a tax form. So I want to back it up a little bit and say, a month prior I enrolled in, actually, it was in a few months prior, I enrolled in Amazon’s remote fulfillment program. So basically, I went into Mexico and Canada, through the inventory in the Amazon us warehouses, so it was my amazon.com account, I just enabled, I just allowed Amazon to sell that inventory, and Canada marketplace, and Mexico marketplace. However, there was some kind of a loophole where I didn’t file this form for.mx. And, you know, ultimately, Amazon shut down my entire us.com account, because of this, you know, it was completely out of my control, nothing I knew about and was, you know, kind of ridiculous at that point, you know, I lost thousands of dollars, and I was able to get the account turned back on within a few hours, I called and was like, Hey, you know, I basically shut that remote fulfillment off, and, you know, was able to bring the.com account back up. But, you know, it’s kind of wanted to go over that real world example of, you know, a lost my entire one of my entire accounts, over a missing piece of paperwork that was not even relevant.

David 7:28
Yeah, absolutely. I have a similar story. Fortunately, it wasn’t on Amazon, which is my primary sales channel. It was on Groupon. And I had just signed up for Groupon and things were going great. I was getting orders in almost daily. And one thing that you were required to do was to take the tracking number, and post it when you put shipped, you needed to manually add that tracking number. And I didn’t know that and I didn’t do it. And after not doing that for about 10 orders, my account got shut down. And that was something that was a mistake. on my end, I didn’t read the Terms of Service. And in hindsight, I actually got a couple emails that I just didn’t read. And, and that was a mistake on my part. But, you know, that was an example of something that negatively impacted my business. And it wasn’t intentional. I wasn’t acting in a malicious way. I just, I didn’t read all the rules, you know, you get busy and that happens. And so, you know, that fortunately, you know, I did have Etsy going on at that time, I was on eBay. And I was on Amazon. And so it didn’t hurt the business as much. And so, you know, I can and I share these stories, because oftentimes, especially in this space, people like to talk about success stories, and, and oftentimes those success stories are riddled with mini stories of small failures like this.

Ken 8:57
Yeah, absolutely. And I would, I would be willing to bet that almost any success story has a pile of trial and error stories behind it, right? Like that’s how you learn and being a being an entrepreneur is a roller coaster a lot of times. One more story I’d like to share. And this is pretty recent. This is just a few weeks ago. I recently took one of my brands onto Etsy. And just a few weeks ago, I got an email. Actually, I got a screenshot from my VA sent it over and said, hey, you’re the Etsy store shut down. And the screenshot basically said, Yeah, you know, your Etsy store has been shut down. No, you can’t log in. And I was like, Okay, well, let’s go on. Let’s let me go in. Let me call it see, let me find out what’s going on. Go to Etsy website. There’s no customer service line. And it basically says if you can’t log into your account, reset your password. So I want to reset my password and it says your account has been disabled. You Cannot reset your password. Okay, let me find a phone number. Let me call it See, no phone number, no customer service. So I, you know, I scratched around did some Google searching and I found we’ll actually I’ll put it in the show notes. I found an email to Etsy. And I emailed him and was like, like, what’s going on my account shut down, got disable that. Can you please explain why like, you know, I got a reply about two hours later and it said, your accounts been reinstated, there was a mistake and everything should be good to go, please let us know, if you need anything else. Go back and log into my Etsy account, everything’s fine. And, you know, it’s like, it just goes to show you that, you know, there was no fault. We didn’t, we didn’t do anything wrong, we didn’t violate Terms of Service, we knew anything, there could have been an intern working at Etsy that, you know, shut it down. There could have been nefarious activity, we don’t know, it was out of our control, and tire sales channel went down boom. Like you mentioned, it was uh, you know, Etsy is still the up and comer for us. However, we do see a lot, a lot of good things with that. See, but it wasn’t a massive hit. But it could have been, you know, but the point is, like an entire sales channel went down for no fault of ours.

David 11:19
as we’re going through this list of failures, I couple more come to mind and, and one that I’ll share with you. And this is probably been my biggest oshit moment, I got an email about this new program that Amazon was rolling out called Amazon zero. And it was supposed to prevent people from hijacking your listings. And I, you know, read the first couple sentences of the email was like, sounds great. And I I signed up for it. And when you enroll in the program, you get it was probably three or four pages, that just kind of explained how the program worked. I stupidly did not read those instructions. And there was a spot where you could what I thought you could enroll your essence in this program. And as it turns out this program was if you had someone hijacking your listing, you take variation and report them. And so what I did was I took 300, my license, and I reported myself and my all of those listings were immediately shut down. And I had a couple days of zero sales. I was on the phone with Amazon for several hours. And I felt like such an idiot because after this happened, I did go back and read the directions. And I’m like, Oh, I totally Miss use this tool. In when I call, they’d say why would you report yourself. And I was like, Listen, I didn’t read the directions. And this is my own fault. Fortunately, I got someone on the phone that helped me reinstate my listings. But, you know, that was a couple hundred bucks at that time of profit that I missed out on. And not to mention, you know, losing ranking and everything else for having my listing shut down by something that I did to myself.

Ken 13:10
You know, that just goes to show you, you know, some things that are in your control something that that or not, but either case, it takes an entire sales channel down, right, so having other sales channels, functioning, you know, they kind of mitigate that.

David 13:28
One thing I’d like to dive into, I noticed that when you were talking about one of your Amazon sales channels being shut down, when I listen to you say that I can infer that you have multiple Amazon accounts. And I think when we’re talking about diversification, that’s not a bad place to start if you have two different brands, or if you’re thinking about starting a second brand. And so can you talk about why you did that? And some of the benefits, but maybe also some of the downsides?

Ken 13:56
Sure, yeah, there are both. And, you know, one of the reasons I have two is I, you know, want diversity, right? The whole thing is firing the man right? And I need to have diversity. So if one gets shut down, I have another one was pretty easy to set up. You know, use email, Amazon, say, Hey, you know, this is me, I’m opening a new account, I want to open a new account to sell a completely new line of products and service different customers, they will allow you I mean, as of right now, today they will but they want to know you know if you if I would not recommend to go open one without emailing them. So that’s the process. And if anybody wants the template, just email the show and I’ll send out the template that I used. So the downside of having to is that some of my software’s that I use, I have to pay double the price or an increased price. And a lot of them are compatible with multiple accounts, but some of them I just have to have two accounts, which is double the fees, more expenses. So that’s really one of the only downsides. I would say. It’s a lot, you know, you add complexity, as we get into, you know, later on, you know, the downsides is one of them is the more channels you use, or depending on what channel you add, it’s it adds complexity. So, there are some some, you know, the benefits far outweigh the, you know, the negatives, in my opinion, for sure, for sure. What are the upsides of having sales channel diversity? So the question, David, there’s a lot of upsides on having multiple sales channels and being diversified. One of them that I can think of impacts me directly is like, you sleep better at night, you know, you know how it is when you get a sales channel that completely goes down. Or if you’re relying completely, you know, your livelihoods on one single channel, and you’ve ever had it go down, like you have that in the back of your mind, like, Oh, shit, like, what would I do, if this happens, you might lose sleep. So having diversity, you’re going to, you know, you’re going to sleep better at night, reduce the risk of losing your entire business, if one channel gets shut down. And as we discussed earlier, it probably will happen to you, at some point in time. You can reach more customers and increase sales velocity with every new product launch. So if you have five sales channels, and you launch a new product, you will likely launch it on all five sales channels, right? So it just kind of it adds that incremental increase just by having more sales channels. Another one is, you know, you can reach new customers on sales channels where they’re hanging out, you know, what comes to mind as we did a, an episode previously, and you had mentioned, the shoppers on eBay from the 90s. Right. So if you add eBay, into your, into your sales channel diversity mix, you’re going to add all the shoppers from the 90s, you’re going to reach new customers that maybe those customers aren’t on Amazon. So you’re reaching new customers. One of the last ones here is, you know, you can increase the sales price when or if you sell your business, and I think this is one of the you know, this is the main one for me one of the main ones for me. And it’s one of the reasons why I’m going through adding all these sales channels, and I’m sure you are as well. And I’ve got some numbers here, I kind of want to go over a hypothetical exit of your econ business. We’re just going to use some rough back of the napkin math here, and all hypothetical, but it’s, it’s relevant and in numbers always helped me. So okay, let’s say you have a business and your top line revenue is a million dollars annually. Okay. Let’s just say, roughly, your bottom line net profit is $150,000 or 15% of your total revenue. I think it’s a pretty good a rough estimate for most econ business that I’ve seen. Let’s throw in some add backs, you know, paying yourself salary and what you know, whatever add backs, you can find, let’s say $50,000 for add backs. So that would give you a trailing 12 months of SDE or seller’s discretionary earnings of $200,000. Okay. Now, let’s take a historical marker. With econ businesses, the multipliers This is very general, let’s just say it’s a three x multiplier on your on your SDE, then that’s before Uncle Sam and brokers take their fees, but you would have a $600,000 exit. You have a $200,000 an SDE with a multiplier of three. That’s $600,000 not bad, right, David? Not bad.

Now, let’s take that same business and the one we just evaluated. They only sold on Amazon. Okay. Now let’s take a business that has five diverse sales channels. And they have a top line revenue of a million dollars. They have all the same numbers. But they have five sales channels. And for example, let’s say they’re doing 40% of their sales on Amazon 25% on their Shopify website, 20%, Walmart, 10%, eBay and 5%. Google, okay, pretty good mix, right? That business is going to be valued higher. And let’s say hypothetically, that multiplier goes to a 4X it has less risk for the buyer, right? They look at it and say, Okay, well, if one of those nightmare scenarios happens, like we went over earlier, we still have these other four sales channels. So with sellers discretionary earnings of $200,000, like we discussed in a four x multiplier, your exit going to be $800,000. That’s $200,000 more than a single threaded Amazon business. That’s a huge upside.

David 20:01
You know, that’s a really good example Ken, one thing that I want to point out is that $200,000 extra that you get at exit, is for the same company, right? In this example, they’re going to earn the same revenue, they’re going to have the same profit margin, the only difference is that they’re diversified across sales channels. And in this industry, typically, you know, the market rate for an exit is between about two and 5, 3 to four is a typical multiplier for an e commerce exit. And what determines that multiplier, are things like diversification, email lists, you know, other brand assets, intellectual property, to the extent that you can move up on that range of multipliers for your exit, you’re just going to make more money at the end of the day. And so, you know, not to mention that you’re going to sleep better at night, if one of these gets shut down, you’re still gonna have cash flow coming in. And, you know, as we talk about this conversation of diversification, you know, the main point that we’re trying to drive home here is, your sales channels can get shut down, it does happen. And it happens. I don’t want to say a lot. But you know, there are plenty of examples of this out there. And if you look at your business, there are a lot of fixed expenses that you have every month in those don’t stop, if you have a sales channel shut down. So for instance, you know, all of your software subscriptions, you know, any employees that you have, you need to pay them regardless of whether you have an active sales channel or not. And so, you know, when you have 100%, on Amazon, that’s a huge risk. And really, if you’re evaluating this, yes, there’s going to be some legwork in setting up these other sales channels. But look at your financial statements and see if you could survive three months. If your Amazon sales channel got shut down. I can say my own business, the answer’s no. And that is a good reminder to me to continue diversifying. And, you know, ramping up my Etsy ramping up my eBay, maybe getting back into the Groupon game?

Ken 22:12
Yeah, absolutely. No, that’s a great point. And, and it’s going to be one of the goals that I challenged myself for in 2021, is to, I’m going to put some hard numbers on the percentage of the pie for my sales channels. And I’m going to really challenge myself to do that, because it has a lot of upside. So before we I have a list here of sales channels that you know, that David and I use, and that we’re also on a roadmap to test. And before I get into that, I want to kind of go over some things to consider when you before racing out and just adding a bunch of sales channels, you know, there’s some things you need to consider. One of them is complexity, you know, by adding a sales channel, how complex will be? Is it automated? I mean, there’s a plug right into your current system, your software, you know, you have to consider that, you know, cuz what’s the upside, you know, are you going to get 10 sales a month? And it’s super complicated? Or, you know, are you going to get 50 sales a month, and it’s seamlessly plugged in, you know, it’s complexity is one thing, you know, automation. If, you know, I recently added some software suites, and where they do sales, channel aggregation, and, you know, check your software suites, does the sales channel integrate seamlessly in and automate order flow and reporting and things, something to look at? We discussed earlier sales, right? Like if you’re going to add a sales channel that, you know, it’s going to get two sales amongst is it really worth it? You know, if you have a potential get 1000 sales a month, you know, the risk versus reward you have think about that? liability? Look at the sales channel, is that is it going to add a liability to your business? sales, tax complexity? You know, that’s, that’s huge. We’ve discussed that a couple times. And, you know, the whole Nexus the whole tracking and, you know, you got to look at tax complexity on that. commission. You know, we talked, you know, David and I are huge fans of Etsy, you know, a 5% Commission, you know, it’s a lot better than 15. So you have to look at that, too. And lastly, and probably one of the most important things on this list, are my customers on that channel? You know, if yourself, I want to come come back to that eBay thing, right. If you’re selling, you know, products designed for millennials, they’re probably not going to sell well on eBay. Right? Who’s on eBay? The 90s generation, right. And this is hypothetical, but but you get the point. It’s are your customers on that sales channel? You know, so yeah, that kind of covers that. So we’ll get into the the list of sales channels that that that David and I use, and the sales channels that were on the roadmap of adding and then some other ones to consider as well. So, the main sales channels that Dave and I are using right now are Amazon, eBay, Etsy, and Shopify, WooCommerce, Walmart. So those are the channels we’re using. Now, I am adding Walmart soon. And I’m adding Google Shopping, while cleaning it up and getting it integrated. Some other channels that I that I want to go through, and this is often overlooked, I actually overlooked this earlier. And then I regrouped. And so other Amazon marketplaces, that’s another diverse sales channel, right? So If amazon.com gets shut down, amazon.ca is still there. It’s a separate channel. So Amazon, Canada, Amazon, UK, Amazon, Germany, Amazon, Japan, and Amazon, India. And those are listed in order of sales velocities. So those are separate channels, and might be easier to plug one of those. And then to add something else, right, you’re upside might be worth it. And we’re actually going to have a guest on the show pretty soon it’s going to cover those and really in depth. Super excited about that. The last couple sales channels are rakuten, Facebook, Pinterest, Groupon, and Instagram. That kind of wraps up the list. So if you’re looking at adding sales channels, check the list out, we’ll have this in the show notes. And, David, any last comments?

David 26:30
Yeah, as we go through here, one thing that you’ve really encouraged me to do, which I’m glad, is to really take ownership of my Shopify store, my own website. And one thing that, you know, I think separates your own website from some of these other third party marketplaces is that you are likely not going to get kicked off, right, you’re the boss there, you don’t have Terms of Service to live by. And so that is something that, I think that, you know, there’s benefits there in that there’s, there’s just less risk. The other thing is that they’re your customers. And you can get things like email addresses, you can, you know, then retarget them through, you know, email campaigns or through Facebook ads. And I think that that is something that you and I not met, and we had those early discussions, I don’t think I would have placed as much emphasis on my Shopify store. But you know, that’s something that all of your brands, you do have a website and a strong website. And you’re starting to see some traction there. And, and, in my opinion, one sale on your own website, from a profitability standpoint, maybe worth two sales on Amazon, if you look at the you know, the cost of customer attention, what you can do with their email address, and all of the other benefits of having someone come to your website. I think that that one really stands out in this list. And and I just had to mention that, because that’s been something that I’ve done in the last year, and I’m really glad that I have

Ken 28:07
Yeah, no, absolutely. And, yeah, I’m proud of you for adding that that’s gonna be paid paying dividends for you and years to come. And another thing also is that there’s no Commission on your own website. So we’ll do some more shows later on and some strategies that we’re using to drive traffic but yeah, like you said at exit, your website is an asset, your email list is an asset and an investor looking to buy you know, if you have a strong web presence and you own that it’s it’s gonna pay dividends.

David 28:38
Thank you everyone for tuning in to today’s Firing The Man Podcast. If you like this episode, head on over to www.firingtheman.com And check out our resource library for exclusive firing demand discounts on popular e commerce subscription services that is www.firingtheman.com/resource. You can also find a comprehensive library of over 50 books books that Ken and I have read in the last few years that have made a meaningful impact on our business, or that head on over to www.firingtheman.com/library. Lastly, check us out on social media at Firing The Man on YouTube at Firing The Man for exclusive content. This is David Schomer and Ken Wilson. We’re out

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