Podcast: The Common ERP Mistake Costing You Profit
Episode Summary
This week on the Free to Grow CFO Podcast, host Jon Blair, founder of Free to Grow CFO, welcomes Jared Ward, founder and CEO of Luminous. They dive into the complexities of inventory management, the importance of tracking COGS, and the pitfalls of traditional ERP systems. During their chat Jared shares his journey from launching e-commerce side hustles to leading a $20 million business, and now creating Luminous, a game-changing inventory management system (IMS) designed for modern DTC brands. Jared also shares his insights on the new wave of e-commerce brands, the limitations of traditional ERP systems, and how Luminous fills the gap for mid-market companies. This conversation covers practical advice for tracking landed COGS, integrating personal and professional life as a founder, and why effective inventory management is key to financial health and scalability.
Key Topics:
Jared Ward's background and journey to founding Luminous
Challenges of inventory management in scaling DTC brands
Importance of precise inventory tracking and landed COGS
Comparing traditional ERP systems and modern IMS solutions
Integrating personal and professional life as an entrepreneur
Meet Jared Ward
Jared Ward started his first e-commerce company when he was 23. Back then, it was selling baby gates and barn door hardware across a couple Etsy shops and on Amazon. While continuing to grow his e-commerce business on the side he got a job as a sourcing manager at a distribution company to learn more about high level supply chain with major retailers (HSN, QVC, Walmart, etc.).
Years later, after helping countless DTC brand optimize their supply chain through running Made-in-China's sourcing division, Jared noticed major issues in the way e-commerce companies used software in operations. He built and sold an RFQ management system that helped DTC brands optimize their purchasing. Then, he moved on and became a CEO of a DTC brand at 28. His experience running Qualtry showed even more the gap in the market of software solutions in e-commerce that address the entire supply chain.
Episode Links
Jon Blair - https://www.linkedin.com/in/jonathon-albert-blair/
Jared Ward - https://www.linkedin.com/in/jared-luminous/
Free to Grow CFO - https://freetogrowcfo.com/
Luminous - https://www.joinluminous.com/
Transcript
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00:00 Welcome and Introduction to Jared Ward
02:29 Jared's Background and Experience
03:34 Challenges in Inventory Management
08:46 The Role of Inventory Management Systems (IMS)
17:01 Modern E-commerce and Outsourced Operations
21:35 Traditional ERP Systems vs. Modern Needs
26:52 The Tech Gap in ERP Systems
27:08 Challenges with Big ERP Systems
30:01 Evaluating ERP Systems: A Personal Experience
36:43 The Importance of Landed COGS
47:33 Integrating Work and Personal Life
52:20 Final Thoughts
[00:00:00] Jon Blair: All right. Hey everyone. Welcome back to another episode of the Free to Grow CFO podcast, where if you listen to us, you know, we're diving deep into conversations about scaling a DTC brand with a profit focused mindset. I'm your host, Jon Blair. Founder of Free to Grow CFO. And today I got my good buddy, Jared Ward, founder and CEO of Luminous on the show.
What's up, Jared? What's up, Jon? How's it going, man? Oh, not too bad. Not too bad. Just, uh, trying to beat this ridiculous heat in, uh, in Austin. Has it started out there in Salt Lake yet?
[00:00:33] Jared Ward: It's, it's in the nineties. We went from like, we didn't even have the spring. It went from like 60, seventies straight to the nineties.
[00:00:39] Jon Blair: Yeah. Yeah. My AC is getting a good workout, but, um, well, dude, I'm super stoked to have you on the show. Um, this has been a long time coming since I was on the ops unfiltered podcast for like, I mean, it was several months ago and, um, What I really want to dive into today is this concept of how do you manage inventory and cost of goods sold as you scale a brand.
We as fractional CFOs, right, we are working with two dozen plus scaling DTC brands who are always struggling with managing their profit and cash flow. And what are some of the biggest components of that? Inventory, right? Driving either good or bad cash conversion cycle and landed cost driving either good or bad gross margins.
And as, as everyone knows in the DTC world, when you're scaling a DTC brand, if you have low gross margins, that means you have less available for customer acquisition. If you've got high gross margins, you've got more available for customer acquisition. And the reality is the brands that we work with in the lower to middle market, five to 65, maybe 75 million a year in revenue.
A lot of them are running inventory on spreadsheets, right? Um, and I mean, I'll be honest with you. I've even worked with a few nine figure brands that are running inventory on spreadsheets. That's inventory planning. That's inventory costing. That's even tracking what's on hand. And the reality is as you start scaling your brand.
Tracking those numbers, getting them precise, and really understanding the drivers of said figures becomes more and more important to the financial health of your brand. So I couldn't think of a better person than you to be chatting with to kind of set the groundwork for where you come from and what you're doing and why, you know, in my opinion, you're an authority.
On this particular, uh, topic, why don't you run the audience through your background and your journey leading up to launching Luminous?
[00:02:38] Jared Ward: Yeah, for sure. Thanks, man. I agree. I mean, it's such an interesting problem. Um, inventory management is so underrated in e commerce operations. And in these people's minds, um, I, I have some theories as to why, but real fast, my background, my background is in supply chain and e commerce.
So I've been launching products or like doing e commerce side hustles ever since I dropped out of college. So that's everything from selling on Etsy, Amazon. Shopify store, um, launching products for, for other businesses or my own. Um, and where I was most acquainted with the problem was when I was CEO of a 20 million e commerce business, we were, we were multichannel, we did light manufacturing, thousands of SKUs, just a lot of complexity on the side of inventory and supply chain.
So that's where I really felt that problem. And yeah, it's what I would say about the inventory problem is so many people are, it's like they're imagine back in the day when you're trying to navigate, when Columbus was trying to navigate to the Americas and he was trying to navigate without a compass, that is, that is what it's like to be a brand, in my opinion, about like two or 3 million in revenue.
So like you've gotten product market fit. It's cool. Like if you haven't gotten product market fit, then the goal is to stay alive. 100%. Do your inventory on spreadsheets. I agree. But you get to a certain point where it's like, you are literally steering a boat without a compass. Your inventory management system is the data that literally tells you how much you have in stock, how much is incoming, how much is allocated.
And therefore that, that can give you real time decisions on, Oh, how much should I buy? Um, there are real stakes to not nailing down your inventory. And I think most operators aren't acquainted enough with those stakes and that that's the issue that you run into.
[00:04:49] Jon Blair: Yeah, that's really interesting. So you founded Luminous born out of a problem that you experienced firsthand as an operator, you realized as an operator, how high the stakes really are in nailing your inventory.
And in, in, in my opinion, Inventory from an accounting perspective, cost of goods sold is just the other side of the general ledger transaction, right? Inventory and COGS are one in the same. And in my opinion, they're just, they, they're recognized in two different, two different times, but nailing those things is critical.
When you were operating that brand as CEO, or even in some of your e com side hustles, like what were some of the things that you saw that just like, ingrained this deeply seated belief that like brands need to nail inventory operations.
[00:05:38] Jared Ward: Cause I was, I was, I was one of those operators that like we had product market fit and we were 15, 20 million in revenue.
What, what happens is at least in my experience, what I've seen across the market and what I've experienced myself is you find yourself operating an eight figure brand on ship station. And Google sheets and QuickBooks and so what was happening, particularly when, when Qualtree, we were, we were true omni channel.
So we had a wholesale arm of our business, we sold on Etsy, Amazon, Shopify, we had multiple brands on Shopify. So this idea of like data mapping and allocation of inventory, it's exponentially more complicated across seven channels. And then when you add whole stuff to the mix, it's done. Um, and it, you brought up COGS like, Oh my God.
Most, myself included, most operators, you're just, you're locking purchasers on Google sheet. Like, you don't even, I don't care what COGS are. Oh, that's just the thing that Jon Blair in my monthly meetings, he's like slapping my wrist on, like put the damn POs in the system. And I'm just like, but why? Uh, so yeah, no, I.
I think once, once operators have had enough, Oh, shit moment, like, okay. Two prop, there's two main problems that, that we're really trying to address at Luminous. Number one is the tech prop. Like there's a tech landscape problem. I have empathy for the operators because, um, they just, there's nothing. It doesn't feel like there's anything better than ship station and Google sheets and maybe like a basic IMS inventory management system out there.
It's like that or next week. That's what it feels like. Um, so I have, so that's number one, there's a tech problem. Like there's a gap, no, nobody's filling that mid market, like as the market leader, the go to. And then the second problem I would say is just operators are like cowboy businessmen and women.
Like they only, for example, they only learn. Landed costs and. The value of keeping track of COGS and the inventory management system. Once they have a really bad contribution margin report, looking back in retrospect, Whoa, I was unprofitable on Amazon. What, how did that happen? Oh, and then you start factoring, Oh, it's cause container costs were 12, 000 and I was doing this and I wasn't tracking my row.
Wow. Okay. I was unprofitable there. So once you have enough of those, Oh shit moments as an operator, then you'll, you'll, you'll naturally learn like you oversell for the first time or you undersell. It's like, wow, we could have sold an extra million dollars. Once you have enough of those, then, then, then you naturally see, okay, there is value in inventory management.
[00:08:46] Jon Blair: Yeah. It's funny, like managing your operations from an inventory and cog standpoint is a burden until it becomes the driver of a major problem. And then it's no longer a burden. It's like, no, no, we will do this right. We will be proactive on doing this right. And, and the reality is like, let's just like take a step back really quick.
Yeah. An e commerce brand is a consumer goods business. The consumer good is their inventory. They are an inventory business, right? Like, let's just like break it down from first principle standpoint, if you're a DTC brand or, or an omni channel, like brand that has a heavy econ presence, you are a product business, which means you are in the inventory business.
And so like. Yeah, you're also a brand, so you're a marketing business. You've got to be really great at marketing. But when you start seeing the, uh, this is what we see when brands are scaling, they start figuring marketing out and they start crushing it. And generally speaking, the founders that we work with, and I think you probably see this a lot because we're in the same space, the founders are product and or marketing like led people.
That's what they're passionate about. That's what got them into business in the first place. Exactly. It makes sense. the product, they figure out how to market it because they knew who they were talking to and who they were selling to. But when that starts working, what starts happening? Oh man, we better have the inventory.
Right. And, and you start realizing there is this very, very delicate and important connection between the two, because. They feed off of each other. You stock out, dude, all your, your Facebook ads lose momentum, your Amazon listings lose momentum, and you worked your butt off for months or years to be at the top of those rankings, and then overnight, it feels like you can just lose momentum.
And it's like, man, trying to get back to where you were once you're back in stock is really challenging. And so, like, there's a huge cost, right? But on the flip side, If you hold way too much inventory, you have no cash, right? All. And you may have profit on the PNL, which is everything, right? Like if you may have profit on the PNL, but no cash in the bank.
And you know, as I always say all over the place in my content, profit doesn't matter. Profit. And cashflow together matter. And so like, uh, man, you just talked about like five or six things that I just noted that we could dive into, but I want to, I want to circle back to a couple of things in particular.
One IMS. So like the DTC world is laden with what acronyms, ROAS, MER, IMS. Right. I, IMS is one that I bring up a lot MRP. Oh my gosh. Yeah. I get the list goes on. Um, and depending on who you talk to, they give you different definitions of those things. But I'll bring up IMS to prospects and to clients and they're like, what is an IMS?
So actually I want to go back to basics. What's an IMS? And not just what the definition is, but what's included in an IMS from a functionality standpoint.
[00:11:51] Jared Ward: Yeah. So an inventory management system, um, inventory management system is, um, You have your product repository, first of all, I'll, I'll say for e commerce companies, like the basics for an e commerce company, like Omnichannel.
So number one, you have a product repository. So this is, it's, it's really your single source of truth with products. And that repository is going to be pushing or pulling from all of your channels. So like I have this SKU that I'm selling and I'm selling it to Shopify on Amazon on Etsy. So my IMS is going to house that product.
And it's going to map it to all of those selling channels. Um, then what you're, you're going to have your incoming on hand, pending or allocated and available. And I would say one more thing on top of that is it tracks. Your cost of goods sold. So it lets you know, one, one, very, very
[00:12:56] Jon Blair: small, one, very small thing, right?
Oh, and it tracks your cost of goods sold. That was an accounting joke, by the way, of everyone. Yeah,
[00:13:07] Jared Ward: it's going to track your cost of goods sold. If it's really good, it's going to be able to track landed costs and it's going to be able to allocate, you know, the, the way you do purchasing overseas, it's going to be able to allocate those variable costs into the product.
But, um, Yeah, at the most basic level, how much is available for my channels? What does it cost? What is the cost of goods that I'm selling?
[00:13:33] Jon Blair: So here's the thing. This may sound basic, right? What Jared is walking through. And obviously, this is the blocking and tackling. This is the fundamentals of inventory management.
But then you layer in, like Jared is talking about, multiple sales channels. Even this light manufacturing, which we'll talk about in a second. So, um, and my definition of light manufacturing is like assembly, right? Like some, some assembly or kidding, some form of that, um, kind of where you, you're stocking certain skews.
At a component level or a sub assembly level, but you're selling them at an assembly level. So you're having to, you're having to assemble them. So this is the transformation of actual skew and quantity on hand by skew. So you have now, we're, we're talking like you're tracking what's on hand, what's on order, what's available, but now you have Shopify, Amazon.
Maybe you have some other marketplaces you sell through. Maybe you have some wholesale. And then you also have components on hand, but then also efficient finished goods. So when you start thinking about all those variables, it's all, it's exponentially more complicated, right? What are some of the traps or the issues that you see when there's a brand that's set up like that and trying to deal with that complexity and they don't have an IMS?
[00:14:52] Jared Ward: Well, I, I see brands, it's, it's actually an important question. What is an IMS? And I think so many brands don't conceptualize this. And here's, here's why we get this request all the time. Hey, Jared, once Luminous is fully implemented, can you, can you push COGS to Shopify or can you, uh, can we keep just writing purchase orders on Shopify?
Um, and the question I have there is like, why would you use, why do you want Luminous? Then, um, we are an inventory management system. If COGS aren't going to be tracked and pushed to your accounting system of record, I honestly don't understand why it's, it's an unnecessary step. Um, it doesn't make, but we get that all the time.
So I think people confuse inventory man, like they, they leave out parts. So specifically what, what touches inventory management? Well, purchasing. Like you'll, a good IMS will have good purchase order management. Um, and you'll be able to split off your shipments and calculate landed costs in there. Um, it all, it should be able to connect in my opinion, modern day e commerce companies, a good IMS should be willing to connect into your 3PL.
So you can have live visibility. Like that's my opinion. What a good IMS should do for e commerce companies. And you don't want to Jerry rig and like have some of it here and some of it in QuickBooks, but most of them Luminous. Like, no, your IMS is your system of record. And generally speaking, you're actually just kind of pushing journal entries.
QuickBooks or your accounting system of record.
[00:16:40] Jon Blair: Okay. So there's something I just thought of right now, which is, uh, and Jared and I, by the way, I've had many nerdy conversations offline about, um, about all of this stuff. In fact, I'm, I'm an advisor to the company because I believe so much in what they're doing.
Um, but something just dawned on me that we haven't talked about before. We talk about the IMS for the modern e commerce omni channel e commerce brand, something just a light bulb went off about one thing that you guys are doing over there at Luminous. And I think this is going to actually segue nicely into a conversation about ERP.
I have a lot of experience with traditional ERP systems because before my e comm days, I come from a manufacturing background. I ran finance and accounting at, um, pretty like, uh, companies that had pretty robust. Actually, very robust manufacturing operations and traditional E. R. P. Systems in in that kind of a context.
They're meant for managing on site operations, right? Um, on site. transformations of raw materials to sub assemblies and and finished goods assemblies on site, labor allocations on site fulfillment. The modern e commerce brand in a multi or in a, in a omni channel setting may have some onsite operations, but actually a lot of it is outsourced, right?
So contract manufacturing is outsourced, maybe Comet, like you maybe have a co packer where you're, uh, You have, you have a raw materials and components on site and they're doing the transformation to finish goods. You've got three PLS like you're talking about. You have marketplaces that you're selling on.
And so when you take a modern or sorry, an old school or traditional ERP system that, that was, was really designed to, uh, control inventory and inventory operations on site, and you try to apply that to this modern omni channel e com brand, where really you need to connect into all these disparate systems where these transactions are taking place.
Bring them in to Luminous as your single source of truth and even push some stuff back out to them. That's a different tech ecosystem, right? And this just dawned on me while we were chatting right now. Talk me through that a little bit and how you guys view, how you guys have seen that gap that's, that's not being handled by like traditional ERP systems.
[00:19:09] Jared Ward: I mean, dude, you nailed it. Traditional ERPs were built to take all this on site in house. So if I, for example, we see this quite a bit. If I want to use Dynamics 365 as my system of record and, um, but I have a co packer or a co manufacturer who's producing the goods, basically I'm like running Assembly orders.
And I'm doing all this stuff like on behalf of the, it's getting done in two systems. Dynamics 365 was not architected to be able to plug into this for the, and then plug in the ship station for your fulfillment and deplete from there. And then, um, It doesn't do that, um, with high levels of customization.
Maybe it can, um, after a lot of expense, very, very
[00:20:00] Jon Blair: expensive, high levels of customization that take a really long time to
[00:20:05] Jared Ward: exactly. So what Loomis is doing, we have a belief that. We're, we're, we have to be connected to our ecosystem. So we, we, we take a look at the brands that we're servicing. Um, and I'm actually curious your thought on this.
So many brands, because they use a 3PL or a co manufacturer, they, they don't think they need an inventory management system. We obviously disagree. I think the market is just right. For an inventory management system that can plug into all of these WMS is on the market. So I can plug into your three field.
If you have a West coast and the East coast three field, I would argue you need an inventory system more than most brands. Um, so Luminous goes the route of, we will, we see it as our duty to plug into any WMS on the market. So we are architected to plug in and pull sales order data, but also push pull inventory data.
And then we can also push it to all of your different channels. So like a really common use case is I have a West coast and the East coast 3PL. So Luminous sits on top. We connect to both of those. Um, it's very common that, um, we will have to push wholesale sales orders to those 3PLs. So Luminous comes front of line.
We're pulling a lot of stuff, but in some scenarios we are pushing wholesale, wholesale orders to, to those 3PLs.
[00:21:34] Jon Blair: Yeah, it. It's um, this actually segway is going to segue nicely into something else that you and I talk about a lot, which is this new wave of e commerce brands. Right. But backing up to what, what you were just mentioning, I think because the modern day e comm brand has so much stuff outsourced.
There is a physical and geographical, um, you know, separation between the operations of the business being manufacturing and fulfillment, like the site, the onsite activities of those things happening. There's a separation between most brands and that happening. Whereas like back in the day, again, when I was working in a manufacturing environment, I stepped through a door and I was in a machine shop or I stepped through the door and I was in a plating shop.
That stuff was happening on site, right? Um, using outsourced 3PL, outsourced manufacturing, even though those inventory, uh, transactions are happening somewhere else. Once you get to a certain scale and a certain level of complexity, you do still need a, like, like Jared is saying, a system of record that you own that, that actually, um, you know, records those transactions because you need to do things with that data that's really important.
to your financial and operational health. And now, um, I think that it's become somewhat of a lost art from my opinion to want to do that just by virtue of like most brands not ever having to have stepped foot into a warehouse and design how the fulfillment flow works or like, like what, what, like from my perspective, man, the reason why I have a very unique perspective on inventory control is because like I was sitting out there with warehouse guys.
10 years ago, just deciding how we put stuff away in certain locations, right? Like to increase efficiency or, well, dude, you're the unicorn stage.
[00:23:34] Jared Ward: Yeah. And you are the unicorn. You, you have operations and financial background and ERP experience and down marketable experience. It's like,
[00:23:42] Jon Blair: well, and so it's, but what's, what's interesting is what.
You actually coined this term for me is like the new wave of e commerce brands. We talked about this when I was on your podcast, which is that like the new wave of e com brands is this like scrappy, um, very overhead light brand, right? Like you get to product market fit. Super scrappy doing everything on spreadsheets.
The founder is doing a ton of stuff themselves, right? Like, and I even talked with my buddy, Will Holtz a couple of weeks ago and he on the show and he had a Shopify brand aggregator and what he found when he went to go roll up, like purchase a bunch of these Shopify brands several years ago, he found it was hard to remove the founder.
Why? Cause the founder was doing accounting stuff, marketing stuff, product stuff, you know, inventory planning, the new wave of Vcom brands, right? Like they're super, super overhead light, meaning what they outsource a lot of stuff. They outsource financing and accounting to firms like Free to Grow CFO. They, they outsource fulfillment to three PLS.
They outsource manufacturing to, you know, um, overseas. Co manufacturers, so they're removed from those transactions. So they don't internalize the importance of tracking them and understanding them and using them to their benefit. And so I, I, I 100 percent see the same thing. Um, and so there's like, there's kind of like a double edged sword to this whole, like running the lean and mean e comm brand of today.
It's, what, what's, what I find fascinating is the number of brands I find that get to 10 million in revenue. And, and profitable and just like no one on the team, it is impressive, but on the downside, there is a separation for a lot of them between like how their product gets made and how it gets fulfilled in reality versus what they think is happening, you know?
And so it is, I find it very interesting. I do want to like, Actually, like, turn our conversation back to the ERP thing a little bit more. I'm seeing more and more brands come off of the NetSuites of the world, the Acumatica's of the world
They started growing into eight figures, healthy eight figures in revenue, they were experiencing those pain points you were talking about when you're, when you're walking through your experience as an operator and they're like, I've got to get off the spreadsheet.
So they're bought in. QuickBooks, App Marketplace, the inventory plugins, like the legacy ones that are out there, Fishbowl, and there's SOS Inventory, and there's a couple other ones. I'm just gonna say it, I'm sorry, they all suck. They all suck. And um, it, but, so then you start feeling compelled. To look at NetSuite, Microsoft Dynamics 365, uh, Acumatica, I'm seeing more and more brands who took that leap, got there, and they actually either never got the implementation fully off the ground, right?
Like, years later. Or they did and it's so overkill and every time they want to change something, they have to hire a consultant to come in and do it for hundreds of dollars an hour. And it still never quite does what they want it to do. And they end up retreating back to QuickBooks and spreadsheets. Are you seeing the same thing?
And what other insights do you have into that trend?
[00:26:57] Jared Ward: Absolutely. And that's, that's the number one thing that I talked about at the beginning, the tech gap. So I have empathy for founders who run into this. And yes, it happens all the time. And it's because think about it from this perspective, when you're ready to make the leap as an operator to an ERP or to just to an inventory system, you're looking around, it's like Fishbowl, SOS, maybe you try out SIN 7 and it doesn't work for you.
Um, when you, these are enterprise sales. So if I, if I hop on the phone with NetSuite, Acumatica, Dynamics 365. I'm not, I can't poke around on there. I'm just getting feature sold and technique. And that's the problem. If I hop on the phone with a NetSuite rep, technically they can do anything, literally anything.
And so you're sold on a, like any brand over nine figures, it's on NetSuite. Like this is the way to scale. Oh yeah. Literally that list of requirements. We can do all of it plus more and what they don't understand is, yeah, that's true, but when you get into the system, they, they underestimated how much is going to have to be customized because there's a fundamental difference between who NetSuite was built for.
And then this, what'd you said? Over overhead light or over light.
[00:28:30] Jon Blair: Yeah, no super overhead lights, scrappy new, you know, new age E comm brand. Right.
[00:28:36] Jared Ward: Yeah. And a great example is purchasing in that suite versus purchasing, like in QuickBooks, for example, so you you're going to a system that it's default is.
Like a hundred step process. I'm exaggerating, but like, let's, let's call it an eight step purchasing process. And so, yes, they can do everything, but now your purchaser, Oh, who by the way, is also like doing seven other things in your business, Is like lost in the interface of NetSuite and now apply that to every other role.
The e commerce company, it just feels too big. These big ERPs, they feel too big. Um, so the way Luminous sees the market is how we're building every single module, every single experiences. It's for that modern e commerce company who they have a purchaser. Who's. Doing a lot of things like they're doing the demand planning there.
They don't have a sourcing team. They don't have a team for contracts. They don't have a assistant buyer. Well, they might, but I mean, it's normally just one guy or girl doing everything. Same with your warehouse manager. Um, so we, we, we tailor those experiences for that, with that in mind.
[00:30:01] Jon Blair: Yeah, um, I've been through, uh, firsthand a NetSuite, um, well, we'll just call it a traditional ERP.
evaluation process. And, um, it was super overwhelming. It took me six months just to evaluate Dynamics 365, Acumatica, and NetSuite.
[00:30:24] Jared Ward: Six months? No way. Yeah, because I, well, because
[00:30:27] Jon Blair: I was taking so, I was, like you mentioned, All three of them. There's no such thing as a demo account or a free trial or anything like that.
Or, or if you want to see a demo, you have to like schedule a call with a sales engineer, it's usually like two weeks out. It's not like they can get on one tomorrow. And they, they try to ask you all these questions to make it fully customized and make it look like what you're like your company. And it's always misses the mark.
And, and then once you look at it, you can't go back in there and Mess around with anything. It's it's, they're always trying to push you to the next process of, of the sales cycle or like the next step. And like, I S I just, I spent a ton of time asking them just a ridiculous amount of questions, but mostly cause I had used Epicor ERP before.
And so I had a sense of what these things could do. And I was just like, I want to see what we're getting ourselves into. Cause these all have huge price tags, right? And the interesting thing is, there's this new tactic they're all using, which I get, like, one of the classic objections is, Hey, I heard that the implementation my buddy did, You guys told me it was going to cost 30k and it ended up costing 100k, right?
And they're like, oh, it's a fixed bid implementation, right? Where it's fixed bid, it's not hour and time, you know, time and materials, like. And the problem was, we ended up going with NetSuite, which we went with their, uh, They sell this new version quote of NetSuite that's supposed to be like this tailored down version and the reality was that, um, crazy enough like at six months later they got it implemented.
I actually left the company and started Free to Grow mid implementation. I caught up with Brian, the CEO last week at Guardian and they got off NetSuite and they're back on QuickBooks and Spreadsheets and they're trying to figure out, they're trying to figure out what they do next. And they manufacture, they have their own factory up in Indiana.
[00:32:27] Jared Ward: I think it's so important though. Why did you end up choosing NetSuite? Cause yeah, what I've seen, I'm curious to hear what you say is it's just because They're the big, like, they're the guys that they are. They're the established ERP brand. And I think what we're feeling, the repercussions of a big legacy ERP going down market, and then we're really feeling the gap in the market.
And now the mid market is hungry for, okay, well, that's not it. What else can we have?
[00:33:05] Jon Blair: Yeah. You know what, man, I learned a valuable lesson. Um, And, and it's funny cause I had ERP experience. So you would think that maybe I was not going to be susceptible to making that mistake. And we did. Right. And, uh, well, first off there wasn't, there was even less.
[00:33:22] Jared Ward: No,
[00:33:24] Jon Blair: I think, I think it's a logical conclusion. It was to me, it was a logical conclusion given the options we had five years ago. Right. Like, and, and, um, I mean, I wish a Luminous was around. That's why when we met, I was like, man. Cause I was like, this is, this is what I, I wish that I had gotten guardian bikes on several years ago.
Right. But like, The reason we went with it is because they did a really good job of selling us on the fact that like, they had created a simpler version of this legacy, super intense ERP system, and that it was gonna grow with us, right? Um, and so, And what I learned, though, most valuably from an operations standpoint was we were gearing up to become a light manufacturer.
Light manufacturing meaning assembly, right? And I learned that NetSuite, in my opinion, is overkill if you're just kidding, doing kidding and assembly. Um, Where the background I come from, uh, using Epicore ERP, which was absolutely a bad ass system for what we're doing is complex manufacturing. We had multiple operations in machine shops and plating shops, brass foundry, like crazy stuff, right?
And we had to manage work centers and the flow of goods that had been picked and were on the floor way different than just picking kidding or assembling something into a new skew. Right? And so I what I realize is, unless you're doing complex manufacturing, You've got to go with something simpler and more cost effective, um, than, than one of these legacy ERPs or else you're just going to end up pulling your hair out after you spend all the money that you're spending customizing it and it still doesn't do what you need it to do.
[00:35:19] Jared Ward: Wow. I think the market is hungry for the NetSuite. But I think, I think NetSuite had a false, how do I say it, like a false, they had like a false rise. Yeah. As far as like the go to and, you know, fast forward five years of them going down market, I think the market is now primed and ready for a solution like Luminous, um, and, It's, and it's, it's going to be, it's still going to be a long road.
I mean, Brendan and I say this all the time. What's the difference because we look at, we look at all the competitors in our space and it's, it's, uh, it's a graveyard or it's, or it's like people who've had really positive exits. But the number one thing is. You just have to keep building. Why, why isn't that sweet?
The go to well, they start out with a hundred million dollars and they've been building for 25 years. So Brendan, my co founder and I, we say this all the time. Like we're in this for the next 10, 20 years. We're not, I'm not going to get bought out. It's not going to happen. Like I'm, I'm building for the next 20 years.
[00:36:39] Jon Blair: I love that. I love that. Um, alright, I want to chat. Landed COGS now. Um, LA landed. Cost of goods sold. Uh, this is a topic that Jared and I really hit it off on when we first met when I was on his podcast. Sounds so dumb. I know.
[00:36:55] Jared Ward: We really hit it off. Talking about, yeah. Really hit off
[00:36:57] Jon Blair: talking about landed COGS.
Man. We knew we were gonna be friends for life. Um, it's funny that the nerdy conversations that happen in and around this business, it's, uh, it's what keeps me going, man. Um, but okay, Landed COGS, every brand we work with, an encounter in our, as we're prospecting and talking to, you know, potential new clients, almost, I mean, 99 percent of them on our first conversation, Let us know that they are pulling their hair out, trying to track their landed cost of goods sold.
Why is it so important? It's so important because it is one of the biggest costs that go into gross margin and ultimately contribution margin. It is a huge driver of not only just profitability in general, but how much do you have available to spend on what customer acquisition, which is incredibly important in an E com business model, right?
Landed COGS get super complicated. Because of a lot of different factors, but Jared, you being front and center in the market, that's helping solve the problem of tracking landed COGS. Like what are some of the big pain points or complexities or challenges that you see time and time again with the brands that you guys work with at Luminous?
[00:38:15] Jared Ward: Yeah. So first off, even legacy ERPs, and I've yet to meet a brand on a legacy ERP with all the functionality of the world that tracks landed costs within the system. They do it on spreadsheets and they're so with, with Luminous actually with a lot of advice from you and some other accountants, um, and then, and then merged with like my, my operation background, what we came up with is, uh, just barely launched by the way.
Um, you can, you write, basically you need a really flexible purchasing flow where you can split off shipments really easy and then add your variable costs to that cost layer and in a really easy to use way. So what we do is we just allow for very flexible purchasing. And then it's so common that this is why I think it's really hard to track land of cost.
It's because. If, if I'm, if I'm purchasing like a thousand of this skew for my manufacturer, what's very common in e commerce because they're normally just flying by the seat of their pants and they, like, we need some of those units here right now, they'll, the manufacturer, they'll get into a habit of partial shipments.
And so the manufacturer will reach out to me. Hey, Jared, we finished the first 300 units. Would you like me to ship those out? Oh, also on PO 26 and PO 62, we finished 200 units of this and a hundred units of this. Yeah. Bundle those together. Let's ship them over. In fact, the next hundred let's air those over so we can give them to Amazon.
Like. That shit starts happening. And it's so common. And there, a lot of times there's not a good flow for that. And this is where we've gotten some good advice from you. Um, we allow those actions really easy, easily and Luminous. And then our cost layers take into account like tariffs or duties, whatever those variable costs are, and they're, they're either allocated at a quantity basis.
Or they're allocated at a volume basis. So the reason why I think this matters, to do it in the system is we thought at Qual Tree, our margins on the skew were 60%. And they were like 15%. And it's because we weren't allocating the land to cost properly. So we. It's like the difference between, Oh yeah, man.
It's like a, it's like two 40 per SKU. So yeah, we're at like 60 percent margins. Then you actually add in, then you get the bill for, for your tariffs and your, and your shipping and you're like, It's my land. It costs is actually like 6 and 30 cents. We've been selling this thing at near a loss or break.
Yeah,
[00:41:17] Jon Blair: well, yeah. And then, I mean, then you look at your, uh, freight out and fulfillment costs, your credit card fees. If you're, if it's in a e comm, um, You know, sales channel. And then you look at your marketing spend and you're like, you probably were making, you probably had a loss from a contribution margin standpoint, but there's a couple of things you touched on there.
So like to back up and just kind of summarize for the audience, what Jared is talking about is that your, your landed cost is not just the manufacturer supplier invoice costs, right? It includes freight and duties. And if you allocate those incorrectly using the wrong methodology, or, or you Using the wrong methodology or the wrong timing, you may vastly underestimate your landed cost, meaning that you're going to overestimate your, your margin and you can run into some, some really big trouble.
When you talk about the difference between allocating, Uh, duties and freight based on quantity versus, uh, volume. That's a really important consideration because you have some products that are large and low value or small and high value, right? And if, and if, if the, the, the shipping method that you're using really is, is.
More driven on volume than it is on like the actual quantity. When you have it, we have a shipment of like, like kind product, similar size, similar weight, you can use quantity generally speaking. And you're, and you're okay because you're shipping a homogenous kind of like set of goods. But if there's big variation.
You've got to consider going like volume based or else you could end up under or over allocating cost to a skew. And based on the sales price value of that, whether it's high or low, you can have a huge distortion in your margin. Like, and I've, I've seen brands get into A lot of trouble there. Do you have any advice on like how to think about that kind of stuff?
[00:43:17] Jared Ward: Yeah. So I would say, I mean, first off, you, you need a system of record. Um, again, it goes back to this product repository. Um, even just making sure that you're tracking all of these transactions, even, even just in a Google sheet, like I always tell people to at least just start with a Google sheet. Um, I personally would recommend.
Allocating these variable costs, um, through volume, um, through dimensions. It's, it's more difficult, but it can be done. And if you don't have a system that can do it right now, then do it on, do on Excel. There's, there's so many, actually, there's a lot of free Google sheet templates out there that will show you how to do this, obviously with chat GPT nowadays.
Um, yeah, I would strongly recommend tracking all these things, even if you're tracking in retrospect, like. You will uncover something that you didn't know. Like I promise you it's, if you do this, it will flag a skew. Um, sometimes in the bad way, sometimes in the good way. Sometimes you're like, Oh, wow. Yeah.
We're really profitable on that actually. And that's moving most of our business. Um, it's also probably going to flag a couple of skews where you're like, wow, we are breaking even or unprofitable on this. Yeah. Um, so it will illuminate your eyes in some way if you do. If you
[00:44:45] Jon Blair: allocate based on volume, so, um, another thing you mentioned is the partial shipment thing.
It's like tracking partial shipments gets really messy. And even, even worse, or even harder is if it's partial shipments off multiple POs that are getting bundled into a single shipment, right? So you've got duties and freight. That effectively spans across multiple partial shipments of multiple POs. And so when you, at the very beginning, like Guardian, when we were just ordering a container of bikes and we were just getting a container at a time.
It was super easy to calculate landed costs at that time, right? We were ordering a few containers a year. Super easy to match duties, freight, back to a single PO. We were mostly getting full shipments from a single PO. But as you start scaling, and like, inventory starts flying off the shelves, and like Jared mentioned, like, you just, you, you need whatever inventory you can get, and you need it fast.
Things start kind of spiraling, and then again, going back to what Jared Was talking about at the very beginning of the conversation, which is like you've got multiple sales channels that you need to represent available inventory on at the exact same time. Right? And you can't represent something you don't have on a given sales channel.
It's actually getting decremented as it's getting sold. And then if you make matters even more complicated, you've got light manufacturing. Now, on the purchasing side, you've got these multiple layers of complexity on the sales channel side, you've got multiple layers of complexity, and then you've got light manufacturing.
So you're transforming SKUs from, you know, components into finished goods. If you have any level of, of any of those things, you have to consider an IMS. You have to consider an IMS so you can keep your inventory levels healthy. Because healthy inventory levels drives healthy cash flow and so that you actually know your cost of goods sold Because then you actually know your margins and you can actually make decisions as you scale that increase profitability so I just want to like make sure everyone understands that summary that an IMS is very important and where Luminous is doing a fantastic job is they're occupying this gap between QBO and spreadsheets and all out traditional, super expensive, way too robust ERP like NetSuite and Acumatica and Dynamics 365.
And so it's a solution that you should absolutely consider as you're scaling your brand into the healthy seven and eight figures of revenue. Um, So, gotta land the plane, unfortunately, Jared, pretty soon here. Um, like I said the last time that we chatted, I feel like, uh, we probably need to do this every few months to just keep talking about what we're seeing in the marketplace.
But before we do land the plane, I want to talk about something, um, I always like to ask a personal question, and it's because at Free to Grow CFO, the balance between personal life how And, and, and, and, you know, professional life. And I would say the integration and that you really can't separate the two super important to us and is near and dear to my heart as, as the founder of our business.
So I always like to talk, um, personal for a few minutes with everyone who, who comes on board. One thing that you've got going on in your life that I'm like super impressed with is being a single dad. You're a single dad and a founder CEO. Of a thriving startup. How have you been able to hold that down and what advice do you have for the audience and maybe someone out there?
Who may be in a similar position to you of how you've been able to manage that over the years?
[00:48:25] Jared Ward: Yeah, great question. Yeah having Having two kids full time while running a startup is extremely challenging. I would not recommend it. Um, that's the first thing I would have recommended. No. Um, honestly, I think I've, I've learned over the years.
People always say like separation of work and home and like your personal life is here and your work is here. And like, Totally separate, like a rigid wall, and you need to build that wall higher and set more boundaries. Like, to each his own. Like, personally, I disagree with that, and I found that to be highly ineffective.
For me, it's, it's, it's actually effectively integrating those two things. It's like, I am Luminous, like Luminous is a part of my personal life and that's okay. And like, I bring my kids to work all the time. And I think we have a lot of employees, like all of our employees, founders, the shareholders in the company.
Um, I think we all, that's the culture at Luminous is you integrate personal into your work life. Everybody brings their kids to the office.
It's totally fine to dip out for two hours. Hey guys, peace. I'm, I'm just, I'm going to go take a nap or like, I'm the kids are here for the, I'm going to go take a nap. And it's like 2 PM on a Tuesday. Like, so that stuff is okay. But also like we're all working at like 6 30 PM or bringing our kids to the office at four o'clock, or we're all helping each other on a Saturday so I can get some work, like, I don't know.
I've just, the concept of integrating your work and life together has been profound for me. Like I, I love it. I don't, I just, I love what I do. My kids are like a part of Luminous. My son like knows every single person and he likes to jump on and try to do cold calls. And so I would say lean into integrating them more instead of separating them and building like all these really firm boundaries.
[00:50:41] Jon Blair: Yeah, I really like that. We have a similar culture here at Free to Grow in terms of like, it's just so happened. You know, one of the reasons that I left guardian bikes when I did was because I started having a bunch of kids now have three, um, five, five and younger. And, um, You know, it just, you don't want to be in a place where you have to be ashamed of being a parent.
I think being a parent is like one of the most worthy causes in the world to be quite honest with you and like, but so is being a hard worker. And I think there's also something beautiful about inviting your kids into your work to show them what you do, right? Like, how do our kids learn? They learn by, by watching others, right?
And in large part by watching their parents. And, and, um, it's funny cause this is not a requirement to work at Free to Grow, but it's turned out that we are. Uh, we're building a company that's mostly parents of kids that are like five and younger. We all have little kids and, and, and, and we're starting as you kind of build more, uh, as we kind of build a team that has that in common, it starts attracting more and more people because like when someone's like, Hey, I was up all night last night because my kid was throwing up or my kid had a fever.
We're like, we all have so much grace for if they've got to miss a meeting or like you said, they need to take a nap or they need to take their kid to the doctor or whatever. It's like, yeah, dude, please do that and don't feel ashamed about it and don't hide it. I know you're going to crush your work as soon as you get back to it.
Right. And at the end of the day, too, like
[00:52:14] Jared Ward: integrating integration,
[00:52:17] Jon Blair: 100%, 100%. Um, all right. So before we shut down here. I'm going to be honest. Maybe I'm a little bit biased cause I'm a, uh, an advisor and Jared's one of my buddies, but he's, he and Luminous are putting out some great content, highly recomme
Where can people find out more about you and your content, Jared and find out more about Luminous.
[00:52:40] Jared Ward: Yeah. So, um, follow us on LinkedIn. Um, that's just my name, Jared Ward Luminous. You'll find us, um, or at join Luminous, go to join Luminous. com, join Luminous. com. Just as it sounds, you can find actually all of our content there.
Um, if you're a YouTube, if you're a YouTube fan, then just call me Jared underscore Ward, um, I post educational content and also my podcast, the opposite of the filter, it's very similar to this.
[00:53:05] Jon Blair: Um,
[00:53:06] Jared Ward: yeah,
[00:53:07] Jon Blair: definitely check out Office Unfiltered and the rest of Jared and Luminous uh, content. Um, and look, if you want to find more helpful tips on scaling a profit focused D2C brand, also consider following me, Jon Blair on LinkedIn.
And if you're interested in learning more about how Free to Grow's D2C accountants and fractional CFOs can help your, your brand increase profit and cashflow as you scale, check us out at freetogrowcfo.com. It's been a joy talking today, Jared. I appreciate you joining. And, uh, look forward to chatting again soon.
[00:53:38] Jared Ward: Thanks, man.
[00:53:39] Jon Blair: See ya.
