Sarah Delevan joins the UMAI Social Circle podcast to dive into the financial side of business and talk about strategies to create a proven financial model that will meet your business and life needs while avoiding burnout.
Sarah, founder of Sarah Develan Consulting and host of The Good Food CFO, has helped over 50 good food businesses improve their financial performance from sourcing to product and pricing, and is now sharing how to build proven financial methods that will help scale and achieve a profitable and sustainable business.
[00:45] Introducing Sarah Delevan.
[01:31] Hear Sarah’s wild journey and find out how the universe was on her side.
[07:10] Sarah immerses herself in the farmer’s market, rancher and fishermen environment to understand the full spectrum of being a buyer.
[08:54] Why terms such as “organic” aren’t as important as mission driven good food.
[10:58] Going in depth into the three tips for growing a profitable business.
[16:33] Accessing different pathways to cater different brands.
[18:37] Data is the driving factor for decision making.
[19:30] Evaluating what brands should consider when pricing their product.
[22:58] How to evaluate when to increase pricing to the consumer.
[26:20] Taking data and metrics and turning them into actionable goals.
[32:36] The approach to implementing discounts from a financial lens.
[35:01] Breaking down pricing across different channels.
[39:27] Leading with data gives you the power to make smarter decisions.
[40:46] The factors that contribute to the struggle in growth.
[42:27] Build a business that is also right for you and your needs.
[44:25] “Right-sizing” a business.
[46:44] Sorting out your business to avoid burnout.
[49:46] Financial tactics and trends that are working for CPG brands.
[53:42] What it means to be the only food business consultant in the world that is certified in the profit first method.
[56:50] Connect and learn more with Sarah!
[44:10] How and where to find Buttermilk Creative.
Follow Sarah Delevan –Instagram Website
Join UMAI’s Facebook Group: CORE 3
[AUTOMATED TRANSCRIPT MAY BE SUBJECT TO MINOR TYPOGRAPHICAL ERRORS/VARIATIONS]
Narrator:Calling all consumer goods, business owners and marketing professionals, does planning content ahead of time stress you out? Do you want to run Instagram and Facebook ads, but just aren’t sure where to start? If your answer is yes and yes, that our mini course was made for you. It’s 100% free and packed with essential tactics that you can implement as soon as today. To join in visit our website @umaimarketing.com/minicourse. All right, let’s get on with the pod.
Alison Smith:Welcome to the Umai Social Circle, where we talk consumer goods tips to help business owners and marketers grow. We’re Alison and Karin co-founders of Umai Marketing, and we’re being joined here today with Sarah Delevan. The Good Food CFO, she’s helping CPG business owners understand their finances and build profitable food businesses with confidence. Welcome, Sarah. We’re so excited to have you.
Sarah Delevan:Thank you so much. I’m super excited to be here.
Alison Smith:Awesome. Well, you have a really unique background and perspective to the food biz because you’ve been in the food business starting all the way back in 2012. So can you tell us a little more about that journey and how you got to where you are today?
Sarah Delevan:Yeah. This is a great question. And I often joke, “how much time do you have?” when I get asked that question, so I’ll try to keep it concise for the listeners, but I do want to mention that my journey into the food industry in general started through my skin and the health of my skin and the health of my body as well. I struggled with acne for years as a teenager, that only seemed to get worse as I got older, really painful and really uncomfortable. I’ve seen dermatologists for a really long time. When I moved out to Los Angeles from the East Coast, I met a doctor who for the first time really looked at my skin and asked me questions like “How many green vegetables do you eat? How much water do you drink and how much soya are you consuming?” Which turns out for me soy is not good.
Sarah Delevan:Soy might be great for other people, but I had to, for the first time really think about what was I putting in my body and how was it affecting me? And so we cut out certain things like soy and cows milk cheese and things that she thought maybe were not so great for me. And that combined with the fact that Michael Pollan’s book Omnivore’s Dilemma came out at the exact same time. And I read that I was like, “Oh my God,” food is medicine. Everybody needs to read this book. I’m only going to shop at farmer’s markets. I mean, I went all in. It was like very, very intense. I wanted to quit my job and start working at farmer’s markets except no one would hire me because I had an MBA. And I worked in an office for eight years or whatever it was.
Sarah Delevan:And people were like, “You’re going to lift boxes and get dirty. That’s not going to happen.” So I weaseled my way into a marketing role. I was a strategic marketing person, numbers based marketing strategy in my previous life. And I weaseled my way into a volunteer role at a farmer’s market by doing some analysis for them, and then quickly jumped into a marketing manager role. And it was in that role that I saw how meaningful local sustainable food was for so many people, regardless of what their income level and demographic was. And that for me created my first vision for what my life might be like. And that was, I wanted to own a store that sold all of this amazing food that was grown and raised and caught locally.
Sarah Delevan:And fast forward. I met a woman we were introduced to one another, the City of Santa Monica, or the mall in Santa Monica wanted to open a store, very aligned with what I just described to you. And we were introduced to each other to open this store together. It didn’t work out in terms of the lease and all of that was sort of crazy, long story, a little bit shorter. We ended up starting a pop-up at Handsome Coffee Roasters, which is just like new coffee shop in Downtown LA. And that was our food business. That was our entryway. And we still had our eye on the prize of opening a store. We built our business according to what I would consider industry standards, right? How we priced, how we attempted to grow our business. It was all based on what we saw on Google and what other business owners were telling us. It didn’t work.
Sarah Delevan:We were working our tails off literally from 4:00 in the morning, till 10:00, 11:00 at night. We had amazing customers. Our sales were growing, but the expenses were growing along with it. And we ultimately just reached a point of exhaustion where it was like, we can’t do this anymore. If we do do this, the whole model has to change. We have to become a delivery business and that’s not what we got into it for. So we made the really difficult decision of closing down the business. And that was pivotal because we saw firsthand what the closure of a business like ours, how it affected the community and how it affected their connection to their food and to the farmers. And all of that. And then I became so keenly aware of all of the other good food businesses that were making amazing products, had amazing clients, regularly selling. They were very busy, but they were still having to close their doors because the numbers just weren’t working out.
Sarah Delevan:So that’s the path to the point where I became a buyer. And in that role merged my buying experience from my own business, with the financial stuff that I had just learned and that I wanted to contribute to that business in an effort to make them more financially sustainable. And the work we did there was super exciting. And when I left, I was able to do that same kind of work for three more businesses. And then I had a really great job opportunity at a startup and quit my job, gave notice, was going to start that business. And they called me three days before my start and they were like, “So we lost our funding and we’re going to be closing. And so you don’t have a job.” And I was like, “Okay, great. Okay.” I was like, sat on the ground. I was like, “I do not know what I’m going to do.”
Sarah Delevan:And I’m not kidding you that day. An email came through from a chef that I had worked with before, who was asking me to consult for April Bloomfield at the restaurant that she was opening in LA. And I was like, “Okay, universe, let’s do this.” And so that was the start of my consulting journey. And it’s just kind of been evolving from there.
Alison Smith:Wow, what a ride.
Karin Samelson:Oh, that’s so amazing. Yeah, I do love how the universe just answers a call when you need it. Very cool. So you said that you were a buyer primarily for that grocery business. Right? So that’s incredibly interesting how you have that perspective as well. I mean, this is really all encompassing for CPG brands.
Sarah Delevan:Yeah. I do. Yeah. You guys are so right. That my experience is extremely unique because number one, I don’t have buyer experience at a corporate level. My buyer experience is at farmer’s markets. We traveled to farms. We traveled to ranches. We would meet the fishermen at the dock and some cases, I’ve been up at 3:00 in the morning to do that and buy fish right when it came out of the water, it’s a unique perspective and a unique experience I would buy from behind the tables at farmer’s markets. So I did that. And then I was also understanding how a food business, because I worked for a catering company after my business closed. And I could see how cost does matter and how important pricing is and just how to put together a recipe and all of these really interesting things. It’s like so crazy that I can look back and see how every single part of what I’ve done led and allows me to do what I do today. I don’t know that anyone would have the same kind of perspective as I do. It’s pretty wild.
Karin Samelson:And a passion for good food. I mean, that’s so important to us as well, to work with mission-based brands and that’s where you’re rooted. I think that’s super incredible. And what a great place in California to be able to have so many farms around you.
Alison Smith:Yeah. I especially love that aspect that you made those relationships. You went and you talked to the fishermen and the ranchers and met them on their grounds. I think that’s helps you understand how the full spectrum of things actually works. Really.
Sarah Delevan:Yeah. It’s interesting too. One of the big things that I learned through the process is that greenwashing is a thing and it can be harmful to farmers sometimes. Right? So organic certification is great, but it also costs a lot of money. And there are a lot of farmers doing really great work that is beyond organic standards. And because they don’t have that certification and it can turn people away from buying from them. So that has always been part of our mission too. And especially at the catering company that I worked at, it was like, people would call and say, “Is everything that you sell organic?” And we had a script. “No, it’s not, but here’s why. And here are the standards that we buy from adhere to.” And so that’s really important for me too. And that’s why I don’t just talk about organic or use buzzwords and just stick with good food or mission driven, because it’s just such a variety of ways that food can be grown and raised. That is good for people and for the planet. And it’s just exciting to be a tiny part of that universe.
Alison Smith:Yeah. We definitely see terms get misused by the bigger brands. And I think that’s something that consumers should definitely be aware of, for sure.
Karin Samelson:I have lots of experience with being on the customer service side of a CPG brand, where you were getting all of these questions that were like, “Do you really know what that means?” But going back to, you’re the Good Food CFO. So that is a beautiful explanation of how you got to where you are now. So moving into the financial part and how to build profitable food business with confidence. You’re super active on social, which we love always any brand owners, any brands that are active on social, of course. And you had this video that’s reel on three tips for growing a profitable business. So can you dive a little deeper into those tips because we all need to know these three tips?
Sarah Delevan:Yeah, for sure. Thank you for complimenting me on one of my very first reels. So I’m still getting used to that whole thing, but yeah, I think that these are three really important tips for especially new or budding food business owners to think about and to implement. So number one was create a financial model and people get a little bit nervous about this because financial model sounds technical, but at the end of the day, it’s just a spreadsheet. And it’s purpose is huge though, right? So this simple spreadsheet allows you to see the future of your business. It allows you to see what are my expenses? What do my sales goals need to be right to cover these expenses? To be able to pay myself? I love to share this example of a cookie business.
Sarah Delevan:The business owner reached out to me, it’s early on in my consulting business. And she was like, “I had this great idea, everyone loves my chocolate chip cookies and I’m going to open as a cottage food business. And I just want to make sure that I’m charging the right price.” And so we did the work of building a super simple financial model. And what she realized in the process was that the number of cookies that she was going to have to churn out to make any money was basically going to provide her with maybe three hours of sleep, no free time. And she was never going to want to make another cookie or even see another cookie after a couple of months. Right? So that’s kind of the power that starting with a financial model has it eliminates burnout, right? It helps you see what is the reality of my business?
Sarah Delevan:What does it look like if I don’t like what it looks like I can put it on pause and I can think about how can I build this business from day one in a way that aligns with the life that I want and the financial life that I want and also be the business that I want. So my tips for making a financial model would be just start with your expenses. The things that you know are going to cost you money. If you’re looking at renting a kitchen or having the production space, you might not know exactly what that amount is, but just put in your best estimate, plugin an amount of money that you either want or need to pay yourself from the business in order to really commit yourself and work in it full time. And then from there build the sales goals.
Sarah Delevan:And that helps you to see that cookie business owner. What is the reality? What is the production need to be? How much do I have to sell? What are these goals look like? And how do I feel about that? And then number two is identify your most profitable sales channel. And this is important because primarily I work with businesses that are zero to five years old, right? And probably all three of us know that this is a critical time for businesses of any kind, but particularly food businesses. Right? Getting to two years is a big achievement. Getting to five years is like, “Okay, I’m secure.” My job is to get food businesses to succeed. And primarily we need to focus on zero to two. And then we can look ahead after that. So CPG brands, a lot of them think I got to get into retail. I got to get a distributor agreement, right? I’ve got to grow my business this particular way.
Sarah Delevan:And I want to share the message that you don’t have to do it that way. You don’t have to grow your business, just like everybody else. You have the power, you have the opportunity to say, “What’s my most profitable channel? Through which channel can I best sustain my business and meet my financial goals?” And so I support this idea of identifying that channel and then going there first and building that. And it’s all with the idea of, we want to change our food industry in order to do that. We have to be successful. Let’s get past year two, let’s make sure we’re making enough money to get there. And then we can look to the future after that.
Sarah Delevan:And then the third tip there was to track your results over time and to take action based on the data. And I’m sure that both of you can relate to this, right? When you’re doing marketing campaigns or marketing strategies, you’ve got to say, “Okay, well, what did I do? What was the return? And then either, do we keep doing that? Do we need to tweak something? What do we need to tweak?” It’s the same for food businesses when we’re looking at the inside and the operations. So let’s take someone who’s producing their product internally. We want our labor cost, for example, to be a consistent percentage of revenue. Because what that means is that we’ve got consistent productivity and that we can count on what our profit margins are going to be month to month and week to week.
Sarah Delevan:So we want to track that, what are our labor cost as a percentage of revenue over time, right? What are my ingredient costs over time? And we track this information and if something is unstable or something is kind of hopping around over time. We can look into that and say, “What can I do as the business owner, as the leader to change this, to get some more consistency inside my business, to be more financially sustainable.” So I think those are three super important things for all food business owners to do. So I’m glad that it resonated with you as a real.
Alison Smith:Definitely. And I love that you talked about not every channel is for every brand. So for example, we’ve worked with brands that don’t initially get into retail. We know retail is so important, but they don’t do it initially. So I’m curious to know how you identify that, is that brands preference, or are you testing and then tracking profit and making decisions based off hard numbers?
Sarah Delevan:Yeah, that’s a great question. So it’s a little bit of both. Whenever I start working with a new client or someone joins the group coaching program, the very first thing we do is talk about what are your big business goals. So what do you want for your brand? And then what do you want for yourself? Or in other words what do you want your money to do for you? Because we start businesses both with a mission, but also to earn a living, right? Most of the time from that business. So we start with what do you want to be? And if you want to be a national brand, then you’re going to have to go retail. Like, that’s part of that big goal. If you want to be the best regional, let’s just say sauerkraut, right. Or fermented foods brand in your region.
Sarah Delevan:Well, that maybe could involve retail, but it might not have to involve a distributor. You might be able to distribute regionally direct to the retailer. So first getting real clear on what do you want to be as a business? And then looking at the options for how to get there from where you are is one of the big steps. A lot of folks are in multiple channels when they meet me. So they’ve got their e-commerce, maybe they’re on Amazon, maybe they’re thinking about working with distributors. And at that point we do go through the process of analyzing what each channel look like now, are there areas for improving the profitability there? And or which one is most profitable and how do we feel about growing in that channel? Sometimes the most profitable channel also isn’t someone’s favorite, or it doesn’t have a huge opportunity for growth. So in that case, we’re like, we identify, okay, we’ve maxed out that most profitable sales channel. What’s the next one? And then let’s tackle that.
Alison Smith:That’s so interesting.
Karin Samelson:Yeah. I love how you take it step by step and first looking at goals, because you never know, not everybody’s goal is to be the number one brand in their category across the nation, so I think that’s so smart. And then looking at hard numbers data first, I love that.
Sarah Delevan:You can’t have a conversation with me without data coming up of people will ask me hypothetical questions from time to time. And my answer is always, I got to see the data. There’s no instinctual of responses for me. It’s like, what numbers do you have? Let me analyze the numbers and we’ll make a decision from there. So everything – data drives everything for us.
Karin Samelson:Cool. Well, we have more questions based on that and forecasting and whatnot, but next we want to talk about how should, especially with super small CPG brands, maybe they’ve just at the farmer’s market. They haven’t really got into retailers yet, or they haven’t put their product online. How should they even go about pricing their products? And when, if ever, should they reassess how much their products cost? Because things changed so much over time.
Sarah Delevan:Yeah, I love this question. It’s probably the number one most common question that I get asked, “How should I price my product?” And I’m going to take it back to the financial model. There’s a reason that that’s one, the number one tip on the three tips for building a profitable food business. Because when it comes to pricing, I take totally take a holistic approach. And that means looking at your business as a whole. And in addition to that, you’ve also got to really understand the cost to produce your product. So if it costs a dollar, let’s say to produce your product, that’s really important information. If in your financial model, you’ve identified that you need to hit, let’s just say a cost of goods sold target of 30% of revenue. You’d now have all the information that you need to price your product.
Sarah Delevan:It costs you a dollar. Then what is your price point need to be to hit that 30% cost of goods target? And I’ve got that formula somewhere on my blog, I always forget it despite the fact that I talk about it all of the time, it’s cost times one minus or one divided by the cost of goods sold percentage, but literally you just need those two pieces of information and you’ve got your suggested retail price and you understand, “Okay, this is what I need to do to have a gross profit margin. That’s healthy enough to support my operations and paying myself.” So that’s how you do it. And then I recommend that you assess your costs as often as possible. So this is going to look different. So for CPG brands, I’ll use a popsicle company that I work with for example, they buy their ingredients twice a year, some ingredients they’re only going to buy once a year and they buy it by the pallet, right?
Sarah Delevan:They’re going to analyze their costs every time they buy that pallet of product, they’re going to say, “Okay, what is it going to cost to be this year? And how does that cost increase or decrease affect the cost of my product? And then the profit margin of my product. Do I need to shop around for another resource to get this ingredient?” So they’re looking at their costs and then how it affects their pricing. Whenever they’re making these really big purchases. Someone who’s buying let’s say seasonal strawberries or figs, or one of my clients makes dandelion jam. And I don’t know if she’s buying the dandelion or if she’s foraging it, but let’s just presume she’s buying it from someone.
Sarah Delevan:She’s going to analyze her cost when every time she purchases her ingredients, it’s just a good practice to know, especially for a seasonal business. When does the price drop for the seasonal product? When is the optimal time for me to buy this ingredient? All of those things just provide a ton of impact, power, knowledge, in your business and for you as a business owner.
Alison Smith:That’s interesting because I feel like the first steps when you start to realize as a brand maybe you’re just up on you come to market, you don’t work with anyone like you when you first get out there really the first steps would be looking internally to try to make efficiencies, but that last ditch effort to increase your profit margin of actually increasing your cost to consumers. When does that happen and how do you go about that?
Sarah Delevan:You mean raising your price to the consumer?
Sarah Delevan:When it’s happened? That’s also a really good question and I’ll preface it by saying it’s different for everybody, right? It depends on the goals of your business. So let’s say for example, you’re at the farmer’s market, you’ve done all of the efficiencies that you can and you know what your sales limit or sales capacity is there, if that sales limit and that price or that profit margin on your product is not going to get you the bottom line results that you need to stay in business long-term, that’s when you know you’ve got to raise that price. There’s a really, I love the episode. I think it’s episode number six of the Good Food CFO Podcast. And we talked about a goat farmer who sells goat milk. And he was having a conversation with another consultant and saying “I just I’m closing my business because I just can’t imagine selling my goat milk for $12 a jar.”
Sarah Delevan:And she was like, “So you’re going to take the reality of not being in business? I’m sure that there are people out there who will pay $12 for your goat milk, because it’s so beneficial to them and to their health and to their family.” So it’s interesting – if it comes to the point where your business isn’t going to work, absolutely raise your price. You might find that there’s other points in time before that, that you might also want to raise your price. Maybe you’re not paying yourself right. Or maybe you want to invest in a team member and you just need those finances internally, the dandelion jam, she was a group coaching member. She just shared with me the other day that she used to sell her jams for $5 a jar at the farmer’s market. She now sells them for $12 a jar.
Sarah Delevan:And it takes a lot of mental work to be able to get there. But she reached the point that you just described, where it was like, I’ve done everything internally. It’s not going to work if I continue to sell at $5, but can I really raise the price to what it needs to be? And she did it, she had the courage to do it. And now she’s growing her brand, which is really exciting.
Alison Smith:Her customers are willing to pay and stuff is there.
Sarah Delevan:Yeah. I mean, it’s dandelion jam. Hello. For other jam is like chocolate pear. I’ll have to share the name of you if-
Karin Samelson:Please do.
Sarah Delevan:… I don’t know it’s in the show notes maybe-
Karin Samelson:We want the show notes.
Sarah Delevan:… I just linked to her because it’s like…
Karin Samelson:That is incredible. And I feel for that goat farmer, but it has been proven that people are, and you’re the Good Food CFO, right? People pay more for good food. One that is raised with purpose. And I think that that’s just really important to note because that fear of pricing too much when people would never pay that much for X, Y, and Z is so real for so many.
Alison Smith:Yeah. Very scary. So we wanted to ask you about more about setting sales and revenue goals for small to extra small of CPG brands especially the ones that are newer to market. So you’ve been talking a lot about different, key metrics. So can you just explain more about the best way to pull those metrics, best form of action to actually understand and set these goals?
Sarah Delevan:Yeah. So if you’re a business that’s operational and that’s already selling, you want to be tracking your data, your financial data on a monthly basis. Right? And I highly recommend that everyone invest in a bookkeeper. It’s one of the best investments that you can make in your business particularly if you can find one who has food industry or CPG specific experience, we’ve got a great list of bookkeeping resources and companies that we refer people to inside our community. So if you’re looking for someone we can help you out there, but these bookkeepers range in price from 250 a month to $500 a month. So we can find someone that meets your budget, but it’s so important because number one, time is your most valuable resource, right? And you don’t want to be spending your time as the CPG brand, founder and probably key employee also doing the bookkeeping.
Sarah Delevan:And it’s potentially not your strong suit. You may not know how to utilize QuickBooks right. So if you can budget for a bookkeeper. Number two, if you can’t budget for a bookkeeper, get an Excel sheet and just start to track your expenses. We have something called the know your numbers template inside the group coaching program, which is a really simple way to categorize all of your expenses. So the data entry is really easy, the categorization is really easy and it spits your monthly numbers out into this, what we call a profit assessment. And you can see high level, the key metrics that you’re talking about. So what’s our revenue, what are our costs of goods sold by both ingredient and packaging, labor and then our other cost of goods sold, but just like shipping and merchant fees and all of that kind of stuff.
Sarah Delevan:So it breaks that down for you. So you can see what are those numbers look like in my business? What are my operating expenses, right? All of these high level things that you need to be keeping your eye on so that you know where to focus your attention if you see what I call an orange flag, like Hmm. My ingredient costs are creeping, creeping up. That’s an orange flag. Let me look into that. So it just starts with seeing this high level analysis of your numbers. So that’s my recommendation on how to get access to that information. Hire a bookkeeper if you can afford it, or just make a simple spreadsheet or utilize one of our tools to get that information down.
Sarah Delevan:And then I think there’s five. I haven’t gotten them in a while, but you want to track your revenue month to month. And literally have it side by side. So you can see how it’s trending, track your cost of goods sold as a percentage of revenue, do that monthly side-by-side so that you can see how that’s trending, do the same with your operating costs and then break out your ingredients, your packaging, and your labor costs, and look at those as a percentage of revenue as well. And because that information alone is going to provide you with a ton of insight into your business.
Alison Smith:Totally. And you’re saying once a month, really-
Alison Smith:… is all that you need to look back at these numbers?
Alison Smith:Good decision.
Sarah Delevan:Absolutely. If you get into it, if you’re trying to look at these numbers once a week, it’s like things aren’t hitting like your rent you might pay your rent on the first, and then you look at your numbers at the end of week one. Well, you’re probably not going to be profitable for the month or for the week because you just paid a big bill. So you want to give yourself a little bit of time for the numbers to fall into place and then analyze them on a monthly basis. And it takes, depending on how many receipts you have, and depending on if you have a bookkeeper or not, the process of reviewing your numbers is like a 15 minute situation. 15 minutes to 60 minutes and you’re done once a month.
Alison Smith:Totally doable.
Alison Smith:And I like how you said what to look for. So you’re looking for orange flags, which basically is just like creep, anything that’s creeping up. And that’s where you know where to focus your energy for the next month and try to reduce costs.
Sarah Delevan:Yeah. I mean, we know this as business owners as well. There’s never an end to your to-do list. It’s like an endless amount of things that you think you should be focusing on or feel like you need to focus on when you’re looking at your numbers on a monthly basis, they’re telling you “These areas of our business are good. Keep on doing what you’re doing.” These area is a creep area where things are maybe inconsistent or looking a little, like “I might need to investigate it.” Great. That’s where you’re going to focus your attention. So it also helps to streamline your mind and how you’re spending your time. And I think there’s a lot of benefit in that.
Alison Smith:Yeah, because otherwise you’re just kind of guessing, right?
Alison Smith:The data.
Sarah Delevan:The gut instinct is great to have in life, not so great when it comes to your numbers. Emotional decisions are also not super great when we’re reactive, we can make decisions that aren’t necessarily warranted. People raised their prices a lot when they don’t need to, which I think is a really interesting thing because they feel like, “Oh, no, I don’t have enough money on the profit line. I must need to sell more or I must need to raise my prices.” And it doesn’t always have the effect that they want it to. And it’s like, if you took your emotion out of it and you had the numbers there, you could see really what was going on.
Alison Smith:Right. And just to reiterate, that would be final step, right?
Karin Samelson:Yeah. And that’s so interesting. I mean, we see the same thing on the marketing side with the emotion that you have as a brand owner where some decision-making can be a little bit rocky, just because of how invested you are in the brand and the product. So yeah, looking at data to be able to control that a little bit more, and I think that’s a really good note across the board as a founder. So this is a question I was really looking forward to hearing from you is we talk with business owners all the time, obviously about offering steady promotions, steady discounts throughout the year to drive traffic, to drive sales. And a lot actually are nervous about being seen as a discount brand. But promos are so essential to digital marketing efforts. So how should business owners approach implementing discounts?
Sarah Delevan:Yeah. I love this question so much and I do want to put a little disclaimer on this one’s like, I’m not a sales strategist, I’m not a marketing strategist. So this is from my purely financial lens and I’m going to take it right back to that financial model again. If you are going to be offering a discount or a promotion, you need to know how much of a discount you can offer, right? So if your business is operating with a 20% gross profit margin, that means 20% of all the revenue you’re bringing in is available for you to cover the operating and other expenses in your business. If you offer a 20% discount. And this example is like, if you discounted 100% of your sales for a month, at 20% off, you would have no gross profit. You would have no money in your business to cover those expenses. Right?
Sarah Delevan:So it’s kind of an extreme example, but it’s just to illustrate what the effects are. So you need to know how much can I give and still be operating in a financially sustainable way. And once you understand that, I think I heard a CPG consultant give this tip in regard to retail discounts, do a little bit of trial. And see, for example, if you get the same results from a 15% off discount, as you do from a 20% off discount, and if you do then just stick with the 15. Because you’re getting the same result, the customer feels like they’re getting a great benefit and you’re maintaining that 5% difference. So I think those are my primary tips for approaching that, know how much you can give and then see what the least amount you can give is while still making it a good deal for your customers.
Alison Smith:Right. I like that you said basically AB test it. AB test, like go with the least amount. But again, through just your purely financial lens, we wanted to ask you about how brands should think about pricing on different channels. So do you break out your channels? For example, your e-commerce if you’re on Shopify, your Amazon retail into those monthly financials so that you can understand, okay. We price it here on Amazon, we price it here on retail or is it across the board?
Sarah Delevan:You’re spot on. So one of the big things that I do talk about it but I surprisingly have not mentioned here yet, is that your financials, if you are working with a bookkeeper, they should be as detailed as possible in terms of the sales channels that you have. So exactly what you just said. If you’re selling on, let’s say your own Shopify website, you’re selling on Amazon, and let’s just say you’re selling direct to retail, just to keep it simple. You want to have your revenue broken down by each of those channels that you can see very clearly what’s coming in from each and then your expenses are going to be detailed as well. So with Shopify, we’ve got Shopify merchant fees, we’ve got our Shopify monthly fee for just being on the website. Then if you’re shipping through Shopify, you’ve got your shipping costs through there.
Sarah Delevan:If you’re using any apps, you’ve got that there. You want to collect all of that information and see what are those costs for Shopify? Because that’s how you see how profitable that channel is for you. So, same as what we’ve been talking about before, just sticking with the Shopify example. If your profit margins are lower on Shopify, maybe it’s because you’ve been offering free shipping and the actual shipping costs are eating in at your profits. You might decide to charge for shipping. You might decide to do what one of my clients does, who I don’t want to give too many details about her business. So it’s a ingredient will say she sources and sells and ingredient. The ingredient is fresh. So it has to be shipped frozen. The shipping costs are astronomical. For her to offer her product on her Shopify site, with shipping as its own line item, people would say, no, they would abandon cart over and over and over again.
Sarah Delevan:So for her, the strategy is to increase the price of her product to build in the cost of shipping. And as people buy more and the shipping cost per unit reduces, she passes on that savings to the customer. So that’s all to say, when you record that information separately, you have, again, just so much knowledge and information to make really informed decisions about your price. And about which sales channel to grow on. And Amazon is another great example because I had, and maybe you guys agree with this, I’m not sure, but people often say that if you’re going to be on Amazon, you want to be available via Prime because people go to Amazon and they want stuff fast. So if you’re in the Prime program, it’s going to cost you a little bit more as a business. And so people who shop on Amazon, they’re like, “Okay, I want it tomorrow. Or I want it this afternoon. And so I’m willing to pay a little bit more for it.”
Alison Smith:They’re not price shopping, yeah.
Sarah Delevan:No. So crank up your price on Amazon to whatever it needs to be for you to maintain your margins on the channel. And you’ll know what that is. If you’re looking at your revenue and all the costs associated with that channel, and then just to hit on the final example, retail. We don’t have total control over what the retailer sells our product for. We have control over what we’re selling our product to the retailer at. And of course that influences the shelf price. But I try to tell people, don’t get too hung up on what the final retail price of your product is. If for example, I’m trying to think whole food. They want to sell your product for a dollar or $2 more than what you ideally want it to be. You have the power there to offer an everyday low price situation for them and bring your shelf price down. But just remember that that affects your costs, that affects your margin. And so make that decision really wisely with all the information that you have at your fingertips.
Karin Samelson:Trusting that the retailer, they want to sell your product. They want people to buy it. So they’re going to make it competitive, hopefully. But I think that advice is so incredible where a lot of people are like, “Oh, I can’t be a couple dollars more on my website than I am on Amazon.” It’s like, “Wait, why not?” You want to be able to make money from this. And we’ve had clients that are refrigerated and glass and it’s just like, ooh, and people still purchase. It’s the convenience and it’s the loyalty to the brand. So building that community is so important and then pricing.
Sarah Delevan:Yeah, and I think this is an area where I’m all about collaboration. So I’ve got a range me expert that I worked with for some of my clients, I’ve got a co-packing expert that I work with some of my clients, I’ve got a branding person that I work with with some of my clients and the same would go right like when someone is thinking about what is the price point and what is the discount that I want to offer? What is the promotion that makes sense? Having the financial information and also the customer insights and the market research and all of that, it comes together. My belief is that we can’t do anything in our business, in a vacuum. And that goes for financial decisions as well. I might say to you, “Oh my gosh, your product absolutely needs to be $15.”
Sarah Delevan:And that part you might say, “But I’ve done the research and it’s not going to sell, the max that I can do for my consumer is 13.” It’s like, “Okay, well then let’s work with that.” But it’s just, again, going back to the information that you have, gives you power to make really smart decisions.
Karin Samelson:Leading with data. You say it again. Awesome. Well, so what is a common denominator that you see with working with smaller CPG businesses that are just struggling to grow at the rate that they want to be growing at?
Sarah Delevan:Yeah. This is an interesting question. What’s floating through my mind right now is the definition of the word grow. What does growth mean? I actually think it’s a little bit different for every business. Do they want to grow units sold? Do they want to grow profits? I think number one let’s get clear on that. I think that’s big. And I think that that’s something that a lot of people don’t think about. But I will say with that said, typically when someone says, “We want to be growing,” we’re talking about sales, right? We’re talking about top line growth. And I actually think that a common denominator is that people focus on that instead of efficiency and bottom line growth. And that the case for me when I owned my food business, we thought in order to be successful, in order to pay ourselves more, in order to stay in business for a long time, we have to sell more.
Sarah Delevan:And so that’s what we did. That was our approach. And that’s, as we sold more, our costs went up. And the reason that that happened was because we had not done the work yet to get efficient inside our business. How could we add another location? What were those costs going to be? And then how much would we need to bring in from that location to make this worth our while? And we just weren’t thinking that way, we were solely focused on that top line growth and it was eating away our profits. So that’s a huge, common denominator that I see. And I want to change the language tip to be a bit closer to the question that I pose, which is like, what is growth, right? What is it that you want to accomplish with growth? And I think if we start thinking about it like that, there’s going to be a lot more clarity, there’s going to be a lot less burnout and there’s going to be a lot more successful food businesses out there.
Alison Smith:Yeah. And that is not just food that is every single business where, yeah, you’re thinking of all what you’re saying. You’re thinking about more sales, more sales, more sales, but you’re not looking internally.
Sarah Delevan:Yeah, how many-
Alison Smith:It’s so easy. I mean, I’m not faulting anyone because everyone does it as a business owner, you’re just in it and so you don’t really always consider those things.
Sarah Delevan:I think we’re also inundated and I fall prey to this in my business as well. There are people out there who are like, “I make five figures a month and I’m a six figure business annually or and I get to do it from a hammock somewhere.” And it’s just like, that’s not, you just need to shut that out and go, what are my goals? What are my goals for me? What are my goals for my day-to-day life? What are my goals for my client and how can I best serve them? And it’s so funny this morning, I had an exchange on Instagram from another real that I posted. We’re talking about right-sizing, build the company that is right for you.
Sarah Delevan:I had a conversation recently with a business owner who said to me, “I kind of liked being at home with my girls.” He’s a dad, he’s been working like crazy. He would love to be home to make dinner for his wife who has a great career. And to his girls who I think are both under the age of like 10 or 12, then if that’s what you want, you can create a business that achieves that goal for you. And your financial goals. So just, what do you want?
Alison Smith:What do you want?
Sarah Delevan:Build that business?
Alison Smith:Love that
Karin Samelson:Did you call it right sizing?
Karin Samelson:Never heard that before.
Sarah Delevan:Which I can’t take credit for creating that word. I first heard it on second life when the host was talking to, I can’t remember her name. Oh Joy. She was talking to Oh Joy and Oh Joy was talking about how she was on this rapid growth in her business. And at some point she was just like, “Wait, why are we doing this? We’re growing for the sake of growing. I have this huge team now there’s this pressure to continue to sell and to continue to increase that top line. But I don’t feel the joy that I used to in my business.” And so she had at the time gone through the process of rightsizing and I didn’t think much about it at that point in time, but it’s one of those things that just sits with you. And I think about that conversation often, and I think about what’s the right size for my business.
Sarah Delevan:And when I have a client coming to me and they are stressed out and they’re burnt out and they need a break, it’s like, “Do you want to close up shop? Or do you want to take a vacation and come back and rightsize and build the business that’s right for you and stop chasing what you think you should be chasing?” I think it’s something that every one of us, I think as one of you just mentioned, every one of us has to work through this.
Alison Smith:Really. I love that term.
Karin Samelson:Me too.
Sarah Delevan:It’s cool, right?
Alison Smith:Love it. Yeah. I mean, we talk about marketing FOMO all the time, where businesses look at other businesses and they’re experiencing what looks like just like overnight success. And it just makes them feel down in the dumps and that they’re not doing enough. And it’s really like, the food business is so fun, but if you allow it to, it can take over your life. And I liked that. You’re asking people to really think about what is that work-life balance? What do they want out of this? Instead of just saying, how do we make more?
Sarah Delevan:Yeah. The answer is not always more revenue or more sales. It’s kind of.
Alison Smith:It’s interesting. You don’t usually hear that, but I couldn’t agree more, I think, that’s such a logical and effective way of doing it because man burnout is real and no one wants to get to that place.
Sarah Delevan:Okay. I’ll share a little burnout story just to relate. At the end of our food business back in 2012 is when it ended. Right? Or no ended in 2014. I think that’s like a blur. I had a stress rash on my left hand that literally took up my whole hand and it was embarrassing, I was having a drink with a friend and we were talking about “What am I going to do?” And talking about the business. And every time I would talk about it, my hand, it would itch. And she was like, “Are you noticing that every time you talk about the business, you’re itching your hand?” And I was like, “Oh no, I didn’t.” I didn’t even notice that. And it was like the burnout, the stress, the anxiety had gotten so real for me that not only were my so tired and so puffy, but I had a physical rash on my hand that took time to go away.
Sarah Delevan:And I think just like when I talked about acne at the beginning. And for me putting food into my body made a big impact on the outward appearance, like stress and anxiety affect us. And I didn’t realize it until it was on the outside. And I could only imagine what it was doing to me, on the inside. And that is with me. I don’t forget that. I don’t forget the discomfort and the pain of making the difficult decision to close the business. And I think it’s important that I carry that with me when I have conversations with food business owners or conversations like this with you, it’s like, I get it. I understand how real that is. And I know that it might sound crazy because not a lot of people are saying “Don’t sell more.”
Sarah Delevan:But there’s a reason, there’s a reason that I say that and I want you to sell a ton, but I first want you to sort out the inside of your business so that when you start selling a ton, you’re not going to get burned out, your profits aren’t going to disappear. And you’re going to like, again, I said it already, but you’re going to be able to create the life and the business that you want for yourself.
Alison Smith:That’s amazing. It’s a way to think about things that I’d like to continue with because yeah. I mean, the stress is real. And it’s so crazy that your body was trying to tell you that in so many ways, but you’re so wrapped up and doing the grind every day that you don’t don’t even notice, so.
Sarah Delevan:Yeah. People were telling me like, “Oh, it’s like, don’t eat this kind of fat or stop eating potato chips.” That doesn’t have anything to do with it.
Alison Smith:It’s not the potato chips.
Alison Smith:Oh, we’re going to switch gears a little bit. But this is a question we really wanted to ask you just because we think that you are someone who is changing the financial space in the CPG world. So what are some CPG financial innovations that you’re seeing or some new tactics maybe that CPGers are using?
Sarah Delevan:I’m going to be a little bit brazen and say that what we’re doing is a trend. And what we’re doing is what I hope more CPG founders and business owners will connect with if it’s right for them. But when I set out at Sarah Delevan Consulting, the mission is to change our food system and to do that one profitable food business at a time. But it has evolved since then to what we’ve been talking about doing it right. Still achieving that mission, but on our own terms, by creating the type of business that we want to. And that’s what I want the trend to be. That’s the innovation that I want to see. I don’t want finances to be overwhelming to people. I want them to be easy to understand. I want people to feel confident about it.
Sarah Delevan:And have help when they need it, but to own some of it themselves with confidence. And I’ll share this with you too, inside the coaching program. There’s a particular founder that I have in mind. It’s very important to her that her team is well educated and walks the walk of diversity equity. All of that, that she has an education fund for them, that she is supporting them both as humans and as teammates and that she wants to keep them around for a really long time. And I think, I might be speaking out of turn here, but I think most financial advisors would say, “Well, you don’t have the money for that. That could be a goal in the future when you’ve got XYZ, number of sales or when your profit margin is a certain percentage.” The approach that we want to take is if that’s what you want, if that’s meaningful to you, and if that’s core to you and your business, let’s figure out a way to make it happen.
Sarah Delevan:Let’s figure out how much you need to be allocating or putting aside for that fund to make that happen. And that is what I want to see in the CPG space and in the food industry as a whole, because I don’t know a single mission driven food business owner who doesn’t have some other goal for their business, whether it’s like that person and her and her team and wanting to be an active participant in changing the way that people act right in her business and in the world, or if it’s donating to environmental causes or political causes or whatever it is. I want people to be able to do that and for their vehicles and their business income to be a source for that. So I want us to be the trend. Yeah.
Alison Smith:I think you’re doing it.
Sarah Delevan:I hope so, yeah.
Karin Samelson:Yeah. I think that’s inspiring and important to say, because I feel like all of these smaller brands that do have these really tight budgets and there’s all these wishes to be this or that, or all these conversations about becoming a big corporation and things like that. It’s just like maybe later, maybe later. It’s like, if something means a lot to you, figure out a way to get it done. I think that’s really awesome that you’re helping to do that.
Sarah Delevan:Thank you.
Alison Smith:And even from a marketing perspective, that’s such a powerful way for those extra small brands to stand out is to have those types of platforms where consumers can relate. And like these people going beyond just liking their product.
Karin Samelson:Okay. You’re benefiting the marketing too.
Alison Smith:Yeah, thank you.
Sarah Delevan:My pleasure.
Alison Smith:So closing it out a little bit, we understand that you’re the only food business consultant in the world certified in the profit first method. We have to hear more about this.
Sarah Delevan:Yeah. Thank you for bringing that up. It’s kind of wild. To think that you could be the only person in the world of something it was a little bit mind blowing, but yeah. I’ll give a little bit of a backstory in the beginning of this year. So January, 2021, I read the Profit First book after hearing about it from so many people for two years. And I recently did a podcast episode about my journey to discovering Profit First and implementing it in my own business to see how does this really work? Is it practical? I was immediately hooked on the process. I think every business of every kind should be utilizing this strategy because it is so powerful. But despite that, when I read the book at first, I was like, “Could this be helpful for food businesses, particularly mission driven, food and beverage businesses?”
Sarah Delevan:And so I went to the certification team and I was like, “Hey, I want to learn more about this.” And I mean, to be honest, I wanted to challenge them and be a little bit tough on them. And I think I was, and they were equally tough on me, which I totally respected. Because they have a philosophy that they believe in and that they believe can work in any industry. And I wanted to prove that it could work for food and it does. And so it’s really exciting. We are the only financial consulting agency for food businesses. I’m the only food business financial consultant that has this certification. And we worked with them to make customized tools. So if someone has read the Profit First book and they’re like, “Well, I’m not sure how to implement this in my own business.” We’ve created tools that speak directly to mission-driven food and beverage businesses to help them identify what we call the financial success formula. And to roll that out, according to the Profit First philosophy. So super exciting.
Karin Samelson:Oh, that is super exciting. I mean, it’s a book that we have on our list to read now. So encouraging everybody else to pick it up and learn something new.
Sarah Delevan:Yeah. I think the other thing that’s super exciting about it to me is that all the things we just talked about, building a business on your own terms and doing what matters and putting money towards the things that matter Profit First has proven to be a tool to make that a possibility. So the founder that I was just talking about, we’re in the process of implementing Profit First in her business. And it’s given her the strategy is basically, okay, let’s take a percentage of your income every month and put it into this bucket for education so that you can support your team in the exact way that you want to, and you don’t have to wait until you’re making a million dollars a year. You can start to do it right now. And that’s, oh, so exciting.
Karin Samelson:Giving them their financial freedom. I love it. Awesome. Well, Sarah, it’s been such a pleasure to have you and to learn from you and grow with you. So would you want to leave the audience with a link or call to action?
Sarah Delevan:For sure. So I’d love connecting with food business owners on Instagram. So you can find me @sarah.delevan.consulting. See all of my reels that I have been creating these days. And check out the website sarahdelevan.com or the goodfoodcfo.com. We’ve got brand new programs if you’re interested in Profit First, there’s a bunch of information there about that as well. And so just check it out and connect with me. I’m here to support you and to support our joint mission of changing our food industry.
Alison Smith:Amazing. Thank you so much, Sarah.
Sarah Delevan:Thank you guys for having me.
Narrator:Umai Social Circle is a CPG agency driven podcast based out of Austin, Texas. We’re excited to share more behind the scenes insights, chats with industry leaders and whatever else we learn along the way. Follow us on Instagram at @umaimarketing or check out our website, umaimarketing.com. Catch you back here soon.