Ciara Stockeland teaches small business owners how to pay off their debts. It’s a personal mission for her, because she was once in debt too.
Stockeland once owned a designer outlet boutique in North Dakota and grew it to 13 locations — despite not being able to pay herself regularly. It all fell apart after 11 years. Then she started a subscription box business, zeroed in on her data, and was profitable immediately. It sold within 18 months.
Those two experiences crystallized something for Stockeland: Business owners often “manage margins with emotion,” she says. Now she’s a consultant and fractional CFO for inventory-based businesses, and teaches people how to keep feelings like guilt and fear out of profit decisions. Here, she explains.
Related: How to Know If Your Business Is Profitable This Very Second
Image Credit: Zohar Lazar
What’s the most common problem you see among clients?
They don’t understand that margin is what profit is created from. When I get on a call with someone, I’ll ask, “What is your margin right now?” They’ll say, “Oh, I mark up my product three times, two times, four times.” If you buy something for $5 and you mark it up to $20, but you have seven and you only sell one for $20, and then you sell three for $15, your overall margin is not your markup.
In those cases, many entrepreneurs might just be counting their overall revenue.
Top-line revenue is a vanity metric. Top-line revenue is an easy way for us to compare our perceived success, so that’s how we usually set up and grow our business. That’s what I did, which was part of my issue. I didn’t understand that I couldn’t afford to make the million dollars that was coming in every year. My product cost me too much, I had too many people on my team, and it left me with nothing.
Related: Find Ways to Compete When Margins Are Razor-Thin
How do you take emotions out of inventory planning?
Slow down your decision-making. You’re super excited about bringing in this new line — but slow down. Take a look at the data, check if it makes sense, and then make a decision. Entrepreneurs can make decisions very quickly, which is what makes them successful, but it can be their Achilles’ heel.
Many entrepreneurs struggle with pricing their products. How do you help with that?
First, with our profit-plan template, I show them why we need to work on pricing. Once they see how the pricing directly affects their take-home pay and/or savings and/or debt payoff, we decide what to change. We rarely change the pricing of everything, but I’ll let them decide on the lowest-hanging fruit and start with that. Then we decide how much to increase, and we usually see resistance — out of fear. I’ll have them start small, as low as marking up everything by $1. If we have a lot of price-markup resistance, I’ll also help them find other ways to increase margin, through off-price buying, bulk buying, etc.
Are business owners holding on to products that aren’t profitable because they represent their “vision” for the business?
Yes, they totally do! So I always show them the data — what certain product lines are doing to their bottom line. Then I assure them this doesn’t mean we will eliminate everything they love. Often it’s just about finding the right mix of what’s high-margin and what they love! The right mix can create a much better end margin.
Related: Your Business Might Not Actually Be Profitable. Here’s How to Fix It.
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