I want to talk to you about what I did wrong so you can avoid the same mistakes. I want to explain why we're making the shift away from 3PLs and contract warehouses to bring everything in house. I want to explain why we're going to be taking over the manufacturing. And most importantly, I want to walk through my decision making criteria and how it makes sense for our business. Because if you're anything like me, you're going to have to go through this too.
Well, we've been in business about six years now and we're Yeah, we've done six, 7 million in sales. People want our stuff. We've built some cool things and we've built some wonderful relationships. There's still some egregious failures that I have to contend with. First and foremost lead time is really, really long. Second the cost, the shipping cost in between each step really adds up. Third I didn't get to choose any of the people that we work with. I didn't get to hire them.
Both with the Blender, the Copacker, and the 3PL. Four, I don't get to touch, feel, and quality check the products at each stage. Five, I don't get to play a part in the kidding, shipping, packaging process. I rely on someone else to do it on our behalf that doesn't understand our customers well and doesn't understand the business as well. Six. When there's problems with our product, I can't iterate as quickly because it takes like six weeks to make a change.
Just, just a minor change and then just approve it and move through it. And we have, we have to do things in bulk at economies of scale. We can't do small batch manufacturing. It's too expensive because we have, we would have to ship too many times. So we have to do it in units of like 7, 200 at a time, which means I have to do things in totes, which means these are like 10, 20, 30, 40, 000 swings of cash. That I'm throwing at each manufacturing run.
So if customer leaves a one star review and tells us about a problem that I need to fix, I then have to sell through 7,200 units before I can make a change for the next iteration. And then it has to be shipped and done and this and back and forth. And so the iterative process, the getting better incrementally is the sixth and the biggest deal for me. Now, seven, I have a couple of different warehouses, one in South Carolina that I have a personal friend of mine. She's a wonderful human.
I love her to death. And she volunteered to use her grandpa's garage as a fulfillment center for our D2C site. And that's amazing, but it's expensive. And I have to pay like, well over 3, 500, almost 4, 000 a month for all of this. It's a lot of overhead. The blender, they have a markup, lead times, they charge us extra money, we have to pay for more stuff, and the shipping, there's a couple thousand bucks a month, just in overhead to maintain it.
The co packer for the markers, the co packer for the maker's magic, they all have to be That's it. Shipped product, and I have to maintain those relationships and pay for all the time and the extra margin, et cetera. So at each step, a piece gets carved off of our profits. And there are four or five, six pieces are getting carved off before Amazon gets their piece, which is like 40 percent for retail gets their piece, which is 50%. It's a lot. And it really starts to add up.
So the financial component. Is a big deal. So why am I telling you all of this? Well, I'm sharing all of this with you is because I want you to understand the intricacies of operating an e commerce brand remotely and not being in control of the manufacturing and the shipping. There was a point in time about four years ago where I almost got a warehouse. Now, when we were living in Chino hills, I don't live in Chino hills anymore. I live in Humboldt now.
And, um, I've just recently signed a lease. And as of like two weeks ago, I have a 2000 square foot warehouse. But why? What I've shared with you, like it makes sense. And if there's enough margin built into our product, which there is, we have a 85% margin on the scorch marker. Cost us about a $2 to make. We sell it for about 15. Like it's pretty decent. Why not just keep going? Here's where I failed. This, this is hard to talk about. It's, um, yeah, this is, uh, fresh, fresh scar.
You know what I mean? um, my product isn't good enough. My customers aren't coming back to buy it again. They're not coming back to buy it a second time. I'm not getting repeat buyers. I'm not getting lifetime customer value. They're not enjoying the product as much as they can, and it needs to be made better. My company is spending too much money, too much overhead. I need to increase our profits and I need to be strategic about the money that we're making. And I can't overspend.
I can't go into debt. I just paid it all off. It was incredibly painful to do. In fact, I still owe hundreds of thousands of dollars for inventory loans that hasn't moved because I was irresponsible. But the main reason is that I need to get closer to our customer. I need to get closer to our product. I need to get. Balls deep in the manufacturing process. I just got to jump into the deep end with both feet and I need to own all of it. I need to start using our products every day. Frequently.
I need to read and stomach and internalize and dissect every single one and two star review so I can fix them. I need to save money on shipping. I need to make smaller manufacturing runs so that they aren't as large and I can iterate and improve quicker. And most importantly, I need a place and an opportunity to record the content and show you exactly what I am doing and talking about. I know I'm not alone. I know you think about these things too.
I know you've thought about getting a warehouse as well. So these are my reasons for doing it, but in order to understand why all of this is happening, you first need to understand how our shipping works. How does it all fit together? Let me explain our supply chain. We sell our products in three main ways, direct to large retailers, Amazon, and Shopify or direct to consumer.
In order to get a product ready to sell, we have to first Get it manufactured, and then that product has to go to a warehouse where there's a team that is plugged into these different fulfillment channels that can take the orders and then fulfill them. That's what our 3PLs do, our third party logistics centers. It's basically a warehouse with a bunch of workers that someone else has hired and they ship products for all kinds of businesses. 3PLs come in many shapes and sizes.
There are 3PLs that specialize in retail, some specialize in Amazon, some in big items, some in small items, and some will even claim to do it all. Beware of those guys. Because they don't do anything well. Ask me how I know. So, what needs to happen in order for a product to get to the warehouse to ship to the customer when they place that order? Well, first, we need to assemble the raw materials. In some cases, we have to buy like, raw plastic.
You know, packaging, blister cards, plastic for the blister cards, labels, bottles, jars, cardboard boxes, and that doesn't even include the actual product itself. Our scorch marker formula is made up of like, Seven or so ingredients, Maker's Magic, same thing. And all those raw materials need to be collected in the right amounts, blended, mixed. And then that liquid needs to be put into the actual product, whether it's a marker or a jar of scorched paint or a bottle of Maker's Magic.
Once it's in the jar, it then gets labeled. After it gets labeled, it gets placed in the packaging and sealed into it. Maker's magic, we use a tamper seal called an induction seal. It's like that foil on top. But the scorch marker goes into an entrapment, a blister cart. And you need a special machine for that and special packaging materials with heat activated glues. And so the supply chain, the manufacturing process starts to grow and it starts to get more and more complex.
So let's keep talking about the scorch marker and use it as an example. I first order all the raw materials. Those raw materials then get shipped from the chemical supplier to our blender. The blender has one job. They're there to mix the chemicals together and make the base solution for the marker. I send them a purchase order. I tell them how much I want them to make. I make sure that they have enough materials on hand. If they don't, I order them, and I tell them when I need it by.
Once they've blended the materials, they then send me a sample in the mail so I can do my quality checks on it and make sure it's up to standards. If it is up to standards, they will then decant it into the proper sizes, whether they are 30 gallon carboys or 55 gallon drums or 250 gallon totes, and they will then ship that liquid to our co packer. A co packer is a factory or a manufacturing area where they have a bunch of equipment they use to fill up markers. Or bottles or jars.
And you say Hey, I need you to fill up like a few thousand of my units. Can I rent a day on your line? And you would pay a co packer to use their equipment. They would fill up your stuff for you because it's more affordable than buying it yourself. I don't know if you've been to any packaging conventions, but the stuff is expensive, especially like blister carding machines and injection molders and all this stuff. So I found a co packer. I found someone that makes markers.
I went and flew out to them and I visited them. I brought samples of my materials, I showed them everything that I wanted to create and accomplish and I've been working with them for a few years. That's where the liquid gets sent to after it's been manufactured or blended. But they need the markers, they need the labels, they need the blister cards, they need the entrapments, they need the boxes, they need the, all the things.
So what I'll do next is I'll put a purchase order in with the co packer. I'll tell them how many units I want, how I want them packed out, and where I want them shipped. They will then set aside time on the line for me and execute on that order and charge a markup so that they can keep the lights on, make a profit, etc. So at each stage in the process, people need to make money, okay? That means there's a markup. That means there is margin that we're losing with each step, including shipping.
For example, our marker manufacturer has been instructed to make master cases. A master case is a predetermined box size that holds a certain number of units. In our case, with the Scorch markers, 72 units per master case. The way we orient them and stack them into this box, it fits perfectly. We can take 100 of those boxes and fit them on a palette. That means that when we build a palette of Scorch markers. I know that there's going to be a hundred boxes of 72 on there, which is 7, 200 units.
That's our standard order size with them because it makes things really simple. Master cases are going to be your best friend when working with Amazon retailers and even manufacturers. So if you don't have a standardized process set up, Highly recommend it and don't worry. I'll make videos on this and I also have trainings on this I can share with you So they get a purchase order for a hundred master cases seven thousand two hundred units I make sure they have enough raw material.
I make sure they have enough liquid I make sure they have everything they need and then they set everything up fill the units pack them all out Let me know that they're ready to ship now This is the third time that we have to ship a pallet we schedule with a freight company Typically use uber freight or our freight broker and we'll schedule a pickup and they will Come pick up the pallet and send it over to our 3PL. Remember, that's our third party logistics center.
Our 3PL will then receive the pallet about a week after it's been shipped, because it takes time. In fact, it takes time for each one of these steps, at least two weeks per step. So it adds up in terms of lead time, which is the amount of time that it takes to get a product ready to sell, which, man, it's a slept on part of supply chain. Let me tell you. It really does add up and it can really affect your timelines.
But we'll come back to that later because you'll see how all this stuff fits together once we round out the whole picture and I talk about the mistakes that I've made. We're almost there. Once the product arrives at the 3PL, they will then intake the inventory, sign off on it, let me know it's been received. They'll put it into their system and I'll be able to see it in our inventory breakdown.
The 3PL will Pull our orders from Shopify that get piped over to ship station or whatever warehouse management system that they're using. That's a WMS by the way. And then they're going to ship and pack and put everything together the way that I want it put together for each customer. So what we've done is we put together an SOP or standard operating procedures by taking pictures and showing them how we want things packed out. Here's how you put the label on the front. Use this product insert.
Here's where the packing slip goes. Here's the padded mailer we want to use. Here's the size. Here's the, you know, the cushion lock type of, you know, crunchy paper we use in there. Here's what we want it to look like. Here's what's important to us. Here's how we can avoid breakage. All of those things are all laid out. Now, what's interesting about working with a 3PL is that I didn't get to choose my workers. I didn't make the hires. I didn't interview them.
I didn't get to evaluate their character. I'm trusting another human, another manager to have found good people that can execute on what we need. Now, the 3PL we have now is great. Joe is amazing. He is a fantastic leader and he's got a ton of experience. But that hasn't always been the case. The reason I've worked with four or five, maybe six 3PLs to this point is because of people. I didn't get to choose them.
I'm really punctuating this because it will come back to make more sense as we explain more. Okay. So the 3PL is now shipping orders. Perfect. They're getting it out to the customer. When we need to replenish inventory in Amazon, I send a message to 3PL, send them some labels and I say, Hey, I need this many master cases placed on a pallet with these labels on these sides, you know, shipped out. Blah, blah, blah. Truck's coming this time. Here's the bill of lading.
Or if I need to ship small parcel to Amazon, I'll say, here's some labels. Please ship this many cases in via UPS to Amazon to replenish our stock. I just make it super simple. And I send them everything via Slack or email. When we have retail orders come in, we have to be a little bit more clear and very specific because we want to avoid chargebacks. That's something we'll talk about another time.
Just know that, uh, the shipping process with retail is, uh, by far the hardest out of all the ones that I've talked about. So that's what it takes. To get the product from idea and invention into manufactured unit, ready to sell to the customer. So, how did I make mistakes? Because that sounds like it makes sense, right? It sounds like, oh, okay, cool, you just have to manage that whole thing from home? I could do that. You can. You absolutely can.
And that's what most e commerce businesses do nowadays. They don't manufacture their own stuff. They don't make their own products. They don't have their own supply chains, their own supply line set up. They don't have blending and blister card and manufacturing and filling equipment. They don't because in the beginning, it doesn't make sense. It's not financially responsible to tool up and get all those materials.
We first have to make sure that the product is viable and we have product market fit and people actually want your stuff. In fact, this year we've done a lot of cutting. I've gone through our books and I've pruned almost every single expense that's absolutely not necessary, I have cut back on. That includes people. And that means I've had to have a lot of difficult conversations. I'm serious. So Man, I'm sorry I let you down. I'm sorry I can't give you all the things that I promised.
I'm just not that good. I need to get better. And unfortunately that means that I can't afford you anymore because I've made some terrible mistakes. How many times I've had to do that? Just eat my hat and just suck it up and just take it on the chin and just admit that I'm not as good as I thought I was or I couldn't do what I said I was going to do for you. Ugh, this whole year has been like that. It's fucking sucked. But let me give you a numbers example, okay?
I talked about the warehouse we have in South Carolina. 500 bucks a month for the warehouse space, 2, 500 a month for the employee, an extra 1, 000 a month for some extra storage and all the other stuff we do, so we're looking at around 4, 000 a month. Just to have someone else put my packages together and in the mailbox every day for like 40 minutes, that's how much it cost me.
When I disassemble and unravel all of that, that's $4,000 in overhead every month that I'm gonna get back added to our bank account. That's cash flow. It's a big deal. Because the warehouse space that I rented is only 1, 700 a month. So by spending 1, 700 a month and owning the process, I'm saving around 2, 300. And I can do smaller batch manufacturing, which will allow me to iterate more quickly and make a better product sooner and faster.
And I'll be able to have absolute control over the product itself and won't have to do any quality checks because I'll be doing it myself and I'll be deeply in tune with the recipes and the formulations. I'll be able to cut down on shipping costs in between each step in the supply chain. And I'll be able to cut down on the chargebacks from the retailers from mistakes that are being made shipping to the customer.
And lastly, well not lastly, I'm also going to be able to do different product inserts for different customers and customize more packages and experiment with bundles because I will be the one with all of the inventory in front of me. I don't have all the inventory in front of me right now. I work from a house, in an office. Like I'm a big warehouse with all of our products. I can't visually see our inventory.
I don't know exactly how much we have of what, and, and I, I can't touch and feel it and organize it and make videos and content. And like, my hands are tied in a sense. And lastly and most importantly, it's a way for me to make content. It's a way for me to show you the insides. How the sausage is made behind the scenes so you can get an idea of how I'm handling things. How am I building the pallet racks? How am I getting shipments in and out? How am I cleaning up and organizing the warehouse?
How am I setting everything up? How much does it cost? How much is it saving me? How much debt are we able to pay down? Now, speaking of money, I do want to mention that Relay is a business banking partner that I have, uh, partnered up with. The main reason is because I absolutely love their service and I use it for both of my businesses both vanader and Scorchmarker. I just needed a simple, easy, friendly, online business bank account.
Something with debit and credit cards, something with checking accounts and savings accounts, something I can use to pay suppliers and intake money and even have multiple bank accounts set up for profit first, which if you're interested in, I have a video on exactly how I set up profit first for an e commerce business. You can find it right here, but relay is a solution for all of this. It's the only bank that I found that's not going to charge you fees.
It's the only bank that I found that has everything set up and everything that's needed to both pay myself and my workers. Send checks, ACH, wire transfer, suppliers, all of it. Their customer service team is legit. Their interface is legit. They have the iPhone app. They have the interface on the web browser. All of it. So I bring this up because I've used like 11 different banks and this one has been by far my favorite.
And after having used it for like a couple of months, I reached out to them and I said, Hey, you guys, this is great. I need to share this with the world because this is something I've been looking for for a very long time. And that's when they decided to start sponsoring our podcasts and a lot of our YouTube videos. And I'm very proud of that because they're an awesome company.
So if you're looking for another option, a backup, or you just plain need a business bank account, use the link in the description to apply for a relay account. It's free. You should be approved in a couple of days. As long as you have your LLC paperwork and your EIN, you're good to go. Even if you already have a business bank account, it's a great idea to have a backup option because you know as well as I do that it's very easy to get de platform, shut down, or for mistakes to happen.
I use my Relay credit card as my primary Facebook ad spend credit card. I only spend money on Facebook ads from my Relay credit card because It keeps things tight, simple, and secure all in one spot. And you know how Facebook is, but we'll get into that another time. So those are the main reasons why I've gotten a warehouse.
I'm going to break it down a little bit further and explain how I did the search, what my criteria was how I made a list of 34 properties in my area what I said to the real estate agent? What happened on my search? And it was not an easy process.
It took me a quite a long time to find the right spot, but I'm excited to put together that video for you and show you exactly what went down, because I just wish I had something like that when I was looking, it was just, yeah, I think it's going to be helpful. So here is the major takeaway that I want you to understand about e commerce and when it makes sense to get a warehouse, when it makes sense to work with a co packer, when it makes sense to bring things in house, et cetera.
In the beginning, we first need to make sure that we have product market fit. Don't tool up and get a warehouse until you have sales coming in and people want your stuff. Okay? We first have to make sure they want it and they love it, and they're coming back to get it. That means in the beginning, we need to work with a co-packer or a manufacturer, someone that can do runs of 250 to 500 units.
Once we have proven product market fit with two to 500 unit manufacturing runs, it then makes sense to move to a co-packer to increase the scale of your production, to make a few more units. Hopefully that manufacturer or co packer has a reliable 3PL or, you know, you're just selling on Amazon and you can have the unit shipped directly from the 3PL to Amazon. It's totally an option.
But what we want to do is we want to stress test this system a little bit just to make sure that it works before we fully commit to manufacturing, warehouses, leases, et cetera. Because once we get into a warehouse and we have leases and we have equipment and we have debt and we have manufacturing, we need to make enough money to pay back the loans and service that debt. So there needs to be a large enough margin and enough money being made to be able to make that all worth it.
And I found that that happens around 10, 000 units plus a month or million, million and a half a year in, in gross sales. So in between that time, it makes sense to work with a co packer, sacrifice the extra margin and make sure that you have product market fit and things are going well. You can totally have the product shipped to your house and you can repackage it, re label it, re kit it, ship it into Amazon. That's a great middle ground.
You can totally have stuff sent to you and you can ship out of your garage and go to the post office every day and save some money. That is a perfect middle ground. Having the manufacturer ship to you and then you fulfill. What I'm speaking about specifically is the manufacturing. Don't take on the manufacturing until we know that we have product market fit. The fulfillment, do it. You need to learn it. You need to understand it.
You need to know what it takes to put the items in the envelopes, how much time it takes, how challenging it is, what it presents as, what it looks like before you move to a 3PL. So as you are getting things made at the manufacturer and shipped to your house, and you're fulfilling your products and you're sending it to Amazon, you're sending it to retailers and you're sending it to your customers.
I want you to be keenly aware of what the process requires, and I want you to document the ideal setup for your packages. Because you will eventually come to a fork in the road, where packaging is taking up so much of your time that you'll either need to hire someone and offload it in house, they'll come to your house and just take over what you're doing, or you'll need to start working with a 3PL to organize, store, house, and ship all of your inventory.
Be very careful about the 3PL that you choose. I've got some good ones if you need some assistance or some advice, but it's not a decision you should take lightly because it's going to be expensive to move everything over. Not to mention, it's going to be very expensive per package, and this is something we didn't talk about, but 3PL is going to take about 250 to 350 per package. per order. In some cases, that's 10%. It's a lot. It doesn't even include the shipping cost.
So every time you involve somebody, it's going to eat into your margin. Every time you hire someone to do something for you, whether it's Copacker or 3PL, it's going to reduce the amount of profits that you make. And those are things that you can weigh financially. With, you know, getting manufacturing equipment, tooling up, doing the thing, shipping yourself, hiring someone. You can use these figures, you can use these numbers to make good, sound decisions for your business.
It's not an easy thing to do. If it was easy, everyone would do it. It's, it's quite challenging. It's, it's incredibly difficult. But it's possible. And it's doable. And if you want to be around more people that are doing this and going through this. I've got a community force where I've organized all of my courses, teachings, everything I know, resources, people, legal docs, whatever. You know, so if you get to a point where you just want to be a part of a group like that.
There's links in the description and whatnot. Otherwise, just know that it starts by finding product market fit, start with 250 to 500 unit samples, then have a co packer or the manufacturer ship everything to you, to your house for inspection, relabeling, kitting. You can ship to customers and Amazon and retailers. And finally, once that's all dialed in you can then make a decision on whether you want to bring things in house, get a warehouse, or move to a 3PL. That's how I would go about it.
Now, the last thing that I want you to think about is the cost versus effort here. Okay. You can spend more money and put in less effort, or you can put in more effort and spend less money. And there's a sweet spot in there. There's a range that makes the most sense and gives you the optimal profit per unit of time spent and effort spent. So it's really important to figure out what matters most to you. For me, it's the customer experience, hands down.
I'm willing to put in the work and do the effort to save the money, to make sure that we survive and we can have the profit and the margin to live, to fight another day, I'm willing to put in the time and get up early and stay up late and involve my family and do the things. In fact, I've always wanted to. And for those reasons, I've got a warehouse.
Can't wait to show you what it looks like and how we've transformed it and what we're doing to it and how we're arranging it and making it all work. And more importantly, how much money it's going to save us until then be good to future you. I'll see you in the next one. All right, let's talk some numbers. These numbers are as of November 25th going back 30 days. Remember we are in Q4, our busy season. So these numbers are going to be higher than normal.
Let's start with Shopify over the last 30 days on Shopify we did 29, 989. 33 and that's at a conversion rate of 1. 7%. On Amazon, we did a total of 79, 974 and that's at a conversion rate of 14. 4%. Retail, we brought in a total of 25, 806. 75. No conversion rate data there. That brings our grand total in sales Over the last 30 days to 135, 743 and 8 cents. I'll keep updating you at the end of every podcast with our 30 day sales figures. I'll see you in the next one.