A2X Newsletter (for Online Sellers) | The 5 ecommerce metrics your accountant should share

Geoff: Hey everyone, my name is Geoff. I'm the head of marketing at A2X, ecommerce accounting automation software for the world's leading Shopify, Amazon, eBay, Etsy, and Walmart sellers, as well as their accounting partners. And speaking of accounting partners, I'm joined today by Lil Roberts, founder and CEO of Xendoo, a technology powered accounting firm that provides bookkeeping, monthly financials, tax, and CFO level advice tailored for ecommerce brands. Liil and I are going to be discussing the metrics you should expect from your ecommerce accountant and why having timely access to accurate data is critical to your financial success. Lil, I just want to say thank you so much for a being an A2X partner and b for joining us today and sharing your expertise. I'd love if you could tell us a little bit more about Xendoo and the types of clients that you support.

Lil: Thank you, Geoff. It's an honor to be here today with you. We love A2X and we love our partnership and thank you for all that you guys are doing for the ecom world. It is amazing to watch what your product does for our customers. Uh, Xendoo is an online bookkeeping and accounting company that we also do tax and and fractional CFO services. Um, we're located in South Florida all under one roof. I have an amazing team of accounting experts and professionals. We believe in swivel chair collaboration because as everybody's in the digital world and the digital transformation integrations can be tough as you know and some of your customers know. And by having the team all under one roof, they collaborate and they're helping each other all day long and helping our customers. So our customers are not only getting the the brain of of a of their dedicated accountant, but they're getting the intellectual capital of a team that works together. We have uh you know roughly a thousand customers across the United States and in another 13 other countries and they're in the ecom. Ecom's one of our biggest biggest industries, but we also serve many industries. So, thank you. Honor to be here. Uh please and uh any of your customers, you know, stop by Xendoo.com and and give us a call or or book a consult. We'd love to talk to them.

Geoff: So, Lil, I'm just going to, you know, jump to the gold here. What are the metrics an ecommerce business should expect from their accountant?

Lil: Well, you need the top three to five, right? So, so let's just list those off. Revenue, gross margin, refunds, discounts, gross profit, and then your net income.

Geoff: All right, this might sound like a silly question, but why is revenue one of the top metrics?

Lil: Geoff, revenue solves all problems, right? That's you need enough clay to mold. So revenue, think about revenue as your ball of clay and then now underneath that you can kind of parse everything out and you better have a little bit left at the end or you're not a profitable business.

Geoff: What about gross margin? Why is gross margin so important uh for your ecommerce business?

Lil: Because in general, you know, people will say revenue at all costs. You hear that from business owners, right? Revenue at all costs. No, not revenue at all costs. If you don't know your gross margin on a product, so for instance, if you think your gross margin is going to be 80%, if you think your cost of goods is 20% on a product, but now you're looking at your P&L and your cost of goods is really 27%. Well, that 7% is coming out of the bottom line. And what if your bottom line was only 5%. That means now you're negative 2%. So, you must understand your gross margin.

Geoff: So, this one might seem obvious, but why are refunds and discounts one of the metrics that you share with your ecommerce clients?

Lil: Yes, it does. So, so you think right obvious like hey if I have a lot of refunds that's a problem because sometimes business owners will think that they have a product that is flying off the shelf and then they don't have the detail of the refunds and they don't understand that yes you may have a particular skew flying off the shelf but if it's coming back at an 80% rate then there's a problem with the product and you're just pushing peas around a plate. Sorry I have a lot of analogies but you know nobody wants to push peas around a plate. You want to sell a product, you want the customer to keep the product, and then you want to be able to have some kind of profit left over after the customer's enjoying the product.

Geoff: And I'd imagine that, you know, discounting a product too much really cuts into your margin, right? So, you need that visibility.

Lil: Exactly. If you don't understand your discounts and how much you're giving away, how do you know? Then you don't understand your gross margin. They kind of all layer together.

Geoff: All right, let's dive into gross profit. uh tell us a little bit about why this is such an important metric for ecommerce businesses.

Lil: Gross profit is telling you about all your other expenses, right? So sometimes we see ecommerce businesses put Amazon fees or other fees above the line. So the terminology of above the line means that that's going to be in the cost of goods, but if they're putting it below the line, then it's going to affect your gross profit. And so you need to understand that is your payroll too high? Is your overhead too high? What's happening in your business? So, gross gross profit, there has to be something left over after you've bought your product, shipped your product, and paid all of your expenses. There has to be money left over for a business owner, one to earn money, and two, to be able to reinvest in their business, buy additional inventory, do the things that they need to do, R&D, all the fun stuff.

Geoff: So, last one. Let's get into the holy grail. Net profit. Why is this so important for ecommerce businesses, and why should they expect it from their accountants?

Lil: They need to understand their bottom line. So net profit is your bottom line. It's also net income. There's a lot of names for it, but basically it's after all the expenses and all the cost and all your product, everything. How much money do you have left there? So if you're breaking even every month, then you bought yourself a job, right? You're not making money as a business. You're only going to earn what is in there at you put your yourself in as a salary. And so you're in business to grow a business. And when it comes time to sell your business, they're going to look at your net profit. So think of net profit, you know, as a golf terminology, you know, revenue is drive for show and profit is putt for dough. You got to have something left over after after the end of the day. The net profit is what's left over or net income. It's what's left over.

Geoff: And I mentioned I said, you know, why should you expect this from your accountant? Accountants are built for this. This is like getting to that number is what they're built for, right? Uh and and I think working with Yeah, it's dopamine for for accountants.

Lil: We have our so one of our core values is care deeply and our our accounting professionals truly truly embody that. They embody all of our core values, but they embody that core value. They are they empathize with the business owner. If they see a business owner not making money, it really affects them. Their dopamine is being able to publish the reports at the end of the month, meaning that the business owner got back to them on a few questions and they were able to publish those financials and that they see that the business owner is making money. They get so excited when they know that the businesses are growing because that is is, you know, their part of the picture is to be able to deliver that visibility so the business owner does what they love.

Geoff: Yeah. Transforms from accounting uh being in service to compliance to accounting being a strategic function that can help a business achieve those profits, grow, so on and so forth. Well said. Well said, Lil. I love that framing and I love the breakdown of the five metrics that you look for uh when supporting your ecommerce clients. Could you do me a favor though and and put this into context? I I know that you've worked with tons of ecommerce brands. Can you share a story of how tracking the right metrics helped a client?

Lil: Absolutely. Um, actually I'm I'm going to share two different companies, two different stories that I think would be valuable if that's okay. So, one is um a business that been around for a long long time. Um, we absolutely love this customer. I mean, we love all of our customers, but just unbelievable business. So been around for two decades plus and they're in the you know call it 30 plus category and they focused on their business but didn't focus on their numbers. And when they came to us they said look you know been at this a long time and all of a sudden it started blowing up and we found you guys and we just want to get everything caught up and get a really good visibility as to how what's happening in our business. So immediately at that size we one not only caught up their books but we also put them on A2X and from that the customer was able to have the understanding and the clarity of what's happening like they had one product that there was refunds happening and because they had the detail of what product what skew it was they were instead of you know saying hey that product's no good the challenge with that product is that it was a long time for delivery And so that really pointed that out where another business owner without having the detail would have thrown that product out which turns out to be a really big seller and wouldn't have understood no they had a supply chain problem that they needed to trim that up because you know everybody expects a product to ship right away and get it in the next day or two.

Um that same customer now is in the mid so let's call it the 50 plus category huge and that's happened in a little over a year. So that's a significant growth. Um, and that's from understanding the numbers in the business, what matters. They're on full acral of course because after 31 million in revenue, you have to be on full acral in the US.

Another customer that comes to mind, it's a little bit different. That customer came in, they actually manufactured their own product and they're low seven figures. Um, they've doubled now in a year and a half's time. And for them, we did two things. They needed to understand their inventory. So, we needed to to integrate them with SIN 7 and put that in as best-in-class on the inventory side and then of course loop in A2X. And Geoff, the way that we look at A2X, you know, with our customers is this. If they're a smaller ecom, you know, half a million or less, maybe they don't quite need A2X just yet, right? So, you have to know when to develop your tech stack and and that what's the outcome, measured outcome or return on investment on what you're bringing in. and also when you add complexity to your business. But when you are a business that's reaching that 1 million mark and above, and I'm curious to hear when you think somebody should dial in for for A2X and add it. But when you're an ecommerce seller and you're reaching the million mark and above and you're growing, you absolutely need to understand what's in the bucket. And what do I mean by what's in the bucket? So your P&L are going to be buckets, right? you're going to see an aggregated amount for your revenue, an aggregated amount for your cost of goods and for the different categories on your chart of accounts. But by having A2X, you're able to really dive into the bucket and you know exactly what's in the bucket piece by piece. And when you have that kind of clarity, it allows you to really grow your business and to get rid of the the non-movvers and to double down on the movers that are growing your sales. So, two different customers. one does manufacturing as well as sell their own product um needed a different tech stack and the other one is selling a product many products.

Geoff: I I love those examples and I love those stories because they highlight the importance and the need for financial metrics. A lot of brand owners right tend to focus primarily on topline revenue on marketing metrics on rorowaz right like that's kind of the world that they know and that they love. They're really great at developing a product and bringing it to market and focus on those metrics. But when you layer in an accountant or an accounting team that can come in and and provide that additional layer of financial metrics to understand what's actually driving profit and if it's not what are some of the reasons and then how to rectify those reasons. I think that really came through in your in your stories, but but also what it did is uh clearly identified why working with an accounting professional is so valuable and getting access to that information is so valuable. So uh appreciate appreciate you diving into that.

And then to your question on when a brand should consider A2X, I think you know we see brands starting to use A2X as early as the few hundred thousands of dollars in revenue. And the reason for that is I think kind of when tax becomes a consideration, tax and compliance and like a little bit more of a headache, people start to look at solutions like A2X to help automate more of the process, get a better understanding of how their sales channels are performing from a financial perspective. Um, and then I think there's like another inflection point at like the 500 to,000 to a million where they they don't just look at A2X, they start to look at an accounting team, right? an outsource accounting team like Xendoo to come in and help kind of just offload that burden from them and then to provide the visibility that they need.

Liil, thanks so much for sharing those case studies. Um, I particularly like them because it speaks to the importance of not only looking at operational and marketing metrics, but also at the financial metrics that are driving profitability. Um, and and the reason those stories are so important is uh because it's really hard to get access to that data unless you're using tooling like A2X or an accounting firm like Xendoo. And speaking of Xendoo, I find that you guys are super interesting because you don't just provide traditional accounting services, but you build a lot of tech that not only your firm can benefit from, but also your clients, specifically uh the the KPI dashboards that you guys provide and build and give access to your clients so that they can have near real-time visibility into their financial performance. I'd love if possible uh if you could give a demonstration of these dashboards and and what you and your clients look at on a regular basis.

Lil: Absolutely. Geoff, you're speaking my language. Uh because actually I'm not an accountant or a CPA. Uh my background is manufacturing and technology and I built Xendoo because I felt the pain firsthand of a business owner not able to get the numbers and have the visibility that you needed. Right? So, what I said is business owners need to be able to have a lifeline to their accountant. They need to be able to see their financials and they need their financials a lot quicker than at the end of the month after your month closed. Uh because you need to be able to make timely decisions about inventory, about cost, and to see what's happening. So, let me give you a sample of our portal. This is our demo of our customer portal, and it's both mobile app and desktop. And so what happens is once a customer is our customer, meaning that they've onboarded and we're doing their books and we do their books in both zero or QBO, we we operate in both of them. And so after their first set of books are published, they're going to have their P&L and balance sheet, the most recent right here, but they can also flip in and they can see, you know, uh, historic. And somebody may be thinking, well, I just can go into zero QBO. Yes, but you don't want to. And typically you don't as a business owner. you want everything to be super simple and easy um to give you the data that you need. So, we give you a lifeline that you can call uh right out of your mobile. So, you can click and call, you can schedule a GM meet or you can send an email. Also, we do SMS chatting. And so, when they're in the financials, they're going to see tops of waves. I'm really big about you have to understand tops of waves in your business. So, you can look at over a period of time. You can look at trend lines if you'd like to click in and out. Um, and then you can come over and you can see tops of waves of, hey, what's your revenue, cost of sales, expenses, what's your net income, and you could pop into a month's report right here. And where this is great is that say you're looking at two months that are relatively in the same range of sales. These two months right here aren't that far off, but look at the difference of income. Um, that So now the the business owner would say, "Well, you know what happened in these two months? Why is it different? where are the months that I'm most profitable?

And then our platform wraps around snowflake. So we're going to give you datadriven insights. So this particular, you know, set of demo data is showing 12 months, you know, roughly 5 million. It's telling the business owner what they're up, what their net income, their gross profit margin, top five expenses of where they're going in their business. If they have any kind of debt on their on their balance sheet, it's going to show a debt to asset ratio. That's a metric all business owners should watch. Um, and then gross profit margin. So again, the difference between gross profit that we talked about and net profit. And then you can go, you know, further into where you have reports, you can have your tax return. So it's a repository right there for you if you need to give us some documents. It's just an easy drag and drop.

Now, there's another piece of the portal that we're finding a lot of engagement with our customers. If you're zero, we can't offer this with QBO customers, but if you're a zero customer, and this happens to all business owners, typically they, you know, once or twice a week, they're going to go to log into all their bank accounts and see their cash position, and they're going to log into their credit cards and understand what their debt position is. We made it super simple because zero allows us to pull that information out of their API. And so we can say to a business owner, hey, you know, today this is what kind of money you are running and how much you owe on your credit cards and this is how you've been trending the past few months. And so you can see in the sample data that the business is gaining cash, right? Hitting a little bit here. So October, maybe they're going to buy a lot of uh inventory for the season and so they have a little bit more down here. And then we can give them the opportunity where they can come in and they can look at bank accounts and they can grab the bank account or credit card and they can see, you know, whatever may be in there that um were recent transactions. So a lot in here again says zero not connected. It's a demo, but it would typically up here you'd find zero and QBO. Something that we just launched and I'm not going to be able to really show it to you other than on a live site is that if they have payroll, if they're using Gusto or ADP, we're aggregating that data and we're mashing it against their revenue data and we're able to tell a business owner what their average sales per per full-time employee employee is. We're also able to tell them, you know, what's their average tenure in their staff and what how many people they've hired in a past period of time. So again, top level, you know, data, not going way crazy into detail because of course A2X gives you all that kind of great detail and the A2X, especially the new product clarity that you guys have. But the things that a business owner should be thinking about that, you know, if they're on an island and they only have their mobile app, how do they know if their business is running, right?

Geoff: You know what I love about this is it takes what metrics to expect from your accountant to a whole new level, right? Because it's not just about the metrics, but it's how you visualize and and you get access to the metrics. like you guys are providing the underlying accounting right that yes enables this type of information but you're also providing the visualization and the accessibility to the information layering in on top the communication layer right like the idea of okay now I'm looking at this data I'm looking at these metrics I have questions about them and boom I can just connect with the Xendoo team through the portal it's pretty it's pretty awesome so thank you for uh providing a demo Mo um it does bring me to my next question right because data is only as good as how much you trust it right so let's talk about the importance of accuracy in ecommerce financials I'd love if you could provide a tip for accurate bookkeeping to ensure that metrics like in this portal are trustworthy and people can look at the data can interpret the data and then you know make decisions based off of it rather then argue the validity of the information that they're seeing.

Lil: 100%. One of my favorite sayings, trust and verify. So, as a business owner, you need to always know where is the source of truth, right? So, for instance, let's take revenue. So, you see revenue in your P&L. How do you know that's your real revenue, right? What's the source of truth for that? Well, the source of truth for your real revenue would be not your bank account. It's really you need to go in and look at the reports at every channel, right? Because at the end of the year, you should be looking at your 1099K that you're getting from all the providers and make sure that that revenue number matches. And the reason why I say that, Geoff, is over and over, we see ecom customers come to us and their books are wrong or they're wrecked. And sometimes it's from other providers that maybe aren't as experienced in ecom because ecom is, you know, it's a sector of its own and you need to have modern accountants doing the books for ecom because the the mapping for the integrations has to be correct, right? So if they map PayPal incorrectly, you're going to have false numbers. Um you may double report your income, your cost of goods are going to be off because your income is double reported. So revenue number one, understand where the source of truth for that. Number two, you need to look at your your payment gateways, right? So when I say revenue, you need to know how many channels are you in, where are all those reports, and what is that going to show? And does that match up against your end of month uh profit and loss report? And then what are my gateway channels? You know, is it Stripe, is it PayPal? Um is it Shopify for payments? And then you need to take a look at those numbers, add them up, and then that's how you can verify. So trust and verify. Always trust and verify.

Geoff: And I mean, like, I'm gonna just jump in with a shameless plug for A2X. This is effectively the process that we help automate, right? We take all of the payout data from your sales channels. We bucket them into the appropriate account in your chart of accounts and we post it to QuickBooks or Xero. And a lot of what you're seeing in the Xendoo dashboard is coming from A2X automation, but also layering in the accounting service to ensure that all the information is correct so that you're getting that accurate data that you know is coming from trusted tech like A2X, but trusted accounting uh from the Xendoo team. Um, awesome. Lil, I've really enjoyed our conversation. Uh, and I'd like to end with what's one question or request that an ecommerce seller should ask their accountant to get more insights into their uh, business performance and their metrics.

Lil: Great question. I'm going to answer it with two with a statement and the question number one, I highly recommend that ecommerce sellers talk to their accountant, right? Typically, they just want to do it through email or SMS. have a monthly call, even if it's 10 minutes. There's so much that's lost unless you're actually communicating with the person live. So, please do that. Especially if you're a Xendoo customer, that's how we operate. We we want to talk to you. The key question that an ecom seller should ask is they should say, "What are the key drivers in my business that are driving the profitability or lack of profitability?" And so that professional should be able to say, "Hey, what we're seeing here is your fees are pretty high with Amazon." From time to time, my team will give me the the wonderful opportunity to speak with our customers. And so I spoke with a smaller ecom customer that was um selling pet pet treats. And this particular customer, it was very clear they had a channel that was costing them money. And so I said to them, I asked them that question. I said, 'Look, this particular channel on your P&L is showing that you're not making any money on it. It's costing you money. It's probably costing you a distraction. So I would highly recommend that you evaluate, you know, the investment that you're making in that. Do you see a big opportunity? Is there a big, you know, total addressable market that that could increase your business or is it just a nice to have? And you know what? And and one of their challenges was that they were not profitable. and two months later they contacted me and they said, "Hey, thank you." And they're profitable now.

Geoff: I love that because it it really showcases that working with an accounting professional isn't just about compliance, but it's also about financial visibility to move profit, right? It's significantly more strategic than I think most would realize. And when you're working with a firm like Xendoo, you could really unlock the benefits of that strategic partnership. So, Lil, I appreciate you taking the time to share your expertise with with us. Uh, I think this was enlightening. Um, I I want to do it again. So, we'll we'll find an opportunity to do that in the near future. But, I just want to say thanks again and we'll chat soon.

Lil: Thank you so much. And we'd love to be on.

Geoff: So, if after watching this video you want to get in contact with Lil and the Xendoo team, spelled X E N D O O, uh please click on the link in the description below to get access to their website. They also provide free consultations. Uh also, please feel free to mention that you've learned about Xendoo uh on this A2X video. Thanks, and we'll see you soon.