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How To Master Financial Planning for DTC Success

Our essential annual planning and budgeting techniques

Hey everyone, 

Welcome back for another bite to chew on. 

Today we’re going to get into the spreadsheet stuff. 

Forecasting. Planning. Budgets.

We’ve said before that if you’ve achieved product market fit, you need to know your numbers. 

But even that’s not enough if you want to break 8-figures and beyond. 

As your brand grows, so does your: 

  • Inventory

  • Advertising 

  • Team

  • Tech stack

  • SG&A 

And all of this stuff needs more than a rough budget drawn on the back of a napkin. You can’t just wing it anymore when your P&L has seven-figure line items. 

No, you need to understand where you’ve been and, more importantly, where you’re going. Especially if profitable, sustainable growth matters to you (wait - it does, right?). 

On the menu today:

  • First course - Obvi’s annual P&L planning process

  • Second course - Ingredients of a great budget

  • Third course - Quarterly reviews to keep things on track

Annual Planning 

Alright, let’s get into it. 

Your annual P&L projection is the bedrock of your financial planning. Everything else springs from this process. 

We begin with our profit & loss statement and then we stretch that out as a forecast over 12-24 months. 

 Here’s how we do it -

Let’s get your revenue dialed in first:

  • A channel-by-channel forecast, including things like unit sales and velocity

  • Sell to retail? Go by store count, MSRP, and units/store

  • Sell Wholesale? Go by major account, discount rate, and the trends in their PO’s

  • If you’re on Amazon, do the same. Go by each region if you sell beyond the US

  • Include other sales-related revenue like shipping

  • Don’t forget “negative” revenue items like chargebacks, discounts, promotions, and refunds

In a P&L projection, you’re going month-by-month, so you need to map your forecast to seasonality and major promotions (we’re looking at you, BFCM).

Next up is your COGS. You’ll want to go channel-by-channel here as well: 

  • Break out everything by channel and by SKUs per channel

  • Include shipping and fulfillment costs by channel given they can be very different if you’re shipping parcel DTC or moving freight wholesale to distributors, etc.

  • Don’t forget merchant fees. Especially Amazon.

As you can tell, you need to be super detailed with your revenue and COGS annual projections. 

Even if the P&L on your books isn’t this granular, it pays off to get into the weeds and understand things by channel and by SKU in your planning. 

Alright, now you need to consider your Opex:

  • Wages and salaries will likely be a major consideration

  • Ask yourself if you’re going to hire more staff or if you’re going to bring on vendors/SaaS tools as well

  • Layer in raises and promotions for key team members

  • Rent and general overheard are next. These tend to be pretty stable, absent some major change (moving to a bigger office?)

Don’t spend too much time on minor items like telephone, internet, or office supplies here because most of the time you’re talking rounding errors. Just have assumptions that are sensible and defensible.

The final major item in your annual planning is going to be sales & advertising: 

  • At Obvi, we don’t break this out by channel

  • Meta is 95% of our spend, so it doesn’t make sense to get too granular for us. You may need to consider this, however.

  • We have general month-per-month ad spend projections

  • For there, we forecast out blended CAC, blended ROAS, and how many new customers we expect given the spend

  • Have a sales or rep team that earns commission? Don’t forget to add that in.

We leave the granular details to the marketing team when it comes to this portion of the annual plan. 

Finally, we have miscellaneous expenses, finance fees, and interest rates:  

  • Fees that don’t fit in other buckets. For example - licensing fees if you license IP

  • Who is your lender? 

  • What’s your Finstack?

  • What credit cards are you using?

  • Make your finance fees/interest expenses function of ad spend or inventory if those are the things you finance

These items are highly variable and depend heavily on the nature of your brand and business. 

Tool of the Week

Speaking of types of revenue -

If you’re a subscription brand on Shopify, then you know how challenging user churn can be. 

At Obvi, we battled with getting customers past the second order for a long time. We had a lot of theories, but none of the tools we worked with helped us systematically test them.

Until we found Stay AI. It’s been the best subscription management platform we’ve found so far. 

Once we migrated over to Stay (which was a breeze with their help), we leveraged their super-powerful ExperienceEngine to A/B test upsells and gifts throughout the customer journey. 

Stay’s predictive analytics also identified at-risk cohorts BEFORE they churned and helped us test tactics to increase retention. 

So what did we find? 

Customers on order #2 who received a free gift converted 85% more than customers who didn’t. Boom. Massive unlock. 

That’s just the tip of the Stay AI iceberg. So if you’re looking for ways to take your subscription program into the stratosphere, book your demo with them here →

Time to Budget

Your annual projections are done. 

The rock upon which your budgets will be built. 

At this stage, you’ll want to work closely with the head of each department. Meet with them to go through the annual plan.

For example, say you are sitting down with the CMO. Let’s work out a budget by:

  • Determining what our margins and profit look like given revenue and blended ROAS/CACs

  • Setting expectations by showing that the budget is X. It can only be exceeded by achieving an efficiency of Y (otherwise, we’re losing money)

Repeat with other sales departments, like B2B. 

Now you can move to an inventory budget:

  • Calculate your COGS budget according to your projection

  • Do you plan to have, say, 60 days worth of inventory on hand? Then you should 2X your COGS projection

  • So if your COGS are 400k on average per month, then you need 800k in inventory given the 2X assumption

Finally, layer on your other monthly costs like SG&A, agencies, and staff, to create budgets for every major aspect of your business.

Quarterly Reviews

Of course, budgets and projections aren’t very useful if they are shoved in a drawer or sit on a spreadsheet somewhere, never to be seen again. 

At Obvi, we use four quarterly reviews to look both backward and forward. It gives a sense of how we’re tracking and what may need to be reined in or adjusted on the fly. 

Luckily, most of the hard work has been done in the annual forecast and budgeting. 

First up, the review. How did things go?

  • Look at your forecasts vs actuals

  • When your (actual) P&L comes out, you can see where you are hitting or missing your projections/budgets 

  • Don’t just count your hits and misses. Go over why.

Next up, potential adjustments. Things change and no one can see the future. So consider things like:

  • New marketing strategies (both qualitative and quantitative) and how they might impact things

  • New retailer opportunities. Do you need to invest heavily to land a major new sales channel?

  • New product innovation / R&D

  • Anything significant that may influence your actuals

Sum it up

Phew, that seems like a lot doesn’t it? 

It is, but it’s also vital. Who told you DTC was all fun and games anyway?

Seriously, though, at a certain size and growth rate, someone on your team needs to own all of this. 

Not only that but - leadership and department heads need to be plugged in and held accountable.

Because it’s all well and good to know your numbers, and crystalballing your future on a bunch of spreadsheets is a neat trick, but…

It won’t mean anything if everyone forgets about it during the day-to-day. 

Sharpen your pencils and get planning gang. It’s how you sail for open water and avoid crashing against the rocks.

One last thing - Join our GAASmunity!

Your…what? 

Let us explain - we’re building our own “influencer community” within GAAS (so: GAASmunity).

Who is this for now? 

It’s for e-commerce founders and operators (like you). 

It will also be a B2B influencer network that SaaS companies can tap into. 

Okay…why? 

We plan to build the GAASmunity so it will be mutually beneficial. 

You get to discover SaaS companies that can help you grow. 

The SaaS companies gain exposure via your network (if you use them and their tool/platform works for you, of course.)

How does that work?

We’ll find the partnerships for you – so nothing to do on your end. 

It’s a free and easy opportunity to find new kick-ass tools and monetize your audience.

Where do I learn more? 

Sounds awesome right? 

Sign up here.

All the best, 

Ron and Ash