Building the Future of Brain Health | Novi Petrusich | Graymatter Labs | Profits on Purpose

Episode Description

In this conversation, Nate Littlewood interviews Novi Petrusich, the founder of Graymatter Labs, a cognitive supplement company. They discuss the unique value proposition of Graymatter, focusing on its subscription model, customer retention strategies, and the importance of financial metrics in e-commerce. Novi shares insights on market positioning, competitive analysis, and the challenges faced in building a successful e-commerce brand. The conversation emphasizes the significance of retention over reach and the need for a strong understanding of unit economics to ensure profitability.

Key Takeaways

• Gray Matter focuses on cognitive supplements for enhanced focus.
• The company was founded by former athletes and investment bankers.
• Retention is prioritized over customer acquisition in their strategy.
• They offer a subscription model with significant customer benefits.
• Novi emphasizes the importance of financial metrics in e-commerce.
• The product contains clinically researched dosages of active ingredients.
• Market positioning is crucial for standing out in a competitive landscape.
• Novi learned from early mistakes in inventory management and demand forecasting.
• The company aims to make cognitive supplements accessible to all.
• Novi believes in the power of community and customer feedback for product development.

See More from Novi and Graymatter Labs

• LinkedIn
• Email
• Graymatter's Official Website
• Instagram
• Youtube
• Tiktok

Listen to the full episode to discover how Novi's experiences can inspire and guide you on your entrepreneurial journey. Don't forget to subscribe for more insightful conversations!

I hope you enjoy this episode!

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– Nate and the Profits on Purpose podcast team

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Transcript

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00:00 Introduction to the Podcast and Guest
01:13 The Concept Behind Graymatter
03:50 Differentiating Factors in the Market
06:35 Subscription Model and Customer Value
09:17 Cost and Value Proposition
11:55 Founder's Background and Business Approach
14:56 Investor Perspective on Metrics
17:51 Market Analysis and Positioning
20:36 Unit Economics and Customer Lifetime Value
22:08 Understanding Key Metrics in SaaS and CPG
26:26 The Importance of Retention in Subscription Models
29:56 Navigating Customer Acquisition Costs and Profitability
32:55 Evolving Metrics for E-commerce Success
35:48 Channel Sequencing for Effective Marketing
40:31 The Role of Financial Metrics in Business Decisions

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Nate (00:06)
So today's guest is Novi Petrusich, who's a former investment banker and private equity investor who used to cover the B2B SaaS and e-commerce industries before switching to the other side of the table and he now runs his own brand. In today's conversation, we're going to be going deep into what it looks like to build an e-commerce business through the lens or perspective of an investor. We'll be talking about why retention,

Beats reach and the mistakes that he sees so many other founders making. Novi, welcome to the channel. It's great to have you here. Absolutely. Well guys, this is a bit of an experiment today. This is actually the first of these in-person podcasts that I've actually done. So thank you for indulging me in this little experiment. We'll see how it goes. If you guys prefer this format, do let me know and we'll try to do a bit more of them. but I usually do the recording just over here.

Novi Petrusich (00:44)
Appreciate it, thank you so much.

Nate (01:04)
Anyway, Novi, I thought a great place for us to start. Could you just tell us the backstory to Graymatter? Like, what does the business actually do and how did you get into this?

Novi Petrusich (01:14)
Yeah, definitely. So I'll give you a little bit of my background. Yes, started as an investment banker for three years in B2B SaaS. was a private equity investor for about three and a half years as well. And during COVID is where Graymatter kind of was created. So we had noticed that everybody supplements their body and no one was supplementing their mind. And that was kind of the aha moment where we were like, hey, let's make a cognitive supplement that really works and can strengthen cognition, focus and energy.

That's where Graymatter was created and that's what we're kind building today.

Nate (01:50)
Got it. Cool. So what I find really interesting about your business and the way that you're going about building it is that you've come at it kind of from an investor first approach in that, you know, you're already familiar with the metrics and the numbers that investors kind of care about. Tell me a little bit about how that has influenced the way that you're approaching building this business.

Novi Petrusich (02:18)
Yeah, it's very interesting because my co-founder and I have athlete backgrounds. So he's a basketball player. I played division one football. So we had the idea of the supplementation, but I also have very much a lot of symptoms of ADD. So the product was born from a real need, but the way we both went about designing our launch was much different than I think other CPG brands is like he was very focused on.

you know, what is the value we're going to give to customers? How are we going to market to them? What's their experience going to be like? And I was very focused on, okay, well, how do we make sure that we are profitable in our unit economics? Can we afford to price here? And then how does our supply chain and operations kind of fall into this? So I was very much backend focus and he was very front end focus. And I thought that was like a very good marriage of

how we launched and end up being unique, I didn't know at the time that some founders kind of go to launch and don't know any other unit economics or if they'll ever scale into profitability. And I was just like, hey, can we be profitable in the next couple months as a Bootstrap brand? If we do this, we actually can achieve that. And I think that's where we've always kind of had our heads or our at least thought processes like, OK.

provide the most value to the customers, but also can we be profitable at the same time.

Nate (03:49)
Yeah. Yeah. Which is such a smart way to look at it, because if you're not profitable and your business is sustainable, no amount of goodwill and aspirations really matter because you're not going to be able to be around to continue to kind of deliver on your mission and fulfill your purpose. So yeah, I think it's a clever way to go about it. Tell me, you know, when you were looking at this industry more from an investor's perspective,

What were some of the key metrics and numbers that you spent a lot of time on?

Novi Petrusich (04:22)
So when we looked at actually like the TAM exercise was interesting because we knew that there wasn't too much competition and the positioning was very like stark towards like biohackers very much like cognition first. So we saw that there was a gap in terms of like one cognition wasn't mainstream yet. Two there was a lot of trends a lot of SEO on ADHD, ADD, lack of focus, brain fog was all trending.

not too many products were out there for that. So I think that was like a very easy, like, okay, there is a market here, it is large enough. When you think about how many people are prescribed Adderall in the world, it's a massive number, millions of people. The diagnosed people, it's even higher than that. And then people that are not diagnosed and think they have ADHD or have been told that they have ADD is even higher than that. So you have the...

a very large market just within our kind of wedge case. The other thing was I looked at it as just like a B2B SaaS business. I was like, okay, well, if we sell for this price, this is our cost of acquisition, do we have the contribution margin to fall to the bottom line to be profitable? And I think that was a huge actually co-founder discussion at first, because I was like, we should be priced here. And my co-founder was like, I don't know if we deserve

to be priced there or we haven't earned the right to be priced there.

Nate (05:50)
Would you mind sharing what the numbers were that you were debating if you recall?

Novi Petrusich (05:54)
Yeah,

so we were looking, when I was looking relatively at like the field, they were priced in the hundreds of dollars. Like 125 per a monthly serving. That's obviously a pretty expensive, or a high AOV in CPG. There's a blend. So I wanted to get close to that. Like I was like, hey, can we come in at 100? Can we come in, you know, at 100, we're still relatively lower than the rest.

but we didn't have the brand equity. We had no brand equity. And I think that's where we kinda got in this push and pull where he was like, look, if no one's heard of us, no one's tried it yet, no one knows it works. We haven't really earned the right to charge this much. And then I was like, yes, but we're giving more product. We have more product in our actual product. So our margins are gonna be hit if we're not there, but.

we came to an agreement, were like, all right, well, let's come in at an affordable price. If we do subscription, we're more focused actually on the LTV of the customer, because if we know it's gonna work, we're okay with breaking even on the first purchase or even less than that. And we know that they're gonna be customers forever. So then we were like, okay, if that can work and we look at the contribution margin of every order after that, can we get into profitability? And like, yes, and that's when we kind of

went to the middle ground, were like, okay, let's start. I think at first we started at $50. About a year ago we raised to $68.99 and kind of that's how we go. The more we give away, the higher we'll price it, but the customer is always gonna be getting something. We're not just gonna just raise prices just because we can. I think we're gonna be giving things away with every price raise that we do.

Nate (07:46)
Right. Okay. So what I'm hearing there is that there's a strong focus on unit economics of the product initially and comparing that to CAC. The initial contribution margin is somewhat important, but you're basically banking on the fact that you've got a good product and because the product is good, you're confident that people are going to come back. So you're quite happy to wait for the LTV long tail and say,

hey, my product's good, they're gonna come back and I'll make my money on the back end. Which is, yeah, a fantastic way to think about the math and margin of all this. with, again, this kind of ex-investor mindset, looking at businesses in the supplement space or looking at e-commerce businesses, what are good and bad numbers? Like, do you have certain benchmarks for,

gross profit margin, contribution margin, retention rate, that sort of stuff, like what would you say is a good number to be aiming for?

Novi Petrusich (08:54)
Yeah, so I came from obviously B2B SaaS. So I was looking at all those metrics and I kind of wanted to align whether I wanted to or not. I had aligned to those metrics. So I was looking for like best in class retention, which is for SaaS, you know, less than 10 % annually. You're looking at gross margins being north of 75%. You're looking at obviously software businesses that are growing fast burn, but CPG is very much

the inverse of that, like you want to get as profitable as you can, as quick as you can, or you don't really have a sustainable business. So I kind of took, I cherry picked the ones that I was really obsessed about in SaaS. That's gross margin, retention, LTV to CAC. Because the business models are very similar, like you're getting a customer on a subscription in SaaS. We are a subscription business.

in CPG, so that's why those metrics actually made sense. The ones I wasn't too attuned to was like, and this proves that you have product market fit in CPG is your ROAS and your CPA. So I think what was really interesting is if you have a positive ROAS, call it like at least three to five to seven times, I think you then have a viable idea.

Like if that is what your ROAS is and you're acquiring customers for less than what your product costs at the very, very beginning, because obviously as you scale those costs go up, that is a signal to me that people want your product. And I think that's the most important signal. Because if you're just selling something and no one wants it, you'll see you won't have a positive ROAS, your CPA is gonna be super high. So it's, you

Unfortunately, no one might want your product or there's something wrong with your positioning. So those to me are the biggest indicators are like, do you have a viable business? Then it's all unit economics and financial engineering. do we know people want it at this price? So that's our customer acquisition costs. Now what does it cost us to make it? What's the landed costs? And do we have any margin there to be profitable? And then that's the rest of the game.

which as an investor, think prepared me for that. The front end part is much more, you have brand, how do you build brand equity? How do you build the community? How do you build your positioning? And that is the other side of the house. Equally as important.

Nate (11:36)
Yep. Interesting. Interesting. mean, hearing you talk about it and describe that, describe things that way, like sounds so obvious. Why, why do you think so few founders take this kind of metrics and financial math first approach? Yeah.

Novi Petrusich (11:54)
And it's really funny because we, the way I just told you is how I would make my second brand. We didn't do this, right? We went, we started with the product. We put a lot of effort into the product before even knowing if there was a market out there. We then launched and luckily we had a really good product and people did want this and we were addressing a need from market research, but we had never really tested it with ads.

So I think where people make the most mistakes and where I would do it again is I would not even make the product. I would make an ad for my per se product and see if anyone even wants it. Because that would have saved us a huge, one of the biggest mistakes we also did and a lot of founders do is like, we ordered way too much of the product at first thinking we were going to like turn the website on and sell out. did not happen. It was like crickets.

So those are those mistakes. We didn't have really a feel from demand. We ordered way too much. And we didn't prove out, hey, does anyone actually want to buy this? And those things can be done super easily and early on, an investment of a couple thousand dollars to see if you even have a viable idea.

Nate (13:13)
I want to break that down a bit. Like you said that you weren't focusing on the metrics, but by focusing on products, you kind of indirectly are right. And there's two pieces to this. One, you need to get someone in the front door to make the first purchase and everything you said about meta ads and Google ads, whatever spot on, like you don't need to have physical inventory to be able to see if people will get to a checkout, put in their credit card details and buy now. Right. If you get to that point without inventory, you just

send them an email afterwards going, whoops, sorry, out of stock, let me refund you your money. Sorry about that. So you can test that part of the funnel, as you say, without inventory, but what you just described with the kind of product focus, what you did, you know, intentionally or unintentionally do there is engineering repeat purchase rates, which is a hugely important number here. So, you know, just to give yourself credit.

Novi Petrusich (14:08)
No, I appreciate that.

Nate (14:10)
Yeah.

Well, on that topic, tell me a little bit more, mean, beyond the product itself, and I can hear you've done a lot of work there, but tell me a little bit more about some of the other things that you might be doing beyond product to kind of design, engineer, optimize, or incentivize that second or subsequent purchases.

Novi Petrusich (14:33)
Yeah, so we do a lot. think retention is probably like the most important thing to a subscription brand. But in general, subscriptions are, I think, the only way I would ever build another brand to because you have this repeat purchase rate. You have an LTV that is pretty, you can accurately kind of forecast it. If people are willing to buy it again, you have, you can.

really scale your way into profitability because you know how much revenue is coming in every month. So I know exactly how much revenue is coming in next month. That gives me such an advantage when it comes to budgeting because I immediately, 90 % of our revenue is recurring. So immediately I'm like, okay, I know how much is coming in. I know our OPEX because it's fixed. Our ads then is the only variable piece there.

And I know our cogs because I know, hey, if we do X, I know the exact amount of cogs associated with that recurring revenue. anything over that, I can bake into my calculations and my forecasting. And then it's just the ad budget. And when you really think about it,

I should, or not today, but I should be able to spend as much in recurring revenue on ads in that certain month. And I can do that because I know that that cohort of customers, let's call it like the October cohort, they're not just gonna buy one time. Like I'm gonna have them hopefully as we get better at giving them more value for years or definitely months.

So that cohort ends up being really lucrative for us. And that's why traditional metrics aren't as important. Like the traditional metrics that everybody's looking at is like ROAS, like when you're in retail and you have to maximize your one-time purchase, you're looking at ROAS, you're looking at your CPAs, you are like super honed in on that because you need to be profitable, like probably on that first order. You need to make your basket size as large as you can. For us,

blended ROAS is actually not as important because it's a little bit misleading. And so that's why as a subscription business, we're so focused on NC ROAS, with new customer ROAS and new customer CPA, because that's really the indicator to us on if we performed on getting a lot of new subscribers in that month at a, doesn't necessarily have to be

at those crazy metrics, like don't need to do an 18x ROAS on new customer ROAS. Because like, yes, if it's 18x on that first day, that's great, but really, the LTV of our customer is X, like let's say it's like six to 12 months. That revenue is actually, and we'll use easy numbers for this example, like if I land 100K, but my LTV is 12 months, I actually have about 1.2 million.

of revenue that I'm getting off that 100k. That ROAS is insane. Then you can go to your media buyer and be like, you don't need to feel bad about not hitting a crazy ROAS number because on an adjusted basis, it's fine.

Nate (18:00)
Yeah. Yeah. And so for the benefit of folks listening, I just want to really emphasize this point. mean, a typical retention rate for an econ business might be, I don't know, 30 to 40 % depending on the product and category, which means that, you know, in any given month, like the vast majority of your income and revenue is happening as a result of new customers that are coming in the door. And there's always this uncertainty about like,

You know, is the new batch of creative going to work? Am I going to have the inventory? Is this going to work? Is that going to break? Like there's so many things that can go wrong, which contrast to what you're talking about with a very high repeat purchase rate. Like it just makes it so much easier to predict and plan because you know, what's going to be getting deposited in the bank. And when you have transparency on what's coming in, I guess it makes it a lot easier to, you know, make hiring decisions, make inventory decisions. Like.

build out the team, whatever it is that you need to do when you've got that clarity. So it's really cool. Okay, so the other day you mentioned to me that retention matters more than reach. I'd love for you to elaborate on that. What did you mean?

Novi Petrusich (19:11)
So retention is such an interesting lever because if you think about traditional CPG businesses, maybe you're a clothing brand. You want to get that first order as high as you can and if that customer really likes your product, hopefully you get them to come back to your site in like three to six months or whatever it is. When you're a subscription brand, you want that customer to come, love your product and then stay for as long as possible.

Now, you can calculate an average LTV, which that helps you kind of forecast, but the one lever that breaks your forecast is retention. So if your retention gets worse, that LTV to CAC metric is no longer like your North Star. So that's like why you have to really be honed in on it. But if you can get retention better, it compounds your growth.

So it's like when I look at our growth plans, we're overly conservative because we're like, hey, this is what our churn is going to be every single month. Every point that we beat that, it exponentially helps us, one, reach our profitability goals faster, but also grow much faster because now we're keeping way more than we had budgeted in our cohort. So that's just more revenue coming in at good unit economics because we had already baked that in. And so we're super

obsessed with that metric because one, it's an indicator that people like their product. They're gonna stay and it just helps us get profitable faster and grow faster.

Nate (20:47)
Okay, okay, I get it. Cool. Tell me about the evolution of the metrics that you would look at for an e-comm business. I'm guessing, you know, the numbers and metrics you care about when we're just starting out are probably quite different to the metrics you'd look at once you're post PMF and, you know, you're doing a few million in revenue. Well, tell me how that looks from your perspective.

Novi Petrusich (21:12)
Yeah, so I think at first we were definitely looking at traditional metrics. like conversion rate is the site converting people. We're looking at AOV, so how much are people buying? Do we have upsell strategies? What's our CPAs? We were looking at blended ROAS. So those are all traditional metrics. But as we started to scale, we started realizing that like

Yes, all those metrics were really good, like almost too good. And then we started thinking like, they're like, they were a little bit misleading because there was like, they're too good. And there's a reason for that. And what's interesting is conversion rate. When you have a subscriber base early on, you have a bunch of people coming to your site that are your customers that aren't buying your product. They're just making changes. They're like pausing their subscription or they're

logging into their subscriber portal. At scale, that actually makes your conversion rate look worse because it's like you now have, right, exactly. So they're coming to just check on things. So you have kind of like customers that really are just coming just to visit and then people that are actually potential purchasers. It is really hard to bifurcate between. There's like no, I don't know a SaaS platform that like tells you like, hey, these are just visitors versus people that are coming.

Nate (22:17)
is already bought.

Novi Petrusich (22:37)
So conversion rate was a little misleading. That is obviously something that's super important to every e-commerce business. So that one was like, all right, we need to monitor that. ROAS is also misleading because of the same problem. You have this captive base that's coming next month. So I already know, even on every single day, we actually don't have this ROAS because 50 % of this revenue we got last month.

So that's why it's like, our blended ROAS looks super high and everybody's like all happy, but then when you look at NC ROAS, which is where we really, really dive down in, like key in on, that's what really matters to us, because like how many new customers landed and bought a new subscription. And then that's why we look at NCPA, because NCPA is like how many real customers landed, didn't know about the brand, bought, how much did it cost us to acquire them? And then those...

Those are now metrics that we really hone in on. It's it's NCPA, it's N0 as we still look at blended. And then conversion rate, we have to find other unique ways to kind of like monitor it because it's probably a little bit lower, not because it's actually low. Just because we have so many new subscribers coming every single month.

Nate (23:59)
Gotcha. Okay. Changing gears a bit. I'd love to get your thoughts on channel sequencing. So a lot of the folks that I work with in my fractional CFO business, right? They're looking at Shopify or DTC. They may be on Amazon. Some of them, depending on the product and the category might be contemplating retail as well. How were you thinking about your various channel options and what is the right kind of approach or sequence to attack them in?

Novi Petrusich (24:26)
Yeah, so for sure, think most people start with Meta. We started with Meta. I think Meta is probably the most easily scalable channel, especially early on for most D2C brands. So we were all in on Meta at first because that's what was working. think Google wasn't working for us. It wasn't that great early on. And I think that was actually because we didn't have reach yet. So our email list was still at like,

Nothing like we didn't have people on our email list. So email wasn't that great. So we needed meta to generate that Distribution to get actual customers start collecting emails. So meta got us to the point where we were now somewhat big and then Google just started to work like Google started performing almost better than meta But only because they were now getting that omni-channel hit. Yeah, so it's like they would come from meta

We would collect their emails. They would be now getting our emails. They would maybe look at an email, leave, and then they would get hit on Google or they would Google it. So now Google drives a lot of, Google drives a really good row as for us. But only because it's in tandem with Meta. Like you can even see it. It's like as Meta grows, Google will grow. And you almost have to scale them together.

Those two channels are obviously working very well for us right now. I think as we wanna diversify, we're really excited to try AppLovin. We haven't tried it yet, that's on, we're hoping that they let us in, if they're listening, let us into the October cohort. Because we really wanna try that, we've heard a lot of good things about AppLovin. But between those kind of channels, we're starting to now see,

everything is working together. Like Meta is bringing up Google, Google's now outperforming Meta in some cases. Our email flows are working because of all the traffic that we're capturing on site, all the people that we're capturing on site. And then our organic strategy's actually starting to kick in too. So now Instagram and TikTok and seeding are all starting to like generate more and more, call it like, it's not a halo effect yet, but it's

It's just like these different pieces are working together. And it's nice to see, because at first it's really hard when you're solely dependent on one channel. So I think going multi-channel somewhat early has been good for us, and we at least can scale for the foreseeable future with these different channels.

Nate (27:10)
And what about the actual sales channels or platforms like you on, on Amazon? you have any aspirations or going into retail or will this stay kind of an Ecom digital business? you think?

Novi Petrusich (27:22)
So it's a good question. I think we have a lot of room to run just on D2C. So that's just Shopify. We think we have a lot of room to run there. if it's more about the product and not necessarily like, we just want to be D2C, I think our product lends well to D2C. It is in the vitamins, minerals, supplements space. It's taken daily.

We have a really good offer. It's not expensive for us to ship it to your house. So like all these different factors play into why people like coming to our site and the subscription kind of, we give so much value to the customers. It's like they want to be a part of like our subscriber program. We lose that if we go to Amazon and we lose that if we go into retail. Like we're not in control of that. So those kind of factors.

I think will allow us to grow Justy to see a lot. So I think for now we're very focused on growing that channel. In the future, for sure we're thinking about Amazon, but I don't think we want to go into Amazon until our profit will just fund that new channel. Same with retail, like I don't think we want to go into retail until we've really scaled or at least exhausted Shopify, exhausted Amazon, and then.

go into retail where then people already know who we are, because hopefully we'll be a much larger brand, and we won't have to educate everybody on, know, CC, on TV ads, and we'll still run them, but like, at least you would have heard of us, hopefully. So when you're in Target or Sprouts or wherever, you're then like, I know that brand. Easier to get that purchase.

Nate (29:13)
Got it, got it, makes sense. Well, you're clearly a very numbers financially focused guy, unsurprisingly, given your background. Has there ever been a time when the numbers lied to you and maybe led you in the wrong direction?

Novi Petrusich (29:29)
I think early, it's tough because I wasn't focused on profitability very early and revenue recognition is actually interesting in CPG. You're probably way more familiar with this too and I actually would love for you to tell me how you recognize revenue. But there's a lot of financial engineering that happens in the B2B side, especially when it comes to gross margin.

in CPG, I think what was good early on is I was like, I want to be as punitive as we can in all these metrics, because then I know for a fact, if we can get gross margin and profitable with the most punitive way to look at these unit economics, we're going to be okay, because I'm like, it's not always an exact science. So I think that was good, but then also tough because I was also not a e-commerce CFO. So I was kind of

I was doing accrual and cash bases on how a B2B SaaS company would do it on a CPG company. And so that was a little interesting at first. So I was like, oh, like maybe our gross margin's a little bit inflated or maybe like our runway isn't as good as I thought very early on, but it ended up being very good exercise at least because we were kind of benchmarking ourself off a SaaS business.

In terms of things that were misleading, it's like again, the conversion rate when you have subscribers, that can be misleading, so it's not always as low as you think because you have so many people coming back. When you're a subscription business, your blended ROAS is probably not as good as you think either unless you're looking at NC ROAS or NCPA. And then COGS, that was my obsession was I wanted to get my cost of goods sold.

like perfect. I haven't tried any inventory management systems yet, and you're probably way more close to this, but I was like, it's funny, it was like I talked to a lot of bookkeepers and they all did it like different ways, like where they would be like, well, they would ask me, they'd be like, is this, like, do you look at this on like a one time basis or per every order? And I'm like, shouldn't you be telling me?

If I should be doing that, they're like, well, you bought packaging, you bought this, you bought this, you bought this. Let's just put it in that month. Like you spent that much. But I'm like, but technically, if we buy all these packages or packaging bubble mailers or whatever, we should attribute the cost of each to every single order. And then the landed cost of every single finished good that we have to every order. And then

Recognize it in that month. Yeah. Yeah, but then the actual inventory though like when you buy it Should go to the balance sheet not as like an expense now Yeah and and so and you tell me like we've been like going back and forth and it's like interesting exercise because it's like It seems like no one has like a silver bullet for like there's no like way to do it in CPG Everybody's kind of doing it differently right, right?

Nate (32:48)
Well, I think when it comes to the accuracy of your books, there's often a question of, I theoretically you're right. Yes, you should capitalize all the packaging and mailing costs, but there's always this question of like, is the extra time, effort, processes, SOPs that we need to do that actually worth what it's, know, are we, there a positive return on investment from that extra effort that we're going to have to go to?

And in my experience, there's often not. And the reason is that often, you know, mailers and packaging are really hard to track. Especially, well, could be a, maybe a bit easier for you if you have like a standardized product, but if you're a store where you have, you know, maybe 10 different case or, know, mailer sizes, depending, and you're picking a different one, depending on which items people get, like not a lot of, you know, three PLs are actually going to record.

Novi Petrusich (33:24)
you fix out the ramly art

Nate (33:44)
which box went out the door. Like, was that the 25 cent box or was that the 30 cent box that I just used? It's, you know, usually getting a little bit too detailed. So usually what I do with my folks is I just tell them to treat all that sort of stuff as incidental and we would expense it. Yeah. In whatever period it's incurred and everything up to getting the product onto the warehouse floor so that it's ready to ship everything up to that point would be capitalized and yeah.

Novi Petrusich (33:59)
in that.

That makes sense. What about in terms of inventory management systems? Because what I've come, we do everything right now on Excel spreadsheets. I'm sure you're familiar with this, as you scale, especially if you're scaling fast, your landed costs are changing constantly, on a monthly and orderly basis. So then you're constantly having to update with what our source of truth is, or our system of record is, Shopify.

I know there's so many SaaS products out there, but I also don't know, have you found one that you like? Or do you still use Excel until you can't? How do you view that?

Nate (34:55)
Yeah. So good question. There's tons of them out there. I wouldn't say I have a personal favorite, but a few points. Number one, there's nothing wrong with Excel if it's working for you. And if you're good at, you know, crunching numbers and you can set this up in a way to calculate, you know, something like a moving average cost or a, know, a FIFO then fine. a lot of people can't do that and therefore need some type of inventory management system to manage that math for them. The other.

reason why I often recommend a tool like this is because I see all the time businesses that have ridiculously long cash conversion cycles. And usually the reason for it is they just have way too much inventory. I'm not going to detour into the reasons for that. It's a very, very common problem for founders to overrule the inventory, have too much stuff lying around. Then they've got too much debt. Then they've got too much interest and they get themselves into a situation where

all of the EBITDA that they're generating is used to pay off high cost loans that they wouldn't have really needed if they just managed their inventory better in the first place. So I actually believe that, particularly in an environment where interest rates are going up or they're certainly higher than they were, therefore the cost of carrying inventory is higher than it was. I think the ROI from

Inventory management software. Most of these tools are like less than a thousand dollars a month. You can get something pretty good I think it's insane and probably a much better ROI than you're gonna get from investing in your next marketing widget So yeah, a lot of times I tell founders say hey, like you don't need more marketing toys like Let's do the boring stuff doing the boring stuff. Well is really what makes you money long term and I mean it depends on your

Novi Petrusich (36:40)
You can access it.

Nate (36:48)
know, competency in Excel. think it's possible to go to tens of millions of dollars with an Excel-based model if you've got a pretty simple supply chain and a small catalog. It's doable, but at some point, it could be worth evolving.

Novi Petrusich (37:02)
That's helpful, that's really helpful. It's hard when you're, it's funny because when you're moving from investor and you've seen, all I know is back ends of SaaS businesses. And I can do that accounting all day long. But now when I'm in the CPG space, it's also like I don't have too many people to tap on to be like, hey, is this the right way to do this? But now we're to the point where talk to enough people, and even this conversation, I don't feel bad about.

That's literally what I the conclusion I came to was like there's way too many mailers and bubble mailers and stuff and the cost is not significant enough for us to Capitalize it. Let's just mark it as an expense whenever they occur. Yeah, and I felt so bad I was like feeling guilty. my gosh, like is that I? Was like am I terrible like our gross margins gonna look so bad that month and then I was like, okay But I'm really glad to hear that other people do that. No

Nate (37:48)
You have to help finance.

Very common, very common, don't stress it. Well, listen, I've got a couple of questions for you just to wrap things up here. First one for you is I'd love to know what is your favorite KPI or business metric and why?

Novi Petrusich (38:15)
Favorite KPI. So, that's a good one. I'd say for sure the one that I look at every day when I wake up is our retention rate, so that's our churn rate in timestamp for the month. So I look at beginning amount of customers that we had at the beginning amount of the month, how many we churned since, divided by that number. So that's our churn rate. That one's super important. Our save rate, so for subscription business.

save rate is like when someone actually goes to cancel and we save them. And we save them with customer success, different tactics, different flows. We use Skio, so Skio's a really awesome platform where we can treat every cancellation reason with kind of like a last-ditch effort to save them. So I really look at that. And then it's NCROAS, new customer revenue, new customer ROAS, new customer CPA.

And I just look at that like every single day. And recurring revenue, so making sure that all those are recurring revenues up and to the right, NC ROAS is good, NCPA is good. We're not losing as many customers.

Nate (39:24)
Yep, yep, makes sense. Cool, well Novi, this has been great. I've enjoyed hanging out. Thanks for coming and visiting my living room and doing this podcast.

Novi Petrusich (39:34)
Thanks for inviting me into your living room too. It was awesome.

Nate (39:36)
Of course, of course. If people would like to learn more about you and what you're doing, know, check out Graymatter. Where should they go?

Novi Petrusich (39:44)
Yeah,

just my LinkedIn, Novisa Petrusic. I'm the only other one out there, besides my dad, so you'll find me. Shoot me a LinkedIn. You can follow me at Novi underscore P on Instagram, but those are probably the best places.

Nate (39:58)
Okay, cool, and the company website as well.

Novi Petrusich (40:00)
Company website, yeah, go to try graymatter.com. graymatter's G-R-A-Y-M-A-T-T-E-R.com. A lot of people spell it wrong.

Nate (40:10)
Perfect. Well, thanks again, man. Appreciate you dropping by.

Novi Petrusich (40:12)
Appreciate it. Thank you.