How we turned a $400k expense into a 6-figure income

BUILDING WIDE ::: Partnered with AOVboost

The last few weeks, we've been working on moving into our new warehouse/manufacturing space. Months overdue, but the permitting is done, and it's finally happening! Needless to say I'm super excited. Here's a sneak peek of our screen printing shop - which is actually what I'll be discussing today!  First, a quick shoutout to one of my favorite Shopify apps, who was generous enough to sponsor this edition of Building Wide.

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Today, I'll be discussing a business practice that I'm particularly passionate about: turning a cost center into a profit center. In short, this means taking a part of your business that costs you money, and flipping the script to make you money - sounds pretty neat right? There's lots of good examples of this, but here's a couple that stick out to me, so you can get the creative juices flowing:Amazon / AWS - taking their massive, expensive servers that host Amazon's website, and selling excess computing power via AWS [Amazon Web Services]. This operation is now large enough to be Amazon's MAIN profit center - with annual revenues of $74b.  You likely go on a website or app hosted by AWS multiple times a day and don't even know it.

Beard Brand - eCommerce brand selling men's grooming products, launched a Youtube channel where they made content surrounding their niche. Brand-related content is usually a cost-center, a cost that is sacrificed in order to reap the payoff of social media exposure and results from paid advertising. However, in the 10 years of operating their Youtube channel, they've had over 450m views.  At a $10 CPM (totally guessing here), that is $4.5m in Adsense revenue ALONE. Not counting all the free exposure to their products in these videos, that would likely also cost millions of dollars if paid for.

ShipHero - Aaron Rubin started ShipHero as strictly a software company, selling enterprise-level WMS/3PL management softwares to large ecommerce clients. Later, Aaron and his team realized they could also run a 3PL warehouse using the tools they had already built, and be better than many competitors simply by having access to the tools and know-how from years of laser focus on warehousing.

Our story:

Looking over our PnL every month, my mind wanders down the path of decreasing expenses... or how we can make money from them, while operationally changing very little. Often, this mental exercise churns out bad ideas... and thankfully I'm pretty quick at recognizing how bad they are.  But once in a blue moon, there's an opportunity that can move the needle in a large way.

July 2021: Bradley and I were pouring over Q1/2 numbers. iOS14 was in full effect, and we had to really buckle down on spending to finish out the year where we wanted to. He said something to the effect of "wow... we're going to spend $400,000 on screen printing services this year."  We both sat there for a moment, and immediately knew what each other was thinking....Up until now, we had outsourced this service. We didn't have any industry "know-how", nor did we desire to. We sent the artwork+blank shirts to a local shop, and we received the finished goods. 2 emails and it was done.  It was easy to pass along the dirty work to a local company, and focus on other areas of the business. But after a year of large growth, the number became too big to ignore.

After some Googling, we found we could start a good screen printing operation for $150k in equipment + 2 employees (we were wrong about the 2... you really need 4 to be efficient).  Seems like a no-brainer right? Year 1, your expenses will be $250k (equipment + employees), and year 2 your equipment will be fully owned, with only rent + staff overhead. 

Year 1: Net $150k cash + $150k assets

Year 2+: Net $300k cash

This does not include the major needle-mover: selling our screen printing services.  A couple months of calling, planning, hiring, and purchasing... Tidalwave Screen Printing was born. Take a look at our crowded little shop when we first started haha.

Now, I cannot honestly sit here and write that this was an easy and crazy profitable path right out the gate - while I do believe it was absolutely the right decision, it has been incredibly challenging.  Unforeseen expenses (turns out, setting up printing jobs is slow as crap until you get this $5k thing), delays, learning curves, stress, working until 1am to get deliver on our promised timelines - all while building a brand new team in an industry we knew very little about.  It always seems good on paper, right? The paper often means very little. We had no air conditioning in the heat of Tennessee summer...

Fast forward 1 year, and we just got some upgraded machinery, and a bigger shop to continue to grow (with AC). At the pace things are going, Tidalwave will surpass Shelly Cove in revenue by the end of the year, with a goal of $250k/mo in service billings.  All from a finance meeting where we thought... "we're spending alot on that".

How you can do it too.

I like to frame the question in this way: what is something you are already doing (and doing well) that can be reframed into a service... or repackaged and resold in a different way?  This can only work if you already have a rock solid framework and SOPs for handling projects.  We immediately made a project database in Notion to handle print jobs. There should be absolutely zero confusion on what needs to be done, when, and by whom.  The stricter the better.

So here's a couple examples for you to think about:

Are you REALLY good at email marketing, and have a team in place to manage that for your brand?  Can you copy/paste that framework and sell email marketing services to other brands?

Do you make all your content in-house? Can you work with your team to create content for other brands and become a content studio on the side? 

Do you source your own products from factories overseas, and can act as a middle man with operators who are not as comfortable navigating those waters?

Do you run a warehouse for your brand, and can handle the logistics for other brands in a similar niche? (hint: we do this too. That's for another week though)

So that's all for today, if you read this far... thank you! I'll leave you with this. Your company is only as good as the team you hire. So hire A-team players, build them systems to thrive, and get after it.

Thanks again to AOVboost for sponsoring this week's newsie!