This consumer brand designs, manufactures, and sells high-end gear. After 5+ years they’ve made great progress, building a multi-million dollar consumer business, but struggle to be profitable.

LIFE BEFORE PENTANE

The CEO is an incredible product designer and visionary, but didn’t have experience with the financial aspects of running a profitable consumer product company. Although he and the team regularly look at the most recent P&L, they didn’t have a deep enough understanding of the various types of expenses and how they impact the day-to-day operations and profitability.

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The P&L is also for last month, as happens with most companies, so they were being reactive instead of proactive. As a result, both the fixed and variable expenses within the company had grown, while revenue failed to keep pace.

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Adding to the challenge, the team outsources paid advertising to an agency, which wasn’t going as well as they’d like. However, this wasn’t entirely the agency’s fault. Due to the lack of understanding regarding the financial operations at the company, the agency didn’t have the information required for them to execute the ad spend in a way that was profitable for the business. Consequently, the agency was doing what they could with the limited information they had, trying to optimize typical KPIs without any idea if the ad dollars being spent were doing “good” or “bad”.

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Everyone was operating in the dark and the company was losing roughly $100k per month.

LIFE AFTER PENTANE

Once functional inside Pentane’s Profitability System, the efficiency tools, PentaneEFX, provided the team with actionable insight, indicating that they were significantly underspending on paid advertising based on the amount of revenue, or more specifically contribution margin, that the company required to cover the existing fixed expenses.

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They, like many companies, had given an arbitrary fixed budget to the agency when, in fact, they needed to spend 300% of that budget in order to drive the revenue required to break even. Based on the PentaneEFX outputs, their ROAS was allowed to drop to 2.9 at the minimum level of break even revenue.

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With the eCommerce profitability dashboard (PentaneOS) the team was able to get a clear view of business performance on a day-to-day, week-to-week, and month-to-month basis — all in real-time. This allowed the team to closely monitor outcomes from recent changes as they were happening so they could quickly make adjustments.

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They even noticed an outlier event, an unexpected revenue/ROAS spike, which allowed them to track down a particularly strong influencer post. The result is they were able to set up an affiliate opportunity with that influencer, which continues to drive very profitable revenue.

THE RESULTS

In the first 90 days with Pentane, the company was able to…

• Increase YOY revenue 234.2%

• Reduce fixed expenses 13.1%

• Reduce variable margins 23.4%

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And achieve profitability

• Month 1: $102k loss

• Month 2: $12k loss

• Month 3: $44k net profit

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