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How to Save 20-60% on Your Supplement COGS
Sean Ross is a manufacturing expert who works for TWS Nutrition, a nutritional supplement contract manufacturing aggregator with more than 40 years of combined experience and billions of dollars in nutritional product sales. TWS Nutrition specializes in helping companies reduce their cost of goods sold (COGS) by 20-60% and eliminate their manufacturing challenges.
As a manufacturing guru, Sean helps e-commerce entrepreneurs drive out unnecessary costs, improve their bottom lines, and boost the value of their businesses.
Here’s a glimpse of what you’ll learn:
- Sean Ross shares how the 2008 economic crisis (and some keen advice) led him to a career in the nutrition industry
- How to reduce the cost of goods sold (COGS) when buying a nutritional supplement company
- Sean reveals the surprising reality of manufacturing markup costs
- Can you effectively negotiate markup prices with a manufacturer?
- How Sean helped a client add millions of dollars of value to their company by reducing their COGS
- The wide variety of manufacturers that Sean works with day-to-day
- How TWS Nutrition makes a profit, despite charging $0 for its services
In this episode…
Do you want to boost your company’s value in order to have a more profitable exit? Or, are you looking for some expert strategies that will help you grow your new business exponentially? If so, this episode of the Quiet Light Podcast is a must-listen!
With years of experience in the nutrition industry, Sean Ross uses his expertise in the manufacturing of supplements to help e-commerce entrepreneurs dramatically grow the value of their businesses. By reducing their cost of goods sold (COGS) by 20-60%, he has improved businesses’ bottom lines and boosted their values by millions of dollars. So, how could Sean’s manufacturing strategies help you achieve greater growth potential and profitability today?
In this episode of the Quiet Light Podcast, Joe Valley sits down with Sean Ross of TWS Nutrition to reveal how you can grow the value of your business by reducing your cost of goods sold (COGS). Listen in as Sean discusses the surprising truth of manufacturing markup costs, the secrets to shrinking your COGS, and a real-life example of how his company helped an entrepreneur add millions of dollars to their business’ value by diminishing their unnecessary costs. Stay tuned!
Resources Mentioned in this episode
- TWS Nutrition
- Quiet Light
- Joe Valley
- Mark Daoust
- The Quiet Light Podcast email: [email protected]
- Institute of Food Technologists (IFT)
- Pack Expo Trade Shows
- “Incredible Exits – Mike Jackness – Selling ColorIt” on the Quiet Light Podcast
- “Incredible Exits Gets a Sequel: More From Mike Jackness” on the Quiet Light Podcast
Sponsor for this episode…
This episode is brought to you by Quiet Light, a brokerage firm that wants to help you successfully sell your online business.
There is no wrong reason for selling your business. However, there is a right time and a right way. The team of leading entrepreneurs at Quiet Light wants to help you discover the right time and strategy for selling your business. By providing trustworthy advice, effective strategies, and honest valuations, your Quiet Light advisor isn’t your every-day broker—they’re your partner and friend through every phase of the exit planning process.
If you’re new to the prospect of buying and selling, Quiet Light is here to support you. Their plethora of top-notch resources will provide everything you need to know about when and how to buy or sell an online business. Quiet Light offers high-quality videos, articles, podcasts, and guides to help you make the best decision for your online business.
Not sure what your business is really worth? No worries. Quiet Light offers a free valuation and marketplace-ready assessment on their website. That’s right—this quick, easy, and free valuation has no strings attached. Knowing the true value of your business has never been easier!
What are you waiting for? Quiet Light is offering the best experience, strategies, and advice to make your exit successful. To learn more, go to quietlight.com, email [email protected], or call 800.746.5034 today.
Hi, folks, it’s the Quiet Light Podcast where we share relentlessly honest insights, actionable tips, and entrepreneurial stories that will help founders identify and reach their goals.
Joe Valley 0:29
Hey folks, Joe Valley here one of the hosts of the Quiet Light Podcast and today’s episode is brought to you by Yes, Quiet Light. A small to middle market entrepreneur led m&a firm focused on online businesses only. Everyone on our team has built, bought or sold their own online business and now act as advisors to other entrepreneurs seeking an eventual exit see no pressure eventual exit. We’re very laid back about our process and we’re helping you first. In 2020, our largest deal was just under 25 million and the average was 1.7. The smallest was just about $16,000. My point was sharing those is that we’re here to help everyone in the audience no matter the size of your business. Now, before I introduce today’s guests, I want to share some relevant information from you from a couple of deals. If you heard my two part podcast interview with Mike Jackness when I sold his business back in 2019, his business was Color It, talked about it on the podcast, his buyer had no issue with it. We talked about it in detail, you know that we made an add back adjustment when Mike renegotiated his cost of goods sold with his manufacturer partway through the year. Doing this proper add back adjustment, added $43,000 to Mike’s SDE and almost $142,000 to the list price of the business. It was simple math and logic that most aggregators hope you miss when you buy into their pitch, avoiding the broker fee. On a separate deal. Last year, I had a buyer that had a manufacturing connection that was able to produce the same exact product line for about $4 less per unit, the buyer knew this alone, get these numbers would save them about $17,000 a month and give them instant equity about $714,000 when he closed on the business. Because of that he was happy to outbid other buyers With this knowledge in hand. So if you haven’t figured it out yet, today’s guest is a manufacturing expert. He focuses specifically on the supplement space, and helps ecommerce entrepreneurs reduce their cost of goods sold, improve their bottom line, and overall value of their business. His name is Sean Ross, and he’s with Total Wellness Solutions. Sean, welcome to the Quiet Light Podcast.
Sean Ross 2:57
Thank you for having me, Joe. It’s a real pleasure honor to be here and looking forward to sharing some insights, some knowledge that I’ve acquired over my entire career with some of your listeners today. And hopefully they can get some value out of it.
Joe Valley 3:10
I’m looking forward to that as well. Because what you offer in terms of reducing cost of goods sold, people are always trying to drive more revenue, more revenue, more revenue, it really should be about more profit, more profit, more profit. And you help tremendously with that. So why don’t we talk about your your background and your history? But don’t you tell folks a little bit about that. So they understand the expertise level that you do have?
Sean Ross 3:33
Sure. Well, you know, I wish I had a real heart throbbing story that brought me to this industry, but it was really out of out of need for a job, like most people out there. And so I was actually in law school in 2008 2009 when the economy crashed, and it was a really bad situation for everybody, United States. And so I was in law school, freaking out about student loan debt, and realized, not sure this is really the best path for me. As soon as the Wall Street Journal came out their article saying the worst year ever for law school graduates, I’m seeing peers of mine, doing paralegal work for $25 an hour and have, you know, a quarter of a million plus in student loan debt. So I said, you know, I’m going to take a break. And I’m originally from Montreal, Canada. So I drove from Michigan to Montreal. That was my mum over the weekend. And I drove I flew back from Montreal to LA to meet with my girlfriend who is now my wife I’ve been together for I’ve been with her for 18 years now. So you can do the math to figure out how young I am. And so on this flight back from Montreal to LA, I was pouring out my guts to this guy Oscar who was just such a match, as we would say, right, just a guy that just would really listen and I Um, you know, my concerns then obviously had some of his own. And, you know, I was like, I don’t know what I’m gonna do. I have all the student loan debt, I don’t know where I’m going to go, I don’t know how I’m going to make money. And I’m thinking my problems are the biggest problems in the world, but they’re probably not compared to many other people that, you know, have children and parents and other things that I’ve got to take care of in mortgages. I didn’t have any of that back then. But it was big domain. So he listened. And, you know, I asked him, you know, questions about himself, and I said, How did you get into what you’re doing? And he’s like, I’m a plumber. He’s like, Look, I’ve always been a plumber. My grandfather was a plumber, my father, my uncle’s, everybody. My family is a plumber. Like, did you ever think about doing anything else? And he said that, believe it or not, I was kind of in a similar situation to you back in the early 80s, when the economy wasn’t in such a great place. And I was graduating high school, I wasn’t graduating college. And I was thinking about going to play football. And my grandfather gave me this advice that I want to give you, my a lot of cursing your podcast, by the way
Joe Valley 5:57
You are, but it will get an explicit rating. I didn’t know that until I decided to share a podcast with my sister. And she said, and it was on Spotify. She goes, why is it have an explicit rating, and I felt dirty all of a sudden, feel free to say whatever you want.
Sean Ross 6:13
alright, if if it’s too offensive, we can cut it. But I want to give you the exact quote that he gave me because I feel it makes the most impact. And he said, Listen, whatever you decide to do in life, as far as a job, remember, there are two things that humans will always do. They’ll eat, and they’ll shit. And so if you pick one of those two industries to work in, you’ll always have a job, who likes to say I picked the shitty part of the industry, right? And so I just want to give that to Sean. And so as I’m driving from LA to San Diego, I’m thinking about all the things he missed, you know, humans have to breathe, humans need clothing, human need shelter. I’m, I’m just like going through all things you missed. But besides the point, I was focusing really in on, you know, what he told me and so I thought, okay, I want nothing to do with that at the other end, I want to, I want to focus on the food part. And so I came down to San Diego, no joke, I must have applied to 100 plus companies in the food industry, and found a job in the nutrition industry. And that’s where it all started. And I worked my way up the ladder, moved on to the world’s largest sports nutrition company that owns some major brands that all the listeners here would be very, very well aware of. And that’s where it all started.
Joe Valley 7:34
And at that major sports nutrition company, your role was, I think we talked about it before it was working with the manufacturers and reducing cost of goods sold. What are what led you to doing what you do now, I assume that you probably had something to do with that at that company,
Sean Ross 7:49
we did a little bit. And so I was fortunate enough to learn really everything that goes into making a nutritional product. And it wasn’t just nutritional, we had some food brands, some beverage brands that we manufacture products for as well. And so we owned our own contract manufacturing facilities at this big company. And so I got to see really what did it cost to make the finished product? You know, what, what should it cost to blend? What does it cost to fill? What are the testing costs? You know, what should the yields be on these? You know, it’s a lot of people, a lot of things people miss is like, Okay, well, you know, if they’re, you know, they’re losing 5, 10 percent of their product, there’s this cost that’s being lost there, right, especially if you’re supplying some of the components. I learned about ingredient manufacturing, because we were an ingredient manufacturer, one of the largest in the world. And so I understood what does it cost to make these ingredients. And so, you know, for doing this for so many brands for so many years, I realized there’s a lot of brands out there that were overpaying. And a lot of the ones that we were making products for that were overpaying. And obviously it’s on either side of table and trying to get as much margin for our own company. But at the same time, I saw what it was doing to all these brands that were struggling to come back for a second order. And so instead of you know focusing on squeezing my customers for as much margin, I wanted to find a happy place a happy medium and obviously the big company I was working for didn’t like that. They wanted me to squeeze them for as much margin. They didn’t care if they came back for a second order third order they want to maximize it on the first one. And so at that point, I decided I’m gonna take everything I learned. I’m going to start my own brands and I’m going to try and help some other brands achieve success that I believe they can you know, they can be awarded if they were given the right knowledge and insight expertise that I’m able to give them
Joe Valley 9:37
awesome. Hence the launch of twsnutrition.com. For those in the audience that are just closing a transaction on buying nutritionals supplement company are those that run them now. Can you share like one or two ideas on how to reduce their cost of goods sold if they’re just going to keep negotiating with their current manufacturer any any thing that you You would do when you step in and look at these things?
Sean Ross 10:02
Yeah, absolutely, I mean, the the easiest place to, to look for some savings, right away would be in ingredients, right. And so, you know, say you’ve got, you know, five ingredients or 10 ingredients, you know, pick, you know, the top three or top four, that are really making up the most cost. And if you don’t know what the cost of those ingredients are, and your manufacturer isn’t willing to disclose that and share it with you, you can go out to the market and you can find it right you can, you can do some searches online. And for example, if you want to find out what is ascorbic acid, which is vitamin C, you know, what is the market cost on that you can type in the ascorbic acid ingredient suppliers or distributors. And after making half a dozen to a dozen phone calls, you can get a pretty good sense of what the cost or the market cost of ascorbic acid is right now. And you can do that across all of your ingredients. And then look at your formula and look at your look at your label and figure out okay, what is my true ingredient cost for this product. And then whatever’s not whatever whatever’s left over is what the manufacturer is charging you for their manufacturing services, which would be the blending and the filling, and the pack out and your packaging cost. And then you can move on to your packaging and find out okay, if the manufacturer is supplying the packaging, well, then you can reach out to packaging suppliers do the same thing I said about ingredients, you can search different packaging suppliers.
Joe Valley 11:26
And understand you’re suggesting that to somebody that you know sells a supplement that includes vitamin C, for instance, that they would source that vitamin C and send it to the manufacturer themselves to reduce the cost of goods sold.
Sean Ross 11:40
So that you can do either, but in the example you’re giving me where they’re happy with their manufacturer, but they want to figure out how they can reduce their cost of goods. And then they go to their manufacturer, with this information, say look, okay, I’m thinking about supplying these ingredients. If I were to supply all the ingredients, what would you charge me for just the blending in the filling of my product? And that’ll really give you a good sense of what, are they marking up ingredient costs too, because there’s always a markup, right, you have to cover overhead, they have to cover tax, you know, insurance and everything else that comes along with it. But it really gives you a good deep inside look as to what your true cost is. Right?
Joe Valley 12:19
Yeah. And that’s going to impress them that you’ve done that research and have the knowledge on their bottom line, so to speak. You said to search for vendors, manufacturers, suppliers or distributors, I always find that it’s incredibly hard. I feel like the manufacturing industry in this space is so antiquated. It’s nearly impossible to find good ones just by doing a search. Am I wrong? Or what kind of keywords? Would you search for? in doing that when you’re trying to find the ones who, you know, produce these products? Or
Sean Ross 12:53
Yeah, yeah, great question. And you’re right, there are a lot of really bad suppliers and bad manufacturers out there. And it’s tough being a brand owner and not really coming from within the industry. Because you’re you’re really taking a chance, every time you commit to working with somebody. There’s a great organization that you can look up. It’s called IFT. And they list this is where all the huge nutritional and supplement manufacturers distributors will come to once a year. Well, they used to pre COVID. And they’d go to Vegas, we take up, you know, a convention center. They’re typically the Mandalay Bay, and you could walk up and down the aisles and you can find every single ingredient. You can imagine every distributor, every manufacturer, and I’m not kidding, there are 1000s of exhibitors at that show. And so on their website, you can look up distributors, you can look up manufacturers, and it’s a phenomenal resource. Phenomenal. There’s another one.
Joe Valley 13:57
What’s IFT stand for?
Sean Ross 13:59
That’s a great, that’s a great question.
Joe Valley 14:02
I think for somebody as international freight transport.
Sean Ross 14:04
Now international food technology and food Technology Association.
Joe Valley 14:12
I’m not going to let people and we’re not going to go on until we figure out what it is. It’s a great question.
Sean Ross 14:18
And I would be more prepared. If you’re gonna ask me this way.
Joe Valley 14:21
I’m gonna ask you all sorts of questions. Make sure you’re not fully prepared. ift.org There you go, folks. I looked it up for you. International Food Technology Conference. 2021. Yeah, well, that’s pretty cool. So you can go to that event or can you find the name of all of those vendors and suppliers on their website? I have. They are Yeah. So you don’t actually have to go to Vegas. You don’t have to wait. You can you can dig into those. Okay. So that’s huge. Is I know that you know, when I sold my supplement company back in 2010, and I used Garden State Nutritionals. But initially but then Douglas Laboratories and Know that they would bring stuff in by the barrel load and then mix it all up and put in a little capsule? Is Is it inconceivable that I could have ordered, you know, the 55 gallon drums myself to save the cost incentive to them? Or is it pretty likely that somebody like Douglas Labs is going to go? Yeah, no, we’re not letting you send us this because we’ve got certain standards?
Sean Ross 15:25
Well, I know both those manufacturers very well, I hope they don’t hear this podcast, but we won’t name names. Yeah.
Sean Ross 15:35
You know, they, like many others, you know, like to make money on everything that they do, right. And if they’re getting, you know, an ingredient at call it $5 a kilo, because they have this buying power, they’re not going to just mark up their costs, plus, you know, whatever their their service costs are, they’re gonna make margin on it, they’re gonna make margin wherever they can. And so, you know, a lot of a lot of manufacturers Believe it or not make anywhere from a 50 to 100% markup on the ingredients, which is well, well above where the cost should be it traditionally, it should be, I would say anywhere between eight to 10% markup on those ingredients, yeah, to cover internal costs. And so yeah, if you were to go out and source it, you would have gotten a better price, I can guarantee you that, that’s for sure.
Joe Valley 16:25
But I really don’t want to buy 55 gallon drums of powder and ship it there. So at the very least it’s going to help me negotiate a better deal with them. Or IFT is going to help me find other manufacturers ift.org.
Sean Ross 16:38
Exactly, exactly, you know, or gives you the leverage to negotiate, you know, what’s your existing manufacturer, say, look, you know, I’m okay with you making a margin, I’m not okay with you making 50% on the ingredients, you know, let’s find a place where we’re both happy. We’re both comfortable, and it’s a win win for everyone.
Joe Valley 16:53
Yeah. And I had no understanding of it no knowledge, therefore, I had no power to negotiate. My Local rep was very nice. But yeah, she was probably making a big commission off of everything I did. And if my buyer for those that are buying these, if my buyer had had the knowledge that you have, he would have instantly had, as I mentioned in the intro, instant equity in the business on the day close, because he would have been able to reduce the cost of goods sold pretty significantly.
Sean Ross 17:23
Joe Valley 17:23
So you said something prior to this about, you know, the packaging, the bottles, the capsule, the caps and all that. Those are pretty standard things. And of course, you know, the manufacturer is going to mark those up as well. But if I order them and ship them, are they just going to accept and receive it and not marked up? Or is it just something that again, is knowledge is power? And I’m okay with you making 10%? But not 50%? on these?
Sean Ross 17:50
Yeah, I mean, sure, I think I think I’ve you can go either way with the packaging. A lot of manufacturers really don’t want to supply any film, for the most part. Film is like, you know, if you’re looking at like a stick pack, or a gusseted bag, you know, like a baking mix would come in, you know, yes, anything that’s like custom printed, that you can’t reuse for another customer. Most manufacturers don’t really want to supply that because they’re buying it on your behalf. Right? Right. And if you don’t come back, they’re stuck with all this material, on bottles and canisters that are that are blank that only require a label, you know, you’re going to you’re going to get your best price by working with them direct. And those are those are quite inexpensive. Although I encourage you, as an owner to understand what are those costs, don’t just take your manufacturers word for it, you know, if they’re going to break down the line item of you know, what is the cost for the lead? What is the cost for the bottle, you’re on research, make sure you’re getting the very best possible price. And, and you know what, just because they’re buying a lot of them, doesn’t mean they’re doing a good job buying. And I found this a number of times, and I continue to find it as I’m doing more of these evaluations that the buyers of these of these big nutrition companies, they’re buying 1000s of ingredients, you know, and hundreds of different packaging options. It’s impossible for them to stay on top of what really is the market price and we’re where it should be. And so that’s what we do we focus on where is the market price at all times? Because you know, who cares more about their own business than themselves? Right. And so we actually bring savings to our existing partners and manufacturers because they were unaware that the market shifted. And usually it’s when the market shifted down as an ingredient suppliers are happy to take those purchase orders at a higher price.
Joe Valley 19:37
Yeah, that makes total sense. Is there a resource like ift.org where then that is just for packaging or do you have to you know, dig around Google to figure that out.
Sean Ross 19:49
There is a company called PACK EXPO. Okay You can you can go to PACK EXPO i think is packexpo.com or.org and very similar lists all the packaging man factories and distributors. And it’s another big show in Vegas. Used to be on a big show in Vegas every single year, it’ll be big again, it will be it will be Sunday. And believe it or not, the IFT and the PACK EXPO are which one weekend apart from one another, they usually would go to the PACK EXPO first. And then you’d stay a few days party, have some fun in Vegas, and then you go IFT,
Joe Valley 20:21
or go for a refreshing hike, depending upon your you know, preferences. That’s right, gamble, whatever. All right, that makes sense. It’s nice that it’s that close together. For sure. It sounds complicated, though. I you know, I gotta be honest with you, I’d be nice for you to have this knowledge. But I don’t necessarily want to do it all myself on so many different things that I’m operating as an entrepreneur, that it wouldn’t really make sense for me to take all of this on. Hence the reason why I’ve got you on the podcast, I love that you’re giving it away for free. People can go do this research. But ultimately, they’ll have to make their own decision whether they want to step into that your realm and try to do this themselves or connect with you and see if it makes sense. To have you do the work for them. Can you talk about some of the work you’ve done for clients as a way of example, in what you’ve been able to, you know, save them in terms of cost of goods sold, or packaging and things of that nature to help them?
Sean Ross 21:13
Yeah, absolutely. So I have a give you example of one of the one of the early brands we took on about two years ago, they were selling a turmeric curcuminoid extract product was a 60 count capsule on a bottle, take two a day for 30 days supply. They were doing about 20,000 bottles a month in sales. And they were referred to me by a mutual friend that I saved helped them save money on their manufacturing this day, you might, you might want to let Sean take a look at your cost of goods and your supply chain and see if there’s some savings because they were growing. And they were doing quite well. And so I did a full evaluation on it. They were paying just over $12 a bottle. And we were able to get them the exact same product For under $9 a bottle.
Joe Valley 21:59
Holy cow, they were selling 20,000 units a month.
Sean Ross 22:04
A month. So this was two years ago. Fast forward to today. They were saving what $60,000 a month when they made the switch. They’re now doing between 100 and 150,000 bottles a month. That is 300,000 to $450,000 a month in savings.
Joe Valley 22:26
I don’t know, I don’t know about your math, but I’ve got my calculator up on my screen. And it’s more than that originally, you save them a lot more if it was 20,000 units a month went from $20 to nine you save $11 a unit. That’s $220,000 a month
Sean Ross 22:41
now went from 12 to $9.
Joe Valley 22:44
Okay, there’s my bad math, there’s no math saved. Okay. All right, your math is right.
Sean Ross 22:50
Joe Valley 22:52
Bottom line, though, even even with that, it sounds like it got a lot better as they grew, you know that $60,000 a month, it’s real cash folks that’s in your bank account to spend on advertising or put in your pocket. But that’s an increase in that example, shot of $720,000 a year if it was equal throughout every month of the year. So it’s more more cash in the bank now, but also a business of that size, with recurring revenue. And I’m sure the discussion earnings was a lot more than 720, probably five or six times or 10 times that. That’s something in the probably valued in that seven to 10 time multiple range. So for simple math, you added probably $7 million onto the value of their company by reducing their cost of goods sold like that. That’s pretty impressive.
Sean Ross 23:42
It is it is and and as you mentioned it, it goes to the bottom line. So as much as I’d love to say their growth and success was because of the work that I did for them. But I’m only I’m only a part I’m only a small part of it. Obviously, they’re fantastic marketers, they’re really good at what they do. And they do give me a lot of credit. And we’ve grown and we’ve done a lot more products with them to date, because we’re able to check the boxes in the three major qualities that I tell everybody to look for. And in a business and what are those service, quality and price. So if your partner your event, your vendor manufacturer can check all three of those boxes for you. You’re going to have the best chance of success as a business owner. If you’re getting two of them, you’re going to still do okay, but you’re not going to be as successful.
Joe Valley 24:37
How do you so I get the service and price. Let’s go to the one in the middle and quality. What type of things do you look for in terms of credentials that a manufacturing company has to have for you to do business with them.
Sean Ross 24:49
We are very strict on quality. So we want to make sure that every single ingredient is tested on the inbound receiving to our manufacturer and so you know, that’s Where you make sure that obviously you work with trusted vendors and suppliers that you’ve known for many, many years? Right? Just because you found a great price doesn’t mean that they’re really selling you vitamin C. Right?
Joe Valley 25:11
It could really happen. I mean, I know we all talked about the fear of that. But is that how often does that happen? I guess even if it happened 10% of the time, it’s way too much. But,
Sean Ross 25:19
you know, it doesn’t happen as often as it used to. I think we, we had a little bit of a rogue industry many, many years ago. Yeah. But it’s really improved. It’s really cleaned up quite a bit. And, you know, we have some independent agencies that are going after brands and businesses that dude, this and we do hear about these class action lawsuits, lawsuits, but not as much as we used to? That’s a great question.
Joe Valley 25:43
Okay, so they’ve got a test that tested on the inbound so that, and that’s the manufacturers doing the test where they hire an outside service to do the test.
Sean Ross 25:53
Usually, the manufacturer has the capability to do it in house. Otherwise, it just takes too long to have to send out ingredients and have it tested. But coming back to the you know, the relationship with the vendor who supplied the ingredients, you want to make sure they’re sending you something that’s not expired, either, or not near expiration, right. useful. Yeah, yeah. And so, you know, on the inbound receiving of ingredients, you’ve got to make sure that you’ve you’ve really done your due diligence where your manufacturer has to make sure you’re getting something that’s fresh product. that’s truly what it is. And actually works in your in your finished product at the end of the day. And same thing on the on the on the end of manufacturing, we want to make sure that you meet your label claim. There’s there’s a lot of these ambulance chasers in our industry. And we don’t want to give them anything to go after. It’s we always want make sure meet label claim.
Joe Valley 26:44
It’s funny cuz I just, you know, I’ve done a couple of deals recently, where actually Brad launched one month or so ago, where there were some pretty nasty letters that were from, you know, ambulance chasers. We’ll leave it at that. And, and partially because of mislabeling, partially because of mislabeling, and it does exist. It’s out there. I know that claims and false claims are pretty big. No, no, and people will get you pretty quickly in this industry. I had a I had a local attorney general in this small town in this county in state of California, obviously, more than a decade ago, cuz I sold mine in 2010. But he sent me this nasty letter, wanted settlement for my false claims where I use the word will instead of May. Oops. And I did some research and based upon my attorneys advice to see how many units I had sold in that county. The number was zero. I told them to go pound sand, but I corrected my my claims made sure it was okay.
Sean Ross 27:55
I thought you were going to say bought one and it was an attorney?
Joe Valley 27:58
No, it would have been heavier he should have bought, he should have bought one before we made that sent me the nasty letter. Tell me about the types of manufacturers and how you work your you know, your company has relationships with how many manufacturers and what types of manufacturers and what kind of clients? Do you connect with them or renegotiate deals for?
Sean Ross 28:18
Yeah, great question. So our relationships are not just along the lines of finished product manufacturing, but it’s also with ingredient manufacturers and packaging manufacturers. With this, can
Joe Valley 28:30
you define the three of those for me?
Sean Ross 28:33
Sure. So let’s go with packaging. That could be someone that you know, prints, labels, manufacturers, bottles, lids, gusseted bags, stick, pack, film, sachet film, anything on the packaging front, okay? On ingredients, or ingredient factors that are either doing the extraction of those ingredients that are milling the ingredients, they’re doing something to it to enhance its bioavailability or its dispersion. And so we have relationships and deep relationships on the ingredient side as well. And then on the manufacturing side, this is where they take the packaging and the ingredients, put it all together and give you a phenomenal looking product that’s extremely, you know, high quality and beneficial to your customers.
Joe Valley 29:20
Okay, so you work with all three? How is it that you work with, like if I was your client, on behalf on my behalf with the ingredient manufacturers? Because isn’t it the manufacturer that’s ordering from the ingredient manufacturer?
Sean Ross 29:36
So most of the time, that’s the case. And manufacturers really don’t like us most of the time, and that’s because of what we do. Like the ones that do like us, they love us because we bring them millions of dollars in business a month. And so not everybody is going to be okay with having these types of conversations right? One little trick that we do in house, we do like to allow our manufacturers to buy all the ingredients, because it’s easier for them to do that. Yeah, we make sure they don’t mark it up too much. We keep a very close eye on where the market price is. But I’ll give an example of one brand we’re working with today. And so there’s an ingredient that we bring from France, that’s over $2,000 a kilo. It’s contributing to about $2.50 in cost in each bottle. So it is significant it is more than 50% of the of the actual cost of the product itself. We buy that ingredient. And and the customer actually buys the ingredient and ships it into the manufacturer. Because that markup that they would put on there, even if it’s 10%, that’s a massive markup on 20 $200 a kilo. So it’s a good little trick to pick the things that are really the biggest cost drivers, and then maybe supply those, I’ll give you one more example. And a lot of drink mixes, you’ll have natural flavors. Well, that flavor cost is very expensive, especially if you’re if you’re getting it from, you know, a flavor house, a lot of a lot of brand owners let their manufacturers create those flavors for them, what we do is we actually don’t allow the manufacturer to create anything, we don’t want the manufacturers to own anything. And that’s where it can become challenging one day when you want to sell your business. And that new buyer wants to maybe move the manufacturing because they know that they can save a tremendous amount of money on the cost of goods, if you don’t own the formula. Or if you don’t even own the flavor system, they’re going to be stuck, and you’re going to be stuck and your business isn’t gonna be worth as much. So the first thing that I do when I speak to clients, is I make sure that they own 100% of everything. So that when they do want to sell their business, it’s going to be as easy as possible. And they’re going to maximize as much value as they possibly can without having to pull in other people.
Joe Valley 32:04
Interesting that goes to the transferability pillar that we talked about. There’s risk, growth, transferability and documentation and normally transferability is not an issue. But it sounds like in this case, it could be even if it’s after the fact when somebody buys the business and wants to move the manufacturing to save on cost of goods sold and gets an instant equity. That’s very interesting.
Sean Ross 32:28
Joe Valley 32:29
Are you focused primarily on in the human supplement space, or you do any other pet pet space or anything like that?
Sean Ross 32:38
We are exclusive on human supplement doesn’t mean that our existing manufacturers can’t make pet supplements. But we just haven’t really gone? We haven’t really gone into that that area, although it intrigues me and I see that as becoming a really popular place. I mean, it’s it’s shocking how much and you being a, you know, a pet owner, and how much money, you know, people will spend on their pets. And in some cases, I’ve heard people spend more money on their pets and they do on themselves. And so it’s an intriguing category. We haven’t gotten into it yet.
Joe Valley 33:15
I’m not I’m not one of those pet owners, by the way. So sorry for those people out there in the audience that are but yeah, you see Dasher in the background. That’s we’ll switch today. Oh, well. Yeah, it’s an interesting space. If a you know, pet listing comes up. That’s a supplement, pet business, human supplement business as well. But speaking of pets, individually, you know, we get we get multiple offers on that all the time. So if somebody was in that space and wanted to hire you, as a consultant, just to educate them on how to negotiate with your manufacturers as a service that you offer, or do you foresee you know, in the future that you end up working directly with different manufacturers of pet related products?
Sean Ross 34:05
Yeah, that’s a great question. I’m not sure if I’m not sure to either. It’s a really good question. Yeah, I wasn’t sure that we were going to turn this into a business, we twsnutrition.com. And I was I was really, I was doing this as a favor for friends. Right? So I had lots of friends come to me that own brands, and I’d help do some negotiating or I’d make some intros or to give some, you know, in you know, some advice, and then I start getting more people coming in and I’m like, okay, like, I gotta turn this into a business and the very first client that we took on, you see them $4 million in their first year, holy cow, and I was just like, this is a huge company that’s got 1000s of employees. I’m like, why can’t they do this? What is it that that they’re missing here, and I It comes back to, they’ve got one buyer, that’s buying 1000s of components, and they don’t know what they’re doing. And so as relates to the pet space, it might evolve into that where I start digging in, because it’s very, it’s very similar supply chain and supply chain. Right? There’s a lot of similarities. There are a lot of crossover ingredients and suppliers, where we might get into that and, and broaden our scope a little bit more.
Joe Valley 35:22
I’m predicting you will, and we’ll have you back on in a couple years specifically to talk about the pet niche. Yeah, for sure. For sure. You feel the need, right? There’s, you know, you’re you’re just helping out friends. And then this $4 million in debt first, you know, paying client, can you can you talk in broad strokes, how the how the cost structure works, like how you charge fees, and things of this nature?
Sean Ross 35:48
Absolutely. So, I hope, I hope I don’t get a ton of inquiries, because I wanna make sure I can get back to everybody that replies, but we don’t charge for the service. There, there is no cost. It’s absolutely free. You’re probably thinking, how is this possible? And
Joe Valley 36:06
exactly what I’m thinking, yeah, is this guy got a business then right? It’s a charity, what do you do?
Sean Ross 36:14
So we’ve, we’ve saved at a minimum 20% off of our cost of goods for all the brands that have come into us and has gone up to at least 60%. So any from 26%, we’ve saved them off their cost of goods. That savings has a commission built in there for us that we get from our manufacturers or preferred manufacturers that we work with. Okay, and so manufacturers paying you. So we work directly with the principals, the founders of these companies, we’re very close friends, we know them for many years, we’ve helped them grow their businesses to where they are today. And so very similar to what a sales rep in that company would get paid, we would just get paid instead. Right? And so there isn’t a director of sales or a VP of Sales that’s involved. We’re working directly with the C suite team at each of these manufacturers. And so we build that in. And if we can help you save, you know, that 20 to 60%, or maybe even more, I hope not, I hope you’re not overpaying that much. But, you know, then it’s a win win for everybody. And it’s been really, really successful model for us and our clients.
Joe Valley 37:27
With that, I’m going to just help the audience again, it’s it’s twsnutrition.com, try not to shut the site down with so much traffic companies, Total Wellness Solutions, how else do people reach out to your Sean to get in touch and learn more about what you do and the services that you provide?
Sean Ross 37:44
It’s it’s word of mouth, that’s really a it’s, I probably get about two to three referrals a week. And so I’m spending a lot of time digging down and speaking with these business owners, whether they want to sell their businesses or they’re thinking about selling them, they want to maximize as much margin as they possibly can. Or they’re just starting out there, you’ve got a little bit of traction, and they feel like this test, this test that they’ve done is really turning into a business for them.
Joe Valley 38:14
Yeah, I’ve got about a dozen people in it might need to refer to you. We’re just going to go back through the people that bought nutritional supplement businesses in the last 12 months and how we would welcome it, refer them out here. Tremendous,
Sean Ross 38:25
I think they would love it, we would love it.
Joe Valley 38:27
Yeah, it’s gonna help you it’s gonna help them and oddly enough, it’s gonna help Quiet Light as well, because eventually, they’ll come back and sell and they’ll have a bigger, stronger, more valuable business, which is good for everyone. And the buyer will have a business in great shape knowing that the margins are strong.
Sean Ross 38:42
Exactly, exactly. You know, a lot. A lot of these brand owners, they’re great at marketing, they’re great at selling, you know, they’ve got some superpower that makes them really good at what they do. It’s hard for them to be good at everything. So that’s where we fill this void that is really unique and niche but extremely important in our overall success.
Joe Valley 39:05
So pills, you know, hard tablets, caplets capsules, powders, everything across the spectrum for human supplementation,
Sean Ross 39:17
everything Yep, capsules, tabs, powders going into every type of packaging. You can imagine we are doing liquids now as well. We be shied away from these a lot more challenging, but we actually just started doing liquids. And I’m not sure it’s something we’re going to focus on. Liquid business is tough. It’s tough for any brand owner shipping water is very, very difficult. That’s heavy. margins aren’t as good but
Joe Valley 39:46
we did start What if it’s a little tiny bottle like I’m holding up my hands, folks, it’s probably two inches. I sold a liquid nutritional supplement company last year, you know, it’s the tiny you know, two or three ounces I have an intro to send to you. The buyer would be thrilled to talk to you on that. Absolutely.
Sean Ross 40:04
Yeah we’re doing a two ounce shot right now. And so yeah we you know me anything powders and I’m we are doing liquids right now as well.
Joe Valley 40:12
Fantastic. Alright folks, Total Wellness solutions, twsnutrition.com. Sean Ross, he’s not charging you for the services don’t overwhelm him with calls if you’re in the nutritional supplement space as a buyer or seller. If you’re a buyer, you haven’t done the deal yet. Or you’re just looking, mark your calendar and reach out to him. Once the transaction is closed and you own the business or maybe get a ballpark idea of how much savings you’ll get. Is that possible? If they’re looking at a site? And are you able to ballpark? I know that these ingredients could probably reduce. Well, you just said you said every everybody that you work with, they’re saving at least 20%. So that’s how the conversation goes. He’s mad.
Sean Ross 40:56
Yeah, yeah, I look at their their product real quick and their label. And, you know, they tell me what they’re paying and like, Okay, I think we can make this for x. And yeah, there’s 25 30% right there. Yeah, that’s
Joe Valley 41:07
really where it starts. So if you’re in a competitive space competitive environment where you’re trying to buy a business, and there are multiple offers, you could take that knowledge that you gained from Sean, and make sure you get the business even if you outbid some others. And no, I’m not trying to drive up the price business, but if you want to get it, and that’s the challenge on some of these listings these days, Chuck just launched a business a couple of weeks ago in the pet nutritional supplement space, and he’s got 12 offers. So far, David did the same thing. And David kept that he’s like, I don’t know how much value that 13th offer is going to bring. But if you have this kind of knowledge, where you know that you can work with Sean and reduce your cost of goods sold by 20%, whereas the other 11 folks or five folks don’t know this, you can stretch a little bit more on the budget in terms of purchasing the business so you make sure you get that game. Sean, it’s been a pleasure chatting with you. Thanks so much for coming on. I think we’re gonna help a lot of people here.
Sean Ross 42:03
Thank you Joe. Hope everybody enjoyed it.
Today’s podcast was produced by Rise25 and the Quiet Light content team. If you have a suggestion for a future podcast subject or guest, email us at [email protected]. Be sure to follow us on YouTube, Facebook, LinkedIn, Twitter and Instagram, and subscribe to the show wherever you get your podcasts. Thanks for listening. We’ll see you next week.