A CMO's Journey to Mastering DTC Financials (and why you should do the same)

Why you should read this:

1. The personal accounts of Sourav Ghosh, a fractional CMO/Head of Growth for 7-figure DTC brands.
2. Here, he shares with the Finaloop audience his journey from a growth-focused professional to a financials-savvy expert.
3. And why it’s a path every DTC brand owner should take, too.

What's in it:

1. The Importance of Understanding DTC Financials
2. How DTC Accounting Transformed My Marketing Approach
3. Bare Minimum DTC Financials
4. Aligning Teams on Key Metrics
5. Data-Driven Decision Making
6. Common DTC Finance Bottlenecks
7. The Need for Ecommerce-Specific Accounting
8. Understanding Financial Reports
9. Inventory Management in DTC Brands

Ready? Enjoy the ride!

**

"My CPA wants to get on a call with you," the CEO said. This conversation in 2021 taught me the crucial importance of understanding DTC financials.

This brand, which holds a special place in my heart, discovered me on Fiverr in 2017. I've been integral to their growth journey, witnessing their rise from inception to $3 million in annual revenue by 2021. At the peak of our collaboration, I led a Media Buying team, overseeing a substantial $50K monthly ad budget.

But the call with the CPA and CEO exposed a critical gap. Unfamiliar with the nuances of ecommerce accounting, the CPA viewed the ad spend as excessive. I countered that our $600K yearly ad spend generating $3M in revenue equated to a 5 Blended ROAS—above DTC benchmarks. Moreover, Meta Ads served as our primary channel for reaching new audiences.

However, the CEO sided with the CPA. My inability to counter financial jargon and position myself as a strategic advisor contributed to the decision to cut this expense significantly.

The consequence? Two years later, when we reconnected, the brand was facing a steady revenue decline and operating at an $18K monthly net loss.

By then, I had learned my lessons.

I realized that to truly help DTC brands grow profitably and sustainably, I needed to speak the language of finance, not just that of marketing and growth. Because, ultimately, what matters most is a company's financial soundness and how its financial health improves over time.

How DTC Accounting Transformed My Marketing Approach

As I delved deeper into understanding the DTC Money Metrics, I realized why many owners, operators, and marketers shy away from financial analysis; It's truly daunting, especially for newcomers or those without a dedicated ecommerce accounting system or ecommerce accounting services to decipher business financials, instead relying on non-ecommerce dedicated accountant, CPA, or CFO.

While I continue to learn and deepen my understanding of DTC finances, realizing the impact of specialized ecommerce accounting, I'm mindful of how I present this knowledge to owners and operators who may be less familiar with it. My goal is to share what I've learned in an approachable way that doesn't intimidate them.

Bare Minimum DTC Financials

I typically begin with these 3 Waterfall Charts, focusing on Overall Finance, Metrics Per Order, and Metrics Per Customer.

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These charts highlight the following key money metrics:

• Total Sales / Revenue (AOV / LTV)
• Variable Expense
• Gross Profit
• Ad Spend
• Contribution Profit
• OPEX / Fixed Cost / Custom Expense
• Net Profit

Lacking clarity on these metrics makes it difficult to accurately assess a DTC business's position and pinpoint areas needing improvement or correction.

Let me illustrate with a real-life example:

One brand I worked with was fixated on improving their advertising ROAS. However, the real issue impacting their profitability was their low gross margin. Rather than optimizing their supply chain to increase gross margin, they constantly pushed to improve marketing efficiency. This misguided focus was frustrating their marketing team, who were already doing the heavy lifting to compensate for a problem beyond their control or scope to fix.

Take a look at this other brand, which has an entirely different scenario.

They achieved ~$4.5M annual revenue in 2023 with ~8%+ Net Margin. The brand has been consistently growing since its inception a decade ago, now owning manufacturing (<30% COGS) and maintaining a lean operation (<15% OPEX) are their greatest strengths.

However, their biggest risk lies in their overreliance on advertising (~50%), specifically Meta Ads (>45%). As they scaled spending, they've noticed increased volatility and inconsistent performance. They're essentially one Meta Account issue away from potentially devastating their entire business.

Therefore, the most crucial key result we established for this brand is to reduce MER (Marketing Efficiency Ratio) from 47% → 45% → 40% while scaling our top line from $4.5M → $7.5M. This projection would increase Net Margin from 8% → 12% → 20%, while Net Profit would grow from $350K+ → $914K+ → $1.5M+. This represents truly profitable scaling: increase in Revenue, Net Profit, and Net Margin.

There's a fine print within these numbers that most brands overlook; When targeting a reduction in MER % (or improving Blended ROAS), brands often focus all their energy and resources on optimizing their advertising.

The key concept many brands miss is that a more diversified, future-proof strategy involves investing in improving acquisition from other channels. This approach would naturally result in reducing MER % (again, same as saying “improving Blended ROAS”).

Problem is, investing in other channels isn't cheap, right? Of course not. As you can see in the table above, I've doubled the OPEX from $620K+ to $1.2M+ in my forecast.

This increase should easily accommodate a plan of action like this:

Which includes investing in:

• Better tools
• Better global talent
• Better systems, structures, and SOPs

Paired with:

• A proactive owner
• External marketing lead
• An Operations head
• Proper adoption of AI and the latest tech tools
• Well-defined SOPs,
• And affordable global talent as interns or virtual assistants…

…Building a cost-effective, growing ecommerce organization is totally within your reach.

This brings us back to our main point: understanding the bare minimum DTC financials isn't just helpful—it's essential—a core element of running a DTC.

As you've seen from the examples above, simply grasping your revenue, variable and fixed costs, profits, and margins can empower you to make numerous strategic decisions crucial for your brand's growth.

Numbers are for Everyone

Once I see that the leader of the organisation is comfortable with the above bare minimum, I move to the next step: bringing the entire organisation onto the same page regarding certain key metrics—what I call "Numbers for Everyone."

This concept has two illustrative backstories.

In September 2021, while working with the brand I mentioned earlier, we had two extraordinary sales days: one at ~$590K and another at ~$400K. Both far exceeded their previous best benchmark of $200K.

As soon as these spikes occurred, every team rushed to claim credit:

• The TikTok team and CEO insisted that viral TikTok videos were responsible.
• The Email and SMS teams highlighted their increased contribution.
• The advertising team also asserted their impact.

Each team presented platform-specific reports, screenshots, or individual Google sheets and charts. Essentially, each department was viewing and interpreting different data sets, failing to measure the collective effort's impact on the business as a whole.

More recently, while auditing a 7-figure brand that achieved ~$4.5M revenue in 2023, I encountered a similar situation. The email and SMS team reported strong performance for 2023 but stubbornly refused to look beyond Klaviyo numbers. They failed to understand how their efforts fit into the broader marketing mix and impacted key performance indicators.

I've witnessed countless examples like these over the past decade.

As a remedy, I generally recommend that all team members follow a set of metrics divided into three sections:

• Finance
• Metrics Per Order
• and Metrics Per Customer.

This approach ensures everyone is aligned and focused on the same key performance indicators.

You can set this up in whatever way works best for you and your team.

Data-Driven Decision Making

Once your entire team is aligned with the "numbers for everyone" approach, the next step is to track crucial metrics for high-level organizational decision-making.

I recommend setting up two visualization boards:

1. Static Board for monthly KPIs
2. Dynamic Board for daily KPIs.

If you've reached this stage, you're making much better data-driven decisions regarding your marketing and growth. Congratulations!

However, this alone isn't enough to fully understand your organization's current financial health or to better prepare resources for future initiatives.

Common DTC Finance Bottlenecks

As of September 2024, most DTC brands I've worked with or know still rely on generalist accountants or CPAs using tools like QuickBooks or Xero for their ecommerce accounting. This legacy setup has two major issues:

1. The people
2. The accounting software

Because both don't truly understand ecommerce or DTC and lack the specifics crucial for ecommerce accounting. To run an ecommerce business effectively, you need to understand not only the money metrics explained earlier for better marketing and growth decisions but also three crucial financial reports:

1. Profit & Loss
2. Balance Sheet
3. Cash Flow Statement

Under the traditional bookkeeper+QuickBooks scheme, I've encountered countless issues getting these reports when we needed them most - which highlights the need for reliable ecommerce accounting software and service. Not to mention the fact that when we did receive them, they often contained reconciliation errors.

On top of that, I've worked with founders who've asked why the Net Profit numbers they see on data platforms don't match their CPA's P&L. Well, the reason is that, most likely, these tools calculate Revenue and Variable Expenses based on Shopify numbers, fetch ad spend from corresponding platforms, and derive fixed costs from manual updates or Google Sheets. All in an attempt to complement traditional tools like QuickBooks for Shopify. However, your CPA's P&L primarily focuses on banking transactions. Hence the discrepancy.

This highlights the critical importance of proper reconciliation between platform data and bank transactions, things that the traditional setup can't give you.

But the downsides of this approach do not end there - because the reality is that founders who limit their due diligence to P&L often make significant mistakes for numerous additional reasons.

For example, an owner might decide to cut ad spend and operate at lower revenue to improve profit (in dollars or percentages). However, they might overlook a warehouse full of slow-moving inventory or a loan taken to order that huge stock. If the products are perishable, like food or cosmetics, this could lead to substantial financial losses in the long run. Proper visibility and understanding of the Balance Sheet (which details assets, liabilities, and equity) could prevent such a fiasco.

Another example? Sure.

I've seen very few DTC brand leaders trying to take advantage of the Negative Cash Conversion Cycle.

But, without a firm grasp on your Cash Flow Statement, how can you effectively negotiate terms with manufacturers/suppliers and payment instruments? How can you provide accurate forecasts to your marketing team to ensure you sell your inventory before you have to pay for it?

Of course, it doesn’t end there. And, as much as I'd love to go the extra mile and guide owners/CEOs to become comfortable with their P&L, Balance Sheet, and Cash Flow Statement, it's not my field of expertise. I can't easily make sense of QuickBooks, Xero, or spreadsheet reports.

This is why I prefer Finaloop's easy-to-navigate services - an accounting service for ecommerce businesses that ensures streamlined financial management.

As a marketer with sufficient financial knowledge to excel in my role, I trust Finaloop for the following reasons:

• Its three-way data reconciliation: Platform → Payment gateways → Bank
• They offer a combination of fast technology and manual review
• It doesn't require me or the Owner/CEO I work with to obtain a finance degree to understand it. We both often have too much on our plates already
• Their offering extends beyond just the platform and their robust ecommerce accounting software. They provide ecommerce-experienced bookkeeping and multichannel-dedicated tax services.
• When things become overwhelming for and the CEO and I, we can seek a CFO (Fractional or Full-time) from Finaloop's partner network.
• And because, overall, it's a powerful ecommerce accounting service and software that simplifies financial complexities. (and it comes with a free trial, unlike other accounting services)

Cherry on Top: Inventory Management

Imagine my shock when I realized I needed to understand DTC finances and then guide the Owner/CEO to get comfortable with them if I wanted to have the best impact on the brand's marketing and growth.

Over the years, though, I improved, and Finaloop made navigating DTC finance much easier for this marketer - as leveraging an ecommerce accounting software and expert service significantly eases the financial management burden.

However, another crucial area of DTC brands kept complicating things for both marketing and finance: inventory.

As your business grows and you sell through more channels, managing your inventory becomes increasingly complex. Providing accurate inventory insights to the marketing team for planning and forecasting, as well as creating financial reports, has been a nightmare.

As I began working with larger brands and encountered these issues, I dreaded learning yet another operational technicality and navigating through complicated inventory management spreadsheets or platforms. This is why I was incredibly relieved to see Finaloop launching Inventory IQ right within their accounting solution.

It’s safe to say: I'm all set now.

I remember the excitement I felt when I first discovered tools like Canva and CapCut, realizing that I could turn my expertise in marketing and consumer psychology into compelling visuals without needing to be a designer.

The same happened with Shopify 2.0 themes, where I could boost PDP conversion rates in just 15 minutes without writing a single line of code.

Now, as I work with 7-figure and above DTC brands, that sense of empowerment has evolved into something greater: With Finaloop, I can provide the CEOs and owners I work with instant access to crucial finance and inventory insights.

This not only helps me bridge the gap between marketing and finance but also allows me to guide them in making data-driven decisions that drive sustainable growth—without them needing to be financial experts themselves.

And if you are a DTC brand owner, CEO, or operator whose strengths lie in products, branding, or operations, and you're seeking someone to spearhead your marketing and growth efforts—click here to reach out to me personally. Together with my appreciation for financial knowledge and with Finaloop on our side, the sky’s your limit.