Behind The Tool: Julia and Michelle From DayZero

Where did the idea for DayZero come from? Why did you decide to start a business around it?

Michelle Liao: I used to run finance and operations for 15 Shopify brands at a Shopify aggregator. I worked in Quickbooks and with outsourced accountants to close the books and keep track of the finances and inventory of the various businesses. 

And boy, was it a frustrating process! Quickbooks’ integrations with Shopify and Amazon are very basic and don’t disaggregate the information you need - fees, shipping, discounts, etc. Plus, the expense categorization in Quickbooks is very poor, and required a lot of manual work both from myself and from our accountants.

Getting the numbers we needed across all 15 brands was a full time job! And when speaking with the operations teams, I felt like I never had the numbers I needed to make decisions about budgeting and inventory. Basically, the whole thing was one messy black box, with a ton of manual work. 

And I knew this wasn’t just an issue for us. In my role, I spoke with more than 300+ Shopify business owners. It seemed as though everyone was having issues getting the right numbers for their business in an easy and digestible way. Having access to clean financials is super instrumental to answering questions like am I profitable? How much should I pay myself? Should I order more inventory? Should I invest in marketing? Not to mention, it’s table stakes for applying for a loan or getting an investment. I thought there was an opportunity there to solve this problem that I and many others were having. 

Tons of brands still struggle with Quickbooks. What does DayZero do differently and better than Quickbooks for brands?

Julia Tolmachyov: What don’t we do differently! For starters, we natively integrate with Shopify, which is a huge benefit. We disaggregate your fees, discounts, returns and shipping income, and make all of those entries automatically in your financial statements, updating from your orders daily. 

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We have a product catalog embedded in DayZero that links to Shopify. There, you can keep track of your orders, how much inventory you have on hand, and we help you calculate the COGS of each of your products. We make it super easy to track your inventory and which products are making and losing you money.

Our AI categorization is fantastic. We’re able to categorize 95% of your transactions automatically, which keeps you hands free. 

Lastly, and my favorite part - is that DayZero is just easy and nice to use. 100% of our users say that our UI/UX is their favorite part of the platform. We try to make using DayZero as easy as using Uber - we want to create a consumer like experience for a business software. Anyone who’s opened Quickbooks knows that it can be overwhelming and is just not a great experience. 

What’s the vision behind Emily, the AI bookkeeper? How do you see brands leveraging her?

Julia Tolmachyov: Emily is a great resource to answer your simple finance questions as well as perform actions within the app. Don’t get me wrong, we think human accountants are here to stay and we’re excited to work with them. However, innovation exists to automate mindless, repetitive tasks, like categorization and data aggregation, so that humans are free to do higher level work, like analyzing and drawing conclusions from the data.

We want to free up time for business owners, CFOs, VPs of finance and accountants to think big picture, instead of being bogged down trying to reconcile transactions. That’s where Emily comes in. You can ask her questions about your financials, or direct her to perform actions for you in the app. 

What do best-in-class financials of a D2C brand look like from your perspectives?

Michelle Liao: The ecommerce business model is unique in that a brand is capable of reaching profitability early on in its business life. I like to define profitability as sales, less direct cost associated with the production and delivery of the product (this is a product’s gross margin). Then, you take out indirect costs related to overhead (salaries, software, supplies, rent) and marketing expenditures. This gets you your profitability.

A strong DTC brand should focus first on strong gross margins, the profit related directly to the selling of the good. Then, they should look at their ability to surpass the fixed cost base required to run the business, which includes overhead and marketing. Marketing expense is one of the largest cost buckets for an ecommerce brand, and is directly tied to revenue generation.

Strong DTC brands usually have above 60% gross profit margin and efficient marketing spend lower than 25% of revenue. This leaves 35% of cost margin that can be allocated to overhead and fixed costs.

However, fixed operating expenses usually scale in step functions. For example, say you have a $100k brand, with a 60% gross margin, so they make $60k on their products. They have a 25% marketing margin, or spend $25k on marketing. This leaves them $35k to spend on fixed costs. Say they have a team of 3 people, who together cost $150k. Clearly, the $35k is not enough to cover the cost of the team, so this brand will be unprofitable. 

However, if the same brand is able to scale to $1mm of sales, they will do $600k in gross profit, spend $250k on marketing and have $350k leftover. Their fixed expenses are still $150k, so they have now made a $200k profit!

This example shows that for a brand to be profitable, they have to figure out what their fixed cost base is (in this case, $150k) and calculate what level of sales they need to achieve in order to cover it. 

Obviously, we make all of these things super simple to see in DayZero!