[00:00:00] Phillip: Hello and welcome to the Future Commerce podcast at the intersection of culture and commerce. I'm Phillip.

[00:00:04] Brian: I'm Brian.

[00:00:05] Phillip: And I did not steal 12 tons of Kit Kat. I'll promise you that.

[00:00:10] Brian: Give me a break, Philip.

[00:00:13] Phillip: That is a layered story if I ever heard of one. We did discuss it heavily in the After Dark. And so, if you've ever wondered— you know, which denomination? Do they sprinkle? Is it full immersion? Is it a Baptist cookie Kit Kat? Brian has theories on such a thing. Go check out the After Dark— futurecommerce.com/plus— if you haven't. We get into some wild stuff over there. I don't know what happens exactly on the After Dark— it is a blur— but go check it out. But I would love nothing more for you to stick around here today, because we have an incredible guest. I've had the incredible privilege of joining eCommerceFuel, which is the largest and most active community of seven-, eight-, and nine-figure ecommerce store owners in the world. And the value that I think people get from that community is, I think, very widely known in our ecommerce circles, Brian. And over the last— I'm gonna say almost ten years— whenever you ask anywhere online, "Where can I learn more about how to build my business?", it's inevitable that, in any thread online, people are going to mention eCommerceFuel. And so, I know for the last six years at least, eCommerceFuel has been publishing data about how their community is building, what's happening within that community, and how store owners are working within the community to battle things that are happening economically and socially, and the kinds of issues that store owners face— I think specifically at that scale. And so today, we have the founder of eCommerceFuel— and he calls himself the chief instigator at eCommerceFuel— Andrew Youderian, to come and talk to us about their 2026 version of their trends report. Andrew, welcome to the show, and thank you for joining us.

[00:02:09] Andrew Youderian: Yeah. Philip, thank you for the intro. Brian, thank you for having me here. It's— yeah, it's an honor. I'm excited to geek out about some fun data, so I appreciate the opportunity.

[00:02:19] Phillip: Yeah. I think— I was on your show last year or so, and I think we were talking about the last couple print pieces that we've done. What is— just at a glance, six years into doing this research— we do insights and research, and this is no small feat, so congrats. I can't wait to get into the nitty-gritty. But tell me— why this report right now? Why now? What's interesting and different right now?

[00:02:47] Andrew Youderian: Yeah. So we started doing this report in 2017, so we're coming up on ten years for this. We haven't done it every year, but have done it on a quasi-regular cadence over that period. And it's just a chance to check in with independent operators. You know, our median store owner is probably doing, you know, probably $5 to $6 million, but we have, I think, a good number of people in the eight-figure range, and even some nine-figure brands. And it's just a chance to cut through the noise and say, "Okay, apart from, like, big headlines you see from, you know, the Wall Street Journal or Financial Times, what's actually happening with smaller brands?" And, you know, $50 million is a relatively small company on the macro scale— $5 to $50 million. What's happening with those brands? What are the challenges? What's working? I just had to try to really understand— not just talking points and noise in reporting, but, like, what the actual store owners themselves are dealing with, and saying what's working, what's not.

[00:03:41] Brian: Makes a lot of sense. Yeah. It feels like there's so much interesting data in here. There's stuff in here on AI. There's stuff in here on Amazon. There's stuff in here on margins and paid, and I know we're gonna get into all of it. The thing that kind of caught my eye was the sort of emphasis on paid. That seems to be in the report. Growth is happening on paid, but net is falling even as gross grows. What's the deal with that, Andrew, do you think?

[00:04:08] Andrew Youderian: Yeah. I think a couple of things. So those are kind of two different parts. There's kind of the business model, and then there's also the marketing side of things. So I'll take the business-model side first. If you look at what happened over the last— you know, even just the last three years— in terms of, are people manufacturing? Are they reselling? Are they drop-shipping? Every single business model contracted or stayed the same, in terms of people moving away from it, except for manufacturing, which almost went up 50%. And so, you know, there's this huge migration towards people starting to make their own products. And so that's where I think you see the gross-margin expansion, right? Gross margin is— just at the top line, once you cover your product costs, how much do you have left? On the bottom end of that, I think you've seen net margins fall to, like, I think, roughly 10.5%, 11% on average, which is the lowest we've seen in ten years. And so you've seen this ten-year divergence: gross margins continue to climb, while net margins— how much you're making— decrease. And I think there's a lot of things there.

[00:05:09] Andrew Youderian: I think part of it is, it's just getting harder to run an ecommerce business and there's more cost involved. You know, 97% of people are paying for traffic. And while I do think that, if you compare apples to apples— if you compare the people who are really leaning into paid traffic today versus those that are not— we can get into this, but the margins, actually, for the people that are doing it well, are actually just as good, if not better. So you can make paid traffic work, but, still, compared to five years ago, 97% of people are using paid today versus much fewer in the past. And so that is, across the board, taking a hit on margins. Tariffs— we can get to tariffs later— you know, more than 50 to 60% of the cost of tariffs, for those people who are impacted by them, got absorbed by the brands, so that hurt the margin on the bottom line. Yep. And just complexity— think about sales tax, right? Like, I didn't cover that in this report, but there's just more compliance issues. So, yeah, I think that's the story of those diverging margins there.

[00:06:07] Brian: Interesting. Yeah. I think— was it Bill Gurley who recently said something about how, if you're doing any kind of paid advertising, you're already dead— which obviously took a lot of heat.

[00:06:17] Phillip: What a bad take.

[00:06:18] Brian: I— you know? Well, bad take, but maybe the sentiment behind it— net, there's something there. It was ridiculous. Well— hear me out for a second. You're saying that there was only 3% of stores that did no paid whatsoever, right? Yeah. And they didn't necessarily perform better. But the question is, like, what's the long term here? Like, when you acquire someone through paid— I think that if you are doing it in the right way, it can result in some good things for your business. If you're doing it in the wrong way, it can be really, really detrimental. And so, I'm curious— as you dug into the data, what set people apart? Because some people did not see better margins, or, in fact, it's going down. If 97% are using paid and net is going down, that's a little bit of a, you know, maybe an indicator.

[00:07:24] Andrew Youderian: It is. And I would say the biggest thing that I changed my perspective on in doing the report this year was my thoughts on paid— because I have always been a, you know, "build through organic" person. "Why would you do paid? Why would you weaken your business, give up margin for paid traffic? Like, that's— maybe it's a nice little heroin hit in the short run, but it's not gonna be great in the long run." And I changed my thought on that. I do think paid has— I think it's hard to— I mean, if you're just comparing the margins, it's almost impossible— I don't think it's fair to say paid has not cut into margins over the last five years. They have. That being said, I think if you look at— we looked at kind of three cohorts on the paid side. We looked at a cohort of people who consider themselves paid experts— that's what they considered their competitive advantage to be. We looked at a cohort of brands that just generated 60% of their revenue from paid traffic, whether they thought it was their competitive advantage or not. And then we looked at everyone else. And if you looked at that— those first two, the ones using paid traffic or who are experts there, were growing two to three times faster in terms of top line. Their net income, surprisingly, was also growing three to four times faster. Their margins were higher. Their gross margins were higher. And, oddly enough, it wasn't their ROAS that was higher. The ROAS was actually lower. But what they had was a business model that allowed them to have a huge percentage of their revenue allocated to the paid spend while still being profitable. So their overhead was super lean. On average, the paid experts had overhead of, like, 16.5% versus, like, 21.5% for everyone else.

[00:09:07] Phillip: Wow.

[00:09:07] Andrew Youderian: And their gross margin was huge, right? They only paid 39% towards their product cost versus 55% for everyone else. So, on my side, what I think allows them to do better is— it's less about, "Hey, are we great at paid advertising?" It's more about, "Do we have a business structure, a capital structure, or a, you know, a P&L structure that allows us to allocate towards paid profitably?"

[00:09:30] Phillip: Just to reference the Bill Gurley quote— I just want to make sure he's not mischaracterized here, although people took their dunks on him. What he actually said on Twitter was, "Paid marketing is the crudest game you can play. It's admitting you have no creativity, and it restricts your creativity. Fire those who want to spend more." And what he did was, he linked back to his 2012 article that was called "The Dangerous Seduction of the LTV Formula," in which he lays out that LTV is not actually LTV. LTV is an escalating game that you're playing over a long period of time— wherein the window that you measure LTV actually contracts, and the floor rises. And that has played out over fourteen years. We've actually seen that become true. And so he actually was right, in the long term. But I do think the way he said it, I think, is— inflammatory.

[00:10:26] Brian: What a move.

[00:10:28] Phillip: Yeah. And probably because we're in the attention game. But I don't think advertising, on the whole, restricts your creativity. I think we've actually proven that that's not true in the world. And I would say that the data in your report, Andrew, actually might uphold the fact that businesses that spend on paid traffic can be sustainable, but it tends to work in favor of high-margin brands. And so your business structure, to your point earlier, is probably more indicative— or more predictive— of your success than whether or not you use paid. So, just to put a big bow on that— and apologies for having to clarify.

[00:11:11] Andrew Youderian: Yeah. And one thing to add, if I may— I think about Apple, right? They do a little paid marketing— fact-check me here— but I don't think they spend a lot, because they've got an established brand. They're nationally known. They've built their reputation— but they also built their reputation over the course of the last ten to fifteen years, for at least a large portion of that, in a time where attention was cheaper, right? So, if you— and we focus on smaller brands here— if you don't have a national presence, or if you're not an up-and-coming brand already, you're having to buy and build that reputation in a time when it is more expensive to acquire attention. And so even if you've got a great product, it's harder to get that up and going. And so— anyway, I think that might also play into part of why you're seeing 97% of brands doing paid. Because— are we gonna say that only 3% of the 300 people that we have, that are mostly manufacturing, don't have great, interesting products? I know so many people have compelling products. So I think maybe part of it is just that the era in which they're having to build that brand has gotten significantly harder to get attention in.

[00:12:14] Brian: Quality product is no longer the moat. That's what we're saying. It's actually attention. Attention's the moat. But the problem is, attention is expensive, and attention is easily diverted. And the competition for attention— when you're competing for attention, you're not competing with other products, you're competing with Netflix. This has been said for years now. The challenge with a lot of attention is that it does feel finite. Not all attention is created equal, and it's expensive. So what are some of these brands doing to break through this noise?

[00:12:50] Phillip: I think they're both true, Brian. The attention is a moat, but it has to point to a good product too.

[00:12:58] Andrew Youderian: I think the— you know—

[00:12:59] Brian: Of course. Good products are just across the board, though. Like, if you go to the grocery store right now, there are a lot of good products available to buy. It used to be that when you went to the grocery store— and I don't know if— I mean, a lot of people listening to this might be too young— but, like, there were products that were markedly worse than other products. And now it feels like product quality is actually up. Like, when you go buy something, it feels like there's a lot of good options available.

[00:13:30] Phillip: I wanna take that to the After Dark, because I would argue that that's because planograms are also for sale, and people are buying their way onto the shelf. But that's— absolutely— just, as an aside— TikTok spent a billion dollars on Meta to acquire Meta's customers to TikTok. So the paid acquisition game to a better product is also that means of arbitrage. Sorry, Andrew— if you wanna actually answer the question now, I apologize.

[00:13:55] Andrew Youderian: No, no, no. Those were great additions. Yeah. One of the big takeaways from our previous report was that one of the biggest drivers of profitability was not how fast you grew, or your niche, but it was your overhead model— like, you know, going back to that kind of lean operating business. So I think people are increasingly understanding, like, "Hey, it's really competitive out there. We need to make sure we're operating really leanly," and so people are starting to think about that more. I have a thesis that the future is going to be the era of the small durable brand. This is kind of a term that I really like— I think I made it up. If I stole it from someone, someone should tell me. But it's where you're gonna have fewer brands that scale really quickly and scale via Facebook to $100 and $200 million— because attention is getting harder, and because it's harder to make the economics work— but you're gonna have more brands that have great products that slowly build up that reputation the old-fashioned way, through word-of-mouth, and are more durable businesses in the ten-year period, but are gonna be smaller. That sounds worse from a business side— like, if you're looking for the huge exit, yes, that's unfortunate. From the consumer side, and from the side of a community curator who loves seeing people who deeply care about awesome products and love building ten-plus-year businesses for things they care about— I love that. I think it's pain in the short term, but wonderful ecosystem creation in the long term.

[00:15:02] Andrew Youderian: What else are they doing to cut through? I think people are being a little more careful. We had an interesting discussion in our community recently about, like, "Hey, I cut my traffic, I cut my spend on advertising, and nothing happened for, like, you know, three weeks." And this was a little early in their journey, right? So there's a big discussion about attribution, and how much is branded attribution, and, you know, the halo effect, and maybe this falls off a cliff in five or six weeks. But I think people are starting to get a little more careful— not just on the CapEx side and the overhead side, but on religiously tracking their paid spend. So there are a few things there which we can dive into.

[00:15:59] Brian: A couple of other things coming out of this— maybe channel diversity. There's a lot of investment in Amazon over the past years, but there's some interesting data in here about Amazon and how, you know, its share of community revenue has fallen dramatically, to 2017 levels. I feel like that was another really interesting point.

[00:16:20] Andrew Youderian: Yeah. If you look at kind of the trend line— when we started tracking Amazon revenue over time in 2017, it made up about 20% of the aggregate revenue. That spiked up to 27, 28% in kind of the late teens, early twenties— excuse me. Dropped a little bit in 2022, and this year, we're back down. So it's this inverted-U shape, right? And what's interesting is, if you look at the number of people that are actually selling on Amazon, it's at an all-time high. So 63% of all the people we surveyed are actually selling on Amazon, but they're selling less through that platform. And the people that are selling primarily on Amazon are not doing as well as the people who are selling primarily on their own website. They're growing more slowly. They're growing income less quickly. Their margin is worse. And the number of people who like Amazon is 17%, versus, you know, 91% who love their own website. So you definitely see that diversification away from Amazon.

[00:17:22] Phillip: Wow.

[00:17:22] Brian: That's interesting. Yeah. I'm bullish on Shopify.

[00:17:27] Andrew Youderian: I'm bullish on Shopify. And I feel like this isn't a huge surprise. Like, the number of people I talk to anecdotally that love Amazon is not high, right? It feels like it's moved— and I have respect, I mean, I respect them as a company. I think that they— sure— they're a long-term play, with a huge moat and infrastructure. As a consumer, for buying, you know, kind of cheap— for things that are not high-dollar-ticket discovery purchases— they're a great platform. But if you've been selling there the last three or four years, you know, it's just been an ever-increasing battle of, like, more fees and more fees, and, for a while, there were counterfeit issues, and those people got somewhat taken care of. They don't optimize for the seller experience, and so it's not a huge surprise to me that, as more foreign competition has come in, as the quality maybe has gone down on average, that people are saying, "You know what? I'm not gonna invest heavily here. I'll go capture demand for my brand on this channel— I'm not gonna leave that just up for grabs— but I'm gonna look somewhere else to build the main moat of my business."

[00:18:29] Phillip: Oh, no. Is it Day Two at Amazon now?

[00:18:33] Brian: No, no, no, no. There are more people selling on Amazon. I feel like it's Day One for a bunch of other people now.

[00:18:41] Phillip: I know that. And it's Day Two for a lot of the things you'd do over on Amazon.

[00:18:45] Andrew Youderian: Well— Philip, I may have to steal that and retitle that section of the report "Day Two at Amazon." Put a little credit for you in there.

[00:18:51] Phillip: That's— for free. You don't even have to credit me. I do think that— and maybe this is something we could go deeper on at some other time, because I want to hit some other things— but I think about what— you know, with Amazon having been such an important channel, and what you talked about with the reshoring, or the taking in-house manufacturing, being sort of this correlation to margin durability— it sort of makes me think about these second- and third-order effects of what this really means. And it all kind of comes down to a complexity tax. Where you used to be able to have maybe a solopreneur, or maybe a very small business that could verge on high eight-figure revenue with a very small team— and perhaps this is where we segue into AI— but, to me, if you're verging into more supply-chain complexity, or having higher supply-chain expertise, that means a lot of quality control. I mean, the lean startup stops making a whole lot of sense, I think. And you are also becoming very channel-diverse, potentially. I don't know— is that not correct? Is that what you're seeing, or is it not what you're seeing? Are the teams getting smaller?

[00:20:23] Andrew Youderian: Yeah. We haven't tracked team size over the years, unfortunately, so I can't give you a good sense on that. I do think— one interesting takeaway that kind of borders on this is, if you look at it from a fulfillment and operations complexity side of things— the bigger you are in terms of your inventory as a percent of revenue, and also— especially this one's especially surprising— if you own a warehouse instead of either leasing one... surprisingly, there's this odd differentiation where even if you're doing your own fulfillment, owning the warehouse versus leasing— versus outsourcing— the more fixed assets you have on your balance sheet, the slower you're growing— significantly, significantly slower. So I don't know. But, at the same time, you also have this amazing opportunity where you've never had more great outsourced fulfillment options if you need them, in terms of a mature landscape there. You've got some pretty cool tools that are— I think we'll get into the returns side of AI in a minute— but the stuff with AI is still enabling teams to do some pretty cool things on a leaner basis. So I don't know— I think there's kind of two sides to that story.

[00:21:30] Phillip: I see the small businesses, you know, reported that 53% or so said that it was their hardest year ever. And that's in that, you know, $1 million range— it's the smallest businesses, I think, in the report. And I'm just extrapolating here, but I just have to believe that it has to do with the lack of the economies of scale, and all these manufacturing burdens and the complexities and the tariffs. And so that's where I start to believe that— you know, the only thing— it's like, will we see a mid-market in the future? Are we only gonna have very small brands and enterprise brands? Because all the complexity to grow really lends itself to brands that are sort of— it's K-shaped, right? You can only have something that's very small or something very big, and not much in the middle.

[00:22:19] Brian: There is one kind of a good, sort of, mid-market example that came out of this world, which is Quince, right? I feel like that's sort of a good example of a brand that had a unique model— they, you know, sort of a manufacturer-to-consumer model. And they really set themselves apart with their brand as, like, this "we're cutting out the middleman" sort of approach. And it sat kind of probably right in your community range for a long time, Andrew. And just in the last few years, it hockey-sticked in terms of growth, and they just took on this funding, and now they're valued in the billions. And, like, it feels like there's opportunity still for someone to run a game like this. And I'm curious— like, maybe there's just not a lot of stories like this to tell. Maybe that's always been kind of true. Like, it's hard to find them—

[00:23:29] Phillip: It's hard to break out.

[00:23:30] Brian: Yeah. It's hard to break out.

[00:23:32] Andrew Youderian: Yeah. It's interesting, going to the hopefulness— and you mentioned size, Philip, and then Brian, I'll come to yours in just a second here— if you look at how hopeful brands are, their optimism scales almost perfectly with their size. Bigger brands almost always— like, you know, there's a tiny little blip at, you know, the 500K to $1 million range, but then it's, you know, from a million to two and a half million at 7.3 out of 10 hopefulness, and then it scales all the way to, like, 9.2 out of 10 for a $50 million brand. So I do think you're right there. And— Brian, in terms of, maybe it's always been hard to do that— I think it has always been hard, but I do think we're coming into an era where there's gonna be either massive big brands— you know, maybe not Amazon size, but a lot of big giants— and those smaller durable brands that do well and grow more slowly over time, and a lot fewer in the middle. I do think that is gonna be the way the future pans out, just kind of given everything we're seeing.

[00:24:29] Phillip: When you're looking at AI— do you think AI delivers on this productivity and helps to drive the margin returns that we keep saying, and keep hearing, that it will? What does your community say? What does the research say?

[00:24:46] Andrew Youderian: Yeah. So when you look at AI— this was kind of probably the second most interesting thing I found in the study. So, 72% of the people that we talked to— and we talked to 300 brands— had meaningfully adopted AI, in terms of having invested fairly heavily in it. And so when we broke the AI adopters away from the non-adopters, what was surprising is, it didn't seem like there was a big difference in terms of financial performance or growth. They grew top line about the same. Actually, the non-adopters actually grew their net income faster— 55% versus 32%— though the AI adopters had a slightly higher margin. The non-adopters actually made more revenue per employee, which is counterintuitive. So it was kind of a mixed bag, but there wasn't anything conclusive either way. And what I took away from that is— you know, I'm curious to hear your thoughts in your business, Philip and Brian. But this last year, two things have happened. One— Q1 of 2026, I feel like we're really starting to hit an inflection point with AI, where you're starting to see a lot of advancements where things are truly capable— and this survey data was all from 2025.

[00:25:58] Andrew Youderian: But when I think about us in the last year— we have spent a lot of money on new subscriptions for AI tools. We spent a ton of money building out our own custom kind of vector database for our community, to help us be able to connect members, source interesting things— to be able to effectively search, by LLM, the ten-plus years of archives we have in our community— and spent a lot of money there, and we're still trying to get it to a point where it really serves our team on a high-leverage, daily basis. And so I think there's definitely people who have mastered this in short order, but I also think there's a lot of people that are still playing with it, who have invested in it, and they see the potential— but they've invested more into the learning curve and the software than they've actually seen back in terms of increased performance. And I think it will come. I think 2026, 2027, we're gonna see those AI-adopting brands start to pull away— but I don't think it has delivered yet on what it's promised.

[00:27:00] Phillip: The second-order effect, sort of, being— if maybe 2024, 2025 was about generative AI and maybe content creation, maybe 2026 we're shifting into AI for operations, which is what we're hearing a lot about. I— again, I don't know if I'm even allowed to say this, but I keep telling people— you know, companies like Klaviyo are deploying Claude Code to their whole organization, or Claude Cowork for their whole organization. It's like— we're just doing things now, right? Like, people are just trying to get more efficiency and more parallelization out of the actual work. But I'll tell you, from personal experience— you invest a ton of time trying to make those things work, and it is not exponential, it's logarithmic. Like, you're spending a ton of time, and you flatline on productivity for a very long time before you see any sort of return. Like, you get no return, if any— and I think a lot of those projects and a lot of those investments actually wind up becoming abandoned in favor of just going back to the old ways, because you don't really see anything pay off.

[00:28:15] Phillip: Now— you asked the question— we have done some, I think, really transformative things in our organization, some out of necessity, because we don't have the headcount, and so we're doing things that we couldn't afford otherwise. We wouldn't go to an agency and pay for them, so we're developing the tools ourselves. Some of them are sort of SEO-centric. We're doing a lot of things that I think are really creative. But, yeah, to your point— there are things that I don't think are groundbreaking. They're probably more operational. And, in that way, I really wonder if they deliver ROI. Like, do they deliver ROI? It's more in the office of the COO— in which case, I don't know that it would, unless it's dramatically reducing headcount, right? Unless it's dramatically reducing operations costs, I don't think you're seeing it show up on the P&L in the way that everybody says it would, right?

[00:29:16] Andrew Youderian: Yeah. I think two things are true. We've probably had a dozen to 15 discussions over the last couple months in our community where people are saying, "Look at this amazing thing I built for my eight-figure, high-seven-figure business that's gonna save me $100K on software contracts this year." And those are meaningful projects that are actually delivering value with AI, especially as coding on the agentic front has gotten so good the last three, four months. And I think those are great investments for those people that are willing to go deep on that, and it solves kind of a custom operational issue for them. But I also think it's true that there's a lot of people that have spent a lot of time kind of playing with things that are cool. And there's the vision of, "Hey, I'm gonna have my business be autonomous in the future, and I'm gonna do it through optimizing these 12 or 13 areas," and I think that is the death by a thousand cuts that can kind of kill you. So I think both of them can be true.

[00:30:14] Phillip: I see a lot of people getting distracted and wanting to do things that they probably shouldn't have ever done, either. And I think that's where, you know, maybe they're building tools that they could have easily just deployed something else for—

[00:30:26] Andrew Youderian: "OpenClaw, order Chipotle for me. This is amazing. It only took me five hours to set this up."

[00:30:31] Brian: Yeah. Yeah. "I don't have to order lunch anymore." I think the benefits may come through existing tool sets. So this is what I've said since GenAI got started— the world will be transformed by enterprise contracts. Like, basically, it's gonna continue to—

[00:30:?] Andrew Youderian: There's a certain ring to it.

[00:30:?] Brian: —advance, yeah, through people signing deals with new software vendors that have AI out of the box, that have these very tangible things that you can do with it, that you can sink your teeth into, and are gonna have a meaningful impact. But I don't know if a lot of, like, seven- and eight-figure brands are necessarily gonna be doing a lot of it on their own with, like, the direct-to-consumer AI tools available to them. Some of them will— because some of them are very technical, and I'm sure you've already referenced them. Like, these are the people that were out there hacking SEO, you know, hacking their way to building a brand— and successful at it— and they're gonna keep hacking their way, and they're gonna find arbitrage in some of these opportunities. But for the majority of them, that have a product that they built and they use the tool set available to them throughout the process— this is just gonna be like another tool available to them that they're gonna need to leverage through whatever software they already have, or switch to, as it's relatively easy to switch certain software these days. So that's my take, at least.

[00:32:07] Andrew Youderian: Yeah. No— I agree. I think it's a golden era if you love tinkering, you're wildly detail-obsessed, and you can do this stuff. But if that's not you, and you're not that wildly obsessed, crazy mad tech tinkerer— yeah, agreed.

[00:32:23] Phillip: "Wildly obsessed." We were wildly obsessed with tariffs for most of last year. How's that for a podcast segue— trying to figure out how we're gonna get there. According to your study, there were 58% of the brands in the study that absorbed the cost of tariffs rather than passing it on. You know, 4% of the folks are actively moving supply chains. The advice seems to be: just raise your prices. It looks like the bulk of the brands are raising prices, but it looks like to the tune of about 25% or so. It doesn't look like they're across the board just passing the costs along to the consumer, by and large. What's behind the operators' reluctance to just pass along the costs? Why is that fear maybe overblown? I'd love your take on it. What does the study tell us?

[00:33:24] Andrew Youderian: Yeah. Like you said— if you look at just across the board, tariffs decreased net income by about 10% on average. All operators increased their pricing a little less than 8%— seven and a half percent. So, you know, they roughly, in aggregate, ate about 23%. But of the people who actually felt the pain— we segmented them out— you were right, it was almost 60% of that margin compression they just took in, you know, took in the stomach. I think the reluctance— I think pricing is, like, one of the hardest things in all of business, right? I think the difficulty levels are— team, I think, is number one. It's the best and the hardest part of your business— it is team and management. And then I'd say, after that, it is probably marketing and pricing, right? It's so important. It is one of the top three things— maybe, if not, the number-one thing— that has the biggest outsized impact on your margins and your profitability, and that you can also implement the fastest. But I think the reason that people are so reluctant is because, if you're an entrepreneur, you almost certainly wake up every morning expecting to log into your laptop and see that your business is falling down in shambles, that it's just burning to the ground. Like, this is just always in the back of your mind. And that fear is exacerbated— and you're just pouring gas on the fire, that fear— when you think about raising your prices, because you have this fear that everyone's revenue— your revenue's just gonna dry up. So I think it's always been there, and I think it's just something that entrepreneurs need to get over. I know, personally, from my experience, there's nothing I have done across multiple businesses that has ever had as much impact, as quickly, and that I have regretted waiting as long to do, as raise prices.

[00:35:08] Phillip: Wow. I mean, that's a mic drop.

[00:35:13] Andrew Youderian: I mean— it's just happened three, four times. I think the other thing too is, it also feels like it can be difficult to do well, right? There's tools out there that can help you, but— I think there's confusion too about, like, "What am I optimizing for?" Like, am I optimizing for revenue? Because that's a bad way to do it— maybe it's fine if your goal is to try to get as big as possible, and you're trying to hit revenue targets for investors or whatever, but most people I know wanna have a sustainable, growing business that maximizes profitability, even if growth is a consideration. So it is a little more complicated— there are multiple things. There's seasonality to it. There's, you know, "Oh, my revenue's down, but what does that mean for my contribution margin, my net margin?" And you need to kind of understand some of that there to decide if it's a good decision. So that takes a little self-education. I think that is probably a secondary reason as well.

[00:36:02] Phillip: I think people also overlook the fact that raising prices often has— what I found— and now this is aged advice, so take it for what it's worth— but when I did agency work for a decade, we would dig into accounts and would often find that the customer quality was positively correlated with the pricing. And so when you raised your price, or when you had a higher tier, a higher-priced product, the customer quality generally increases. And so revenue from a repeat customer— which is what you should probably be indexing for— is a quality benchmark. You know, a successful business is probably looking at a customer who has that high amount of loyalty. If they're spending more— you're typically looking at, "Well, what is the increase?" It might have a deleterious effect in the short term, by weeding out your worst customers who were never going to convert into a repeat customer in the first place. And you're probably losing on acquiring them if you're spending heavily on paid anyway. So those are things that I don't think show up in dashboards in the way that we have them configured by default anyway. So I think that's something that gets overlooked a lot, and probably is not discussed enough.

[00:37:31] Andrew Youderian: That's a great point. And, continuing down that same line— in terms of a higher price, you have lower operational costs. Like, if you're gonna make the same profit, would you rather make the same profit fulfilling a thousand orders a day or 500 a day? Right? I mean, no-brainer. Your warehouse— you know, your fulfillment size goes down. The amount of work you have to do on a variable cost goes down. Even little stuff like— you know, thinking about sales tax and economic nexus, right? Like, as you reduce the number of transactions— maybe it's not gonna be on the line for a lot of brands that are bigger, but we have some brands where some of the pricing decisions we've made in our business have been thinking about, "Okay, we don't wanna generate economic nexus in this area, so we're gonna have our pricing be quarterly. We're gonna drive lower transactions," and that helps with all that. So there's a lot of benefits.

[00:38:17] Phillip: I would just redirect everybody to just go check out the report. I think the report stands on its own. It's the greatest way to spend at least an hour, maybe more, of your time. Go dig into it. Andrew, where can people find it if they wanna go search for it themselves?

[00:38:33] Andrew Youderian: Yeah. The best place to find it is ecommercefuel.com/blueprint, or ecomfuel.com/blueprint— either one of those. And the reason it's "Blueprint" is— you know, the four biggest takeaways that we had in the report kind of pointed to— we talked about Amazon and AI and margins and some of these things— that a lot of the old playbook has kind of changed, and there's a bit of a new playbook and blueprint for what is working for brands. And so we talk about that in each section. We talk about the implications for your business, how you should be thinking about things, and then we also have a really detailed benchmarking section in the back where you can go and say, "Hey, this is my business model, here's my revenue range," and you can see how you stack up on a dozen-plus metrics to other brands, so you can know where you're doing well and where maybe you could improve. So— yeah, ecomfuel.com/blueprint.

[00:39:24] Phillip: That's great. And I know that you always close this report out with a forward-looking note on durability. So I'll just ask you— because we love ending our show, and it's called Future Commerce, so we always ask what the future looks like— what does winning look like for an independent merchant right now, looking into 2026 and beyond?

[00:39:45] Andrew Youderian: Yeah. I think winning— and, again, this is on average; you know, there's definitely people on both ends of these that are making it work on their own, with their own style— but I think, in general, the themes are: people are kind of looking back at their own website as a great long-term play. Right? The margins are better there. The growth tends to be better there. The profitability growth tends to be better there. Just the enjoyment of running the business is, like, five to six times that of Amazon. Some wholesale gets better metrics there. Lean operations is really important— again, that's just been something that's been a common thread through the last couple reports we've done. Ideally, you know— if you're at 15 to 20%— if you're over 20% overhead, that's a really hard thing. So when I look to the future— we bracketed two buckets, the optimistic owners and the pessimistic owners.

[00:40:38] Andrew Youderian: And the people that were optimistic— their conversion rates were, you know, two and a half percent. They turned inventory faster. They had less inventory as a percent of revenue— so their SKU count— they had a more dialed-in inventory system, less working capital stuck in their inventory. More of them leased the warehouse as opposed to owned it, and their fixed overhead was, on average, 19% versus about 24%. We saw a really interesting drop-off— a precipitous drop-off— in terms of net margin once operators cross that 20%-of-overhead threshold. So I think that, ideally, 15% is doing really well, but I'd think of 20% as being a top limit if you wanna continue to do well. So— anyway, just a few of the metrics, but, yeah— lean manufacturing, very cognizant about inventory levels and working capital, and selling primarily on their own website are some of the things that, I think, if you're doing those well, are a good sign for the future.

[00:41:37] Phillip: Oh, that's great. And I love good signs for the future. Once again, you can find the link to this study in the show notes— I think that's an easy place to go, click and tap— or you can go to ecomfuel.com/blueprint. Sounds like that's where you wanna go. Andrew Youderian, thank you for joining us. I'll be back again next year— we'd love to have you come talk about the study. It's fantastic, fascinating data. So thank you for joining us.

[00:42:03] Andrew Youderian: Yeah. I appreciate the opportunity. Thanks, Phil. Thanks, Brian.

[00:42:06] Phillip: Yeah. And thank you for watching and listening to this episode of Future Commerce. If this conversation sparked something for you, would you like, follow, and subscribe wherever you get your podcasts— it helps more people join the conversation. If you wanna bring Future Commerce into your world, check out our print shop. We have a new book— it's called Strata. It comes out April 14 and ships everywhere. You can get it right now on pre-order at futurecommerce.com/strata, and we'd love for you to go pick that up. Remember— commerce shapes the future, because commerce is culture. We'll see you next time.