Understanding the True Expenses of Business Growth

Understanding the True Expenses of Business Growth

When I ask you to list your monthly business expenses, I'm setting you up to fail.

But, it's to prove a point.

I use the word 'monthly,' and your mind goes to the standard business expenses — utilities, phone, subscriptions, payroll, and so on.

You might sit there wondering why there never seems to be any money in your business checking account, and do this quick calculation in your head:

"Okay. If my revenue is this and we pay for these expenses and have x left over for growth…"

And, if you don't end up with a surplus, you will be as confused as ever.

You are always wondering, "Where is the money?"

You think the monthly business obligations are just this nice, even line. An ebb and flow of revenue and expenses that you hope will leave more over at the end of each month to invest in growth.

But all the stress you feel, unnecessarily, around your business proves otherwise. 

Your actual cash obligations, not including funding growth, are much more than you think and managing it is like a roller coaster throughout the year. Up and down, like a yo-yo! And then, of course, getting ready for the 'holidays' windfall where the expenses rocket WAY UP sometime mid-year, which leaves you freaking out. 

Your most significant cash outflow expense is 'product,' and to grow, you either need to source more products or sell more of the products you have. Which means you need more products. And more products mean more cash outflow.

So if we accept that Actual Cash Outflows are up and down throughout the year, then we can begin to get an idea of our actual true business expenses over the year.

Let's look at these true expenses and put them into categories.

When managing my e-commerce businesses, I found that by assigning expense categories a percentage, you can plan more efficiently and know exactly what your cash outflow is — keeping your expenses manageable and in-check.

Let's say your revenue on Amazon is $1,000,000 per year. 

Your Actual True Expenses are:

Amazon Fees = $412,789
Cost of Goods Sold = $234,517
Advertising = $96,941
Expenses (Payroll, Subscriptions etc) = $71,658

Which leaves an annual profit of $184,095. 

Now let's look at these expenses as percentages:

Amazon Fees = 41.28%
Cost of Goods Sold = 23.45%
Advertising = 9.69%
Expenses (Payroll, Subscriptions etc) = 7.17%

Which leaves an annual profit margin of 18.41%.

Now, if you are paying yourself a 15% salary, that does not leave you too much to invest in growth. You could drop your salary requirement, if your personal expenses allow it, and invest the difference. You could also find out if you are overspending in the expense categories listed above. 

Sellie, our resident 'profit-bot,' was built for this. No other software tool does it better.

Instead of doing that quick and dirty calculation in your head that leaves you wondering, wouldn't it be better to know precisely how and where to decrease expenses to increase profits to grow your store? 

The golden rule, the rule of rules of expenses, is always to make sure you are keeping the expense monsters at bay. Determine each expense category percentage and always try to keep it under and invest the difference.

Need I go on?

So, embrace your True Business Expenses. Know that you are on a cash outflow roller coaster, and it's okay, but knowing it's NOT a runaway, knowing that there is ALWAYS profit is what will help you sleep at night. Ups and downs are an inevitable part of business, but keep your expenses manageable. 

Numbers should be, dare I say it, quite dull. Uneventful. And totally insightful!

And that's just the way we do it at SellerVue, and we sleep quite well at night.