Hey guys this is Ash Bhattacharya from GrowthLABS. Welcome to another episode of The Growth Journal. in today's video we are going to talk about how you can structure your small business finances to set yourself up for success.
Now even before I talk about the numbers let me call out the structure that I'm talking about today is not necessarily optimal but pretty much on baseline for any business growth. So if your current budget allocation looks something like this, then you have the right foundation to scale your business into the next level.
However, if some key segments, for example, profit is looking like leaning more towards the left then you could have some housekeeping to do before you can actually think about scaling your business. Now it's also important to remember that these numbers approximately hold true, regardless of what business you are in.
You could be doing b2b, b2c, selling products, services, or coaching programs. This pretty much aligns to any business model. The only exceptions to this would potentially be businesses such as drop shipping or niche online membership courses or sole training practitioners for example doctors, lawyers, etc.
Also the model pretty much applies to any six figures 7 figure or 8 figure business. So, for today's discussion, we are going to take an example of our business which is currently doing a million-dollar mark in revenue. Helps in explaining the numbers! So what I'm going to do now is,
I'm going to drag the camera a bit closer so that you can take a better look Okay, I think this is much better, alright. So, let's start with the first segment which is marketing. Typical million dollar businesses or you know if an eight-figure business should be spending around 20 percent of their total revenue on marketing efforts.
We will loop back to marketing towards the end of the discussion. Let's move over to the next segment, which is operations.
Now, this would include expenses such as utilities, rent, insurance, legal, bookkeeping, subscriptions, and equipment's. Then, we move on to the next segment which is cost of goods sold or service stuff. So, essentially this is the amount that you spend in turn generating your product or delivering services.
Typically for products, this might look like capital goods, raw material, equipment and machinery, shipping and transport, and produc development. However, for services, it will be people who are contributing to your direct revenue. These are the staff who are members of the profits Center in your books.
They might be developers, engineers, consultants or expert contractors, who you may have hired to do a specialized kind of work. Then, we move on to the admin back end operations people which should constitute around 15% of your total expenses. These would be your reception staff, your customer support, your call center employees or your accountants. And then finally you look into profit which would be around 20%.
Now, this would include your salary, as well, as I have not factored in the small business owner salary either in the service staff or in admin. Now, going back to marketing typically the 20% of the funding that you are going to spend on marketing will go towards the 70 to 80% of the paid marketing segment.
Now, this would include your online marketing, banners, flyers, billboards, print and radio ads. You would also have a 20 to 30%, in some businesses relying largely on word-of-mouth. It might be a bit more but essentially it will look like 20 to 30% of your marketing will be earned through word-of-mouth, loyalty programs or organic traffic that people would have actually, you know, somehow people would have found you on Google or LinkedIn. Okay. So, in a sense, this is what the allocation should look like.
Now, important thing to remember is that this 20% of your marketing or the 200 grand that you're spending on a million dollar business is fueling for the remaining 80% of your business. So, if you are not currently making $5 or every single dollar that you spend on marketing then you have you will find it really hard to actually get into this level of sustainability.
If however, you are doing much better you can actually allocate more to your marketing to ensure that your business has an overall growth.
So that was it for today's episode. If you've got any questions or concerns, feel free to reach out to us and I will be delighted to learn about the challenges that you're facing. This is Ash Bhattacharya and thank you for watching this particular episode.
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