Friday, April 18, 2014

Living on your Margin

by Admin on September 17, 2013

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A lot of people start businesses for various reasons.  Some build online businesses as a part time experience to generate a little extra cash.  There is not much focus given to growing it or making it a full time gig.  However there are a few people out there that the soul intention is to grow it big enough so that they can quit their day job and rely solely on their business income.  These types of people not only need to do more planning but also need to be able to project profit margins a little more carefully.  They have too, it’s the income that they need to live off of.  So how can you count on a steady margin in an ever changing market?  The answer is, you can’t unless you dive into your notes and books once in a while and do the math.

 

So lets use an example here of a yearly sales scenario.  Lets say Stacy has a business that generates $100,000 in sales a year.  Sounds pretty impressive so far right?  Now lets say she tracks the profit margin of her 10 products very carefully and projects that she can create a steady 25% return on her sales.  25% is not a bad margin depending on the product line.  It could be better and certainly could be far worse.  Lets also say Stacy is in her second year of business and wants to live off her income.  So let’s do the math.

At $100,000 in sales with a 25% return, she generates $25,000 in gross income.  Not bad, however the next consideration is in Stacy’s operation.  Does she work from home?  Is she the sole employee?  What are her expenses?  In an ideal situation with her working from her home and having no employees and no expenses, she would pocket the 25K.  But can you live on 25K a year?  That is the real question.  Most likely the answer is no, its just not enough money to make ends meet and run the business with the goal of growth.  Your expenses are always going to have a tangible value and you will always be pouring money into adding more products or into developing new ideas.  So how do you fix this scenario?

Options

  1. Find a way to decrease your costs so that your margin increases.
  2. Generate more sales to increase bottom line.

 

Those are your basic two options that you can control or develop.  Most other options involve spending more money to grow.  So the next question to ask yourself is this.  How much money do I need/want to make that is a reasonable (not a dream scenario) goal?  Take that number and then work back words using the same profit margin alottment.

So lets say you need to make 50K to run your household and life.  With the same margins, you will need to generate 200,000 in sales and most likely 300,000 if you want to accurately account for expenses.  Keep in mind this is twice as much work and its not easy to hit this kind of gross revenue early on in your business.

The real eye opener about this example is that most people do not realize that they have to keep their full time jobs active longer while they develop the sales of their business to the point of living off it.  while this may be a bit depressing for most people, its much better to find out about it in the developing stages of your business then after your neck deep and stressed out.  planning and information is power.  the more you do the better off you will be.

And in case your asking yourself how do you generate more sales as an option (and you should), here are some ideas:

  • Carry or develop more products.  You can do this the by either developing yourself or finding companies that sell their products wholesale to business owners like you to give your customers more choices.
  • Add a new revenue stream.  If you sell your product on your own stand alone website consider adding other sites such as Ebay, Amazon and Etsy to your revenue stream.  This keeps product choices in front of as many eyeballs as possible, which is the goal.  There are some people who are diehard Amazon shoppers and nothing else, the same goes for Ebay.  If you cross market your sales offerings you can improve your gross sales significantly.
  • Add an employee to the mix to help you manage the day to day operation.  I know it sounds like you are adding to your expenses because you are.  But, an employee also generates income for you because you can focus on growth instead of running the business.  This allows you to work ON your business instead of IN your business.

 

 

 

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Greatness is a Group Effort

by Admin on April 30, 2013

Greatness

Let me ask you these key questions about your business or business idea.

 

  • Do you operate your online business solely by yourself?
  • How well can you innovate new designs?
  • Are you good at sales?
  • Are you good at SEO?
  • Are you active on social sites?
  • Are you a good photographer?
  • Do you know how to make good videos?
  • How well do you understand logistics?
  • Who answers your phones?

 

I asked you these questions for a reason, they are all necessary parts of running a successful online business in todays competitive marketplace.  Most businesses start off with a single person behind the wheel doing all the chores of getting it going.  In order to expand and grow you really need to surround yourself with great talent in order to make headway that turns into cash.  I myself understood that there is just not enough hours in the day in order to wear all the hats that need to be wore.  There are certain things i know how to do and there are certain things I am terrible at.  Could I be a better photographer?  Sure, if I wanted to take the time and purchase the equipment that would make me great.  But then something else would suffer.  Instead it is much better for me to hire that person out and focus my efforts on other things that use my time best.

About the only thing you cannot hire out is the ability to innovate.  Business owners have a unique view of their companies and develop the ability to guide them to growth with innovative new products.  No one wants to just offer the same old thing, bringing a new product to market is where all the excitement is.  So how do you spend time on the all important task of innovation and still get all the other tasks done?  This task of determing how to hire out people may help you.

Lets start with a few basic facts to get this conversation started.

  •  Anyone you hire should bring some monetary value to you.  This may take a few months to realize, but it will happen.  Start off with the basic formula that shows a 3 to 1 return.  That is for every dollar you spend on a wage or fee, you should get three dollars in additional revenue back.  This means the extra money you spend on an employee or contractor should get you a threefold increase in return.  For example if you spend $1000 a month for a graphic artist, they should generate an extra $3000 in sales.  It’s important to realize that this does not happen overnight and that you have to plan it in your budget.
  • It is very difficult to hire anyone to innovate.  The “idea” people are few and far between and the chances of you hiring someone to innovate new designs that put your business on the map are small.  Hire people that take away the day to day tasks from your schedule.
  • Most people do not hire because they fail to budget it in.  If you budget a person into you plan they will begin to return income to your business plan in as little as three months.  Assigning capital to this is one of the smartest things you can do.
  • When budgeting expenses, remove the emotions from your planning.  This will help you add the right people into the fray
  • You can find good people that do not have to work full time.  You should think of your team as independent contractors for the following tasks.  Photographers, graphic artists, content providers and sourcing agents are all people that you do not have to lay eyes on everyday.
  • Sales staff can give you the biggest bang for your buck in the early stages.  Starting them out part time and giving a hourly wage plus sales commision can give you motivated people.  If you want mega serious results you will need to hire a serious professional and pay them what they are worth.  I generally start with someone part time and then take the plunge to full time later down the road.
  • Learn how to use the basic capability of an excel spreadsheet so that you can plan out a good six month plan.

 

Application

So facts are nice but without application they do not do much.  Open up a new spreadsheet and list your expenses down the left side.  Start with a “starting balance”. This is the amount uou have in the bank plus an amount of capital that you can borrow.  At this point do not worry about where to get the money, that is a detail.  Also do not worry about the exact figure either, you will use the spreadshet to “play” with the numbers.

 

Your sample sheet should look something like this.

  1. Starting balance
  2. Income from source “A”
  3. Income from source “B”
  4. Monthly expenses (not labor related)

 

Set up the spreadsheet so that what comes in as income gets added to the starting balance and then the monthly expenses get subtracted for a difference.

Next skip down a couple of lines and enter in these items

  • SEO
  • Photos
  • Graphics
  • Sales
  • Logistics (labor)
  • Social manager
  • Video work
  • Accountanting

 

Next to these entries place a number (guess for now) and have a total at the bottom of the list.  (use the autosum feature of excel)

Lastly take the difference from the income block above and subtract these labor costs in.  Carry the difference as a new balance for the following month.

 

So now that you have the basics on paper you can start playing with the numbers.  At first you should prepare your mind that the people you hire will not give you any significant return in the form of labor in the first three months.  You will just have to expect this and suck it up a little.  Hiring a sales person will give you the best bang for your buck.  Sales people generate revenue in a faster timeframe than an SEO person.  SEO can take much longer to gain traffic and convert them into sales.

 

So what is the value?

If you have taken the time to program your spread sheet you should start to realize a bump in revenue.  I would start to track that revenue and see how it relates to the three to one rule.  Chances are it will be much better.  If it is not, you are either still on the learning curve or you may need to replace your salesperson.  The key is to make adjustments and play with the numbers finding the right mix.

 

Money

This is the one word that everyone seems to get jammed up about.  It is not as a big deal if you are doing your due diligence and building cash flow.  So where do you get the money?  There are a number pf places besides the obvious.

 

  1. Home equity.  This is one of my favorite techniques.  You are really borrowing money from yourself to make yourself some more money.  Remember that every bit of borrowed capital is tax deductable.  Resist the urge to get more than you really need.
  2. Kabbage.com. This is a fairly mew program that lets you borrow money to expand or buy product.  They have a slick user interface and the system runs on Paypal.  It is super convienent and very easy to use.  Interest rates are about 6% at the time of this printing.
  3. Amazon lending.  Believe it or not Amazon got into the lending business and rhey actually have money to lend if you are a merchant selling on their platform.  This also is a easy system to use since it works right inside your account.  I find the interest rate a bit high, 16%, but if you have margins and turn over product quickly, it can work for you.

Credit card.  This use to be a taboo idea which I think was tarnished by irresponsible indivduals, not business owners.  There are a lot of finance mentors that recommend using your credit card to finance projects.  If you are careful to pay on time and pay more than the minimum payment this can also work to your advantage.

 

Creativity is what counts.  I never let money stand in the way of a new product or a new direction.  It is merely a detail.  The sooner you disconnect from the effects that managing money has, the better off you will be.  The key is to surround yourself with people that make you successful.  You cannot do it all yourself, you have to have help.  Help is everywhere, you just have to plan for it and then go find it.

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Facebook Likes

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Getting More Facebook Likes   If you have a facebook page for your business or service, then you probably know that you are going to want to have as many eyeballs on that page as possible.  In order to get more eyeballs, you need to get people to “like” your page.  The question for most […]

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Top Mistakes of Start-UP Embroidery Business

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Using Scratch N Dent Items to Create Sales

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How to Post to Your Facebook Community Page and Keep People’s Interest

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A Little More About Blogs and Linking

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Learning Sublimation

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Getting help sourcing products for Amazon

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Hosting your blog on your site or not?

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No doubt there are several advantages of having a blog to support your website.  It’s a great way to add content and communicate with your target audience.  There are two ways to approach how your blog connects to your site.  The first is having your blog on a stand alone hosting platform.  The other is […]

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