Last week, Sam from Financial Samurai asked me about my cost structure. I’m known for spending a lot within my company and most readers think my cost structure is quite heavy. I can understand their point of view but I can also tell you that having a third kid last year made managing my schedule a little bit more complicated! We had to rely on our team to keep the company rolling and this is what happened. Here’s the most up to date expense breakdown:
The bulk of our expenses is related to VAs and writers. Since we own several blogs, it’s impossible for us to write for all of them. Over time, my partner and I concentrated on a few sites that we like and truly have a passion for it. Writing for TFB is never a pain; in fact, it’s more fun than it looks!
Several emails and advertising management are handled by my VAs. We also use them to write a few articles, publish and edit others. They truly save me a lot of time as I don’t have to look over their work on a weekly basis. I check a few tasks each month to make sure that we are on track and I leave the rest up to them to manage.
We recently cut back on our writer’s budget. The reason was simple: we wanted to make sure that each site was profitable. Each month, we track our revenues per site and include this data in an excel spreadsheet (another task done by my VA 😉 ). Then, it was easy for us to take the average revenue per site on a monthly basis taking the last 18 months as an average. Those who were too close to their cost structure got their number of posts diminished. Over time, we realized that most blogs don’t need 5 new articles weekly to drag traffic. It is sometimes too much to read for visitors anyways! We would rather write quality over quantity and will make the same revenues while spending less money.
Accounting and banking fees are both pains we have to live with. I hate compiling ins and outs so I send all my statements once a month to my accountant and everything is being handled by them. I would probably have to waste a good 3-4 hours per month on that. So I guess it’s worth it! Within the banking fees, we also have a life insurance payment.
About a year ago, we took a permanent life insurance of $250,000 on both my partner’s and my life. In our shareholder agreement, we included that upon death, the $250K would be payable to the other partner so he could buy the deceased’s share. This was a great way to ensure that our work was 1) preserved for the other partner and 2) that our wives would get a benefit from this company.
The number here seems very high. We don’t spend $1,000 in servers. But we both have internet access, phone and other utilities linked to this spending account. This is why we end-up paying so much in servers & utilities. This is a way for us to benefit from the fact that we have a company at the same time since we don’t draw any income or dividend from it. We also include our $150/month Aweber subscription in there. Since having newsletters is now part of our core business, it’s a small fee generating a lot of money. Plus, it makes us more independent from Google!
We have done some major restructuration with our servers in 2012 in order to optimize our speed and service along with our cost structure (you can read about our servers’ adventures here). Our servers + domain renewal costs range around $600 per month now. We still have some cleaning up to do that should result in another saving of $50/month. This should be done in the upcoming months.
So our total operating cost per month is now below $4,000. I believe we have a very strong structure since we can easily grow our business without spending much money. The only spending account that could increase would be writers but this would also mean that our revenues would expand at the same time.
We currently average $8,000 in gross income per month since the latest Google EMD update. So after two major hits in 2012, we are still in line to make slightly over the psychological bar of $100K per year. So where does all our exceeding money go? I’ll let you guess…
There is another important account in our budget: debt servicing! I mentioned last year that we are on an aggressive debt repayment plan. We used to be over $90K in debt and we are now down to $77K. We have restructured our debt to pay a smaller interest rate (we now pay 4%! Whoohoo!). Our goal is to pay off all our corporate debts within the next 24 to 30 months. Since the online economy is changing rapidly, we thought it would be a better idea to clean up our balance sheet while we are making money and stop leveraging for a while.
Borrowing to finance our growth was definitely the best strategy we used for a while. Now that it has become harder to growth (because of a lack of time doubled with internet uncertainty), we decided it was time to pay our debts back. In less than three years, we should have a company netting roughly $50,000 per year in profit. This is what I call free cash flow!
The beauty of all this is not the 100K in revenues and definitely not the 45K of operating costs! The beauty is to make 25K each of net profit with less than 40 hours of work per month. This means that my hourly wage when I work on my blog is around $48/hours. This is not an astronomical number but considering that I can derive benefits from the company in addition to the $48/hours (such has having free internet and not having to pay for any computers!), I think it’s truly worth it!
The decision we made was to work less and earn less. However, we wanted to see our company grow while we are working at our day jobs. This is mainly the reason why we have decided to keep our cost structure higher. The idea behind it is also to build a safety net. If I was to lose my job tomorrow morning, I could fire all my writers and VA’s (which would suck!) and start working 40 hours for my company and keep a decent living from the income. This would give me enough time to turn around and make my company grow even faster.
If we would have kept only a few sites and would do everything by ourselves, we would surely have a cost structure of less than $1,000/month and netting over $7,000 each month. But we would also work a lot more than 10 hours a week! I still prefer playing with my kids than blogging, hahaha!
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