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Could you run your entire WordPress product business from a single spreadsheet? Today’s WP Product Talk covers what happens when your business starts to scale. From a few hundred dollars, to a few hundred-thousand dollars, this conversation is jam-packed with a wealth of. bean counting knowledge.

Episode Transcript

[00:00:00] Matt: Welcome to the ninth episode of WP Product Talk. We just keep going. . Last week we had a great episode with Rich Tabor talking about full sight editing and today, I’m excited to be having Jason Coleman here with us today as well. So thanks for being here, Jason.

[00:00:16] Jason: Yeah, no problem. I don’t, I don’t think everyone has as much fun with spreadsheets and things like that as I do

[00:00:22] But there’s, there’s some of us out there and I think we can all learn to love them and especially how useful they are in keeping our businesses running well, ,

[00:00:30] Matt: absolutely. Ask my team about my passion for spreadsheets. The, so the topic today is budgeting for WordPress products, how to forecast revenue and expenses, and this is a great time to be talking about that as I’m hoping that a lot of WordPress shops are deep in their spreadsheets right now, planning for 2023.

[00:00:49] Because now is almost too late . So it’s a good one. If you’re listening in and you have some comments or questions, then tweet at us with the hashtag WP product talk and we’ll be paying attention over there. I do wanna also give a shout out to the WP Minute that has traditionally been doing a lot of distribution on all the podcast channels for us.

[00:01:10] They’re a little bit behind at the moment, but I gave them a nudge today and they said they’re on it. We’re gonna get the rest of those out the door this week. So, thanks WPP minute for that service. And now we want to do some quick introductions. I am Matt Cromwell one of the co-founders of Give WP and that is the, the number one plugin WordPress plugin for doing online donations for quite a while now.

[00:01:32] And we were recently wow. It’s not so recent anymore. We’re now owned by Liquid Web, part of Stellar wp, where I’m helping with marketing operations support forgive and cadence and iconic and ims. It’s gotten fun on our side of the fence for sure. So that’s me, Kim.

[00:01:52] Kim: Absolutely. Thanks Matt. So I am Kim Coleman.

[00:01:54] I am Jason Coleman’s boss, and I. That’s true. But definitely we I am co-founder of Stranger Studios. We have a membership plugin called Paid Memberships Pro. We’ve been building that for 12 years and we’re dabbling in some new products. One is called Sitewide Sales for automating Flash Sales in your WordPress site using WooCommerce, easy Digital Downloads or paid Memberships Pro.

[00:02:13] And we’ve just launched a new product called Restrict with Stripe that Jason can maybe expand on a little bit. So, Jason, do you wanna introduce.

[00:02:20] Jason: Sure I work for Kim, but I’m also her boss. She said it well. So we we’re, you know, basically one person work wise often, and been doing this together for so long.

[00:02:29] And yeah, paid Membership Pro is the main product we have. Restrict with Stripe is something new. It actually kind of competes with paid memberships pro but it tries to do as little as possible on the WordPress side and just lean on Stripe as much as possible. So if you really love Stripe and just want like kind of the simplest way to restrict some content using Stripe as an e-commerce engine, that’s what we set out to build with that.

[00:02:52] And we’re looking for kind of early users.

[00:02:54] Matt: That sounds super fun. Kim mentioned that I think last previously and I have yet get my [00:03:00] hands on it, but I want to test it out for sure. Fun. Cool. Cool. Well, first things first, we need to address the big elephant in the room. Why should anybody care at all about budgeting and forecasting at all?

[00:03:10] Why is this such an important subject? And as I am prone to do, I like to throw our guest hosts under the bus first. So, Jason , what makes this such an important or significant subject in your mind? Why? All the WVU product shops need to be paying attention to this.

[00:03:26] Jason: Yeah, I, I think it’s important. It can feel like naval gazing in the same way.

[00:03:31] Checking your Google analytics is like, I definitely multiple times a day just open up the reports and see how much money came in and that’s not super useful. But if you have really good documents for doing your financial planning and budgeting and account. The primary use for them is to help you make decisions better and faster.

[00:03:50] So like you don’t, like, Kim gave one example of, you know, someone on the team wants to spend $50 a month on some marketing service, and you don’t wanna have to figure out, is this worth it? Can we afford it? Every time you have a little decision like that, you kind of, if you do all this work up front, You know what your budget is and you know what you can afford, and you can make really quick decisions as long as you’re within budget.

[00:04:12] And when there’s bigger things you, you know, like, Hey, I can make this investment in the business without, you know, running outta money basically. So that’s the idea. Get the data in place so that you do all that work up front and figure out, you know, how to, how to make better

[00:04:25] Matt: decisions. Nice. In case anyone notices, I’ve got a toddler in the background.

[00:04:30] So, just fyi, , yeah, for me, I definitely, I mean, it is in many ways two different things. Forecasting, budgeting forecasting for what you Expect to be bringing in next year, hopefully, ideally with growth in mind, of course. And based on those projections hopefully being able to establish good budgets that make sense?

[00:04:48] I, I totally agree. I love having good budgets in place that are, that allow me to be able to make decisions and not have to overthink it when the time comes to pull the trigger on a purchase or a new hire, things like that. I think that’s really important. I mentioned I think a couple weeks ago how I do a lot of tying my support hires to what our sales projections are.

[00:05:09] And that’s a, that’s a big part of it for me, is that if I’m projecting a certain amount of growth over the next year, then I know I’m gonna need a certain amount of staff to support those new sales that come through on the support side. And I honestly, I don’t feel like. Better way to project for that kind of thing.

[00:05:25] And of course you always have to be checking against whether or not you’re meeting those projections and whatnot and and adjust accordingly. But doing that in advance upfront really helps to really set the pace and tone for the calendar year. So that’s, Kinda where I’m coming from.

[00:05:40] Kim, I am certain you are not just a carbon copy of Jason, so I’d love to hear your perspective too.

[00:05:45] Kim: No, when, when we were brainstorming for this session it, it could be a challenge for us to not overlap, but for me, the biggest thing is that a lot of founders pay themselves last. And by considering yourself in a budget and a for.

[00:05:58] You can [00:06:00] build in a salary that you’re comfortable with and separate that. Especially if you have an LLC model like Jason and myself, we’re both 50% owners. All of the money that’s left over is technically ours, but when we don’t actually pay ourselves, you know, a quote unquote salary, when we don’t recognize that as a cost of this business, then I think we’re undervaluing our contribution and we’re not preparing our business for a future time when we.

[00:06:23] As full-time in this, if you develop additional products, if you develop other revenue streams, you’ll be become divided. So you won’t have any idea what it will cost. Replace yourself even in part, within your organization. So I think it, it forces you to take a look at some costs you’re not even realizing when you’re just managing in QuickBooks.

[00:06:43] Matt: Nice. That’s good insight for sure. Cool. That’s I think that’s about it. I mean, like without, I, I actually really think of budgeting and forecasting really as fundamental to doing good business personally. Also, it’s just, it’s really like business 1 0 1 regardless of what your current revenue stream looks like what your current sales look like in order to really be Setting yourself up for success.

[00:07:05] You gotta do this. Whether you like spreadsheets or not, honestly, . Yeah. Jason, do you have additional thoughts there?

[00:07:11] Jason: I mean, of course. I think Kim’s point about paying yourself first was, is really important and. Even more so if you have the kind of business that is kind of up and down, like when we did consulting work, we’d have some months where we’d make three times as much as a typical month, and some months we wouldn’t make as.

[00:07:30] We’d have a low month. And I know like on Kim’s side, she would see like the money coming into the bank account and be like, we didn’t make any, any money this month. And when we started forecasting and paying ourselves a a salary, I could be like, well, the business didn’t make any money. We still made money cuz we’re mo you know, we’re kind of paying ourselves by moving a more consistent salary from one account to the other.

[00:07:50] Cuz your life can be crazy if you’re like, you. You feel rich cuz you just landed a big contract and then the next month you feel poor cuz you’re not landing big contracts. If you forecast it over the course of a year and divide by 12, you get a more, you know, typical budget for your personal finances as well.

[00:08:05] So that’s useful.

[00:08:07] Matt: Yeah, no, that’s great. Cool. Well, another part of what we do here is what we call story time. We wanna go around and give them examples of how this subject has impacted us personally in the past, in our businesses, and things that we learned at definitely pros and things that we feel like we succeeded at.

[00:08:25] And Jason’s really good at talking about failures, I have to say . I’m not, I’m not suggesting that you need to talk about failures, but I’ve heard some good especially on the support side or the, the customer feedback side. But but yeah, not on the budgeting side. You’re great with spreadsheets.

[00:08:39] So I’d love to hear some stories. Jason, why don’t we start with you? What’s a good story?

[00:08:43] Jason: Man, I wish I came with like a good failure for for you that was on topic to talk about maybe next time. It is important but maybe like to visualize some of the stuff we’re talking about. I remember like the earliest times I started trying to do forecasting and spreadsheets and we had a simple spreadsheet for our consulting business [00:09:00] that was basically, you know, how much money did we make total this year?

[00:09:04] How many customers did we have and what was the average project price and kind of what, how many hours did we spend? What was our hourly rate? And kind of ev the past few years we, you know, put that into a spreadsheet. And, you know, the thing you can do in a spreadsheet is you can select a row, like a formula and then drag it down.

[00:09:22] So I was like, Hey, let’s shoot for like 30% growth, which was a number, like, just out of the top of my head it was, you know, it was just like, that would be nice. And then you get to see like, hey, maybe we made, you know, $50,000 this year, but in three to four years, like that becomes, you know, in the six figure range.

[00:09:36] That’s pretty nice. Let’s shoot for that. So there’s like this positive visualize visualization when you do that. You know, kind of like the secret, like you’re like, you see it on a spreadsheet, like, oh, like two years from now I’ll be able to buy a house. You know, like apparently. But the, the other aspect of that is like, you know, the money doesn’t just go up.

[00:09:51] You kind of real, you have to ask yourself a question, like, okay, well how do we grow 30%? And in that simple spreadsheet that we built, there was only two levers really. That we could turn as a business to make the, the total revenue go up. And that was either get more customers or raise our prices. And that really forced us every year to be like, Hey, what are we really trying to do?

[00:10:11] And some years it was raising prices and some years we were trying to get more customers. We tried to kind of streamline and do less complicated consulting work and more kind of quick repeatable work that we could do more often. It was just a case of us early days, having that spreadsheet, seeing the numbers that made it real.

[00:10:28] And then it helped us make a business decision of like, oh, this year we should, we need to raise our prices by 30% if we actually wanna grow the business. That kind of.

[00:10:35] Matt: That’s excellent. Yeah, absolutely. I mean, it’s just, I think there’s a lot of folks I’ve chatted with who just are really hesitant, just do the really boring work of getting it all out on paper in one form.

[00:10:47] You know, paper. In spreadsheets in one form or another. But that’s, sometimes that’s really all it takes is just making sure to lay it all out and, and look at it. And once you see what you have in front of you, it just kind of makes a lot of your decisions for you. Kim, I’d love to hear your take.

[00:11:02] Same business, different take. I’d love to hear your story too.

[00:11:05] Kim: Sure. I wanna talk about an, a common argument. Jason and I have, and I, I think I’m coming around. I think he’s winning me over. And this re relates to planning, having plans, and in a lot of ways a budget is a point in time where, or a forecast even more specifically, is a point in time where you look ahead and.

[00:11:23] You take the information you have from history and you use that and you mix in a little bit of expectations, you mix in a little bit of hopefulness and you create a vision for the future. I have a major problem with looking ahead to things that I don’t have full information for, for looking ahead at things and knowing that it’s going to be wrong, like the very next day that information is going to be wrong.

[00:11:46] But Jason always reassures me that the point of doing this isn’t to get it right. Stick on track to spend that exact amount of money you forecasted to spend on marketing that month. And if you didn’t do that, you’re a failure. It’s [00:12:00] more about the point in time that you had those conversations, you set those expense estimates, let’s say.

[00:12:07] And even though the it’s wrong, the art of planning was the point, the point of having that conversation. So for us, you know, the pandemic was a really interesting time where forecasts were very wrong. As soon as things started getting really crazy, like march through May of 2020, all of our forecasts were incorrect.

[00:12:25] We were growing a lot more and we were not able to spend as much because we had allocated money for marketing expenses that didn’t exist. These in person word camps didn’t exist. These other in-person events we were trying to budget to have a whole team trip. The pandemic hit, and that line item on our budget.

[00:12:42] Like a no-go. So I think when you’re, when you look at budgeting, you, there are going to be places where you might not meet the expense level. And what do you do in that case? So you don’t just like, oh shoot, we should sponsor a bunch of stuff cuz we didn’t spend our marketing budget this year. You could make that decision, but at least you have a story to tell for why and you had that goal set in the first place.

[00:13:03] So, I don’t think we’re, we’re great at this. We’re still maybe not spending what we estimate. To estimate to spend on, on marketing. And we’re still toying with how can we have a team trip? How can we continue to budget for a team trip when we aren’t yet sure that the world can accommodate it for our full team globally?

[00:13:20] So that’s like an interesting piece that, that hangs over me when I look at these budgets. I will share a tidbit that Jason, to a degree is an over estimator when it comes to the expenses side. So if you have to err on one side of doing it, I think that’s a healthy way to. be incorrect. So that you don’t feel like bad about your budgets when you put the real number in for that month on that spreadsheet row, if you severely underestimated expenses and then that bottom line number gets cut pretty hard, you know, you’ll be, oh, you know, you’ll start to hate your budget and look at it with disdain.

[00:13:51] But if you have to overestimate a little bit, it’s by the right choice to do. I think Jason’s doing that the right way, being very conservative, .

[00:13:58] Jason: Yeah, and it’s, it’s easier to be conservative because we have a profitable company with, you know, excess cash. And so I say like, Hey, the numbers don’t have to be exact.

[00:14:07] Don’t worry about it. But if, you know, it’s, I try to remember back to the early days when maybe our bank account was closer to zero. And it was like, oh, like if I’m off a little bit , we’re gonna overdraft our account. So if you’re in that situation, I, I, I guess you have to be like a little more serious about that end of things.

[00:14:23] But yeah, like for example, like the marketing budget, it tries to be a conservative estimate and like I said at the top of the show, sometimes it, it’s to make decisions quicker. So it’s kind of like, I don’t wanna have to figure out if we can afford $5,000, anything below $5,000 a. If it’s below it, just do it.

[00:14:39] You don’t have to have like a bigger discussion of can we afford this? Just is it useful? And, and if you don’t actually spend your budget, that’s not necessarily a bad thing. But in some cases, maybe it is, if it’s part of the strategy is that we should be quote unquote marketing and pushing things.

[00:14:53] And we’re not using all of our resources, including the money to do that. It’s, it’s worth it. Kim and I talking about that. [00:15:00] and

[00:15:00] Matt: figuring that out. Mm-hmm. . Yeah. No, that’s a really good point. I like both of those. Like for one what you said, Kim, that like, it’s not intended to be like a perfect forecast of what you, what you know you’re going to spend.

[00:15:12] It’s really, there’s guardrails to make sure you’re not going crazy off one side or the other. And and it’s flexible for sure. And also I agree with that a lot that that specifically that you wanna make sure that things are, are, are going in the right direction and that you actually are spending what you intend to spend.

[00:15:30] You’re, and not only just in terms of like marketing spend, but also in terms of investing in your team. Perhaps if you set aside a certain amount of, of budget, Specifically for hiring and then you just kind of like, put off that new hire. Like maybe it’s like, ah, we got all this extra money here for hiring we just never hired and oh, but we’re doing fine.

[00:15:50] Like, nah, you know, you gotta pull that trigger and make sure you do those hires and, and keep investing in your company as you go. So I like both of those for sure. I think story time for me the, one of the things that was interesting in the earlier days of give was, was specifically that we did really want to do some big investments in the product or in the team in one form or another, and there were times when it really, it just didn’t feel feasible.

[00:16:15] And so we kind of, started working into a an every other year kind of cycle. One year we would treat the budget as a year of investing deeply in the company which would be kind of a year of growth, really intending to do some more hires, to invest more in marketing. And then the year that followed, that would often be a bit more of a leaner year.

[00:16:37] And tending and hoping that the investments that we did. Paid off in more profits and more sales and things like that, and they, by going lean the second year, we actually end up having a higher profit mar margin based on the investments that we made the previous. And I do feel like overall that ended up working in our favor.

[00:16:55] And and and we definitely were also overestimating expenses regardless, either, either either year, like if we said, oh, we’re gonna need a budget for two new hires, maybe. We were thinking that each was gonna be like a 75 k salary, we would still probably budget more towards 200,000 total instead of just one 50.

[00:17:14] Just a nor that’s a little bit too much. Not that, not quite that much, but we were definitely overestimating. And I do, I agree with that. Like having that as a buffer is really important and, and helpful as well. And I love that. I’ll also in terms of what you said, Jason, that when, when the budget for like marketing or whatnot is just.

[00:17:31] Anything less than $5,000, you know, let’s not spend a meeting talking about that . Let’s just make sure and invest it and spend it. That’s very similar for us as well.

[00:17:41] Kim: Could you, Matt, expand cuz I know it’s obvious with Jason and myself, we work on the same company. Who and your team, you know, let’s say pre-acquisition mm-hmm.

[00:17:49] was involved in this process.

[00:17:51] Matt: Yeah. The, all the budget and forecasting was the partner. Which of that time were me and Devon Walker and Jason Cannell. . And so we would [00:18:00] be, you know, right around October is when we would start beating up our performance for the year and start looking at projecting for the future.

[00:18:07] Jason was our finance guy and he would definitely start out with all the, the projections and he always tended to Project pretty conservatively. And and then we would sometimes try to, you know, let’s push it up a little bit. I think we’re gonna outperform next year just a little bit so that we can justify a little bit more hiring spend or things like that.

[00:18:26] Or we would say the opposite. Let’s let’s tone it down and set expectations a little bit lower. And and try to, if we do exceed expectations, then that ends up being buffer, that we have to invest the following year. So, yeah, what I mean on that front, like, one thing that I’ve been trying to lean into more and more is is yeah, that those types of conversations like revenue and, and, and revenue streams and those kinds of things can sometimes be kind of an uncomfortable kind of conversation for.

[00:18:54] Employees or team members. And so oftentimes I like to talk about other types of metrics for them especially on the marketing side. Really focus much more just on conversions instead of the actual revenue numbers that can kind of vacillate based on discounts and, and average revenue per unit and things like that.

[00:19:11] But making sure that the, the, the folks who are setting budgets and things are always paying attention to the revenue line.

[00:19:18] Jason: That’s a really good point about kind of insulating your team from some of the metrics. Like we, we had something like that early in the year where, where we realized the marketing kind of scorecard had. Revenue numbers on it. And I think the team noticed that I, I dunno, I think the, the August month was like a little lower than like the previous year’s August month or something, and they were like, what can we do about it?

[00:19:37] And I was like, oh, no, no, wait. It’s not your job to figure that out. Like your job is to get traffic and conversions and get people, you know, opening emails and things like that. Like they were, they were kind of distracted by the, the high, high level numbers in that document. But we do share with them kind of, we try to quarterly.

[00:19:53] Let them know that the business is okay. And we did have fun once, like we had like a race to a million when we were kind of a little bit close to a million revenue for the year. And we, we said like, what can we do in two months to just make money? And we got like really good ideas out of the team. It was like a special thing.

[00:20:06] But in general, try to insulate that.

[00:20:08] Matt: Yeah. Yeah, I agree. Cool. Well, next one we have here is a quick little defining terms, which I think is really useful and helpful. Just for, for everyone to be on the same page here. Jason, you wanna walk through this a little bit? I think especially when it comes to the difference between accounting and finance, those are, that’s actually something that I think a lot of folks in the early days don’t think too much about.

[00:20:29] What’s your take on that? Yeah,

[00:20:31] Jason: so. So, yeah, it’s like accounting and finance and, you know, this would be a simplistic view. Kim manages the accounting for the most part in our business. And we have like, some people that we outsource to as well, but the accounting is, you know, all the, all the receipts for everything coming in and out.

[00:20:47] So if you have a consulting business, every invoice that gets paid, you know, keep track of that in a sheet or in QuickBooks. And every time you pay something, keep track of that. So it’s like, it’s at the, [00:21:00] the item level of making sure that, you know, the, the money coming in and out is controlled, whereas the, the finance is a little bit of a higher level, level picture.

[00:21:08] It also includes things like if you’re taking loans and have to pay back loans, you know, like accounting for that. And on the finance side, you know, I recommend having, like, there’s like, if you think of like a public company, private company, run it the same way. Like you want a balance sheet that shows like how much cash do you have in the bank and your liabilities and other assets.

[00:21:26] And you wanna have like a cash flow statement or forecast, which is like, you know, your estimate month to month and quarter to quarter of the money coming in and out. But not at the item level, but at the kind of like, Higher level group things by product and things like that. Yeah. Yeah,

[00:21:42] Matt: yeah, absolutely.

[00:21:43] I mean, I, I think that’s one thing I, I do get a lot of folks asking questions about Acquisition about how to set themselves up for that kind of situation and mm-hmm. , my first answer is always to have really clean books and a really clean p and l. That’s like, it’s one thing that folks who are looking to acquire other businesses are always looking looking at carefully is Does this all add up correctly?

[00:22:07] And are they actually above bore on all the things they’re reporting on? And are the books clean? So getting into that habit immediately and doing it right, I think is really important. For sure. Another one here in terms of defining terms revenue, expenses, profit, profit margin. Who’s gonna chime in on this one?

[00:22:25] I can,

[00:22:25] Jason: again, I did a talk at Work Camp Orlando and I tried to like skip past this cuz I was like, everyone knows, you know, it’s like revenue, nicer expenses, that’s your profit. And about half the people in the room, wait, wait, what? And I was like, slow down. And I was like, oh, okay, let’s back up. This is supposed to be like business 1 0 1.

[00:22:43] But basically, you know, revenue is all the cash that comes into the business. You know, it’s the, when someone. Pays for something on your website, you know, it’s $300, your revenue would be $300. And then expenses. There’s you know, kind of expenses that are the cost of doing business. And then there’s expenses after that.

[00:23:01] So like, you know, You pay Stripe 3%, you know, that’s an expense. Maybe you have to actually like buy the product that you’re selling from someone else. Or you have like an affiliate rev share with someone that’s an expense. But then so are like, you know, your employees and your support team and your marketing budget, those are expenses.

[00:23:17] So in any given time period, if you take your revenue and you subtract your expenses, that’s your profit. And if you get that as a percentage, that’s your profit margin. And it’s, it’s kind of important, like I think People who share about businesses, they say like, oh, we, we, like I just said, like we were shooting for a million dollars a year in revenue.

[00:23:33] That’s, I think the top line revenue number is a good idea of like how big the business is in terms of like what’s involved. But if you wanna know like how profitable is that business? There’s some businesses that have smaller margins, like if you’re selling. You know, certain kinds of reselling products or something like that, selling clothing, maybe your margin is smaller than if you’re selling software.

[00:23:51] And so, you know, some businesses are better than others because the margin is better, and that’s important to take into account, you know, what does it cost to deliver that?

[00:23:59] Matt: Okay. [00:24:00] Yeah. No, absolutely. That’s another one. That you know, actually Kim and I just said the other day that we should do a talk about setting your business up for acquisition.

[00:24:10] And it probably will overlap a lot with this conversation because that’s exactly right. And the thing I was saying earlier about how sometimes we would have kind of a leaner year on purpose a year of investment, and then a. More of that was more fo focused on investing in new team members.

[00:24:26] The profit margin would definitely be thinner in those years when we were doing a lot of hiring and a lot fatter in years when we were trying to be lean. But that was all intentional and on purpose that was trying to accelerate the growth of the company so that by the time we were ready for acquisition, the, the profit margins were, were solid and good.

[00:24:43] And I mean, it wasn’t only for that intention, but it’s also that you have a lot more flexibility to be able to do the kinds of big moves that you wanna do when you, when you do have those profit margins. So, , being able to pay attention to that carefully I think is really important. So good clarification for sure.

[00:25:00] And I’ll,

[00:25:00] Kim: I’ll just add on these terms. Super important to look at them individually and understand how they impact each other within your business specifically. Growing revenue might mean growing expenses in parallel, and I’m sure you’ve grown, but your total profit is. The same. So looking at these numbers, understanding them individually, profit margin, probably being the best one that’s showing you that ratio.

[00:25:24] And then individually thinking of strategies to reduce one area, increase one area, or just increase your profitability without increasing your expenses. So, Yeah. I hope that’s not vague, but I think it just helps you understand why. Why is understanding these four different terms important? It’s because they have a relationship to each other and they’re individually important.

[00:25:44] And honestly, what I’ve asked other business, like, what’s your profit margin like? There’s no rule of thumb. There’s no metric that you’re gonna say like, oh, well, all WordPress products have this profit margin. That should be my target. Really it’s you and you year over year that you really wanna start.

[00:25:58] If you’re just starting, you know, don’t look to someone else’s profit margin and use that to judge yourself, you know?

[00:26:03] Jason: Yeah. Oh, Kim, to your point, like a good example that comes up a lot with WordPress product companies is that they make the decision to raise their prices, which lowers the number of units sold, and so their.

[00:26:16] Load goes down and so they’re like, Hey, we can make more money and pay less on support when we raise our prices. And so they, they kind of think about that hopefully. And I’ve, I’ve seen other people do think about that when they’re making that decision. Or if you’re on the flip side like us and we say like, Hey, we’re going for market share.

[00:26:32] We’re going to give away, you know, stuff for free. We’re gonna keep our prices potentially lower, although we did just raise our prices last. We, that means that there’s gonna be a higher support load and we have to have a good forecast and budget to account for that . Yeah,

[00:26:45] Matt: absolutely. I actually have a good question here.

[00:26:47] Amber Hines is listening in. Hi Amber. And she has a question for us, which I think is really relevant. Can you talk about the percentage of revenue you’re spending on various areas of the. , oh. Yeah. Yeah. I mean, [00:27:00] we’re budgeting, we’ve been talking about it more at a whole. But per department I think is really important too.

[00:27:05] Jason, you wanna start with that? What’s your take on that? May I have

[00:27:08] Jason: it open in our document? And so it breaks down like this, the largest by far is Sal salaries and benefits and salaries includes full-time contractors and some part-time contractors as. But 70% of our revenue goes towards salaries and benefits.

[00:27:24] And then about 4% goes towards marketing. We do set aside 2% for that team trip that we hope to be able to take that. Kim said it comes out like hosting and softwares about 1.2%. I feel like this is low. Sometimes I see other businesses talk about all the business, all the SAEs that they use to run their.

[00:27:40] And I was like, don’t you have someone like Kim who like once every three months tells you to cancel that account? And so that, so this doesn’t get outta hand. But that software then there’s like 4% processing fees, like I said, that 3% credit card, but also like refunds and stuff like that around six to 10% sales tax.

[00:27:55] And then the rest is profit. And so our profit margin on this budget for this year, this is 2022, which is kind of a flat year. Our profit margin is

[00:28:03] Matt: around 10%. Nice. Wow. Thanks so much for that transparency there. Amber, I hope you’re taking notes, , I

[00:28:08] Jason: could share a screenshot or something on Twitter maybe

[00:28:11] Matt: as a follow up.

[00:28:11] Yeah, no, that’s cool. There, I, there are certain parts of that that I think are really important is in terms of talking about setting things at a percent of revenue. Specifically you mentioned how you set the, the company trip as I think you said, 2% of revenue. I, what I love about that is that as the company grows, it just means a better company trip every single year.

[00:28:35] I mean, I’m, I’m being a little bit funny about it, but it is cool. It’s, it’s great to set it as a percent, and because that goes into what you were saying earlier about like not having to make giant decisions, because often if you’re like, oh, geez, we’re gonna spend $50,000 on a company trip, it just sounds like.

[00:28:51] A ridiculous amount of money. And maybe, maybe that just sounds, that just sounds too big, but when you put it as like, well it’s, it’s still 2% of the company revenue just like it was last year. It’s still the same exact budget. It’s just that we are you know, doing better this year and maybe we have more people this year too.

[00:29:08] And so it is gonna have more expenses this time around. So, yeah, I like setting it as a percent We do the same thing with word camps, in particular Word Camp sponsorships. Traditionally in the past we had them try to be around between seven and, and 10% of revenue. That there was a time when, when for us we had it up to 15 or 16%, and that’s just because we were doing one of those.

[00:29:29] Big investments where we are trying to get the word out about, give really strongly but then we dialed it back when we felt like we had it a little bit more under control. And then ad spend. I think also if you’re doing paid advertising in any way whatsoever it’s the same one where if you think like, oh geez, we spent $20,000 in a month on ads, it sounds like a, a crazy big number, but when you realize that you’ve just pegged it to a percent of revenue and it’s just that.

[00:29:53] You’re continuing to grow as in, in your revenue then I think it works. And that is another one where, [00:30:00] like you said earlier, Jason, if you’re not actually spending it, then it’s kind of indicative of a problem. Like you do have this budgeted and ad spend. If you, if that is one of your marketing strategies, you do have to spend it if it’s a part of your strategy.

[00:30:12] So really good question there. Kim, you have any insight, additional things to say there?

[00:30:17] Kim: I think Jason told everyone everything. No, .

[00:30:20] Jason: I didn’t, there’s like a, I don’t know if this piece is useful too, like the, the salaries are 70%, but we also then break down, you know, by team basically how that maps out. So I’m looking at another part of our spreadsheet which says that’s about 45% customer support about 25% product and develop.

[00:30:39] About 20% marketing and the rest around 10% for executive stuff. So that’s like really loosely, you know, we give like a percentage for every team member of how much they spend their time on each kind of task. And so we have that level of detail as

[00:30:54] Matt: well. That’s great. So nice. , Cool. Another item we have here, by the way, like in terms of like show notes, oh my goodness, this is, this Power Couple here has really put together some show notes.

[00:31:07] And I, I, I seriously just got to walk in and be like, wow, this is all done. Awesome. There, there’s more here than we can handle, I think in the next seven-ish minutes, but so I don’t know, Kim, what do you think? Which, which of these should we tackle next?

[00:31:18] Kim: I think we should talk about where do you start would be helpful to people if you have nothing.

[00:31:24] So if you are legit, you know, you have stripe, you, you might have an accounting system, but you have never started. So how would you get started? If, if you have no forecast and really no idea of. , where would you begin? And Jason, maybe you wanna start how we talk about how we began doing this? Yeah.

[00:31:41] Even when we were agency style and then migrated into products.

[00:31:45] Jason: Yeah. I’m, I’m curious to hear from Matt too, cuz we’re, we’re kind of all our own on the software side and the accounting and finance side for a while. But I forgot to look this up, but I think Christie Chos had. WordPress tv talk at a Word camp about forecasting and budgeting and stuff.

[00:32:03] It did really good. If that’s online or you can find it, that’s worth a look. Yeah. But, but we, what we did was like the most important kind of spreadsheet. We didn’t use QuickBooks or something like that, but we had a spreadsheet that had two tabs, one for expenses and one for. I forget how we labeled it, but like, revenue, like incoming money.

[00:32:21] And every line was like the date of the expense how much it was. And you know, that’s, that’s the information that you need to like, do your taxes. So we did pay for a tax account who did small business tax submission and stuff for us. And we would just send him that spreadsheet. And as we got bigger, that spreadsheet got outta hand and he is like, this would be really easier for me if we were officially using QuickBooks and we hired an accountant to basically move our spreadsheet into QuickBooks.

[00:32:43] But that, that sheet and then we would like break it down by month. That was really important to just like have, you have to have that, those numbers accurate. And then after that I think it’s like something simple and it’s different for every business. I have a couple templates, hopefully I’ll try to share the stuff on Twitter too cuz I found it from all documents we had.

[00:32:57] But it’s kind of like I said, for consulting that high [00:33:00] level of, you know, how much revenue do we make? What are like the main knobs that kind of contribute to that, and what are those values? And keep track of that year to year and kind of try to make an estimate of what’s happening the next year. It just forces you to be honest about those numbers and be cognizant of those numbers and it’ll, it’ll enlighten you for, you know, like the decisions that you have to make about

[00:33:22] Kim: your.

[00:33:22] Definitely the, the first step is looking to the past to, to help you predict the future. So if you really want to do a forecast for 2023, do your 2021 and 2022, maybe even 2020, look back in QuickBooks and just make a really simple month to month total expenses, total revenue profit. And then compare those months, compare them year over year, and it can start it can help you get a basis.

[00:33:50] For how have I grown historically? How have my expenses grown historically? How has my revenue grown historically? And you can then look ahead to 2023, factor in some gut instinct about things and then, Create your forecast. Jason, on a monthly ish basis, I think at the start of the month, takes his forecast and turns it into reality.

[00:34:12] So right now we are up to the end of October, our January through October. Columns in that spreadsheet are real numbers. We’re still looking at the forecasted number for November and December, so, you’re kind of real time converting your forecast into, you know, a version of your, of your books that is separate of your QuickBooks area.

[00:34:32] But still some, like Jason uses it to compare and he goes, wow, like I was pretty close. That’s cool. And you feel good about it when you’re close, I guess. But that’s kind of the process we follow. And then Jason tells me how we’re doing . We can add also that we do this for our personal. And you have some spreadsheets to share too for personal budgeting and forecasting.

[00:34:49] Having a personal balance statement, having like an idea of what your net assets are as an individual. Cuz the same rules kind of apply that you might be using for your personal finance.

[00:34:59] Jason: Yeah. On that, the like personal sheet that I have, you know, there’s an income statement format. And like I said, if, if your income is kind of irregular, like we’re technically an llc, so at the end of every month, you know, any profits are ours.

[00:35:15] But Kim and I set a salary for ourselves. Like she said, pay yourself first so you know, you know what you’re paying. But that income statement for you know, for our personal finances is just that, you know, salary that we set for ourselves. So it, it gives us like a really clear. Consistent month to month view of what our expenses are.

[00:35:33] And if for sim in the same way, like the team trip, like if you, your travel expense that should be budgeted in your personal life. Like how much do you actually pay for a vacation? We still get bonuses and stuff. That’s fun too. We give ourselves a bonus when we give everyone else a bonus, and that’s when I buy synthesizers and guitars.

[00:35:48] But you wanna be honest about like, what’s a planned expense and what’s, you know, what’s not. Mm-hmm. ,

[00:35:54] Matt: I. I love this question about just how to get up and running. I think that’s really crucial [00:36:00] and I know that That for me when I, before working with Devon when I was on my own solopreneur and anything about this kind of thing, I felt totally overwhelmed.

[00:36:10] I, I knew how to do numbers and whatnot, but, but it just, it just felt like I never had the time to really spend on it, that I wanted to spend on it. . And the first thing that I think I would suggest to anyone who’s just getting started or a small team and really needed to do better, is to get a really good bookkeeper right away.

[00:36:28] It sounds like you two tried to tackle it yourself, which I think is brave and amazing in kudos. For me, I’m like, Somebody do this . I think going again to that, that difference between accounting and finance, I think when you’re a founder and starting out, it’s like you wanna focus more on finance.

[00:36:46] And so having somebody doing the accounting for you to just get it done so you could take a look at it from a higher perspective and focus on the things that you wanna move and push in on. I think it’s, it’s just a better use of your time. Un un unless you’re really a very accounting oriented type of founder, which is possible, but I haven’t run across many of those personally.

[00:37:04] Yeah. So I don’t know. Does that, does that resonate? We got

[00:37:07] Jason: lucky that Kim could do the accounting. Well. How much do we pay for our account now? It’s.

[00:37:12] Kim: Two, no, I think we pay about $200 a month, $220 a month. And they do it on, it’s every quarter I get a report, so I don’t, for our business, we’re very cash flow positive.

[00:37:23] We, I don’t need. Just in time accounting. I don’t need monthly accounting. Our, the firm that does ours does do other packages, can do just in time, can do on, on a monthly basis, but I’m not looking at it that frequently because we have so much padding and buffer. But you would have to find an accountant that can deliver on the speed that you need if you really are looking at cash flow and, and projections for months ahead and, and how much your balances are.

[00:37:49] But yeah, it’s not super. And they maintain our QuickBooks for us. Our accountant has access to our QuickBooks, we have access to our QuickBooks, and they send us, you know, every quarter a report, a p and l, and just some expectations and growth data. And then they’ll have a call with us if we have any questions.

[00:38:06] But we never do .

[00:38:07] Jason: We’re like, what’s, what’s nice is it’s you’ll, we do, we still do some of that stuff on our own and so we get to double check it and my numbers are always like a little more rough and estimate. And there’s obviously our backwards looking and have the exact numbers. So it’s, it’s nice that we did do it on our own at some point, cuz now we, when we double check the numbers, it makes more sense to us.

[00:38:25] For sure. Yeah.

[00:38:27] Matt: Yeah, yeah. That would be another one is like, even though like I do, I would still, like, if I was going out on my own at any time, I would definitely be looking for an accountant right away. But I would also be definitely beating up the numbers on my own and making sure that they make sense.

[00:38:42] I think you really do have to make sure to be investing that time and, and at least know the fundamentals of how your business works at that level. For sure. We typically send off with just like, two quick sentences or two or three quick sentences on what your best advice would be for anybody just getting started.

[00:38:59] [00:39:00] This similar to the question we just asked but maybe really succinct. So, let’s start with Kim. Kim, what’s your best two sentence advice for folks who are just getting started with budgeting and forecasting?

[00:39:09] Kim: I would say start with simple spreadsheets. I’ve tried QuickBooks many times over the years and left because the interface was not intuitive to me.

[00:39:18] I was very confused by it. So when you’re just starting, you know, you still have good accounting, but for budgeting and forecasting, A spreadsheet program is your best friend. It’s something you’re most likely very familiar with, and you won’t have a learning curve to get going in this import process and all this jazz.

[00:39:35] So I would start with spreadsheets and if you eventually want to move to a more complex hosted paid tool, go for it. But simple is often better because we’re just looking at some numbers and their relationships to one. Jason, what is your big takeaway? Best advice?

[00:39:50] Jason: So, I think one of the benefits of doing this that I don’t want to be lost is that second order you know, po decision making that you, that you’re forced to do when you look at these numbers.

[00:40:01] So, you know, like I said, positive visualization through spreadsheets. You know, you, you kind of say, I wanna grow 30% this. If you look at that and you made a hundred thousand dollars last year, that means you’ll make $130,000 this year. You really have to answer the question then, like, well, how do I make an extra $30,000?

[00:40:17] Or even, how am I sure I’m gonna make a hundred thousand dollars again? And so we do that and we look into like, well, what is our renewal rate? How many of our customers do we expect to renew? Like how many of our sales were new and how many were recurring? What, what have we done? You know, what new channels are coming in?

[00:40:32] What can we expect from them? And forcing ourselves to be realistic about. You know, it helps us understand our business more and then also you know, figure out new, new things to do and how to hit that target.

[00:40:43] Matt: Nice. Yeah, I think my tip would be make sure to set a calendar block on your on your calendar every single week, EV either Monday or Friday, probably in, in which you just say, I’m gonna spend one hour minimum on doing accounting or finance, or a little mix of both.

[00:41:01] And just make sure that you’re doing it really religiously once a week because. Way more intimidating to try to catch up on a quarter’s worth of stuff, , or, you know, or even a month’s worth of stuff sometimes if you’re not staying on top of it regularly then all of a sudden you feel like you have to wade through a bajillion numbers instead of like a thousand numbers.

[00:41:21] So, keep it bite size and small and, and make it a priority. It is your responsibility and you gotta do it whether you like it or not. That would be mine. Nice. Well, this is great. Yeah. Good stuff. Thank you both for being here as always. And I want to hear from Kim. What are we doing next?

[00:41:38] We we’re gonna keep going folks. We’re we, Kim and I both said basically like, Hey, this is just a part of our weekly rhythm now, so we’re just gonna keep going. We’re sending out invites. I actually see a really tall dude listening in right now who would be worth an invite. I think Kim, we should need to follow up with Mr.

[00:41:54] Ka later. But who do we got come coming next week?

[00:41:57] Kim: Absolutely. So next week on Wednesday, [00:42:00] November 23rd, same time we have Katie Heat of Barn two. Katie’s gonna be sharing with us some ideas on when is the right time to go full time on your product.

[00:42:09] Matt: Awesome. I’m looking forward to it. Katie and Barn two are doing some awesome stuff and folks need to be paying attention to what they’re doing.

[00:42:17] Thanks so much, Colemans. Really appreciate it. Everyone, have a good week and we’ll see you online. All right, thank you. Thanks, Matt. Thanks Kim. Bye bye.


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