Now, the way that a launch works is essentially you set a start date and on that start date you have a set group or a cohort, however you want to define that who all start a program at the same time. Now what are the benefits to a launch? The benefits to a launch and to doing launch cycles is that you have clear, determined seasons for marketing and for client delivery, and oftentimes they seldom overlap. What that means is you’re either in marketing mode or you’re in client delivery mode, and for some folks this works really well. You spend six months of the year in client delivery mode and then you spend six months out of the year in marketing mode.
But the challenge or one of the cons with this type of model is that it creates a high dependency on needing to close a lot of sales and a lot of cash within a very short period of time. So if you have a cohort that’s starting on a specific set D, then that creates a limitation for when people can actually choose to start and enroll and work with you. Now I don’t think that this is an inherently bad or wrong model, but what’s important is to consider how this model works and how we’re supporting ourselves to where we’re not solely relying on a big launch or a big sale in order to run our business. So the challenge with the launch model when we’re talking about the online entrepreneurial world, especially for somebody who you have either just yourself in your business or you have maybe one or two team members like a VA or a personal assistant, et cetera is, when the cart closes, that is all of your cash for the year, that is all of your revenue for the year, unless you do another launch. Now the beauty of that is, if you have a really great launch, then fantastic. In two months you’ve made your entire annual revenue and then you’re done for the year. The con, or the not so great thing in that, is, if you don’t hit your launch goals, then you have to figure out what you’re going to do for the rest of the year to continue to generate the revenue you need to generate for you to hit your annual revenue goals, and that can be really really stressful for folks. So my personal opinion on this topic or on this matter, is that launches can be really great and they can work really well in tandem with other offers that are more evergreen, and what I mean when I say evergreen is it’s speaking about offers that are enrolling and people can purchase at any other time of the year, and the reason why I personally believe that it’s important to have both is so that you’re not solely dependent on one time of the year generating the majority of your income and you could have more financial stability and a financial rhythm or cadence that is supportive for the way that you want to run your life and your business.
So if we look at this, the way that the launch model works, and essentially what we’re breaking down here is you bring in, let’s say, 100k in a two month period, launching for a program that you’re going to be running for the rest of the year. What we have to think about from a business perspective and when we really start to get into the way that we’re managing our money, the way that we’re managing our finances, the way that we’re managing our business, is that $100k needs to cover your expenses for the entire rest of the year, and so it needs to be divvied up over the length of the program, and so it’s not actually just revenue that is covering all of the expenses for the launch itself, but it’s also the revenue that needs to cover the expenses for the business for the entire year, and or the entire timeframe If it’s a six-month program, cover your expenses for the next six months, et cetera. Now, that is something that we don’t oftentimes look at when we’re thinking about businesses, because looking at numbers oftentimes isn’t very fun, nor is it very sexy. It’s a lot easier to say, oh, we had 100k launch. Then to say, yes, we brought in 100k in revenue and that’s a total annual revenue for the year for this offer, because that’s the only offer that we’re running. That means that the business has capped itself at 100k for the year, unless it has other backend offers words additionally generating revenue.
Now what that also means is if the company is doing 100k launch, on the back end of that, we have to look at what are the total expenses or the expenditure of the company on a monthly basis, but then the annual total expenses, annual total cost of operating the business. And essentially what that’s looking at is how much does the cost actually keep the business open? How much does it cost to deliver the service every single month? How much does it cost to pay yourself every single month, to pay your taxes every single month, to pay for the office that you rent or whatever other business supplies are things that you write off at the end of the year as business costs or business expenses. Ideally, what you’re doing here is you have a monthly budget in place and you know what your baseline operational costs are. You know how much money that you’re spending per month for yourself and then also for the company.
And ideally, the way that you want to create this and in my personal belief again, there’s not a hard fast rule here, but my personal belief is that you want to have what you call your owner’s pay calculated. So every month you pay yourself, as the owner, a set amount, and that owner’s pay balance should be based off of what your bare minimum living expenses are. So what do you pay for rent? What do you pay for food, for gas, for groceries, for your car insurance? all those things. Calculate that Essentially that becomes your owner’s pay.
You know what your bare minimum needs to be And then if you want to pay yourself additional revenue or additional income each month and each year, then you would add that to your owner’s pay. Now your owner’s pay becomes part of your business’s monthly expenses. So you’ve got what you pay yourself in your income as an employee or as the owner of the company, and then you have that showing up on the business side as a expense for the business. So what you pay yourself is an expense for the business And so that comes out of the business profit that’s deducted from the business profit. So let’s say you’re paying yourself 3K a month on average, 3k over the course of 12 months. I don’t have my phone on me, but if you knew the math in my head here, that would be roughly $36,000. So if we’re paying ourselves a total of $36,000, and that’s our cost for our owner pay, we deduct that from the business expense or the business total revenue that’s generated And we deduct the $36,000. That means at this point the business is not generating a 100K total in profit. It’s actually generating closer to $64,000 in profit after expenses. Now that’s just for you and your owner’s pay. That’s not including additional costs when it comes to team, when it comes to taxes, when it comes to any softwares that you’re using, when it comes to what you’re paying yourself in an hourly wage for showing up, for calls or doing all the other things, or marketing expenses, et cetera. So you want to make sure that you’re also taking into consideration other expenses that come into the business cost, so that you can get a lot more clarity on what your profit actually is.
Now here’s something that’s really interesting and a little discrepancy that I like to just bring awareness into is your owner’s pay. What you pay yourself is your earned income. That’s your profit for the year and what you’ve basically made. That would essentially be the same as you working for a company and a company is saying, ok, great, your salary is $36,000 a year. For some people that’s fantastic. That’s the money that you pay, but that’s also the money before you pay taxes on it. So you have to also take into consideration what your owner’s pay is is also going to need to be taxed. What is the word I want to use here? That’s the money that you earned and you’re paying taxes on that as well, depending on the way that you have your tax system set up.
Now, i’m not a tax expert, nor do I claim to be, and none of this is tax advice. I just have to put that caveat on there. This is just me staring my personal opinion and experience on these things and just providing a little bit of insight on what I make of all of the matters. But you should absolutely consult a tax expert in your state of business and talk to somebody who is an expert in your business organization type. So I’m not providing any technical information on any of those pieces. This is just a general overview.
So, that being said, what you keep after you pay your taxes is the actual earnings of the business. And this is important to understand me, because I think a lot of the times we like to be financially naive and are financially oblivious to what’s actually happening in the company. And I know that this is a really, really, really big thing that I struggled with early on in my career because I didn’t have the financial literacy growing up. I didn’t have the education around financial literacy or how to understand business expenditure, profit and loss taxes. None of that And none of that was ever taught to me. I wasn’t educated on any of it. It wasn’t something that I picked up or learned. They just don’t teach it in school. So I had to learn through trial and error and through a lot of painful financial experiences when it came to tax season.
So I share this now to try to provide a little bit of insight and information on the importance of actually developing your financial literacy, and this is not just a conversation of like have a big launch, make a bunch of money and then just continue to make more money. There’s a time and a place to yes, absolutely 100% make more money, but if we are not becoming financially literate and financially responsible in understanding how our money is being spent and where it is going, then it can quickly become a very negligent path that can lead to very risky financial decisions and put us in a very risky financial position. And what I’m talking about here is when our core focus is just launch, launch, launch, make more money. But at the same time, as we’re launching, and as we’re launching and as we’re launching, we’re continuing to consistently increase our expenses. The thing that we don’t recognize is our profit, and our profit margins continue to shrink and shrink and shrink.
And even though we might be making 10K a month or 100K per year because we are paying so much more for expenses now to cover the cost of our living, because we’ve increased that, whether we’re paying for mentors or paying for continued education, or we’re paying for a higher cost of living, whether that’s a nicer house or a nicer car, et cetera, these are all things that say, okay, great, that’s coming out of the total revenue of the business And actually your profit margin went from roughly 64%. If we’re making $64,000 a year from the business, after we pay ourselves $36,000 for our owner’s pay, then we’re left with a 64% profit margin. That’s not bad, that’s not bad. But then we continue to increase our costs of living, unless they. Now we’re paying ourselves $50,000 to cover all of the costs of the business And then that brings the profit of the business to a 50% profit margin. From 100K in revenue, we’re paying 50% to ourselves And owners pay to cover our basic living expenses. That’s an expense for the business And the business is now only generating 50% revenue.
Now the interesting thing that I find for a lot of folks that tends to be somewhat glamorized in the industry or just normalized in a lot of ways, is, as you earn more, you just continue to increase your expenses So you make a lot of money of a really big launch. Re-invest that money immediately, invest all of it, invest more of it so that you can continue to make more. And it never actually allows for us to get to a space or a place to where we feel financially secure. We just feel in a lot of ways to put it lightly like we feel like we’re just financially flowing and we’re just going through the flow of the money All the time. Our bank account is constantly going between money coming in, money going out, money coming in, money coming out, and there’s not consistency in the earnings.
So this episode has kind of turned into a conversation on financial literacy. We might have to do a part two to go back to the original conversation of the business models, but what I want to end on in this note and then we’ll continue picking back up on the business model conversation in the next episode is it’s really really important to understand that the money that your business makes is not the money that you, the owner, keeps, and that when we’re thinking about growing a business and where we want to be, it’s imperative to understand what our numbers actually are, and this is not necessarily a fun conversation always have, because sometimes it means that we have to come confront ourselves and confront where we have put ourselves into really risky situations, where we have picked up on a lot of financial debt that now we have to pay off because we are investing in the business and investing in all the things and investing in a certain lifestyle to try to portray a certain image of success, et cetera. So what my invitation would be for those of you listening into this episode is number one to actually pause and slow down and stop for a second and really get clear on what your numbers actually are, really get clear on what is my cost of living right now. How much does it actually cost for me to live, to exist in the way in which I’m existing right now, meaning my basic living expenses, my cost of rent, cost of food, cost of the car, cost of groceries, all of the things that you pay for on a month-to-month basis. And when you know that number, you know what your bare minimum salary for yourself or your owner’s pay needs to be every single month and every single year, and that will tell you OK, great, if you want to live in a financially stable place. At the bare minimum, you need to be earning this much Now.
If your business is only bringing in enough to pay yourself, your business is not actually profitable. Your business is paying to exist, so it’s covering your basic expenses Fantastic, right, let’s say your basic expenses are your total living cost is between $36,000 and $50,000 a year. Fantastic, your business is covering that. Amazing, that’s the first step. But the business is not actually profitable yet because it’s just covering your cost of living. It’s just covering your expenses, and if that’s all owners pay, all of that money is going to paying yourself, then right now your business is not actually continuing to generate real revenue and your profit margin is essentially zero or a very minimal percent, because all of that is going towards paying yourself. So when we’re starting to think about the profitability of a business, it’s a whole juicy conversation that we will have to get into in a future episode because we are running out of time today.
So homework for y’all, if you are tuning in and you want to play along with me is to sit down and actually work out a budget. Work out a budget and get clear on OK, what are all of my living expenses? And then, additionally, what is all of the debt that I have? What debt do I have that exists that I need to pay off, whether that’s a home loan, a car loan, credit cards, whether you’re paying for business programs, et cetera. Write them all down, get clear, so that you know OK, this is my debt, this is what I’m paying off in debt total, and then this is my bare minimum living costs. So once you have those numbers, feel free to tune into the next episode, where I’m going to show you exactly what to do with those numbers and how to start to work with setting up your business, to support you and also figuring out the best business model that’s going to work for the way in which you want to run your business, but also to do it in a way that’s going to be sustainable long term.
Because if you are picking up one thing and taking away one thing from this episode, running a business just to cover living expenses is not the business And it’s not the situation that we want to put ourselves in. It’s incredibly risky And it never actually builds that sense of freedom that we want, because we’re just working to cover our expenses And we want to set up the business to where we can pay ourselves equitably, we can pay ourselves an equitable salary, the business has profit And we can start to put away savings and actually work towards financial literacy, so that we are setting ourselves up for real sustained success and growth in the business. All right, that is it for today’s episode, and I will see you in the next week’s content where we will go over the next steps of working with your business numbers. Bye.
In this episode, we explore the impact and intentionality of various business models for creating money online. We discuss the pros and cons of the launch model, which can be beneficial with its clear, determined seasons for marketing and client delivery, but it can also be problematic in that it creates a high dependency on needing to close a lot of sales and a lot of cash within a very short period of time. Listen in as we consider the importance of having both launches and evergreen offers to create financial stability and a financial rhythm that supports your life and business.
We also emphasize the importance of financial literacy and responsibility when it comes to understanding business expenses, profit and loss, and taxes. Developing financial literacy and being mindful of what is happening in your business to make informed, wise decisions is key. Listen as we discuss the importance of owner’s pay, which is an expense for the business and must be taxed, and how your earnings should be calculated after taxes. We also highlight the need to be aware of increasing expenses and the risk of making negligent decisions if the focus is just on launching and making more money without understanding the financials.
Lastly, we dive into the details of financial literacy and living within our means. We examine the effects of increasing our expenses as we earn more and how that impacts our profit margin. Listen in as we talk about budgeting, being aware of our debt, and looking at our basic living expenses to calculate our bare minimum salary needed to stay financially stable. Join us in this episode as we unpack the importance of financial literacy and understanding how to structure businesses for sustained success and growth.
HOW TO BUILD A PROFITABLE BUSINESS AND UNDERSTAND YOUR NUMBERS
Have you been contemplating which business model makes the most sense for you when it comes to the Launch Model and Evergreen Marketing? In this blog, we’ll break down the pros and cons to each business model and help you better understand the numbers that make up your business so you can make financially smart decisions about how you grow and scale your company.
THE LAUNCH MODEL
One of the most popular business models in the online space is launching. This model can be summarized as an open cart close cart strategy where the business is actively enrolling for an offer during a set period of time (launch time) and generates all the sales and revenue during the launch window. After the launch date passes, the cart closes and folks are no longer able to purchase the product or service.
Pros: Launch models support more compartmentalized businesses where you only have to focus on one area at a time. During launch mode, all energy and resources are dedicated to sales, marketing, and enrollment initiatives which creates a general sense of hype and build-up.
They also have a natural built-in sense of urgency with a legitimate close cart date for when enrollment will no longer be open. Once the cart closes, the only focus is client delivery until the next launch period starts.
Because cohorts start together, there tends to be a greater sense of camaraderie between members that aren’t always available in self-paced courses.
Cons: There’s an immense amount of pressure that comes with having to generate all your revenue within a small window of time which can be stressful for novice business owners who’ve yet to build a name for themselves. If a launch doesn’t go as well as planned, it can create a real sense of financial scarcity and demand the business owner to innovate new ideas to supplement income temporarily.
Clients who may want to enroll during the off-season will have to wait for an entire client delivery cycle before they can enroll in the next cohort which may leave them less likely to join future rounds.
The evergreen business model takes a different approach to online programs and services where it’s open for enrollment year-round. This means there’s no hard start or stop date for clients to begin or end and allows for clients to join at any time.
Pros: The evergreen business supports more paced growth where your cash flow isn’t subject to a small window of time during a portion of the year, but rather allows you to continuously generate revenue year round and helps to alleviate the pressure of launches.
Clients can join whenever they are financially ready and don’t need to stick to a strict schedule. The business owner also gets to set a different pace for the program that allows the clients to move through at their own rate instead of having to finish within an allocated timeframe.
You can focus on more evergreen marketing that allows you to batch content ahead of time and build long-term assets that are working for you year-round instead of a big push during your marketing season.
Cons: Because there’s no natural sense of urgency incorporated into an evergreen offer that’s open year-round, you’ll need to create alternative deadlines for folks who are ready to jump into your program. You’ll also have to work on continuously marketing your offer and giving it a “fresh” feeling in order to keep folks interested. Some people may also find the lack of exclusivity unappealing, since there’s no specific limited window to take advantage of the offer.
The key is to use evergreen offerings as part of a larger strategy for success and to consider the pros and cons carefully before committing. With thoughtful execution, evergreen offers can be a great addition to your business model!
WHICH MODEL MAKES SENSE FOR ME?
There’s no right or wrong way to do business, there’s just what’s right for you, right now. One unavoidable component of the business is any time you launch something new, you will inevitably have to “launch” the offer for the first time to get it off the ground; BUT once you’ve proven the concept and have client results rolling in, it offers a new found freedom to slowly transition into an evergreen approach if that’s something you desire to do.
We encourage clients to supplement income accordingly while they are optimizing their evergreen business model with private clients or alternative income from a full or part-time job so they can build and test the different assets of their business without the financial pressure to get it all right the first time.
You can read more about the Evergreen Model Versus Launch Model and previous blogs I’ve written here: https://sophiekessner.com/launch-marketing-vs-evergreen-marketing/
DEVELOP YOUR FINANCIAL LITERACY
If you want to build a profitable business, you need to develop your financial literacy. This means understanding business expenditure, profit and loss, taxes, and more. If you’re financially naive or oblivious, you’ll struggle to make informed decisions and end up making risky financial choices.
1. Calculate Your Monthly Operational Costs
Operational costs have to do with all expenses that relate to the business remaining operational. This includes things like software fees, monthly subscriptions you use, team members that you pay, office spaces that you rent, internet bills and any other reasonable expenses that can be allocated as a business expense.
The best way to approach calculating your monthly operational cost is to review your last three months of expenses and allocate your expenses accordingly to find out how much you’re spending on each category:
- Office Supplies
- Office Rent
- Sales Commission
When you’ve collected all of your answers, you’ll add these numbers together to get your baseline monthly operational cost for the business and are ready to move to step two.
2. Calculate Your Owner’s Pay
Next, you’ll want to calculate your owner’s pay. This is the amount you pay yourself as the owner of the business. Your owner’s pay should be based on your bare minimum living expenses, such as rent, food, gas, and groceries.
If you’re unsure of what your monthly expenses are for your personal life, we recommend reviewing your last three months of financial statements and allocating all of your expenditure that can be categorized as personal expenses.
This can also include things like child care, health insurance, and other personal expenses not covered by the business. If you find that your expenses fluctuate month to month, average out what the medium total is for the last three months and use this as your baseline.
If you also want to calculate building your savings account into your owner’s pay, you can have a category for savings with the total amount you’d like to put away towards savings each month.
Once you have what your total cost of living is each month in addition to the money you’d like to be saving every month, you’ve now calculated your monthly owner’s pay and can add this to your business operational cost for what the business pays you each month.
For example, business operational costs are $1200/month but your owner’s pay is an additional $3000/month which means the total business operational costs including owner’s pay is $4200/month.
3. Understand Your Profit Margins
The biggest misconception for novice business owners is that all the money the generate in sales is actual profit but this couldn’t be further from the truth. Your profit is what is left over AFTER all of your expenses are paid, including your owner’s pay and is important to help you discern if your business is operating at a healthy profit margin.
Your profit margin is the percentage of total money left over as profit every single month. For example, if your business generated $100,000 in sales for the year and you pay yourself $36,000 a year as part of your “owner’s pay”, you’ll deduct that from your business’s total revenue.
This means your business is not generating $100,000 in profit, but closer to $64,000. We also need to calculate the other business expenses from your monthly operational costs that will continue to eat into the business’s profitability. Right now, a business generates $100,000 in revenue (cash collected) but pays the owner $36,000 at a 64% profit margin.
We also want to take into consideration the taxes that will need to be paid on the profit which will decrease your total take-home cash, if you generate $64,000 in profit and pay a 25% tax fee on all sales, your actual profit margin is closer to 48% with $16,000 allocated for taxes and a remaining balance of $48,000 left in business profit.
When you can begin to understand profit margins, you can start to look at business differently and aim to have a healthy profit margin that you can scale. If your business is currently generating below a 40% profit margin, it’s crucial to consider how you can increase your profitability before going to scale.
You calculate your profit margin by dividing your PROFIT by your REVENUE: Profit Margin = Profit / Revenue
Control Your Expenses
One common mistake business owners make is increasing their expenses as they earn more money. They reinvest their profits without taking the time to understand their numbers, resulting in shrinking profit margins. To avoid this, control your expenses and don’t invest in a certain lifestyle to portray an image of success. If you’re paying more for mentors, continuing education, or a higher cost of living, make sure it’s within your budget and won’t hurt your profit margins.
Set Realistic Goals
To build a profitable business, you need to set realistic goals. If your business is only generating enough revenue to cover your basic living expenses, it’s not profitable. Make sure you know your bare minimum salary for yourself or your owner’s pay every month and every year. If you want to live in a financially stable place, at the bare minimum, you need to earn that amount.
Building a profitable business and achieving financial freedom is possible if you take the time to understand your numbers and develop your financial literacy. Control your expenses and set realistic goals to avoid risky financial decisions. Use these tips to build a profitable business that can support you in the long run.
Online Business, Financial Literacy, Launch Model, Evergreen Offers, Balanced Financial Rhythm, Profit and Loss, Taxes, Owner’s Pay, Expenses, Profit Margin, Budgeting, Debt, Basic Living Expenses, Bare Minimum Salary, Financial Stability, Sustained Success, Savings, Business Numbers