Costs and the money you make are connected, but it can be hard for a new business to know how much it will need. A startup can use data and numbers to create a budgeting plan. It helps them guess how much money they will need in the future. But how can a new startup use data to create its budgeting formula?
Look at “adult” companies
Select five to ten similar successful public companies. Focusing on companies with the same audience and a similar average order value is important. Look at the financial statements of those companies and compare their revenue, cost of goods sold, marketing costs, salaries, rent, etc. It will help you understand how a successful business spends its money and can give you an idea of your startup budget.
Start looking into the data
Find the first public report of each company. Pay attention to profits and losses before the IPO. What were the income, expenses, debts, and other financial items? It will help you understand how much money they took to get off the ground.
Analyze the distribution of costs
Look at the data and determine what percentage of the money was spent on making the product versus implementing it. It will give you an idea of how to prioritize your budget.
Make a list of all the expected costs for the upcoming years based on industry trends and historical data. You can then use this information to create a realistic budget for your startup.
Create a budget
Start creating your budget based on the information you gathered from those public companies. Use their revenue targets as your own. That way, you can compare your results against the industry standard. With a few tweaks, you can create a budget that will allow your startup to succeed.
Analyze growth rate
Understand the average lifetime value, repeat customer rates, and other key metrics. It will give you an idea of what growth rate to expect. Forecast the budget for each month or year based on these figures.
Once calculated, create a graph to visualize the data and see if your company is heading in the right direction. It helps determine if your budget aligns with the industry standard and where it might need more support.
Compare and plan
Use this chart to see how the cost breakdown of these companies fits into your budget. Make changes if necessary to make sure your budget is on track. You can create a successful budget for your startup with the right plan.
Successful companies spend twice as much money on sales and marketing than research and development. It might seem strange, but spending more money on sales and marketing is important for the company to grow. You should make sure that you have a budget for each area.
Using data, a startup can create a budget that suits its needs and get off the ground successfully. With these tips, you can create a budget that works best for your business.