108. Building an OP Step 2:

Estimating Fixed Costs

What are my fixed costs?

 

We've arrived at the final step of building the first draft of our operating plan. Because we can't force (most) people to buy our product, a lot of the assumptions so far are outside our control. We have much more control over our fixed costs. It's usually a conscious decision to invest in growth or making our product better. 

 

If we're making effective investments, it should accelerate revenue growth. This exercise paves the way towards exploring different levels of investment. Let’s bring our friends over at Big Dean’s back and explore how fixed costs could evolve over the first year.

 

Launch - Month 6

 

Big Dean's is hoping to launch while keeping initial investments low. Across all categories, there’s an inherent skew away from deploying cash. Only investing in the bare essentials needed to get the product out in the wild.

 

Employees / Outsourcing Costs. To get started, Big Dean's hops on Fiverr to get help designing their brand style guide and logo. Although the team does a ton of outreach, they also pay for a competitive research analysis. It’s a modest investment ($500) in the first month. Because it's more of a side hustle for the moment, no team member is spending too much time on it. It's either a natural extension of their existing work, or it's less than 10% of their total mindshare. For the first half of the year, we're not considering any cost for employees, either part-time or full-time.

 

Marketing. After launch, the Big Dean's team spends the first 6 months being as resourceful as possible. They spend most (if not all) of their social capital asking friends and family to spread the word. The team has been assertive, but not annoying, in nudging its audience (IG, TWTR, etc.) to the newsletter. They're bartering with other newsletter operators, exchanging value in any way possible. Guest appearances on podcasts, guest posts on newsletters, and so on. Tons of blood, sweat, and tears - but zero cash out the door.


 
Month 6 - Month 12

 

By the end of June, Big Dean's has passed over 1,000 paid customers for its newsletter. A big milestone that leaves the team eager to accelerate growth. The team outlines a plan of thoughtful, yet ambitious, investments for the next 6 months. 

 

Employees (FT / PT) / Outsourcing Costs. 

 

To get started, Big Dean's hops on Fiverr to get help designing their brand style guide and logo. Although the team does a ton of outreach, they also pay for a competitive research analysis. It’s a modest investment ($500) in the first month. Because it's more of a side hustle for the moment, no team member is spending too much time on it. It's either a natural extension of their existing work, or it's less than 10% of their total mindshare. For the first half of the year, we're not considering any cost for employees, either part-time or full-time.


 

Marketing. After a relentless push, Big Dean's is bringing in hundreds of new customers per month. The team is feeding data into their CLV model and growing more confident in the assumptions. Using the CLV model, they etch away at an initial comfort zone for a target blended CAC of $5. (This is a crucial concept which we'll return to later.) Using that goal and the new customer run rate, they earmark a few thousand dollars in marketing investment for each month.

 

If we've found traction, marketing can be an effective tool to pour fuel on the fire. For our purpose, at least to start, the primary goal of marketing is to drive new customers. To assess effectiveness at a high-level, we'll use a blended customer acquisition cost ("CAC").

 

To start, the team experiments with search and social media marketing. Encouraged by early results, the team pushes forward with retargeting campaigns. In Q4, SEO improvements and expanded marketing creative amplify efficiencies. The team is able to exit the year spending a few thousand in marketing, and having driven up new customer growth into the low single-digit thousands. Solid momentum heading into next year.


 

SEO

Hire someone for graphics

 

Bring on someone to help w/ marketing. experimenting with

 

creative assets

 

After seeing traction, hire person part-time to ramp up digital marketing efforts.