Business.com |
- How to Allow Unit Economics to Skyrocket (Not Sink) Your Startup
- 27 Side Hustle Ideas That Will Work in 2020
- Everything Employers Should Know About Payroll Withholding
- 5 Ways to Use Automation to Streamline Your Customer Experience
- Becoming a Data-Driven Organization Starts With a Culture Change
| How to Allow Unit Economics to Skyrocket (Not Sink) Your Startup Posted: 20 Jan 2020 11:00 AM PST  Not too long ago in 2015, a Y-combinator backed company, Homejoy, with close to 150M in valuation suddenly closed its doors even after a $40M in total funding from Google Ventures and Paypal co-founder Max Lavchin, among others. Who would imagine a company with that amount of funding would just run out of all the money and would shut down within 2 years of their major funding round? What exactly happened? Simply put, as covered by Wired, their cost of acquiring a customer was way more than the lifetime value of each customer. In other words, the simple unit economics quietly sunk their rocket ship. What are unit economics and lifetime value?Unit economics is one part of your strategic plan that you cannot afford to ignore. In this article, I want to briefly walk you through the basic calculations of running your own unit economics so that you can be aware of your costs and the market value of your product or service. The golden rule of thumb to survive is to have your market value, also called the lifetime value (LTV) of your customer, more than the cost to acquire them (CAC). This will define how quickly you can expect to make money from each of your startup ideas...Will it be in millions, billions or pennies and will it take days, years or a lifetime to be profitable. Essentially, you want to start a business where you know you are going to make a profit and that your break-even point is within 3 years, preferably and especially for investors. The goal of this article is to help you answer two simple questions:
Based on this, you will be able to decide which of your ideas are worth pursuing and which one's worth shelving. Also, unit economics is not a one-time calculation. As you startup grows you will start to see your actual cost of acquisition, growth rate, churn rate and overall lifetime value of your customer which you can then use to further solidify your unit economics. How to get startedIf you are just starting out as an entrepreneur and have many ideas, then for each of your ideas:
Let's walk through an example. Say you are in the education industry and sell a service to teachers. Your analysis tells you that there are 5 million teachers in the US and at 10% market penetration you are hoping to capture 500,000 of these teachers as users. This gives you your first number - 500,000. From here you want to know what is the lifetime value of your customer which means how much you expect to earn from your customer for the entire duration of your engagement. If you are already in business, you should know this number from your data but if not then follow the directions below… Check your competitors for their pricing structure and apply the same pricing structure to your business. However, if you don't have a direct competitor then pick a $$ amount you feel each of your customer will pay you for the lifetime they are with you. This is your second number. Don't exaggerate this number. Now, multiply the first number by the second number which is your total market potential. In our example, say, each teacher will pay you $200 over the entire engagement and you manage to capture 500,000 teachers. This means you have a market potential of $100M, calculated by multiplying 500,000 with $200. Calculating the restSo far so good? Now you want to calculate what the expected costs are to run the business. Again, you should have this number if you are already in business but if not then run quick projections based on your experience. You can also research online to find the cost of running a successful operation in your industry. I'll walk you through some major costs to keep in mind when running your analysis. We'll divide our total cost into fixed costs and variable costs. Fixed costs include building costs, admin costs and any other similar cost that do not change with change in the transaction. Let's call it X. Variable costs include cost of raw material, shipping and labelling costs, cost of workers and any other cost that change based on number of units. Let's call this as Y. To get the total cost, let's first calculate your total variable cost by multiplying your total expected units for a year with this Y. Let's call this total variable cost as Z. Now, add this total variable cost, Z, to your total fixed cost to get the TOTAL EXPECTED COST. For example - Say my fixed cost was $500,000/year and for every teacher I acquire I spend $80. So, my X is equal to $500,000 and my Y is equal to $80. Now, say I expect to signup 2,000 teachers in the first year then my total variable cost will be 2000 times $80 equal to $160,000. My total cost for the year will be $500,000 (the fixed cost) PLUS $160,000 (my variable cost) which equals to $660,000. So now you know your expected revenue and the Total Costs associated for a set number of customers for a particular year. Subtract costs from your revenues to get profits. Repeat the steps for year two and three, with an expected growth rate in your industry, to see your profit numbers for those years. Do not worry if you see negative numbers in the first year or two. After calculating with a few different scenarios, if you observe that you are constantly ending in loss or you must make up highly unlikely revenue numbers for profits then the idea might not be worth pursuing. If the final number is close to zero in one of the three years that means you are breaking even, and your idea might work. If you see a profit, then it means that your business could be worth pursuing. Remember, the fixed price remains the same every year and the variable price changes with the change in number of products or customers or clients you acquire. The cost and revenue sidesAnother important thing - Do not overestimate the revenues and underestimate the costs because it will break the model. You can run multiple iterations for each profit/loss calculations but try to be conservative in your calculations because as a rule of thumb it usually ends up costing twice and takes twice as long to reach the desired goals. Here's quick summary of the example to help you run your own rough unit economics. Cost Side :
Revenue Side:
Running unit economic forecast is only your first step towards acknowledging the importance of unit economics. As you jump into strategy, your goal should be to figure out how much value your product is creating per customer and how you can increase that value over time without losing direction or brand value. Some companies try to increase their customer LTV by making them stay longer (called customer retention), some try to increase their prices to generate the cash faster, some try to up-sell other services. Whatever trick, tactic or strategy you apply make sure you keep your customers happy at the end of the day but conitnue to move towards profitability. Now that you know the basics of unit economics, I hope you will be able to make better strategic decisions increasing the probability of success. The last thing you want to do is take someone's money as investment, then it be an outside investor or your aunt, and not know your basic unit economics, because if you do so it will come back, haunt your startup and probably will sink it. Set realistic expectations upfront, get your CAC and LTV numbers right so that you can predictably skyrocket and have a successful venture. | ||||||||||||||||||
| 27 Side Hustle Ideas That Will Work in 2020 Posted: 20 Jan 2020 08:00 AM PST  With prices going up, and wages staying stagnant, most Americans are at least willing to consider picking up some extra work to help make ends meet. However, with unemployment at an all-time low, it's not always easy to grab that second part-time job. Most people would prefer their extra income include a little more flexibility so they're not working on someone else's schedule 12 or more hours a day and losing out on time with family or a life of their own. That's where the side hustle comes in. And with the gig economy in full swing, there's never been a better time to tap into it and start earning some extra cash on your terms. The following list of ideas includes a number of small business ideas that have been standbys for people with an entrepreneurial spirit for years. But, you'll find they're easier and less expensive to get into today than ever before. The list also contains some ideas that have only recently become possible or practical but that show a ton of promise for solid income as we head into 2020. Finally, we'll highlight a few of these ideas that have proven viable as full-time businesses, in case that's the real goal behind why you're interested in a side hustle in the coming year. Let's get started. Ways to make cash with what you have, where you areThese ideas should require little or no investment at all, because they're based on things you already own, or activities you're already doing anyway. It's really just a matter of making the most of what you have.
Ways to monetize your hobbies and skillsFor the following ideas, you may need to invest a little bit in supplies and marketing to let people know what you do (although it's not necessary in all cases). But, the upside is that you already have the skills you need and probably enjoy doing the work. Now, you can get paid to do it! Communication
Arts and crafts
Another catch-all option in this category is building an online course using platforms like Udemy or Teachable. They make it incredibly easy to share your unique skills and experience with an eager audience of students who want to learn at their own pace. You create the course and, for the most part, it becomes a stream of passive income. Without going too deep into the possibilities, suffice it to say that just about any hobby or skill can be monetized with some ingenuity and a platform to stand on. The key is whether or not what you do can enlighten, educate, or entertain people, and whether it's solving a legitimate problem people struggle with. If so, someone is willing to pay you to do it. Ways to make good money helping othersThis category will require a more focused dedication of time and effort, although these jobs still offer a lot of flexibility and some can even be incorporated into other activities you need to do anyway. It includes services that are in dire need under certain circumstances. Some are more universal than others, and a few are available everywhere. They're worth investigating to see if there's a need in your area.
Big business on a small scaleThis final category straddles that line between a little side hustle and actually starting your own business. Technically, just about anything on this list can be turned into a full-time occupation under the right circumstances. To explore the possibilities, try searching for any of the above (or any that come to mind that aren't listed above) at the Businesses For Sale online marketplace. Chances are you'll find at least one large-scale business for sale right now that started as someone's side hustle. But the following options really lend themselves to doing so because they're far less effective when you're just moonlighting at them, and they can scale quickly.
Whatever direction you decide to take your side hustle ambition, don't hesitate to get something started in 2020. | ||||||||||||||||||
| Everything Employers Should Know About Payroll Withholding Posted: 20 Jan 2020 06:30 AM PST 
Managing your company's payroll withholding is a legal obligation that requires you to assist your employees in paying a portion of their earnings as taxes to the government. As an employer, you do this by holding back a percentage of your employees' wages that you then use to pay federal, state and local taxes. With the help of tools like W-4 forms and payroll withholding tables, you can figure out how much to remit. A lot goes into managing payroll taxes, and doing it wrong can lead to fines and fees – which small businesses especially can do without. Keep in mind that the W-4 form received a redesign in 2019. The new draft offers a simpler application template with a more accurate system to minimize the work of payroll processors and employers. Your company's payroll withholding tax is as integral to your business as compensating your employees, so it's important to know the ins and outs of managing the payroll withholdings for your company. Here's everything you should know as a small business owner. What is payroll withholding?To handle your payroll withholdings correctly, employers and employees must work together. Payroll withholding taxes is what's deducted from employee wages. As the employer, you are mandated by law to hold back some of their earnings and give it to the government. It is your job to calculate the pay for each employee and how much to give back in taxes based on the W-4 form they fill out at the start of their employment. A W-4 is an Internal Revenue Service (IRS) form your employees fill out to let you know how much to withhold from their paycheck for taxes.
Editor's note: Looking for the right online payroll service for your business? Fill out the below questionnaire to have our vendor partners contact you about your needs.
What's new about the new W-4 form?The IRS released a new version of the W-4 in 2019. The form is still meant to process deductions, but there are a few changes. Employees have different filing status choices, and there is more to choose from if you've changed dependents, jobs or filing status. Your choices for filing status are single and married. The "total number of allowances" section, which included questions about your dependents and income, has been removed. The form now has an optional section ("Step 4") for adjustments like deductions on mortgages. Regardless, employers need to be able to support both the old and the new form, said Jason Averbook, founder of Leapgen, a digital transformation company. [Check out these payroll service options to help your payroll processing run smoother.] What taxes should you know about?Understanding taxes is a large part of the payroll withholding process, which is why it's important to know which ones you must pay. It's also important not to avoid them, advises Al Wagner, founder and CEO of TruPayroll. "The first thing that small businesses tend to do is not send their money into the IRS," Wagner told business.com. "Just make sure you're making your payments to the IRS. When a small business doesn't do that, they mess up cash flow and they're held responsible. Setting up automatic payments will help you pay your taxes as quickly as possible." Federal income tax withholdingThe federal income tax amount is determined by your employee's W-4, which the employee can change at any time. This money is credited toward the income taxes employees are obligated to pay throughout the year. FICA taxesFICA taxes are Federal Insurance Contribution Act taxes that both employers and employees must pay. Employers deduct the employee's share from their wages and then pay the other half of the amount that is due. FICA taxes are pretax deductions that are also known as Social Security and Medicare taxes. State and local taxesWith the exception of those living in Alaska, Florida, Nevada, South Dakota, Texas, Washington and Wyoming, employees must pay a state income tax. Some employees must also pay local income taxes, depending on their city, school district or county. Additional payroll deductionsEmployees can sign up for optional deductions as well, like job-related expenses such as meals or uniforms. They can have money withheld for their 401(k) or retirement plans and life or health insurance premiums. Some deductions, like child support garnishments, aren't taxed. Remember, failing to make these payments can result in fines. Averbook said outsourcing the work may be in your best interest. "There are legal issues tied to the improper deduction of a 401(k) or health deductions," he said. "Depending on the size of the company, it could be more complex. App sourcing has become a way to protect business owners. They protect your business and make sure things are done seamlessly so you can focus on your company." How do you manage payroll withholdings?Once you've calculated the federal income tax and FICA tax amounts that need to be withheld from your employees' paychecks, you need to determine how much your business will have to pay for FICA taxes. For you to know how much to withhold from your employees' salaries, your staff needs to fill out their W-4s. Encourage them to use the IRS Tax Withholding Estimator to help them fill out the form correctly. After you calculate how much money to put aside, you need to pay the IRS according to your payroll size. Payment could be made monthly or semiweekly. You must also fill out Form 941 every quarter to report your payroll taxes. This is the Employer's Quarterly Tax Form, which is used to report federal withholdings from an employee. It informs the IRS of the employment taxes taken from employee wages and what is owed to the IRS. Your deposit schedule is based on your total tax liability reported on Form 941. Keep in mind that there are also unemployment taxes that aren't withheld from employees but from the employer. Unless your business is in New Jersey, Pennsylvania or Alaska, you pay your company's unemployment taxes. What is a payroll withholding statement?A payroll withholding statement is usually associated with a W-2 because it summarizes the employee's withholding for the year. It communicates to employees or a tax office the taxes that were withheld from the employee's wages. It comes attached to an employee's paycheck. What is the percentage of federal taxes taken out of a paycheck?As an employer, it's important for you to understand how much you should be taking out of your employees' checks. For Social Security tax rates in 2019, the percentage was 6.2% on the first $132,900 of paid wages. For Medicare, the tax rate was 1.45% on the first $200,000 of wages. There was an additional 0.9% rate for wages above $200,000. The same rates apply for Medicare in 2020. For Social Security tax rates in 2020, the percentage is 6.2% on the first $137,700 paid wages. 2019 and 2020 federal payroll withholding tablesPayroll withholding tables help you figure out how much of your employee's salary to keep. It's important to stay abreast of them, because they change every year. Sometimes they also include state income tax based on your company's location. The payroll tax rate table below is from IRS Notice 1036 for wages paid in 2019. The deduction per dependent was $4,200.
Table data courtesy of HalfPriceSoft.com The payroll tax rate table below is from IRS Publication 15-T, which includes federal withholding for 2020.
Table data courtesy of HalfPriceSoft.com Understanding these charts is half the battle of calculating federal tax withholding. First, you must multiply the taxable gross wages by the number of pay periods per year. A pay period is how often you pay, which can be weekly, biweekly, bimonthly, monthly or annually. Once you have your annual wage, subtract the value of allowances for the year. To figure out your annual tax, use the table above. Then divide the amount of tax by the amount of pay periods per year. This will give you the number of federal tax withholdings that should be deducted within each pay period. What is the withholding allowance for 2019 and 2020?The annual withholding allowance for 2019 is $4,200, according to Notice 1036. The withholding allowance amount is $80.80 weekly, $161.50 biweekly, $175 semimonthly, $1,050 quarterly and $2,100 semiannually. Withholding allowances have been removed for 2020, per the new W-4. You cannot claim personal exemptions or dependency exemptions. In the past, withholding allowances depended on personal exemptions, but employees cannot claim them as of Jan. 1, 2020, as they are no longer on the W-4. New hires who will receive their first check in 2020 need to use the new W-4, so remember to give the new form out to your new employees. If your employees change their withholdings, they'll need to fill out the 2020 form. | ||||||||||||||||||
| 5 Ways to Use Automation to Streamline Your Customer Experience Posted: 20 Jan 2020 06:00 AM PST  Did you know that 86% of customers are willing to pay more for better customer experience (CX), and 73% consider CX an important factor that affects their purchasing decisions? Meanwhile, U.S. companies lose approximately $1.6 trillion annually due to poor CX that causes customers to switch to competitors. In a recent survey, 22% of companies identified customer experience as the most exciting business opportunity and creating an outstanding CX is the key to boosting customer acquisition and retention. However, delivering a consistent customer experience at scale can be quite a challenge. While personal interactions are important for building relationships with customers, the lack of standardized processes can lead to inefficiency and inconsistency that will create a frustrating experience. Thankfully, with today's automation technologies, you can standardize workflows and automate many customer-facing processes to deliver a streamlined and consistent CX so customers can get the most relevant content, offers, and assistance when they need it. How to use automation technologies to streamline the customer experienceFrom sending the right content to the right people at the right time to eliminating cumbersome paperwork that could lead to errors and delays, automation can help you deliver a streamlined and outstanding CX. Here's how: Deliver personalized communications at scaleToday's shoppers expect content and offers targeted to their needs and preferences. Ninety-one percent of consumers are more likely to buy from brands that offer relevant information and recommendations, 80% are more likely to purchase from a brand that personalizes their customer experience, and 72% only engage with targeted marketing messages. Automation allows you to implement complex workflows and business logic so you can cater to individual customers' needs based on their order history, preferences, browsing behaviors, and real-time interactions with your brand. It can also help you deliver these messages using the most appropriate channels, such as email, text, chatbots, website content, social media posts and more. Here's how to use automation to implement personalization strategies.
Streamline inventory management and order trackingSimply sending customers an email saying that their orders are "on the way" no longer cuts it. Automating your inventory management, warehousing and fulfillment processes will allow you to keep your customers in the loop about the orders' status cost-efficiently. Also, automating inventory management allows you to use real-time data analytics to spot market trends and forecast demand. You'll be able to stock the right products so customers can get the items they want when they want them. You can use automation in inventory management and order tracking to:
Provide real-time customer support with chatbotsWith 56% of consumers preferring to contact a brand via messaging apps or chat rather than phone, chatbots can streamline customer support workflows while delivering a relevant experience in real time, thanks to AI-powered and automation technologies. Chatbots can handle many routine support inquiries with no wait time, freeing up human agents to focus on more complex issues and build customer relationships. Here's how you can leverage chatbots to optimize CX:
Facilitate processes with electronic formsIf you need customers to fill out a form, sign an agreement, or process a purchase order, you can use online dynamic forms to eliminate cumbersome paperwork and streamline the customer experience. The information can be synced up with your systems automatically and be accessible at any time. It also eliminates the time-consuming process of rekeying the information manually to minimize errors and delays. Here's how you can use automation to facilitate form processing and approval:
Improve customer experience with real-time analyticsAutomation technologies can help cleanse, compile, and analyze a large amount of customer data (e.g., purchasing history, browsing behaviors) to enhance real-time decision-making and streamline the customer experience. Collate customer feedback to uncover patterns and trends, then share the information across various business units. For example, marketing can turn popular search terms into website content, and the procurement department can improve demand forecasting to ensure customers can get the items they want. Generate insights from analytics and create reports for distribution across the entire organization so all decision-makers have access to the latest customer insights to make accurate data-driven decisions that will help enhance the customer experience. Conclusion
Besides streamlining customer interactions, automation also helps breakdown internal silos so you can build a customer-centric organization. Meanwhile, it's important to identify where automation should end so human interactions can take over to build meaningful customer relationships. Most consumers still value the human touch and such interactions are the key to building last relationships that'll accelerate the sales cycle and improve customer loyalty for your brand. | ||||||||||||||||||
| Becoming a Data-Driven Organization Starts With a Culture Change Posted: 20 Jan 2020 05:00 AM PST  These days, it's hard to have a conversation without talking about data. It feels like overnight, data went from being a business buzzword to becoming a must-have for companies looking to grow and innovate. It's a big topic with even bigger implications, and organizations today are facing pressure to use data as a way to stay competitive. But today, simply "using" data isn't enough. Tracking metrics like clicks and impressions is still important, but that's considered child's play compared to the more advanced ways that businesses have started to leverage data. Now, companies are striving towards a new major milestone – becoming a data-driven organization. Data-driven organizations are reaping the benefitsSo what does it actually mean to become a data-driven organization? That's defined individually by companies depending on their goals and motives. For mid- to large-enterprises, data-driven generally means that every department within the company is using data to automate processes, evaluate results and inform decisions. For small businesses, it can look a lot a lot less structured. And while you might be tired of hearing all this talk about data, research tells us that it's not going away anytime soon. In fact, several prominent industry reports have shown that companies that implement a data-driven strategy are seeing impressive business results. According to Forrester, companies that have applied a robust data strategy across their organization are on track to earn $1.8 trillion by 2021, and those companies are growing at an average rate of over 30% each year. Similarly, Gartner predicts that 80% of organizations will develop advanced data literacy this year. This research goes to show that companies are harnessing the power of data to give their business a competitive advantage and increase their earnings potential. You can't become a data-driven organization overnightCompanies today are racing against the clock to employ an effective data strategy that can help them win more business and increase revenue. But one of the biggest mistakes that businesses make when it comes to data, is working too fast. To learn more about the process of becoming a data-driven organization, I spoke with Fabio Marastoni, a leading expert, to get his insights. "From the outside, becoming a data-driven organization looks much easier than it actually is," said Marastoni. "It's easy to forget that creating a data strategy is a massive undertaking for a business. A true digital transformation takes time to develop and perfect. Rushing that process will end up being a waste of time and resources for the company. Building an effective data strategy has multiple pieces and many steps that need to be accounted for." Despite the increasing market pressure that companies are facing today, it's important to take a step back and create a high-level plan of attack before diving into a data-driven strategy. Marastoni added, "We have to acknowledge that being data-driven is still an entirely new game, with a new set of rules, and both the organization and its employees are affected by it." Companies need the right culture to innovateDuring my conversation with Marastoni, I asked him about the most important aspect of becoming a data-driven organization. We know that becoming a true data-driven company takes time, but as a marketer who relies on data, I was curious about what else business leaders should know before taking the plunge. One of the biggest takeaways I received from Marastoni, was that companies need to make data part of their culture before they can truly become data-driven. "The single best piece of advice I can give to companies looking to implement a data-driven strategy is to make it part of the organizational culture," said Marastoni. "Hiring a squad of data scientists doesn't make you a data-driven company, nor does adopting the latest technologies. In a data-driven organization, every employee in every department is using data to make decisions, or they understand the data they are generating is being used in a decision process. They have to be on board with that vision from day one." Communication is key here. Business leaders need to communicate their vision clearly to the company, and explain the value behind the charge. Oversharing is actually a good thing in this situation. It's important to explain to the employees what the company is trying to achieve with their data strategy, how it will affect employee's roles, and set expectations. This might mean creating standards around what needs to be entered into CRM software, finance or HR software or understanding the key data points that must be collected from your email marketing software. At the same time, executives should encourage employees to share their ideas, concerns, and ask questions. Prioritizing employee experience during a digital transformationMarastoni also talked about the fact that business leaders can't expect every employee to sign onto a new data strategy right away. In any organization, employees are using data at different levels. The IT department is probably very engrained in data, whereas the customer support team probably isn't. It's unrealistic to assume that every employee will align with a new strategy just because executives believe in it. When budgeting for a data transformation, companies should also consider forming a data analytics team who can oversee the project, especially in the early stages. Depending on the company's unique needs and goals, this could be a task force of employees who are already familiar with data, or an entirely new department that would be in charge of various data analysis processes and tools for the organization. "When you hire a team of data analytics professionals, it sends a message to employees that this new data strategy isn't just a one-off vision from the CEO," said Marastoni. "Having dedicated data analytics people in the organization shows employees that they have a reliable resource during the transition--a live person to answer questions, troubleshoot platforms and provide general support. That can make it seem a lot less intimidating" The Bottom LineDespite the push towards a more data-centric business landscape, a majority of companies haven't actually implemented a strategy. NewVantage Partners' 2019 Big Data and AI Executive Survey polled over 60 C-suite executives from large corporations, like Ford Motor and Johnson & Johnson. The findings showed that 72% of participants said data is not part of their culture, 69% don't consider themselves a data-driven organization, and over 50% aren't even treating data as a business asset. Clearly, there's room for improvement. If you're thinking about implementing a data strategy in your organization, remember that a successful transformation puts employees and corporate culture at the center of the initiative. When everyone is working towards the same shared goal, it increases participation and inspires motivation. It takes the key elements –technology, people, strategy and processes – and blends them together to achieve a vision that helps the company grow. As Fabio explained, digital transformations shouldn't be taken lightly. Creating new processes and systems takes time and patience. Companies should make sure they have a strong foundation in place before moving forward with a data-driven strategy. It's not easy and it doesn't happen overnight, but once you get there, your company will grow in ways that you never imagined. |
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