The Expense Post

The Expense Post (Or: Why I Stopped Posting My Numbers)

I was at a game convention yesterday, hanging out with industry friends, talking store numbers. One of them said, "You used to post your actual numbers, but it looks like you stopped. Is that because you're making too much money?"

It took about a nanosecond to say yes. I hadn't put it in those words before, but I knew it immediately. It's not that I'm wildly successful. It's that I'm successful enough that I'd prefer the business to keep running over having people come at me to take it away. For many years, either outcome would have been fine. Burn it down or turn a profit, whatever. Now? I'd prefer what it provides me and my family. 

Rather than talk revenue, I want to walk through some of my expense categories, because people are wildly off base when they try to imagine what running a store costs. You can do your own math to understand my income, if that's your goal. 

A customer recently asked if my rent is like a mortgage payment. Sure, if you have a multi-million dollar house. My rent is over $10,000 a month. This is normal.

I used to talk about three buckets: rent, payroll, and other. Three roughly equal buckets after your cost of goods. It's a restaurant industry model, so don't blame me. At one point my buckets were equal, which is why the framework resonated and I kept using it. Now those buckets are a bit absurd.

Bucket One: Payroll — $375,000 (61% of post-COGS expenses)

This is where the money goes. My payroll is lean, and if there's any guilt associated with running this business, it comes from worrying I don't have enough staff, or that I'm not compensating them enough, or that I'll wake up one day to a revolt because I sleepwalked through something important.

That $375K includes my salary of $80K, which is what's reasonable for someone in my position in this industry and is only part of my total compensation. Payroll is where you find your poverty, either by over-investing or under-investing. You need adequate staff, well compensated and well managed, or your sales simply won't reach their potential. I don't think we've reached our potential yet, but I really hate laying people off, so I'm cautious.

Bucket Two: Rent — $135,000

Much smaller than the compensation bucket, and thankfully it grows at roughly inflation while wages grow at a completely different rate. Rent doesn't include any repairs or maintenance inside the building or insuring what's inside. Door breaks, toilet leaks, AC units fail, that's on me.

When I look at expansion, I try to calculate how much additional revenue I'd need to cover new rent, the utilities it requires, the staff time it consumes. I am just as in the dark on that math as a new store owner. I am speculating on my sales expectations. There's no spreadsheet that makes it obvious. We have 4,300 square feet now, which includes our 1,000 rent free mezzanine level. I would like another 3,000. We are full. We will continue to add product for three more years or until my staff cry uncle.

Bucket Three: Other — $100,000

This is the catch-all, and it adds up faster than you'd expect.

• Utilities: $35,000. Escalating, always. Electricity is insane, averaging about $800/month and peaking at $1,500 in the summer. Trash is $650/month.
• Office and operational expenses: $16,000. Every consumable thing. Toilet paper, product labels, you can imagine.
• Insurance: $15,000. I have more policies than I can keep track of: liability, property, workers comp, key person, and since the business owns my truck, auto insurance too.
• Advertising: $11,000. I say I don't advertise, and yet here we are. It's now mostly convention related.
• Miscellaneous: $18,000. Outside services, meals, permits, taxes, bank fees, lodging, parking. The long tail of running a business.

One thing not in this list: credit card processing fees, which are probably $60,000-70,000 a year if I tracked them properly. I don't, because it's just money I never see. It doesn't feel like an expense so much as a haircut on every transaction.

---

What I've learned from watching these buckets over the years is that some are more elastic than others. Expenses that once felt impossible to cover, like rent, recede into the background as you grow. Expenses like wages are permanent friction, always present, always pressing.

At one point I tracked every office supply purchase and wrote a blog post about it. Now that $1,400 a month is just a fact of life I don't think about. Meals are a morale expense that I think have gotten out of hand; I let it slide, even as my accountant scolds me for spending more than I should. You might assume your sales eventually outrun your expenses, and that's partly true. But my profitability over the last ten years has hovered around 6%. The last five years, with what I'd call blockbuster sales, pushed that to 7%.

You can perform your way out of the tent. But you'll always be a clown.