Today we received a new comment on the blog with regards to our “Setting a Budget” post. I felt it was so well written that it was worth responding to in full. The comment was from Oliver Ker, a freelance designer from Huddersfield, UK.

Thanks to Oliver for taking the time to write such an interesting response. This has actually made us realise that we hadn’t addressed this issue in full and has prompted another post.

You can find a full response to your comment here.

I don’t have a great deal of experience of budgets when setting up, is this budget what you would expect your customers to pay to you as a start up looking for your services?

As a designer I am worried about the design/development being “swept under the carpet”. Are you noting down the hours spent developing this project to calculate the cost later?

Also I would be worried about £100 as a marketing budget? What does this cover? Marketing can make or break your company. What do you class as marketing? Writing these blog posts and your twittering about the project is classed as marketing and Im sure you have spent more than £100 of your time.

Personally to start a business on a shoe string, I would have used a platform that already exists and anyone could set up (I have done this, and (http://mlbadges.com/schools) is now quite successful, and would not like to add up the hours spent developing, designing and marketing it). BUT does this not contradict with why you started this experiment, as your client left to seek a bigger platform to handle a bigger turnover.

As you can tell I am following this project and interested to see where it goes. Good Luck

I think it is worth clarifying that the budget we’ve set out in our original post for Eliot Turner only includes our start-up costs. It does not include our staff time for the design, development or creation of the marketing strategy.

You can see from the post “How Strong is Your Team” every member of carrotmedia Ltd is becoming a director in the business and taking share options. With this structure in place we have all committed to carry out the necessary work setting the site up outside office hours. We are in a unique position to have all the skills and software at our finger tips to launch such a site with little cost to ourselves. Before you ask, yes there was a cost originally for developing our eCommerce system. However, these developments are required for our existing eCommerce clients and if we add any new features these will be released back to our clients as upgrades to the existing software. We therefore felt it would be inappropriate to build this cost into the startup budget. If a client required our services to setup an online shop we would be charging for a full design and build so the costs we’ve set out in our initial budget will seem very low.

An eCommerce website is not a part time business which can be managed outside office hours once launched. We fully understand once launched it will require work during office hours. At this stage we will keep a track of our time and raise a management charge from carrotmedia Ltd to Eliot Turner Ltd for time spent on the site. The management charge will be based on a cost price for our members of staff and not the retail rate being billed to our clients.

So how are we calculating the management charge?

• Salary + Tax + Employers National Insurance
• Divide this by 235 days to allow for holidays & weekends
• We work to 5.5 billable hours in a day so we divide the amount by this number.
• We then add 10% to the figure to account for overheads to give us our hourly rate.
• For example, on a salary of £20,000 we would be looking at around £20 per hour.

I agree with your assessment of the marketing budget of only £100 being small. This £100 will cover the first month of trading and we will be modifying the budget throughout the year which will be based on the margin achieved on turnover.

There is an important business issue which is partly why the marketing budget is so low. We are looking to test the market in the first month of trading and don’t want to commit to a large amount of stock which may or may not sell. If we commit a large marketing budget we may sell more stock than we have in hand. We never want to be in a position where customer service is anything less that 100% and overselling could kill us before we’ve even begun. I’ve made no secret that buying jewellery is not my primary occupation so being cautious and accepting slow organic growth in the first few months is advisable. Once we’ve gained the confidence and developed a strong marketing strategy we can build up our stock levels. It takes some time to take photographs and add items into the eCommerce system so until we have someone dedicated to the task we have to limit marketing spend to control sales.

The comment about our client leaving to be supported by a larger platform isn’t correct. The client left due to them feeling we lacked the marketing experience to take their turnover into the millions and they were approached by a dedicated eCommerce design agency. Unfortunately we didn’t get the opportunity to demonstrate that we did have this experience. In reality this is why eCommerce experiment exists as we’re looking to show we can not only demonstrate skills in web design but also business acumen.

We decided early on that we were going to develop Eliot Turner on a shoe string budget. Setting up the experiment was going to be fun, setting it up in a “recession” was going to be fun, doing it on a budget would make it incredible.

We have therefore decided on a budget of £1000 which will be introduced into the business by the four directors. As the legal structure of the business hasn’t been finalised this could be in the form of a loan, working capital or shareholder funds.

I can see people screaming at this post saying it’s impossible to start a business with £1000! However, it is worth noting that the initial design and development is being done by carrotmedia’s carrots out of working hours. Therefore we don’t have an overhead for the development of the website itself.

This is how we see the budget break down:
·        Legal costs / Business Startup – £500
·        Initial Stock – £400
·        Marketing budget – £100

Once we launch we will be reporting on how this was actually spent in finer detail and if it has been spent effectively.