Your journal is a business, and it needs to be treated as such—this means that cost structures need to be understood and aligned to your budget.
We’ve previously discussed a number of crucial matters that relate to the success of your journal. Obviously the most important thing to understand when it comes to bottom lines is how to generate income. Without money, you can’t pay your staff, you can’t pay your rent, and your journal can collapse. As such, understanding the dollars and cents of your business is critical.
But this isn’t a small topic. Understanding how to run a company that is in the business of journals is not always straightforward. A good business, well run, is a careful balancing act of “money coming in” and “money going out”.
Cost structures are now a business organizes and manages all of its expenses, so understanding these cost structures is a top priority.
What are cost structures?
Before we do anything else, let’s cover the definition of “cost structures”. Knowing what a cost structure is (and what it isn’t is important to understand).
Broadly speaking, your journal’s cost structures are broken up into two primary categories: fixed and variable costs.
While we’ve previously discussed fixed and variable costs in more detail (as well as the broader concept of overhead costs), it is still worth a brief refresher.
Fixed and variable costs
Cost structures can be generally split up into fixed and variable costs. And understanding these two costs can be quite straightforward. Fixed costs are all the costs that are associated with your business that you have to pay each month (and that generally do not change). Fixed costs may include rent and salaries, but can also be monthly subscription services you have or other things that you need to pay for every month. Variable costs, on the other hand—as their name implies—can change. These costs might be related to shipping costs, office supplies, or even hiring a contractor for a brief project.
Understanding both your fixed and variable costs is important so that you can plan ahead. Mismanaging money can be devastating to your business (and its reputation).
In understanding your costs, you can better assess your profit (if you have one) or what you need to do to generate profit (if you don’t).
Why do cost structures matter?
Because your cost structures are directly linked to your journal’s success, they matter. Companies will use cost structures for many different reasons, but first and foremost, it is to understand the way in which money moves through your company. How much money you spend on advertising or if you need to raise your prices on X product can be answered by looking at this information.
Remember that because we’re considering both your fixed and variable costs, you’ll be able to understand the best ways to allocate the resources that you have. This, of course, leads to the question of effective budgeting. When it comes to effective budgeting, many companies will look at third party options to automate or simplify many of their processes. Doing this allows more money to be spent elsewhere, while at the same time making the publishing workflow easier.
What is a budget?
Most people know what this is intuitively. It’s a term used in everything from government to household finances. But, because it is a critical part of business (and by extension, of your journal), here we’ll go over some of the basics.
A budget is a financial plan. It is sometimes used to refer to “the money available for a project”, but this is often used in very specific cases. Here, we’ll use budget to refer to the plan that your company has to spend its resources. This plan can be broken down into a few more specific components:
- Income—the money that is received by your company;
- Expenses—the costs associated with your business (as we noted above, these can be your fixed and variable costs);
- Savings—money that is earned, but is not spent.
These three elements of a budget form the foundation of a company’s financial plan. How you will spend your money, what you will spend it on, how much you’ll save, and more, are all elements of a budget. Like any plan, a budget can be reevaluated over time, as necessary. The same budget used by your journal when you had a staff of five people isn’t the same plan you’d use when you have a staff of five hundred.
There are other elements to budgets, however, to keep in mind. They can be simple or complicated, all depending on your journal’s factors.
Why you need a budget
Simply put, your budget is directly related to your success. Having a budget will allow you to effectively allocate resources to different projects. This will also help you know what your limitations might be. This doesn’t necessarily mean that “no money means no options”, only that you may need to explore options that cost less (or cost nothing). You can’t spend what you don’t have, after all.
Always remember that when you sit down to calculate your budget, you want to start with your fixed expenses. These are immutable, you cannot change them. You cannot choose to “spend less on rent this month because you want a bigger marketing budget”. Once you have figured out your fixed expenses, you move on to your variable ones.