Many entrepreneurs dream of building a business with a certain revenue, like “$10 million a year”, or a certain profit, like “$10 thousand a month”.
But what does a $10 million company look like? How much profit does that generate, and how many employees will it require?
The “revenue rainbow” is a simple way to visualize the possibilities.
Red: $1 MM /mo profit. With annual revenue of 24 to 120 million dollars, this company may be a candidate for public trading.
Orange: $100,000 /mo profit. This profit could support a fairly large founding team.
Blue: $10,000 /mo profit. This would be a nice single-founder “lifestyle business” with under 10 employees.
How to use the rainbow
- Decide how much monthly personal income you want to make from your business (your choices are $10k, $100k, or $1 million)
- Look at the corresponding color band. The top of the color band shows conditions for a 10% net profit margin business, and the bottom for 50% (so the middle is for 30%).
- Build the company!
What are the animals for?
Christoph Janz did a great job of outlining 5 ways to build a $100 million Business, giving each customer type names, like Elephant ($100,000 Average Revenue Per Account clients), Deer ($10,000 ARPA), and Rabbit ($1,000 ARPA). So if most of your sales are in the $100 range, you’re hunting rabbits.
The main assumption is that “employees” account for half of company expenses, and each is paid $5000/mo. That’s roughly true for many businesses, whether the labor goes to making sales, maintaining code, or flipping burgers.
I’ll follow this post up with example profit margins, employee expense statistics, and profit-per-employee numbers from some businesses we all know.